It has been about a month since the last earnings report for New York Community Bancorp (NYCB). Shares have lost about 15.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is New York Community Bancorp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
New York Community Q2 Earnings Beat, Revenues Escalate
New York Community’s second-quarter 2020 earnings per share of 21 cents surpassed the Zacks Consensus Estimate of 19 cents. Also, the figure compared favorably with the prior-year quarter figure of 19 cents.
Higher revenues drove the company’s performance. Also, the expansion of margin came as a tailwind. Capital position remained strong. However, a rise in expenses and lower fee income negatively impacted the company. Also, results were affected by a drastic rise in provisions due to the impacts of the COVID-19 outbreak.
The company reported net income available to common shareholders of $97.1 million compared with $89 million in the prior-year quarter.
Revenues and Expenses Rise, Loans Remain Stable
Total revenues were $281.3 million in the quarter, up 10% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $276.2 million.
Net interest income was up 12% year over year to $265.9 million. The rise mainly resulted from lower interest expenses, resulting from lower funding costs. Adjusted net interest margin of 2.09% increased 20 basis points (bps).
Non-interest income was $15.4 million, down 13% on a year-over-year basis. The fall was primarily due to lower fee-based and other income.
The company reported non-interest expenses of $123.6 million, slightly up from the year-earlier quarter. Higher compensation and benefits chiefly resulted in the rise.
As of Jun 30, 2020, total deposits declined 1% sequentially to $31.7 billion. Total loans remained almost stable at $42.3 billion in the reported quarter.
During the second quarter, loan originations (excluding PPP loan originations) were $3.3 billion, increased21% sequentially. The company had $2.2 billion of loans in its current pipeline, including $1.5 billion of multi-family loans, $189 million of CRE loans and $447 million in specialty finance loans.
Credit Quality: A Mixed Bag
Credit quality for New York Community Bancorp reflected mixed credit metrics. Provision for loan losses was $17.6 million compared with $1.8 million in the prior-year quarter.
Non-performing assets remained stable year over year at $63.2 million.Net charge-offs declined significantly to $3.8 million. Net charge-offs, as a percentage of average loans, fell1 bp to 0.01% from the year-ago quarter.
Profitability and Capital Ratios Strong
New York Community Bancorp’s capital ratios remained strong. As of Jun 30, 2020, return on average assets and return on average common stockholders’ equity was 0.78% and 6.31% compared with 0.75% and 5.79%, respectively, in the year-ago quarter.
Common equity tier 1 ratio was 9.77% compared with 10.02% as of Jun 30, 2019. Total risk-based capital ratio was 13.13% compared with 13.46% in the year-ago quarter. Leverage capital ratio was 8.42%, down year over year from 8.64%.
Looking forward to the remaining two quarters, management anticipates double-digit margin expansion for each quarter through the remainder of 2020, given that the bank still has a substantial amount of CDs repricing as well as borrowings repricing, and overall spreads in the multi-family side is still very strong.
Double-digit EPS growth is anticipated in 2020 and 2021. Further, minimal credit losses and provisioning CECL is expected even after including the impact of COVID-19.
Management expects efficiency ratio of 42% at the end of 2020. For Q3, expenses are expected to be about $125 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.96% due to these changes.
Currently, New York Community Bancorp has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, New York Community Bancorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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