New York Community (NYCB) rolls over loans, higher rates are a misfortune – August 15, 2022

Community Bancorp of New York, Inc.it is (NYCB Free Report) steady growth in net deposits and loans, impressive asset quality and manageable leverage will help it weather any unforeseen economic uncertainty. However, declining non-interest income and rising interest rates are likely to have a negative impact on its finances.

NYCB has shown decent organic growth over the past few years and continues to implement different strategies to maintain growth. Deposits recorded a five-year (2017-2021) compound annual growth rate (CAGR) of 4.8%, while net lending recorded a CAGR of 4.5% over the same period. The company remains focused on diversified strategies such as continuing to advance its existing borrower base, expanding into the banking as a service space, and additional partnerships with fintech companies to sustain growth. deposits.

Manageable spending and improving credit quality are further catalysts for NYCB in the near term.

In addition, the New York Community’s efforts to reduce total funds borrowed and improve the cash balance over the past several years have strengthened its liquidity position. In addition, its times-earned interest ratio of 4.0 at the end of the second quarter of 2022 has improved. It maintains issuer ratings of Baa3, BB+ and BBB from Moody’s, Standard & Poor’s and Fitch, respectively, and a stable outlook, which likely gives the debt market a bullish impression. This will allow the company to meet its debts even if the economic situation deteriorates. Similar to NYCB, Prosperity Bancshares, Inc. (BP Free Report) has manageable debt and a strong liquidity position.

In addition, the ratio multiplied by interest earned at the end of the second quarter of 2022 has improved. So, given its strong earnings and strong liquidity position, Prosperity Bancshares should be able to continue to meet its short-term obligations.

Last year, the New York community announced an agreement to acquire Flagstar Bancorp, Inc. (CFB Free Report) for approximately $2.6 billion. While the companies await the necessary regulatory approvals, the agreement has been extended until October 31, 2022.

The acquisition of Flagstar Bancorp has the potential to advance the New York community’s transformation strategies through geographic and product diversification. After completion, the combined entity will have total assets worth $85 billion and a network of 400 branches in nine states and retail lending offices in 28 states.

However, the company’s non-interest revenue has declined at a CAGR of 27.1% over the past five years, primarily due to its exit from unprofitable mortgage banking and wealth management businesses. Additionally, the waiver of certain fees due to the COVID-19 pandemic and the elimination of insufficient fees on all consumer and business check products will constrain short-term non-interest revenue growth.

Additionally, as the NYCB has a liability-sensitive balance sheet, it benefits from a lower interest rate environment. As the Federal Reserve has already hiked interest rates four times this year and more such hikes are expected in the future, the rising rate environment is likely to hurt net interest margin of the company in the future.

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