Company Overview: Based in Westbury, New York, New York Community Bancorp, Inc. (NYSE: NYCB) provides loan and deposit products and other financial services to individuals and businesses. Most of the loans the company originates are multi-family mortgage loans on non-luxury, rent-regulated apartment buildings in New York City.

NYCB Details

Diversified Business Segments & Strategic Growth Initiatives: In addition to the multi-family loans, New York Community Bancorp, Inc. (NYSE: NYCB) also offers other mortgage loans such as Commercial Real Estate (CRE) loans, one-to-four family loans, Acquisition, Development and Construction (ADC) loans, and Commercial and Industrial (C&I) loans.

On April 26, 2021, the company signed a merger agreement to acquire 100% of Flagstar Bancorp, Inc. (NYSE: FBC) in an all-stock corporate transaction valued at USD 2.6 billion (based on the closing prices on April 23, 2021). FBC is a savings and loan holding company and provides commercial, small business, and consumer banking services through 158 branches in Michigan, Indiana, California, Wisconsin, and Ohio.

Under the transaction, NYCB will issue 4.0151 shares of its common stock for each FCB share held by Flagstar shareholders. Upon completion, NYCB shareholders are estimated to own 68% of the combined company, with Flagstar shareholders holding the remaining 32%. The combined entity will have USD 87 billion in assets with 400 branches in nine states and 87 retail home lending offices across 28 states. The merger is expected to close in Q4FY21.

1QFY21 Key Results Highlights: During Q1FY21 (ending March 31, 2021), NYCB reported earnings of USD 0.29 per share, representing a 45% YoY increase. Total interest income during Q1FY21 was USD 423.10 million, down 4.06% from USD 441.04 million in Q1FY20. Interest income from loans and leases constituted 90.62% of the total interest income in Q1FY21, with the rest coming from interest income from securities. The company reported a 45.12% YoY increase in net income to USD 145.59 million during the quarter.

Total & Net Interest Income; Analysis by Kalkine

Other Key Developments: During Q1FY21, NYCB collaborated with its technology partners to attract additional low-cost deposits related to the Economic Impact Payments (EIP) linked with the federal stimulus plans. These deposits were all from non-interest-bearing accounts and amounted to USD 1.6 billion at end of the quarter.

Key Metrics, Liquidity & Balance Sheet Details: The company exited the quarter with a cash balance of USD 2.72 billion. As of March 31, 2021, its total deposits amounted to USD 34.19 billion, up 5.42% from USD 34.19 billion reported at the end of FY20. Total borrowed funds amounted to USD 15.76 billion at the end of the quarter. In addition to the growth in deposits, its Non-Performing Assets (NPAs) decreased by 10.41% to USD 41.30 million compared to USD 46.10 million at the end of FY20.

In Q1FY21, the net interest margin and deposit growths were 2.48% and 5.4%, respectively, higher than the year-ago figures of 2.01% and 1.0%. The company’s Q1FY21 efficiency ratio reduced to 39.9% from 55.9% in Q1FY20.

Profitability Metrics & Risk Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 35.06% of the total shareholding, while the top 4 constitute the maximum holding. BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. hold the maximum stake at 10.44% and 9.53%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: On the downside, 75.3% of NYCB’s total loans and investment portfolio consisted of multi-family loans and 16.0% consisted of CRE loans as of FY20 end. This concentration exposes the company to a greater risk of non-payment and loss as these loans generally involve larger loan balances to single or groups of related borrowers.

Moreover, the majority of the properties securing the company’s multi-family, CRE, and ADC loans for investment are located in New York City. As a result, it depends significantly on general economic conditions in New York City, which affects the ability of the borrowers to repay their loans and the value of the collateral securing such loans.

Outlook: NYCB management expects the Flagstar merger to be accretive to its shareholders in FY22, both in the terms of EPS (16%, assuming fully phased-in cost savings) and tangible book value per share (3.5%). The acquisition of Flagstar enables the company to establish its footprint in the Midwest and California and also aids in diversifying its loan portfolio.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last 3 months, the stock went down by ~12.68%. The stock is currently quoting close to the mid-point of its 52-weeks trading range of USD 7.72 to USD 13.23. We have valued the stock using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digits (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer’s average, considering its geographic and product focus on New York City multi-family market, improvement in deposit growth, the risks involved with real estate-related loans, along with interest rate risks. We have taken peers such as Meta Financial Group, Inc. (NASDAQ: CASH), Northwest Bancshares, Inc. (NASDAQ: NWBI), among others. Considering the company’s strong performance in 1QFY21, inorganic growth initiatives, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the closing price of USD 11.02, up ~0.27% on June 30, 2021.

NYCB Weekly Technical Chart, Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.