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New York Community (NYCB) Hurt by Weak Asset Quality, High Costs
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New York Community Bancorp, Inc. (NYCB - Free Report) is expected to witness a persistent rise in operating expenses. This, along with deteriorated asset quality, is a major headwind. Nonetheless, a strong balance sheet and net interest income (NII) offer some support.
New York Community’s increasing expense base acts as a headwind. Total operating expenses have seen an increasing trend over the past few years, witnessing a positive compound annual growth rate (CAGR) over the last four years (ended 2022). The rising trend continued in the first nine months of 2023.
Management expects adjusted non-interest expenses (excluding merger-related expenses and intangible amortization) for 2023 to be within the range of $2-$2.1 billion. Hence, such a rise in expenses will increase the bottom-line pressure.
New York Community’s asset quality has deteriorated considerably. Non-performing assets increased substantially year over year to $153 million in 2022. The rising trend continued in the first nine months of 2023. The provision for credit losses was $4 million for 2021, while the provision for credit losses totaled $124 million for 2022. The rising trend continued in the first nine months of 2023. Hence, its asset quality is likely to decline in the upcoming quarters.
A significant portion of New York Community’s multi-family and commercial real estate loans is concentrated in the Metro New York region. This makes the company vulnerable to potential economic or political doldrums in the region.
Shares of this Zacks Rank #5 (Strong Sell) company have declined 6.7% against the 16.5% rise recorded by the industry over the past three months.
Image Source: Zacks Investment Research
Despite the above-mentioned headwinds, New York Community has a strong balance sheet. Its deposits and net loans saw a positive CAGR in the three-year period ended 2022. The rising trend continued in the first nine months of 2023. The acquisition of Signature Bank and deposit growth opportunities in the BaaS space bodes well for New York Community’s balance sheet strength.
The company’s NII and non-interest income witnessed a positive CAGR over the last four years (ended 2022). The rising trend continued in the first nine months of 2023 for both metrics.
The addition of low-cost deposits from Signature Bank’s acquisition improved its overall funding cost and is expected to further increase NIM. Also, a larger balance sheet driven by the addition of a variable rate loan portfolio from the merger of Flagstar has positively impacted its NIM. Management expects NIM for fourth-quarter 2023 to be in the range of 3-3.10%.
NYCB's meaningful capital distribution efforts through regular dividend payments and share repurchases bode well for enhancing its shareholder wealth.
Earnings estimates for MUFG have been revised 2.6% upward for 2023 over the past 30 days. The company’s shares have gained 2.3% over the past three months.
The consensus estimate for OZK’s 2023 earnings has been revised marginally upward over the past 60 days. Over the past three months, the company’s share price has increased 32.8%.
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New York Community (NYCB) Hurt by Weak Asset Quality, High Costs
New York Community Bancorp, Inc. (NYCB - Free Report) is expected to witness a persistent rise in operating expenses. This, along with deteriorated asset quality, is a major headwind. Nonetheless, a strong balance sheet and net interest income (NII) offer some support.
New York Community’s increasing expense base acts as a headwind. Total operating expenses have seen an increasing trend over the past few years, witnessing a positive compound annual growth rate (CAGR) over the last four years (ended 2022). The rising trend continued in the first nine months of 2023.
Management expects adjusted non-interest expenses (excluding merger-related expenses and intangible amortization) for 2023 to be within the range of $2-$2.1 billion. Hence, such a rise in expenses will increase the bottom-line pressure.
New York Community’s asset quality has deteriorated considerably. Non-performing assets increased substantially year over year to $153 million in 2022. The rising trend continued in the first nine months of 2023. The provision for credit losses was $4 million for 2021, while the provision for credit losses totaled $124 million for 2022. The rising trend continued in the first nine months of 2023. Hence, its asset quality is likely to decline in the upcoming quarters.
A significant portion of New York Community’s multi-family and commercial real estate loans is concentrated in the Metro New York region. This makes the company vulnerable to potential economic or political doldrums in the region.
Shares of this Zacks Rank #5 (Strong Sell) company have declined 6.7% against the 16.5% rise recorded by the industry over the past three months.
Image Source: Zacks Investment Research
Despite the above-mentioned headwinds, New York Community has a strong balance sheet. Its deposits and net loans saw a positive CAGR in the three-year period ended 2022. The rising trend continued in the first nine months of 2023. The acquisition of Signature Bank and deposit growth opportunities in the BaaS space bodes well for New York Community’s balance sheet strength.
The company’s NII and non-interest income witnessed a positive CAGR over the last four years (ended 2022). The rising trend continued in the first nine months of 2023 for both metrics.
The addition of low-cost deposits from Signature Bank’s acquisition improved its overall funding cost and is expected to further increase NIM. Also, a larger balance sheet driven by the addition of a variable rate loan portfolio from the merger of Flagstar has positively impacted its NIM. Management expects NIM for fourth-quarter 2023 to be in the range of 3-3.10%.
NYCB's meaningful capital distribution efforts through regular dividend payments and share repurchases bode well for enhancing its shareholder wealth.
Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) and Bank OZK (OZK - 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.
Earnings estimates for MUFG have been revised 2.6% upward for 2023 over the past 30 days. The company’s shares have gained 2.3% over the past three months.
The consensus estimate for OZK’s 2023 earnings has been revised marginally upward over the past 60 days. Over the past three months, the company’s share price has increased 32.8%.