New York Community Aided by High Margins Amid Cost Woes

New York Community Bancorp, Inc. (NYSE: NYCB) strategic acquisitions, solid loan 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.
New York Community's strategic acquisitions have enabled it to scale operations. 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 transformed its bank subsidiary, Flagstar, from a multi-family lender to a diversified full-service commercial bank.
Also, NYCB's merger deal with Flagstar offered it a national scale of operation by enhancing its foothold in Northeast/Midwest regions, giving it exposure to high-growth markets.
New York Community has a strong balance sheet. Deposits and net loans saw a positive compound annual growth rate (CAGR) in the three-year period that ended 2022. The rising trend continued in the first quarter of 2023. The acquisition of Signature Bank improved NYCB's deposit base and initiated its commercial middle-market lending business.
The addition of low-cost deposits from the Signature Bank acquisition and variable rate loan portfolio from the Flagstar merger has improved NYCB's overall funding costs. This is expected to aid net interest margin growth. 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 non-interest income.
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.
Cash and cash equivalents at the first-quarter 2023 end were $22.25 billion, whereas total borrowed funds were $21.36 billion. Hence, given the ample liquidity and earnings strength, its capital-deployment activities seem sustainable and may further stoke investors' confidence in the stock.
However, 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 CAGR over the last four years (ended 2022). The rising trend continued in the first quarter of 2023.
The non-interest expenses (excluding merger-related expenses, intangible asset amortization and the impacts of the Signature Bank acquisition) for 2023 is expected to be $1.3-1.4 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 quarter of 2023. 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 first-quarter 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 #3 (Hold) company have gained 15.4% against a 33.9% decline recorded by the industry over the past year.

New York Community currently carries a Zacks Rank #3 (Hold).

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Image by Etienne Martin on Unsplash