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Here's Why You Should Hold on to New York Community (NYCB) Now
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New York Community Bancorp, Inc. (NYCB - Free Report) is aiming to diversify its loan portfolio. Loan portfolio repricing will drive net interest income (NII) growth, while cross-selling opportunities will aid fee income. Yet, commercial real estate (CRE) loan exposure is concerning, and unexpected losses on its New York office and multi-family property could create headwinds.
The bank has a strong balance sheet. Deposits saw a four-year (2019-2023) compound annual growth rate (CAGR) of 26%, while net loans witnessed a CAGR of 18.2% during the same period. Both metrics declined in first-quarter 2024. Nonetheless, the company’s deposits have been resilient post its capital raise in March.
The bank’s strategic target is to reduce its commercial real estate portfolio from $47 billion to $30 billion, while building a robust middle-market relationship banking franchise. Efforts to improve funding by growing core deposits will improve the deposit mix in the upcoming period.
Although NII at New York Community declined in 2020, the metric increased, seeing a CAGR of 33.9% over the last four years (ended 2023), with the increasing trend continuing in first-quarter 2024. Notably, the addition of low-cost deposits from Signature Bank’s acquisition improved its overall funding cost AND supported net interest margin (NIM). Going forward, loan portfolio repricing will support NII and NIM.
The bank has seen improvement in its fee income over the years, with the metric increasing, seeing a CAGR of 137.8% over the last four years (ended 2023). While fee income decreased in first-quarter 2024, the company’s cross-selling efforts related to cash management, derivatives, commercial cards and syndication capabilities will drive fee income growth.
However, the bank’s escalating expense base acts as a headwind. The total non-interest expenses have seen an increasing trend over the past few years, owing to the rise in goodwill impairment, merger-related and restructuring expenses. Notably, it witnessed a CAGR of 76.7% over the last four years (ended 2023), with the trend continuing in first-quarter 2024. Hence, such a rise in expenses will increase the bottom-line pressure.
Its asset quality has deteriorated considerably. In first-quarter 2024, non-performing assets were $811 million, which increased significantly from $174 million as of Mar 31, 2023. Also, the provision for credit losses was $315 million, which increased substantially from $170 million in the prior-year quarter. Hence, its asset quality is likely to decline in the upcoming quarters, given its exposure to commercial real estate loans and uncertain macroeconomic conditions. The company anticipates an elevated level of loan loss provision over the remainder of 2024.
A significant portion of New York Community’s multi-family and CRE loans is concentrated in the Metro New York region. This makes the company vulnerable to potential economic or political doldrums in the region.
Over the past month, NYCB shares have gained 20.9% compared with the industry’s growth of 7.1%.
Image: Bigstock
Here's Why You Should Hold on to New York Community (NYCB) Now
New York Community Bancorp, Inc. (NYCB - Free Report) is aiming to diversify its loan portfolio. Loan portfolio repricing will drive net interest income (NII) growth, while cross-selling opportunities will aid fee income. Yet, commercial real estate (CRE) loan exposure is concerning, and unexpected losses on its New York office and multi-family property could create headwinds.
The bank has a strong balance sheet. Deposits saw a four-year (2019-2023) compound annual growth rate (CAGR) of 26%, while net loans witnessed a CAGR of 18.2% during the same period. Both metrics declined in first-quarter 2024. Nonetheless, the company’s deposits have been resilient post its capital raise in March.
The bank’s strategic target is to reduce its commercial real estate portfolio from $47 billion to $30 billion, while building a robust middle-market relationship banking franchise. Efforts to improve funding by growing core deposits will improve the deposit mix in the upcoming period.
Although NII at New York Community declined in 2020, the metric increased, seeing a CAGR of 33.9% over the last four years (ended 2023), with the increasing trend continuing in first-quarter 2024. Notably, the addition of low-cost deposits from Signature Bank’s acquisition improved its overall funding cost AND supported net interest margin (NIM). Going forward, loan portfolio repricing will support NII and NIM.
The bank has seen improvement in its fee income over the years, with the metric increasing, seeing a CAGR of 137.8% over the last four years (ended 2023). While fee income decreased in first-quarter 2024, the company’s cross-selling efforts related to cash management, derivatives, commercial cards and syndication capabilities will drive fee income growth.
However, the bank’s escalating expense base acts as a headwind. The total non-interest expenses have seen an increasing trend over the past few years, owing to the rise in goodwill impairment, merger-related and restructuring expenses. Notably, it witnessed a CAGR of 76.7% over the last four years (ended 2023), with the trend continuing in first-quarter 2024. Hence, such a rise in expenses will increase the bottom-line pressure.
Its asset quality has deteriorated considerably. In first-quarter 2024, non-performing assets were $811 million, which increased significantly from $174 million as of Mar 31, 2023. Also, the provision for credit losses was $315 million, which increased substantially from $170 million in the prior-year quarter. Hence, its asset quality is likely to decline in the upcoming quarters, given its exposure to commercial real estate loans and uncertain macroeconomic conditions. The company anticipates an elevated level of loan loss provision over the remainder of 2024.
A significant portion of New York Community’s multi-family and CRE loans is concentrated in the Metro New York region. This makes the company vulnerable to potential economic or political doldrums in the region.
Over the past month, NYCB shares have gained 20.9% compared with the industry’s growth of 7.1%.
Image Source: Zacks Investment Research
Currently, NYCB carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the finance space are Northern Trust Corporation (NTRS - Free Report) and UMB Financial Corporation (UMBF - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
NTRS’s 2024 earnings estimates have increased 7.4% in the past month. Shares of Northern Trust have gained 21.1% over the past six months.
UMBF’s 2024 earnings estimates have increased 14.4% over the past 30 days. Shares of UMB Financial have jumped 25% in the past six months.