Maintaining Hold on New York Community Bancorp Amidst Shifting Deposits and Uncertain Path to Higher ROTCE

Citi analyst Keith Horowitz maintained a Hold rating on NY Community (NYCB – Research Report) yesterday and set a price target of $3.50.

Keith Horowitz has given his Hold rating due to a combination of factors affecting New York Community Bancorp (NYCB). The analyst points out that while NYCB is experiencing a shift in its deposit mix, moving from lower cost private bank deposits to broker deposits, this is expected to place additional pressure on the Net Interest Margin (NIM). Additionally, there are strategic moves aimed at reducing the concentration in multi-family and commercial real estate lending, which could be more viable in a down rate environment. However, with a higher capital base, NYCB is not forced into undesirable sales amidst the high-rate scenario. This flexibility is acknowledged, yet the anticipated return on tangible common equity (ROTCE) for the years 2025-2026 is projected closer to 5%, below the 8% normalized ROTCE, which tempers optimism regarding the stock’s future performance.

Horowitz also notes that NYCB’s stock is trading near the target price, suggesting the market has already factored in the potential for improved returns. The revised earnings per share (EPS) estimates reflect a more conservative stance, with a decrease for the year 2024 and a modest reduction for 2025, based on expectations of higher loan loss reserves and a subdued outlook on fees and expenses. Despite the potential for an improved NIM, the path to achieving a higher ROTCE remains uncertain. Given that NYCB’s stock offers only a slight discount compared to peers and considering the uncertain road to higher returns, Horowitz sees more compelling risk/reward opportunities elsewhere in the sector, hence maintaining a Neutral recommendation with a High Risk designation.

According to TipRanks, Horowitz is a 5-star analyst with an average return of 11.8% and a 73.10% success rate. Horowitz covers the Financial sector, focusing on stocks such as NY Community, Truist Financial, and M&T Bank.

In another report released on March 14, Barclays also assigned a Hold rating to the stock with a $5.00 price target.

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NY Community (NYCB) Company Description:

New York Community Bancorp, Inc. engages in the production of multi-family loans on non-luxury rent-regulated buildings that feature below-market rents. It offers financial products and services to individuals and businesses. The company was founded on July 20, 1993 and is headquartered in Westbury, NY.