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Is it Wise to Hold New York Community (NYCB) Stock Now?

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New York Community Bancorp, Inc.’s (NYCB - Free Report) declining expense base along with expansion efforts through acquisitions is expected to support the company’s financials in the long term. However, unsustainable capital deployment activities and exposure to high debt are near-term headwinds. 

Markedly, with the gradual revival of the economy and resumption of business activities, loans balance is likely to improve and support the bank’s liquidity position. In fact, the company remains focused on improving its loans and deposits base on the back of acquisitions. This is likely to diversify its revenue stream.

New York Community’s declining expense base also remains a tailwind. Non-interest expenses have seen a negative CAGR of 5.9% over the last five years (ended 2020). Though the trend reversed in the first quarter of 2021, the company’s exit from mortgage banking business, branch closures along with lower operating expenses might continue supporting the decline in the quarters ahead.

Moreover, the company is poised to benefit from the relatively-lower interest-rate environment due to its liability sensitive balance sheet. Moreover, the Federal Reserve’s accommodative monetary policy to keep rates at current low level might further support margin expansion, thereby anticipating interest income to increase. Further, management expects the recent completion of technology upgrades with the partnership with Fiserv to likely support net interest margin expansion.

While the company’s exit from unprofitable mortgage banking and wealth management businesses in 2017 and 2019 were strategic moves, these resulted in a decline in non-interest income. In fact, non-interest income at New York Community declined at a CAGR of 19.5% over the last five years (ended 2020), with the trend continuing in the first three months of 2021. Hence, there is limited scope for top-line growth unless the company utilizes excess funds toward business development and new revenue streams.

Its significantly low cash levels, along with unimpressive earnings growth performance, is concerning and will hurt performance if the economic situation worsens. In fact, as of Mar 31, 2021, the company held total borrowed funds worth $15.8 billion and witnessed a volatile trend over the past few quarters.

Also, the company’s debt/equity ratio compares unfavorably with the industry’s average and thus capital-deployment activities seem unsustainable.

Shares of this Zacks Rank #3 (Hold) company have gained 2.1% over the past six months compared with the industry’s growth of 13.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Stocks to Consider

Over the past 60 days, Brookline Bancorp, Inc. (BRKL - Free Report) has witnessed upward earnings estimate revision of 7.8% for the current year to $1.24. It carries a Zacks Rank #2 (Buy) at present.

Flushing Financial Corporation’s (FFIC - Free Report) earnings estimate for 2021 has moved 4.6% north in two months’ time. It carries a Zacks Rank #2 at present.

Northwest Bancshares, Inc.’s (NWBI - Free Report) earnings estimate for 2021 has moved marginally upward in two months’ time. It carries a Zacks Rank #2 at present.

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