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New York Community (NYCB) Buyouts to Aid Amid Rising Rates

New York Community Bancorp, Inc. NYCB is well-poised for bottom-line growth, given the acquisition of Flagstar Bancorp FBC. This and efforts to expand into the Banking-as-a-Service (BaaS) space will further strengthen NYCB’s balance sheet.

Yet, its liability-sensitive balance sheet will hamper margin growth in the rising rate environment. High loan portfolio concentration, limited liquidity and unsustainable capital deployment activities are woes.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 2.3% downward in the past 30 days.

In the past month, shares of the company have gained 9.1% compared with the industry’s rise of 5%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

NYCB currently carries a Zacks Rank #3 (Hold).

Earlier this month, NYCB received regulatory approval from the Federal Reserve Board to complete its previously announced merger with Flagstar Bancorp. The consummation of the acquisition is expected on Dec 1, 2022.

The combination of NYCB and FBC will create one of the largest regional banks in the country, operating 395 branches across a nine-state geography, including strong footholds in the Northeast and the Midwest.At the time of the deal announcement, it was projected that the transaction would be 16% accretive to NYCB’s earnings per share in 2022.

This aside, NYCB aims to grow deposits through numerous strategies, including further advancement in its existing borrower base, expansion into the BaaS space and additional partnerships with fintech companies. Such moves bode well for New York Community’s balance-sheet strength.

New York Community’s non-interest expenses have seen a declining trend in the past few years owing to the company’s exit from the mortgage banking business, branch closures and lower operating expenses. The declining expense base remains a tailwindand will alleviate bottom-line pressure in the upcoming period.

Its credit quality remains decent, with benefits from credit loss releases and a decline in non-performing assets. Amid an uncertain economy, this bodes well.

As the Federal Reserve has already raised interest rates this year and more such hikes are expected going forward, the rising rate environment is likely to hurt the company’s net interest margin (NIM) in the quarters ahead, given its liability-sensitive balance sheet.

Non-interest income in New York Community declined at a compound annual growth rate (CAGR) of 27.1% over the last five years (ended 2021). The worsening operating backdrop of recessionary fears will likely continue to dent fee income. The elimination of non-sufficient fees on all consumer and business checking products effective August will act as a near-term headwind for the company’s non-interest income.

As of Sep 30, 2022, the company held total borrowed funds of $13.8 billion, while cash and cash equivalents were $1.7 billion. Given the limited liquidity and high debt level, the company is less likely to be able to meet debt obligations in the near term, even if the economic situation worsens.

Given its limited liquidity and unfavorable debt/equity ratio, its capital-deployment activities seem unsustainable.

Stocks Worth a Look

A couple of better-ranked stocks from the finance space are Capital Southwest CSWC and AssetMark Financial AMK.

The Zacks Consensus Estimate for Capital Southwest’s current fiscal year earnings has moved 4.7% higher in the past 30 days. In the past month, its shares have inched up 1.1%. Capital Southwest carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AssetMark Financial currently carries a Zacks Rank #2. Its earnings estimates for the current year have been revised 5.4% upward over the past 30 days. In the past month, its shares have rallied 27.6%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Flagstar Bancorp, Inc. (FBC) : Free Stock Analysis Report

New York Community Bancorp, Inc. (NYCB) : Free Stock Analysis Report

Capital Southwest Corporation (CSWC) : Free Stock Analysis Report

AssetMark Financial Holdings, Inc. (AMK) : Free Stock Analysis Report

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