New York Community Bancorp, Inc.

Good morning, everyone. This is Sal DiMartino. Thank you for joining the management team of New York Community for today's conference call. Today's discussion of the company's first quarter 2022 results will be led by Chairman, President, and CEO Thomas Kangemi, joined by Chief Operating Officer Robert Wan and the company's Chief Financial Officer John Pinto. Before we begin our discussion, I'd like to remind you that certain comments made today by the management team of New York Community may include forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and investor presentation for more information about the risks and uncertainties which may affect us. Now, with that, I'd like to turn the call over to Mr. Kangemi.

Thank you, Sal. Good morning to everyone, and thank you for joining us today to discuss our first quarter 2022 performance. In addition to Robert and John, also joining on the line are Sandra Dinello, President and CEO of Flagstar, and Lee Smith, President of Flagstar Mortgage. In addition to our earnings release this morning, we announced that NYCB and Flagstar mutually agreed to extend our merger agreement by approximately six months to October 31, 2022. In conjunction with the extension, both banks amended the merger agreement to provide that the combined company will operate under a national bank charter. Although we recently received New York State DFS approval, and we are very much appreciative of this, Both sides truly believe that a national bank charter is an appropriate charter for the new organization. Under the revised agreement, the necessary regulatory approvals required to consummate the merger would come from the Federal Reserve and the OCC. Despite the extension, the benefits of this transformational deal remain the same today as they did when we announced the deal one year ago. The merger of our two great organizations provides many benefits, including geographical and product diversification, It also accelerates our plan to transform our business model to a multifaceted commercial bank to a strong, sustainable financial performance and capital generation. Additionally, it dramatically improves our overall funding profile and interest rate positioning. The combination of our two balance sheets will create a pro forma balance sheet that is asset sensitive and significantly deposit funded. Over the past 12 months, both sides have worked very closely together to get us into a position to close a deal once regulatory approvals are received. We have a detailed integration plan in place. All major systems have been determined, and my leadership team has been appointed. Both sides are ready to go. And importantly, the deal still meets all of our financial metrics, despite the change in interest rates and in the mortgage business. We still forecast double-digit earnings per share accretion, while tangible book value accretion is now expected to be 7% to 8% on day one. Double. what we envisioned when we initially announced the deal. Having worked together over the past year, we feel very confident in our cost savings assumptions. And while we have not modeled or assumed any revenue synergies, we know that there are multiple revenue enhancement opportunities. More importantly, we are still not assuming any financial engineering, such as buybacks and balance repositioning in our accretion numbers. Turning now to our first quarter results. the first quarter of 2022 we reported diluted earnings per share 32 cents a share up 10 compared to 29 cents a share for the first quarter of 2021. we're extremely pleased with our results this quarter after reporting continued growth in loans net income earnings per share and deposits as well as lower operating expenses margin expansion and continued exceptional asset quality turning now to the details of our quarterly performance I would like to start off with the exceptional deposit growth we reported for the quarter. As I was appointed CEO on January 1st of last year, there has been a significant cultural shift in our approach to bringing in deposits. During 2021, we embarked on a number of initiatives designed to increase our deposits and lessen our reliance on alternative funding sources that are less traditional in the commercial banking space, such as wholesale borrowings. As a result, since year end 2020, To today, total deposits have increased $5.5 billion, or 70%, to $38 billion, and core deposits have increased $8 billion to $30 billion. During the current first quarter, total deposits rose nearly $3 billion compared to the fourth quarter of last year. This was driven by growth in our banking as a service business as we continue to gain traction and staff launch new initiatives in this area. Total BAS-related deposits were $5.4 billion at March 31, 2022, a significant increase since we started the business from scratch 12 months ago. BAS-related deposits fall under three categories. BAS deposits tied to our FinTech partnerships totaling $3.8 billion so far, government BAS deposits of $709 million, and mortgage as a service deposits of $923 million. Last year, we won several mandates for our banking as a service business. More recently, we were selected by the Bureau of Fiscal Services as the financial agent for the U.S. Treasury's prepaid debit card program. This is a big win for us, and we should begin to see benefits materializing from this relationship later this year. We also continue to make significant progress in garnering deposits from our borrowers. Total loan-related deposits rose $427 million during the first quarter to $4.4 billion, up 11% sequentially. This compares to growth of $475 million for all of last year. All in all, since we began focusing on this source of funding early last year, we've gotten over $900 million of incremental loan-related deposits, up 26% since year-end 2020. In addition, earlier this year, we relaunched our direct bank channel, MyBankingDirect.com. While it was just rolled out in March, early receptivity has been very positive. We have an active pipeline of additional opportunities that should benefit our deposit gathering initiatives, including those focusing on BAS type of fintech companies. Now moving on to loan growth. After $2 billion in loan growth during the fourth quarter of last year, total loans grew by $1 billion during the first quarter to $46.8 billion, up 9% annualized on a one-quarter basis. Once again, the majority of the growth was in the multifamily portfolio, which increased $1.1 billion during the quarter, $35.8 billion of 13% annualized compared to the previous quarter. Loan demand in the multifamily category continues to be driven by increased refinancing activity as the outlook in 2022 continues to call for higher interest rates, higher property transactions, and less competition from both other banks and GSEs. The specialty finance portfolio, $3.3 billion at the end of the first quarter, was down $168 million compared to the prior quarter. This was largely the result of one payoff. Otherwise, the specialty finance portfolio would have been relatively unchanged. At March 31, 2022, the specialty finance portfolio had $5.7 billion in total commitments, up 2% compared to year end. Of that amount, 71% or $4 billion are structured as floating rate obligations. With the recent increase in treasury rates, we've also increased our lending rates on multifamily loans several times during the past quarter. and will continue to do so as market rates increase. Our current multifamily pricing is in the 4.5% to 4.75% range, depending on the type of credit. That is about 100 to 125 basis points higher than at the end of last year. It's very important to note that we have approximately $8 billion of multifamily and theory loans that come up on their contractual maturity date or optionally pricing date over the next two years. So borrowers have to act within that time frame. Despite the increase in rates, we still continue to have strong originations and a growing pipeline. Loan originations continue their strong pace into the first quarter. Total first quarter originations were $3.5 billion, or $1 billion, or 39% compared to the first quarter of last year. First quarter originations exceeded the previous quarter's pipeline by $1.3 billion, or 59%. Of the first quarter's originations, 42% were refinances in our portfolio, 34% were refinances from other banks' portfolio, and 23% were due to property transactions. Speaking of the pipeline, the pipeline heading into the second quarter of 2022 is a strong $2.5 billion compared to $2.2 billion last quarter, up 14%. Of this amount, 68% of the loans in the pipeline represented new money to the bank. Moving now on to asset quality. Our credit trends in asset quality remain exceptional and continue to rank among the best in the industry. Non-performing assets total $70 million on 11 basis points of total assets as of March 31st, while we charged off a mere $2 million during the quarter. Our delinquency trend continues to improve with loans 30 to 89 past due declining $33 million or 49% to $34 million compared to December 31st, 2021. Lastly, principal-only loan deferrals declined 41% to $282 million compared to the previous quarter, and we continue to have zero full payment deferrals. Before proceeding, I'd like to provide an update on the New York City real estate market. The residential real estate market in New York City has improved significantly. The rental market is currently facing strong demand and low inventory levels as discounts and concessions expire and rental prices approach new records. Manhattan's median rent in March was at the highest level on record, although the vacancy rate remained below 2% for the fourth consecutive month. In Brooklyn, the median rent exceeded pre-pandemic levels for the first time while new lease signings and process claims reached a 10-year high. Moving on to the income statement. First quarter net interest income rose 4% on a year-over-year basis. Excluding the impact from prepayment, net interest income rose 8% on a year-over-year basis to $321 million. In addition, excluding merger-related expenses, first quarter preprovision revenue increased 6% on a year-over-year basis to $212 million. Turning to the net interest margins. Our margin for the first quarter was 2.43%. Excluding the impact from prepayment income, the first quarter NIM was 2.35% up, three basis points on a linked quarter basis and in line with our expectations. On the expense side, we continue to be pleased with our expense discipline, excluding merger rate expenses of $7 million. Operating expenses for the first quarter were $134 million up, 2 million or 2% on a year-over-year basis. Our efficiency ratio remained below 40%. For the first quarter of the year, it was 38.65%. At yesterday's meeting, the Board of Directors declared a $0.17 per share dividend on common shares. The dividend will be paid on May 19th. The common share holds a record as of May 9th. Based on yesterday's closing price, this translates to an annual dividend yield of 7%. Lastly, I would like to thank all of our employees for their hard work in helping us to achieve another exceptional quarter. With that, we would be happy to answer the questions you may have. We will do our very best to get to all of you within the time remaining. If we don't, please feel free to call us later today or during the week. Operator, please open the line for questions.

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