New York Community Bancorp Stock Tanks as It Posts Sharp Loss, Slashes Dividend

New York Community Bancorp slashed its quarterly dividend and increased its loan-loss reserves. On its morning conference call, the bank said its dramatic actions were meant to meet the tighter standards that apply to large banks, after recent acquisitions lift its assets above $100 billion. The bank’s cash, capital and risk levels will face their first regulator stress-test in April, said CEO Thomas R. Cangemi.

While Cangemi told listeners that the moves to boost reserves and cash didn’t reflect sudden problems in the bank’s large book of commercial real estate loans, investors seem to be wondering if there’s adequate reserving among the less tightly regulated regional banks whose ranks his bank is leaving.

The

SPDR S&P Regional Banking ETF

slid 4% in a flat market Wednesday, on the news.

“This was a major negative surprise,” Jon G. Arfstrom, an analyst at RBC Capital Markets, said in a Wednesday note.

The Hicksville, N.Y.-based bank reduced its common dividend from $0.17 per quarter to $0.05 per share, while posting a net loss of $260 million for the fourth quarter compared with a gain of $164 million for the same period a year ago. Analysts had expected earnings per share of 26 cents, according to FactSet.

New York Community Bancorp, which acquired Signature Bank during last year’s regional bank crisis, recorded a $552 million provision for loan losses, a move that the bank says brings its allowance for credit losses more in line with large banks. The provision compares with a $62 million provision for the three months ended Sept. 30, according to the company.

On the company’s earnings call, CEO Thomas R. Cangemi said the moves were more about bringing New York Community Bancorp more in line with large “Category IV” banks, rather than a negative outlook for credit. By the end of 2024, he expects that the bank’s regulatory capital will reach the 10% of assets expected of such big banks.

“This is laser-focused on looking at the company’s long term-plan and being part of a new Category IV banking institution,” Cangemi told listeners, ”and having a capital position as we grow it into a level that were in our peer groups.”

Analyst Matt Breese of Stephens asked if regulators had pressured the bank to take the prudential actions.

“We’re not going to speak specifically about our regulatory conversations,” said Cangemi. “But the reality is that we do have an April submission. We’ve adjusted our capital position significantly.”

Regulators have swarmed U.S. banks since last year’s failures of Silicon Valley Bank and Signature, says Sonny Kalsi, the co-CEO of the real estate investment and lending firm BentallGreenOak. That has prevented wider failures, but also crimped the lending that regional banks provide to the real estate industry.

Regarding real estate loans, Cangemi said New York Community Bancorp’s originations had dropped 90% in 2023. Borrowers seem to be betting that the Fed will cut rates in the second half of 2024, he said, and so they are putting off long-term borrowing decisions until then.

Looking ahead at 2024, the bank expects total loans to decline 3% to 5%, while deposits increase 3% to 5%.

The bank said net charge-offs totaled $185 million for the fourth quarter, compared with $24 million for the three months ended Sept. 30. It attributed the jump to two loans: a co-op loan that the bank expects to be sold during the first quarter of 2024 and an office loan that went nonaccrual during the third quarter.

Total loans 30 to 89 days past due totaled $250 million as of Dec. 31, up from $169 at Sept. 30, according to the company’s earnings report. 

The bank has a large footprint in the Northeast and Midwest. It does multifamily lending, mortgage origination and servicing, and warehouse lending. The company says it is the second largest multifamily portfolio lender in the country and the leading multifamily portfolio lender in the New York City market area, where it specializes in rent-regulated, nonluxury apartment buildings. 

The company’s total commercial and industrial loans were $25.3 billion as of Dec. 31, compared with $24.4 billion at Sept. 30. The bank said that total commercial loans represent 46% of total loans held for investment, and multifamily loans represent 44% of total loans held for investment at Dec. 31, which reflects significant diversification compared with a year ago. Residential loans and other loans represented 7% and 3%, respectively, of total loans held for investment.

Total deposits were $81.4 billion at Dec. 31, down $1.3 billion, or 2%, compared with Sept. 30, the bank reported. The drop was related to the Signature deal, said the bank. Deposits actually grew 2%, but for that deal dislocation.

CEO Cangemi said the decision to cut the dividend wasn’t made lightly but was a prudent action to help the company accelerate efforts to build capital to support its balance sheet.

“While these necessary actions negatively impacted our fourth quarter results, we are confident they better align our larger organization with our new peers and provide a solid foundation going forward,” he said in a statement.

Cangemi said the moves would help it as it continues to grow. “We successfully grew into a $50 billion-plus bank in 2018, and we believe the actions we are taking now will make our transition to a $100 billion plus bank even more successful,” he said.

The company has greatly expanded its reach with the acquisitions of

Signature Bank

and Flagstar Bank, a regional lender based in Michigan. It closed on the latter acquisition just before last year’s regional bank crisis, which toppled three lenders, including Signature.

Write to Andrew Welsch at andrew.welsch@barrons.com and Bill Alpert at william.alpert@barrons.com