A lucrative loans strategy contributes to New York Community Bancorp’s local success among giant competitors in the city.
While retail banks in Europe are taking new directions, one community bank in New York is resolutely sticking to tradition and producing record profits and growth in the process. Through a series of recent acquisitions, New York Community Bancorp (NYCB) has expanded from $1.9bn in assets three years ago to $23.4bn in assets today.
Chief executive Joseph Ficalora has not forgotten the bottom line. The bank reported a 41% increase in 2003 earnings to $323m, notched up its 37th consecutive quarter without dipping into its loan loss reserves and has provided a 75-fold increase in quarterly cash dividends since 1994. How can such a community bank thrive among the giants of the New York financial community?
The 140-office network of NYCB operates through seven community divisions, each enjoying a strong local identity: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank of New Jersey, Ironbound Bank and New York Community Bank. With $10.3bn in deposits at year-end 2003, the network is a leading depository. It is also the region’s leading supermarket banking franchise with 52 of its 140 offices located instore.
Mr Ficalora’s strategy is to service the local neighbourhood, maintain the local traditions and loyalties, and meet local needs. “We sell more products in the supermarkets than we do in the branches,” he told The Banker. And, while New York’s megabanks are just around the corner and offer fierce competition, NYCB’s relationship approach appeals to many customers.
Mr Ficalora’s success stems not only from a well-identified and well-targeted deposit base but also from a finely-tuned credit model based around the bank’s traditional focus of financing Manhattan’s apartment building owners.
“People say you need diversity but we think it is absurd,” says Mr Ficalora. “When the cycle turns, all lose money at the same time. Diversity represents a variety of ways to lose money.”
Rather than focus its lending on its depositor base, NYCB has concentrated on being a leading producer of multi-family loans in New York City and had a portfolio of $7.4bn of these loans at year-end 2003. This concentration on lending to apartment building owners with rent controlled and rent-stabilised units is lucrative and, along with the bank’s securitisation policy, has produced a low-risk, low-cost model. Mr Ficalora is proud of his extremely low 22% cost/income ratio.
Can the model continue to grow? The rent-controlled market niche is huge and NYCB is well entrenched while the community bank approach offers efficient services for neighbourhood customers. The model may not be easily exported but it works well for NYCB.
