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NYCB upgraded for ‘significant funding advantages’ and ‘extremely safe’ 7.90% dividend yield after FDIC deal

After New York Community Bancorp purchased $38.4 billion in deposits, $12.9 billion in loans and 40 branches of Signature Bridge Bank from the Federal Deposit Insurance Corp., the acquiring bank’s stock rose 32% on Monday. The shares were up another 3% in premarket trading on Tuesday, after an upgrade by D.A. Davidson analyst Peter Winter.

The FDIC set up Signature Bridge Bank after state regulators shut down Signature Bank of New York on March 12 and placed it under FDIC receivership. Signature Bank had been a subsidiary of Signature Bank Corp.

Winter’s price target for New York Community Bancorp

is $11.50, which would be a 34% increase from the closing price of $8.61 on Monday.

For more details Read: NYCB’s sweetheart deal with the FDIC may take a dividend cut off the table

In his note to clients on Tuesday, Winter upgraded NYCB to a “buy” rating and wrote that the deal, which included a $2.7 billion discount on the acquired loans, would speed up NYCB’s “transformation to a more commercial bank like structure, by lowering the loan to deposit ratio to under 100% and increasing C&I loans, while lowering its concentration in multifamily loans.”

Those transformations will lower the bank’s cost of funding, because it will pay down wholesale borrowings, while also increasing the bank’s yield on loans, because commercial and industrial loans have higher interest rates than the multifamily mortgages NYCB has traditionally focused on.

On March 9, Following the announcement by SVB Financial Group

that it had taken large losses on the sale of securities to raise cash during an outflow of deposits, but before the failure of Silicon Valley Bank, NYCB had appeared on this list of banks whose net interest margins had narrowed or improved only slightly, at a time when most bank’s margins were improving as interest rates rose.

Winter raised his 2023 earnings estimates for NYCB to $1.27 a share from $1.24 and his 2024 EPS estimate to $1.36 from $1.26.

When explaining his upgrade, following the 32% increase for the stock, Winter cited the immediate improvement expected for NYCB’s earnings, as well as an estimated 15% increase in tangible book value. He also called the bank’s dividend, which comes to 68 cents a share annually, or a 7.90% yield based on the closing price of $8.61 on Monday, “extremely safe.”

Also on Tuesday, JPMorgan Steven Alexopoulos raised his price target for NYCB to $10.50 from $9.50, writing in a client note that he had “more confidence in the potential organic growth profile” for the bank following the FDIC deal, but that the improvement was already reflected in the share price increase on Monday.

Don’t miss: 10 U.S. banks that have been the best earnings performers over the past 15 years — are any of them bargain stocks now?

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