New York Community Bancorp (NYSE:NYB) provides traditional banking products, like checking and savings accounts, and business loans to customers in the greater NYC metro area. In 2007, NYB earned $728 million in net revenue, 85% of which came from net interest income earned on its commercial loans. NYB specializes in loans for multi-family (apartment) buildings, which make up 68% of its loan portfolio, though it also originates and holds commercial loans, construction loans, and a limited number of loans for 1- to 4-family dwellings.
In 2007, NYB made three major acquisitions, adding 55 new branches (an increase of more than 33%). Like most banks, NYB has benefited from the Fed's 2007-2008 interest rate cuts; it can pay lower rates on customers' deposits while charging borrowers higher, long-term rates, expanding its net interest margin. Unlike most other banks, however, NYB has escaped most of the effects of the economic downturn and sluggish U.S. housing market. NYB specializes in loans collateralized by rent-controlled apartment buildings, which have consistently low vacancy rates; as a result, NYB's customers usually have a steady cash flow to repay their loans. Also, NYB does not originate subprime loans, so it avoided being damaged directly by the 2007-2008 subprime crisis.
After declining in 2005 and 2006, NYB's revenue and net income increased by 11.8% and 19.7%, respectively, in 2007.
|change from previous year||-6.0%||-6.1%||11.8%|
|change from previous year||-17.7%||-20.2%||19.7%|
NYB's Community Bank segment is a consumer bank with 179 locations. It offers products including checking accounts, savings accounts, money market accounts and CDs. At the end of 2007, NYB had $13.2 billion in banking deposits. This was a 5% increase over the 2006 year-end figure of $12.6 billion, and the growth was partially attributed to the acquisitions during 2007 of PennFed, Doral, and Synergy.
The Commercial Bank segment consists of 38 branches, and like the Community Bank, competes by offering conveniences such as weekend hours, online banking, and 44 ATMs, 35 of which are 24-hour. 95% of NYB's loans are mortgage loans, with an emphasis on multi-family loans (which by themselves make up 68% of NYB's portfolio). The types of loans NYB holds in its portfolio are as follows:
Between September 2007 and April 2008, the U.S. Federal Reserve cut short-term interest rates from 5.25% to just 2%, and as of August 4, 2008 they were expected to remain at that level. NYB is particularly sensitive to interest rate changes because, as opposed to other banks that generate a larger percentage of their revenue from banking fees, 85% of NYB's revenue is net interest revenue - only 15% comes from fees. Low short-term interest rates benefit NYB because they increase NYB's net interest margin, which is the difference between interest it earns on its loans and interest it pays on its deposits. Since the interest rate on loans is relatively constant over long periods of time, while interest on deposits is paid at short-term rates, low short-term rates increase the margin.
Rent-control and rent-stabilization are government policies that are intended to provide affordable housing by regulating the rent that land lords are able to charge their tenants. As a result of the policies, rent-regulated buildings have very low vacancy rates; even in harsh economic times, the low-rent apartments are in high demand. This demand ensures that the owners of these buildings will always have the cash-flow to pay back their loans to NYB. NYB hasn't lost principal in its multi-family loans for 28 consecutive years.
NYB made three acquisitions in 2007 that helped it expand its network of branches, as well as providing new funding in the form of their deposit accounts. The first was that of PennFed in April, which added 24 branches to the Community Bank segment and gave NYB its first presence in parts of central and southern New Jersey. In July, NYB acquired eleven New York City branches of Doral Bank, expanding its Commercial Bank segment from 27 to 38 branches and providing $370 million of new deposits to use as funding for loans. Finally, in October, NYB acquired Synergy Financial Group, adding another 20 branches in central New Jersey. In its Q2 2008 earnings call, NYB declared its openness to making more acquisitions, although it will only pursue opportunities that don't have assets it considers to be too risky.
The following table shows the distribution of deposits among banks, savings & loans and thrifts in areas served by NYB's Community Bank, including:
The total of all bank deposits in these areas is $165.7 billion.
Note: The figures for deposits, share of deposits, and branches are only for the markets in which NYB operates. They do not reflect the total deposits and branches of competing firms, only those that compete directly with NYB. Revenue and net income figures, however, are for the entire firm.
|Bank||Deposits ($mm)||Share of Deposits||Branches||2007 Revenue ($mm)||2007 Net Income ($mm)|
|J P Morgan Chase (JPM)||24,699.2||14.9%||252||71,372||15,365|
|Capital One Financial (COF)||18,606.0||11.2%||174||19,132||1,570|
|New York Community Bancorp.||12,876.6||7.8%||170||728||279|
|Astoria Financial (AF)||11,489.5||6.9%||70||1181||125|
|Washington Mutual (WM)||8,336.9||5.0%||114||19||0|
|Toronto Dominion Bank (TD)||7,490.1||4.5%||85||25||4|
|HSBC Holdings (HBC)||6,663.2||4.0%||70||146,500||20,455|