These 3 Charts Show Why New York Community Bancorp Is So Unique

No other multibillion-dollar bank rivals New York Community Bancorp when it comes to shareholder returns. These three charts show what has made this possible.

Apr 9, 2014 at 4:08PM

There are few banks in the country that can claim the same level of success as New York Community Bancorp (NYSE:NYCB). Since going public in the mid-1990s, its stock has literally blown away industry peers, beating the next best competitor, U.S. Bancorp (NYSE:USB), by more than 1,000% after adjusting for dividends and buybacks.

NYCB Total Return Price Chart

What's made this possible? The answer can be found in three charts that cut to the heart of New York Community Bancorp's operations.

First and foremost, it doesn't underwrite bad loans. While this seems obvious, the reality is that no other multibillion-dollar bank has a track record that even comes close. You can see this in Figure 1, which compares New York Community Bancorp's net charge-off ratio to total loans -- in other words, this is the percentage of defaulted loans that are written off each year.

G

"When you think about what, in fact, distinguishes a bank as a lender," CEO Joseph Ficalora said last year, "it's how much money it loses on the asset that it chooses to take risk with." Needless to say, he's clearly got a point.

The second chart, Figure 2, is a bit more nuanced. This shows where the nation's biggest banks get the money they use to buy higher-yielding assets -- remember, banks are fundamentally nothing more than leveraged funds that arbitrage interest rates.

G

As you can see, most banks of comparable size rely on large bases of demand deposits -- namely, checking accounts. The benefit of these is that they don't accrue interest and thus, at least from this standpoint, are effectively free money. The flipside is that they require a large brick-and-mortar retail presence, which, in turn, increases a bank's operating expenses.

New York Community Bancorp, by contrast, gets less than 10% of its funds from demand deposits, the rest come from commercial funding sources and brokered deposits such as high-yielding CDs.

The downside to this approach is that it increases both the bank's cost of funds and its liquidity risk, as brokered deposits and commercial lines of credit are generally considered to be less stable than demand deposits. The upside, however, is that New York Community Bancorp has one of the lowest efficiency ratios, which measures operating expenses as a percent of net revenue, in the industry, allowing the bank to pass on more of its revenue to shareholders.

Finally, Figure 3 breaks down the equity balances of each of the nation's largest banks between common stock, preferred stock, and retained earnings. This shows the source of capital at each of these banks and also provides a hint as to the capital allocation strategies of the respective institutions. In New York Community Bancorp's case, virtually all of its equity consists of paid-in capital from common stock holders, versus, say, U.S. Bancorp, which has a massive reserve of retained earnings.

G

This suggests two things. First, that New York Community Bancorp has focused less on organic growth and more on a strategy of growth through acquisitions -- which, it's worth noting, isn't executed as adroitly by many other banks. And second, that the bank distributes almost all of its earnings to shareholders. In 2013, for instance, its dividend payout ratio was 93%.

Thus, at the end of the day, if you've ever wondered what makes New York Community Bancorp such a phenomenal success, these three charts should go a long way toward answering that question.

Is this the best dividend option you can buy today?
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers