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New York Community (NYCB) Gains 27.9% YTD: Will it Persist?
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New York Community Bancorp, Inc (NYCB - Free Report) , a leading provider of multi-family loans in New York City, with emphasis on non-luxury residential apartment buildings with rent-regulated units that feature below-market rents, is in investors’ spotlight right now. The stock has gained 27.9% year to date against the industry’s fall of 28.8%.
Despite the turmoil faced by the banking industry following the collapse of Silicon Valley Bank, New York Community managed to sail through it. NYCB acquired the failed Signature Bank through its bank subsidiary, Flagstar, on Mar 20. This, along with the company’s decent quarterly performance, led to the increase in its share price.
Image Source: Zacks Investment Research
Here we present certain key factors that are likely to keep aiding New York Community’s price appreciation.
Inorganic Expansion Moves: New York Community’s strategic acquisitions has put it in an advantageous position. In March 2023, it acquired $38 billion of assets and assumed $36 billion of liabilities of Signature Bank from the Federal Deposit Insurance Corporation. Through this, management expects to transform Flagstar from a multi-family lender to a diversified full-service commercial bank.
NYCB acquired Flagstar in December 2022, thus becoming the 24th largest regional bank (based on total assets) in the country.
Solid Balance Sheet: New York Community has a strong balance sheet. Deposits and net loans saw a positive compound annual growth rate in the three-year period ended 2022. The rising trend continued in first-quarter 2023.
The acquisition of Signature Bank improved NYCB’s deposit base and provided benefits of loan diversification. Further, it initiated New York Community’s commercial middle-market lending business.
Also, NYCB’s merger deal with Flagstar offered it national scale of operation by enhancing its foothold in Northeast/Midwest regions, giving it exposure to high-growth markets.
Revenue Growth Initiatives: The addition of low-cost deposits from Signature Bank’s acquisition and variable rate loan portfolio from Flagstar merger has improved NYCB’s overall funding costs. It is also expected to increase net interest margin (NIM). In second-quarter 2023, management expects NIM to expand 2.7-2.8% on a sequential basis.
Also, the company expects net return on mortgage servicing rights to be 8-10% in 2023. This is likely to have a positive impact on the non-interest income.
Post the acquisition of Flagstar, New York Community made efforts to restructure its mortgage business to operate its distributed retail mortgage channel as an in-branch footprint model. This resulted in a 69% reduction in the number of retail home lending offices. Cost reduction, coupled with diversified business model focusing on core businesses, is likely to improve profitability in the upcoming challenging mortgage market environment.
NYCB’s revenues are projected to grow 130.8% in 2023.
Capital Deployment Activities: New York Community’s capital deployment activities are decent. Apart from paying out 17 cents per share as a quarterly dividend, the company has a share repurchase program in place. It had approximately $9 million remaining under this authorization as of Mar 31, 2023.
Considering the last day’s closing price of $1 per share, NYCB's current annualized dividend yield is 6.18%, which compares favorably with the industry average of 3.23%.
The cash and cash equivalents at the first-quarter 2023 end were $22.25 billion, whereas total borrowed funds were $21.36 billion. Times interest earned ratio for the said quarter increased sequentially to 7. Hence, given the ample liquidity and earnings strength, its capital-deployment activities seem sustainable and may further stoke investors’ confidence in the stock.
Conclusion
NYCB’s strategic acquisitions, solid loans and deposit balances, manageable debt level, and robust liquidity are likely to keep supporting financials. Yet, increasing expenses, deteriorating asset quality and geographic concentration are headwinds.
Over the past 30 days, the Zacks Consensus Estimate for NYCB’s 2023 and 2024 earnings has been revised upward by 4.2% and 5.1% respectively. Hence, analysts are optimistic regarding this Zacks Rank #3 (Hold) stock’s prospects.
JPMorgan’s 2023 earnings estimates have been revised marginally upward over the past week. JPM’s shares have risen 4.9% over the past six months.
The consensus estimate for CASH’s 2023 earnings has been revised 1.8% upward over the past 30 days. Over the past six months, CASH’s share price has increased 4.5%.
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New York Community (NYCB) Gains 27.9% YTD: Will it Persist?
New York Community Bancorp, Inc (NYCB - Free Report) , a leading provider of multi-family loans in New York City, with emphasis on non-luxury residential apartment buildings with rent-regulated units that feature below-market rents, is in investors’ spotlight right now. The stock has gained 27.9% year to date against the industry’s fall of 28.8%.
Despite the turmoil faced by the banking industry following the collapse of Silicon Valley Bank, New York Community managed to sail through it. NYCB acquired the failed Signature Bank through its bank subsidiary, Flagstar, on Mar 20. This, along with the company’s decent quarterly performance, led to the increase in its share price.
Image Source: Zacks Investment Research
Here we present certain key factors that are likely to keep aiding New York Community’s price appreciation.
Inorganic Expansion Moves: New York Community’s strategic acquisitions has put it in an advantageous position. In March 2023, it acquired $38 billion of assets and assumed $36 billion of liabilities of Signature Bank from the Federal Deposit Insurance Corporation. Through this, management expects to transform Flagstar from a multi-family lender to a diversified full-service commercial bank.
NYCB acquired Flagstar in December 2022, thus becoming the 24th largest regional bank (based on total assets) in the country.
Solid Balance Sheet: New York Community has a strong balance sheet. Deposits and net loans saw a positive compound annual growth rate in the three-year period ended 2022. The rising trend continued in first-quarter 2023.
The acquisition of Signature Bank improved NYCB’s deposit base and provided benefits of loan diversification. Further, it initiated New York Community’s commercial middle-market lending business.
Also, NYCB’s merger deal with Flagstar offered it national scale of operation by enhancing its foothold in Northeast/Midwest regions, giving it exposure to high-growth markets.
Revenue Growth Initiatives: The addition of low-cost deposits from Signature Bank’s acquisition and variable rate loan portfolio from Flagstar merger has improved NYCB’s overall funding costs. It is also expected to increase net interest margin (NIM). In second-quarter 2023, management expects NIM to expand 2.7-2.8% on a sequential basis.
Also, the company expects net return on mortgage servicing rights to be 8-10% in 2023. This is likely to have a positive impact on the non-interest income.
Post the acquisition of Flagstar, New York Community made efforts to restructure its mortgage business to operate its distributed retail mortgage channel as an in-branch footprint model. This resulted in a 69% reduction in the number of retail home lending offices. Cost reduction, coupled with diversified business model focusing on core businesses, is likely to improve profitability in the upcoming challenging mortgage market environment.
NYCB’s revenues are projected to grow 130.8% in 2023.
Capital Deployment Activities: New York Community’s capital deployment activities are decent. Apart from paying out 17 cents per share as a quarterly dividend, the company has a share repurchase program in place. It had approximately $9 million remaining under this authorization as of Mar 31, 2023.
Considering the last day’s closing price of $1 per share, NYCB's current annualized dividend yield is 6.18%, which compares favorably with the industry average of 3.23%.
The cash and cash equivalents at the first-quarter 2023 end were $22.25 billion, whereas total borrowed funds were $21.36 billion. Times interest earned ratio for the said quarter increased sequentially to 7. Hence, given the ample liquidity and earnings strength, its capital-deployment activities seem sustainable and may further stoke investors’ confidence in the stock.
Conclusion
NYCB’s strategic acquisitions, solid loans and deposit balances, manageable debt level, and robust liquidity are likely to keep supporting financials. Yet, increasing expenses, deteriorating asset quality and geographic concentration are headwinds.
Over the past 30 days, the Zacks Consensus Estimate for NYCB’s 2023 and 2024 earnings has been revised upward by 4.2% and 5.1% respectively. Hence, analysts are optimistic regarding this Zacks Rank #3 (Hold) stock’s prospects.
Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are JPMorgan Chase & Co. (JPM - Free Report) and Pathward Financial Inc. (CASH - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JPMorgan’s 2023 earnings estimates have been revised marginally upward over the past week. JPM’s shares have risen 4.9% over the past six months.
The consensus estimate for CASH’s 2023 earnings has been revised 1.8% upward over the past 30 days. Over the past six months, CASH’s share price has increased 4.5%.