New York Community Bancorp, Inc.

Good morning, ladies and gentlemen, and welcome to the NYCD second quarter 2023 earnings conference call. At this time, all lines are in the 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 Thursday, July 27, 2023. I would now like to turn the conference over to Salvi Martino. Please go ahead.

Thank you, Operator, and good morning, everyone. And thank you for joining the management team of New York Community Bancorp for today's conference call. Our discussion today of the company's second quarter 2023 results will be led by President and Chief Executive Officer Thomas Kangemi, who is joined by the company's Chief Financial Officer John Pinto, along with Reggie Davis, President of Banking, Eric Hau, President of Commercial and Private 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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we may make are subject to these Safe Harbor rules. Please review the forward-looking disclaimer in Safe Harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. With that out of the way, I would now like to turn it over to Mr. Kanjemi. Thank you, Sal.

Good morning, everyone, and thank you for joining us today. I would like to begin by briefly summarizing the strong operating results we achieved during the second quarter. Early this morning, we reported record net income, earnings per share fueled in large part by the benefits from our two recent acquisitions of Flagstaff Bank and Signature. This is our first quarter with all three legacy franchises combined under one umbrella. Not only are we benefiting financially from our combinations, but we are continuing to benefit from the power of diversification in both our loan portfolio and in our deposit composition. I believe that our operating performance is only just beginning to show the true underlying core earnings power of our combined organization. From an earnings and income perspective, Polluted earnings per share as adjusted for a $141 million bargain purchase gain and other merger-related items, we reported a record $0.47 per share on that income available to common stockholders totaled a record of $345 million, more than doubled what we reported during the first quarter. Operating results were driven by a full quarter benefit from the signature transaction, as opposed to only 12 business days last quarter and a significantly higher net interest margin. Our NIM expanded by 61 basis points to 3.21% on a linked quarter basis, driven by higher interest earning assets, specifically cash and stronger yields on our loan portfolio, as our asset sensitivity balance sheet continues to benefit from the higher interest rate environment. Our net interest margin should remain elevated over the course of the year, given our diversified loan portfolio, which is mostly variable rate, and our increasingly core deposit-funded liability rate. Our funding competition continues to improve as core deposits increase while CDs, both retail and broker, decline. Also, wholesale borrowings decline 24% as we use a portion of our cash balances to pay down $5 billion of federal homeowner bank advances. Over time, I believe this change in our funding mix will be an advantage and support higher multiple expansion in the go-forward periods. In addition, another positive was our capitals. Our capital ratios trended higher, while tangible book value per share increased 4% compared to the prior quarter and 23% year-over-year. Our tangible capital generation remains very strong given our earnings power. Aside from our strong quarterly results, last week we announced the expansion of our private banking businesses, which we added as part of the citizenship bank transaction by hiring 16 from the former First Republic Bank. These initial teams are highly regarded, and the fact that they chose to join the new Flagstar is a testament to our business model and strong reputation in the marketplace. With these hires, we have a total of 127 teams as of June 30, 2023, including 92 in the Northeast and 35 on the West Coast, and we now operate in 10 cities. These teams are part of a broader strategy to create a premier private banking division. dedicated to delivering best-in-class service to a personalized, single point-of-contact model. We're excited that these six teams have partnered with us and look forward to achieving great things together. Moving on to our balance sheet. Total loans were up modestly during the second quarter, reflecting our diversification efforts as growth in the C&I portfolio offset declines in other lending verticals. Overall, total loans and leases were $83.3 billion, up about 800 million to 1% compared to the previous quarter, primarily driven by growth in the CNI book, which benefited by continued growth in the mortgage warehouse business. At June 30th, total commercial loans represented 44% of total loans and leases. As for asset quality, our metrics remain strong, and also best in the industry. Despite an uptick in NPLs off of historical levels in legacy NYCB, NPAs totaled $246 million at 21 basis points, compared to $174 million at 14 basis points last quarter. The increase resulted largely from the inclusion of acquired loans from both of our acquisitions. Despite this uptick, NPAs and total assets ranked in the top quartile compared to industry peers, reflecting our discipline, underwriting, and client selection. Furthermore, the allowance of credit losses increased $44 million to $594 million compared to the previous quarter, and coverage was 255% of non-performing loans and 71 basis points of total loans. Importantly, This was another quarter of low or no loan losses as we recorded a net recovery of $1 million compared to zero net charge loss last quarter. Another positive was our deposit base. Total deposits increased $3.7 billion, or 17% annualized, on a linked quarter basis to $88.5 billion, as the increase in non-interest bearing deposits more than offset the decline in other categories, including higher cost CDs and deposits related to the loan portfolios we did not acquire from signature. including in non-interest-bearing deposits of approximately $5.9 billion of custodial deposits related to signature transactions. Excluding these deposits, non-interest-bearing deposits now represent 29% of total deposits compared to 27% last quarter. Coming off the March events, our deposit base remains increasingly resilient. This is due in large part to the diversity of the distribution channels, which in addition to our retail branch network includes commercial and private client groups, digital and banking as a service, and deposits derived through the mortgage ecosystem. Deposits at legacy signatures declined $1.4 billion on a linked quarter basis, excluding custodial accounts. This was primarily due to a planned runoff in higher-cost CDs and broker deposits, offset by $285 million quarter-over-quarter growth in non-interest-bearing demand deposits. In addition to the stabilization in the deposit base, legacy signature PCG teams have also stabilized, and we expect to grow from these levels. As for guidance, given the current economic and interest rate environment, we currently expect a NIM in the range of 295 to 305, mortgage gain on sale between 20 to 24 million, net return on MSR assets between 8 to 10%, loan admin income of approximately 15 million, and annual expenses ranging between $2 to $2.1 billion, excluding merger-related expenses and intangible amortization, as well as a 23% full-year tax rate. In terms of expenses, total OPEX were $515 million, up $123 million, or 31%, on a linked quarter basis. Second quarter operating expenses include a full quarter of signature expenses compared to only 12 days during the first quarter. Finally, I would like to say a special thank you to all of our teammates, which now number nearly 10,000 strong. Our results would not be possible without the dedication and commitment to our clients and our customers. With that, we would 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 or this week. Operator, please open the line for questions.