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Reasons to Hold on to New York Community (NYCB) Stock For Now
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New York Community Bancorp, Inc.’s (NYCB - Free Report) declining expense base, along with the expansion of banking-as-a-service space and 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. Further, declining non-interest income and loan portfolio concentration are worrisome.
The company has a strong balance sheet and aims to grow deposits through advancements in its existing borrower base, expansion into the banking-as-a-service space and additional partnerships with fintech companies. Also, the merger deal with Flagstar Bancorp is expected to offer the company a national scale. This bodes well for New York Community’s balance-sheet strength.
New York Community’s declining expense base also remains a tailwind. Non-interest expenses have seen a negative compounded annual growth rate (“CAGR”) of 4.2% over the last five years (ended 2021). Though expenses increased in 2021, the company’s exit from the mortgage banking business, branch closures and lower operating expenses might continue supporting the decline of the same in the years ahead.
Moreover, the company is poised to benefit from the relatively lower-interest-rate environment due to its liability-sensitive balance sheet. While margin declined over the last few years due to relatively higher rates, it saw a marked improvement in 2020 on lower deposit costs and in 2021 on prepayment income. Further, the Federal Reserve’s accommodative monetary policy to keep rates at the current low level, at least in the near term, might support margin expansion, thereby leading to expectations of increase in interest income.
While the company’s exits 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 27.1% over the last five years (ended 2021), with fee income remaining flat in 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 relative to debt, along with an unimpressive earnings growth figure, are concerning and will hurt performance if the economic situation worsens. In fact, as of Dec 31, 2021, the company held total borrowed funds worth $16.6 billion, which increased from the past year.
Also, the company’s debt/equity ratio compares unfavorably with the industry’s average, making capital-deployment activities seem unsustainable.
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , UBS Group AG (UBS - Free Report) and PCB Bancorp (PCB - Free Report) . At present, FBIZ and UBS both sport a Zacks Rank #1 (Strong Buy), while PCB carries a Zacks Rank #2 (Buy).
Over the past year, shares of First Business have jumped 56.2%, whereas those of UBS and PCB have rallied 33.4% and 78.1%, respectively.
Over the past 60 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9.4% upward, while that for UBS has moved 11.9% north. Current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past two months.
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Reasons to Hold on to New York Community (NYCB) Stock For Now
New York Community Bancorp, Inc.’s (NYCB - Free Report) declining expense base, along with the expansion of banking-as-a-service space and 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. Further, declining non-interest income and loan portfolio concentration are worrisome.
The company has a strong balance sheet and aims to grow deposits through advancements in its existing borrower base, expansion into the banking-as-a-service space and additional partnerships with fintech companies. Also, the merger deal with Flagstar Bancorp is expected to offer the company a national scale. This bodes well for New York Community’s balance-sheet strength.
New York Community’s declining expense base also remains a tailwind. Non-interest expenses have seen a negative compounded annual growth rate (“CAGR”) of 4.2% over the last five years (ended 2021). Though expenses increased in 2021, the company’s exit from the mortgage banking business, branch closures and lower operating expenses might continue supporting the decline of the same in the years ahead.
Moreover, the company is poised to benefit from the relatively lower-interest-rate environment due to its liability-sensitive balance sheet. While margin declined over the last few years due to relatively higher rates, it saw a marked improvement in 2020 on lower deposit costs and in 2021 on prepayment income. Further, the Federal Reserve’s accommodative monetary policy to keep rates at the current low level, at least in the near term, might support margin expansion, thereby leading to expectations of increase in interest income.
While the company’s exits 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 27.1% over the last five years (ended 2021), with fee income remaining flat in 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 relative to debt, along with an unimpressive earnings growth figure, are concerning and will hurt performance if the economic situation worsens. In fact, as of Dec 31, 2021, the company held total borrowed funds worth $16.6 billion, which increased from the past year.
Also, the company’s debt/equity ratio compares unfavorably with the industry’s average, making capital-deployment activities seem unsustainable.
Shares of this Zacks Rank #3 (Hold) company have declined 3.7% over the past six months against the industry’s growth of 14.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , UBS Group AG (UBS - Free Report) and PCB Bancorp (PCB - Free Report) . At present, FBIZ and UBS both sport a Zacks Rank #1 (Strong Buy), while PCB carries a Zacks Rank #2 (Buy).
Over the past year, shares of First Business have jumped 56.2%, whereas those of UBS and PCB have rallied 33.4% and 78.1%, respectively.
Over the past 60 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9.4% upward, while that for UBS has moved 11.9% north. Current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past two months.