If you ask any investor what the safest bank out there is, you'll likely hear one of two answers, Wells Fargo (NYSE:WFC) or U.S. Bancorp (NYSE:USB), yet it turns out one bank you may have never heard of is at the top of its class. That bank is New York Community Bancorp (NYSE:NYCB).

New York By Dhaval Jani

Source: Dhaval Jani on Flickr.

At the end of 2013, New York Community Bancorp was the 41st largest financial institution in the United States, with just under $50 billion in assets. Although that certainly is big -- after all, Visa has $36 billion in assets -- New York Community Bancorp is only 13% of the size of U.S. Bancorp, and just 3% of the size of Wells Fargo. Yet despite its smaller size, there are three compelling reasons an investor should consider an investment in this regional bank and its 6.3% dividend.

1. Remarkable profitability
New York Community Bancorp is an interesting company because it predominantly operates in the multi-family lending arena -- apartments and the like -- in New York City. It has a total of 243 branches in New York, New Jersey, Ohio, Florida, and Arizona, but all 30 of its commercial bank branches reside in the metro New York area.

It leads its peers in its efficiency ratio -- which essentially measures the cost of each dollar of revenue -- and it also delivers solid returns:

Source: Company Investor Relations.

The company has had three acquisitions since 2009, and has added more than $11 billion in assets and almost that much in deposits. As a result, it has a sizable portion of goodwill on its balance sheet. Excluding for that, its adjusted return on average tangible stockholders' equity stands much higher, at 16.3%. When you consider its strong results, its relatively reasonable valuation, and high dividend, there is certainly a lot to like at first glance with New York Community Bancorp. 

2. Astounding safety
Beyond first glance, there is also the reality, as a result of the staggering losses that characterized banks in the most recent financial crisis, many investors have begun to question whether they should ever invest in a bank.

Yet through both the most recent financial crisis and the previous savings & loan crisis in the late 1980s and early 1990s, New York Community Bancorp has been resoundingly resilient:

Source: Company Investor Relations.

In fact, in the five-year period from 1989 to 1993, its total charge-offs stood at just 0.17%, versus an industry average of 5.4%, and the results were equally as impressive in the most recent financial crisis, with its charge-offs being 0.9% versus 11% seen by the industry. It has been one of the top banks at protecting itself from chasing risky returns in the name of short-term profits.

3. Incredible returns
Yet what is more remarkable than its ability to insulate itself against losses through its disciplined underwriting and prudent management is its ability to generate returns to shareholders. Through the appreciation of its stock and dividend payouts, the company has had a truly staggering total return on investment of 4,265% over the 20 years from its IPO in November of 1993 to the end of 2013. That compares to a 490% return on the S&P 500 and a 400% for the SNL Bank and Thrift Index. 

While past performance is no guarantee of future success, the results displayed by New York Community Bancorp over 20 years demonstrate its keen ability to protect both itself and shareholders from disastrous consequences of risky lending, which have generated astounding returns, and the signs point to this continuing for years to come.


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Patrick Morris owns shares of U.S. Bancorp. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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