On Dec 1, 2022, New York Community Bancorp, Inc. NYCB acquired Flagstar Bancorp, Inc. Hence, the fourth-quarter and full-year 2022 results include one month of results from the buyout.
NYCB‘s fourth-quarter 2022 adjusted earnings per share of 25 cents missed the Zacks Consensus Estimate of 27 cents and declined 19.4% year over year. Results excluded certain non-recurring items related to the acquisition of Flagstar.
A moderate increase in expenses and substantial increase in provisions negatively impacted the results. However, higher revenues and solid improvement in loans and deposits offered some support. These perhaps led to bullish investor sentiments, as shares of the company have gained 3.3% following the earnings release.
Net income available to common shareholders (GAAP basis) was $164 million, up 15.5%.
In 2022, adjusted earnings per share of $1.23 missed the Zacks Consensus Estimate of $1.25 and decreased marginally from $1.24 in 2021. In 2022, net income available to common shareholders (GAAP basis) was $617 million or $1.26 per share compared with $563 million or $1.20 per share in 2021.
Revenues & Expenses Rise
Total revenues of $577 million surpassed the Zacks Consensus Estimate of $410.7 million and grew 70.7% year over year.
In 2022, total revenues increased 21.7% to $1.64 billion, surpassing the Zacks Consensus Estimate of $1.48 billion.
NII grew 17.7% to $379 million, mainly due to higher interest rates, rise in average interest earning assets and decent loan growth.
Net interest margin (NIM) of 2.28% was down 16 basis points (bps).
Non-interest income was $198 million, substantially up from $16 million in the prior-year quarter. Adjusted non-interest income was $39 million and excluded bargain purchase gain of $159 million.
Non-interest expenses of $269 million surged 99.3% owing to a rise in all components of expense. Total operating expenses (excluding merger-related expenses and intangible asset amortization) increased 59.4% to $204 million.
The efficiency ratio was 48.82%, up from 37.70%. A rise in efficiency ratio indicates deteriorating profitability.
Loans & Deposit Balance Climb
As of Dec 31, 2022, total deposits improved 40.8% sequentially to $58.7 billion. This included $16.1 billion in deposits from the Flagstar acquisition.
Total loans on net basis rose 40.7% to $68.6 billion. This includes $17.2 billion of loans, net of PAA, resulting from the Flagstar acquisition. As on Dec 31, 2022, multi-family loans and commercial loans (including specialty finance and CRE) represented 55% and 33% of total loans, compared with 76% and less than 25% as on Dec 31, 2021, respectively. Residential loans represented 8% of total loans.
In the fourth quarter, loan originations were $4.5 billion, up 19.5% sequentially.
Credit Quality deteriorates
Non-performing assets surged substantially year over year to $153 million. Provision for credit losses was $124 million compared with $4 million in the prior-year quarter.
Net charge-offs were $1 million, down from $5 million in the prior-year quarter.
Solid Profitability Ratios, Capital Ratios – A Mixed Bag
As of Dec 31, 2022, return on average assets and return on average common stockholders’ equity was 0.95% and 9.34%, declining from 1.03% and increasing from 8.71%, respectively, in the year-ago quarter.
The common equity tier 1 ratio was 9.06%, down from 9.68% as of Dec 31, 2021. The total risk-based capital ratio was 11.66%, falling from 12.73% in the year-ago quarter.
The leverage capital ratio was 9.7%, up from 8.46%.
Other Developments
NYCB is taking steps to restructure its mortgage operations. This follows proactive measures that were undertaken by legacy Flagstar throughout 2022 as the consecutive interest rate hikes by the Federal Reserve led to higher residential mortgage rates.
Hence, as part of the strategic decision made in January 2023, New York Community will streamline the mortgage business operations by closing all out of footprint locations. This will result in a 69% reduction in the number of retail home lending offices. The initiative is expected to optimize the company’s mortgage business and improve profitability while maintaining a retail presence with its nine-state footprint.
Our View
New York Community’s efforts to expand into the BaaS space and robust loan demand will support financials. Also, the acquisition of Flagstar, which led to the formation of one of the largest regional banks, will be earnings accretive. Yet, the company’s liability-sensitive balance sheet will hamper margin growth in the current rising rate environment.
New York Community Bancorp, Inc. Price, Consensus and EPS Surprise
New York Community Bancorp, Inc. price-consensus-eps-surprise-chart | New York Community Bancorp, Inc. Quote
NYCB currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Bank of Hawaii Corporation BOH reported fourth-quarter 2022 earnings per share of $1.50, surpassing the Zacks Consensus Estimate of $1.45. The bottom line, however, declined 3.2% from the year-ago quarter’s number.
BOH’s revenues grew as a result of higher NII and decent loan demand acting as tailwinds. However, a rise in expenses and provisions were significant drags.
Associated Banc-Corp’s ASB fourth-quarter 2022 earnings of 70 cents per share handily surpassed the Zacks Consensus Estimate of 65 cents. The bottom line was 43% higher than the prior-year quarter. Our estimate for earnings was 61 cents.
Results of ASB were primarily aided by a rise in NII on higher rates. The quarter witnessed an increase in loans and deposit balances. However, a rise in expenses, higher provisions and lower non-interest income hurt the results to some extent.
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