New York Community Bancorp, Inc.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the New York Community Bancorp, Inc. Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the conference over to Sal DiMartino, Executive Vice President, Chief of Staff, and Director of Investor Relations. Please go ahead.

Thank you, Regina. 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 third quarter 2023 results will be led by President and CEO Thomas Kangemi, joined by the company's chief financial officer, John Pinto, along with several members of the company's executive leadership team. 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 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. Now I would like to turn the call over to Mr. Kangemi. Thank you, Sal.

Good morning, everyone, and thank you for joining us today. Earlier this morning, we announced solid operating results for the third quarter of the year. Our performance reflects our ongoing diversification efforts on both sides of the balance sheet. arising from the combination of three legacy banks. Among this quarter's highlights was good-linked quarter loan growth, stable deposit trends, and a significantly higher net interest margin. We also made further progress in improving our funding mix as both wholesale borrowings and brokerage CDs declined, while non-interest-bearing deposits remained approximately one-third of total deposits, virtually unchanged from the previous quarter. From a net income and earnings perspective, we reported net income available to common stockholders of $266 million, or 36 cents per diluted share, as adjusted for merger-related expenses. Our EPS this quarter was two cents better than consensus. One of the drivers this quarter was a much higher net interest margin. The NIM came in at 3.27% of six basis points compared to the prior quarter, and well ahead of our guidance range of 295 to 305. The increase was driven by higher asset yields, as we continue to benefit from the higher interest rate environment and a higher average balance of non-interest-bearing deposits compared to last quarter. We remain constructive on the net interest margin going forward due to the continuing positive shift in our funding mix and the impact of higher asset yields. Another driver was our loan growth. Total loans during this third quarter were up modestly as growth in the C&I portfolio led by our specialty finance businesses and in home builder finance offset declines in other businesses. Overall, the loan portfolio ended the quarter at $84 billion, up over $700 million, or 1%, compared to the prior quarter. At September 30th, total commercial loans represented 45% of total loans, reflecting a significant diversification compared to where we stood a year ago. Turning now to deposits. Our deposit trends during the third quarter were relatively stable. Total deposits were $82.7 billion, $5.8 billion lower compared to the $88.5 billion at June 30th. The majority of the decline was due to a $4 billion decrease in custodial deposits related to the signature transaction, which totaled $2 billion at the end of the quarter compared to $6 billion last quarter. In addition, broker deposits declined $1.2 billion to $8.1 billion compared to the previous quarter. Excluding these two items, deposits were down less than 1% on a linked quarter basis. Additionally, our funding mix continues to improve as wholesale borrowings declined 12% compared to the previous quarter. Overall, they are down 33% or nearly $7 billion since year end 2022. In the fourth quarter, we had approximately $3.1 billion of wholesale borrowing at a weighted average rate of 4.02% at either a maturing or can be called by the HLB. Turning now to asset quality, while early stage delinquencies declined significantly, total non-performing loans increased $159 million, or 68% of $319 million compared to the prior quarter due to the increase in the CRE portfolio. More specifically, the increase was related to two office-related loans, one of which was in Syracuse, New York, totaling $28 million, and the other in Manhattan, totaling $112 million. Despite the increase in NPLs, our asset quality metrics remain strong, as NPLs to total loans were 47 basis compared to 28 basis points last quarter, while our net charge also up, or a mere three basis points of average loans. Also, as you can see on slides 9 to 12 in our investor presentation material, our asset quality metrics remain solid and continue to rank among the best relative to the industry and our peers. These strong metrics reflect our conservative underwriting standards, which have served us well over multiple business cycles. Turning now to our guidance for the fourth quarter, We expect a NIM in the range of 3% to 310, mortgage gain on sale of $16 million to $20 million, the net return on MSR assets of 8% to 10%, loan admin income of $15 million, annualized operating expense range of $2 billion to $2.1 billion, and a full year tax rate of 23%. Also during the quarter, we unveiled our modern new brand and logo combining the best elements of all three legacy banks. Our teammates are excited about this new branding, and I'm excited as well. Even though it will be a new logo and a brand, the meaning behind it does not change. We remain committed to helping our customers and teammates thrive as we move to one bank, one brand, one culture as the new Flagstaff. Finally, I would like to say a special thank you to all of our teammates. Our results would not be possible without their 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 during the week. Operator, please open the line for questions.