New York Community Bancorp, Inc.

Good morning, ladies and gentlemen, and welcome to the NYCB Q1 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, April 28, 2023. I would now like to turn the conference over to Mr. Saul DiMartino, Director of Investor Relations. Please go ahead, sir.

Thank you, Lara. Good morning, everyone, and thank you for joining the management team of New York Community Bank Corp for today's conference call. Today's discussion of the company's first quarter 2023 results will be led by President and CEO Thomas Kangemi, joined by the company's Chief Financial Officer John Pinto, Reggie Davis, President of Banking, and Lee Smith, President of Mortgage. Before the discussion begins, I'd like to remind you that certain comments made today by the management team of New York Community may include certain 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 presentation for more information about risks and uncertainties which may affect us. And with that, now I would like to turn the call over to Mr. Kanjemi.

Thank you, Sal. Good morning, everyone, and thank you for joining us today. Today I would like to cover a few topics with you. Our first quarter 2023 operating results, the first is a combined company with Flagstar. how we fared during the recent market upheaval, the signature bank transaction, and finally, provide you some forward-looking guidance. As you all know, the first quarter was a volatile quarter for the banking industry, and unfortunately, several good financial institutions became victims of this volatility. While no financial institution is 100% immune from the damage that the crisis in confidence causes, New York community fared very well during this period of turmoil due to our diversified business model focusing on several core businesses, retail banking, commercial lending, multifamily and commercial real estate lending, and the residential mortgage origination and servicing business. We do not have any exposure to cryptocurrency or stable corn-related industries, nor do we have significant relationships with financial technology companies. Moreover, during this time, our percentage of uninsured deposits was amongst the lowest in the industry. Not only did we successfully navigate the market turmoil, but we emerged from this in a stronger position when on March 20th, we announced that our bank subsidiary, Factor Bank N.A., purchased certain assets and assumed certain liabilities of Signature Bridge Bank. This transaction is a game changer for us. Strategically, it builds upon the momentum created by our recent merger with Flagstar and accelerates our transformation to a high-performing commercial bank. It improves our deposit base and our overall funding profile while providing further loan diversification. In addition, it jump-starts our commercial middle market lending business in our relationship banking strategy. The transaction included several other businesses that were part of our longer-term build-out strategy, including the broker-dealer and wealth management business, and several new attractive lending verticals, such as healthcare and SBA lending. Importantly, we also retained virtually all of Syvings' highly productive private client banking teams, predominantly based in the New York region, along with those teams related to Signature's recent West Coast expansion, primarily based in California. Everyone here in the New York community is extremely pleased to have them, and the other talented employees from Signature Bank join our team, and we look forward to us doing great things together. Lastly, the transactions anticipate to be financially attractive, with expected EPS accretion of more than 20%, while it is also significantly and immediately accreted to tangible book value per share. At closing, tangible book value per share jumped 20% to $9.86 a share at the end of the first quarter compared to the fourth quarter of last year. Given our earnings power from this transaction, we expect tangible book value generation to accelerate. Turning now to our results. First quarter 2023 results on a GAAP basis were impacted by several items arising from the signature transaction and the fracture acquisition, including an approximate $2 billion bargain purchase gain merger-related expenses of $67 million, and initial provision for credit losses of $132 million for the loans acquired from Signature. Adjusted first quarter diluted earnings per share with $0.23 a share, slightly ahead of consensus estimates for the quarter. Net income available to common stockholders, as adjusted, increased 14% to $159 million compared to the fourth quarter of last year. Operating results were driven by a full quarter's benefit from the fracture acquisition, which closed on December 1st of last year. approximately two weeks of signatures operations, strong organic loan growth in the legacy franchise, and a much higher net interest margin. One of the many benefits from the FLEXOR acquisition is the impact of our net interest margin, from adding its mostly variable rate loan portfolio and its low cost deposit base. We saw some of this benefit in the fourth quarter, but it was more pronounced this quarter, as the net interest margin was 2.60% up 32 basis points compared to the fourth quarter of 2022. We believe that margin expansion will continue throughout the year with additional expansion opportunities from the signature transaction. Turning to our loan portfolio, excluding loans acquired from the signature transaction of approximately $12 billion, total loans and leases increased $1.5 billion during the current first quarter, up about 9% on a link quarter basis. About $1.1 billion of this growth was in the C&I portfolio, particularly in specialty finance and the mortgage warehouse businesses. The loan portfolio continues to become more diversified as we continue our evolution to a commercial bank model. Commercial loans at March 31st represented 44% of total loans compared to 32% at December 31st, while multifamily loans stood at 46% of total loans compared to 55%. As for the quality of our loan portfolio, both our asset quality metrics and trends remain strong. Total non-performing assets of $161 million are up only modestly on a one-quarter basis and represents a low 13 basis points of total assets. The allowance of credit losses increased $159 million or 40% from year end to $549 million, and the coverage improves to 370% of non-performing loans or nearly four times. Importantly, we reported another quarter of low or no loan losses as net charge-offs was zero during the current first quarter compared to one million during the previous quarter. Our office exposure remains very manageable, and we remain comfortable with the credit trends in the sector. Our office exposure at quarter end was $3.4 billion, or approximately 4% of total loans. We provided some details in our investor presentation, but to summarize, the average loan size is $11 million with a weighted average coupon of 4.16%. The weighted average LTV is 56%, and the weighted average debt service coverage ratio is 1.73 times. Furthermore, We have no delinquencies and no charges in this portfolio. As you can see, these metrics are proof positive that our conservative underwriting standards have served us well over numerous credit cycles. This, along with a high-quality balance sheet, should serve us well in the event of an economic downturn. Regardless, we will continue to be laser-focused on credit quality across all vending verticals, especially those that we have recently entered. On the deposit front, our deposits totaled $84.9 billion at March 31st. The signature transaction after experiencing initial expected outflows contributed $31.5 billion of deposits as of quarter end. Legacy flags for NYCB deposit declined $5.4 billion due to anticipated spend down in the prepaid debit card program and the reserve account withdrawal from Circle. All told, these two categories accounted for over 80% of the decline in legacy deposit balances. The remaining were mostly institutional deposits. In terms of liquidity, While we have always had ample sources of liquidity, our liquidity position was enhanced by the $25 billion in cash from the signature transaction. Currently, our available liquidity from cash, unpledged securities, and our borrowing capacity at both the FHLB of New York and the Fed is over $42 billion. At the same time, our uninsured deposits, excluding collateralized deposits, total $28.7 billion, or 34% of total deposits. Accordingly, our ready liquidity represents 147% of uninsured deposits. In addition to our diversified business mix, we have a conservative and high-quality available-for-sale securities portfolio, consisting primarily of GSC-related securities. Approximately one-third of these securities were marked to market in conjunction with the flex or acquisition. Accordingly, the amount of AOCI is amongst the lowest in the industry and has minimal impact on capital. Also, as part of our long-term liquidity planning strategy, we do not have any securities designated as health and maturity. In terms of our expenses, total OPEX were $398 million, up $194 million compared to $204 million in the fourth quarter. Our first quarter expense base includes a full quarter of flagship expenses compared to only one month during the fourth quarter and 12 days of signature. As for guidance, given the current outlook, we expect first quarter 2023 NIM to expand from first quarter levels to a range of 2.70% to 2.80%. first quarter gain on sale on mortgage loans of $20 million to $24 million, and a full-year tax rate of approximately 23%. We've accomplished quite a lot in a relatively short period of time. We will devote the rest of this year to integrating and converting Signature and Flagstar, reducing our expenses, growing our deposits further, and building out each of our businesses as we evolve to become the new Flagstar. Lastly, I'd like to thank all of our teammates for their hard work and support over the past few months, especially the last two months. None of what we have accomplished so far would be possible without them. With that, we'll be happy to answer any questions you may have. We'll do our very best to get to all of you within the time remaining, but if we don't, please feel free to call us later today. Operator, please open the line for questions.