New York Community Bancorp Inc.’s stock lost more than a third of its value Wednesday in its steepest one-day drop ever, after it posted a surprise loss, built up its reserves and signaled challenges in the office-space sector with one of two troubled loans.
The bank also said it would cut its dividend by more than two-thirds to build up capital to meet regulatory requirements as a larger Category IV bank with assets of $100 billion to $250 billion.
The Hicksville, N.Y.-based bank missed Wall Street’s revenue and net-interest-income estimates and reported an increase in net charge-offs, which is money it doesn’t expect to be paid back.
New York Community Bancorp’s stock
fell 37.7% at the close of trading. It’s the largest one-day percentage drop in the stock’s history, surpassing its 13.8% drop on Sept. 22, 2008, during the global financial crisis.
The bank’s stock is now trading at levels comparable to March 2023, when Silicon Valley Bank went out of business, followed by Signature Bank and then First Republic later in the spring. New York Community Bancorp acquired Signature Bank in a sale brokered by the Federal Deposit Insurance Corp.
The stock also weighed on the S&P Regional Banking ETF
which fell by 5.9%. It’s the largest one-day percentage drop for the index since it fell 6.3% on May 2, 2023, during last year’s banking crisis, according to FactSet data.
Citi banking analyst Keith Horowitz said the bank’s results “were much worse than even the most bearish outlook” but that the issues with New York Community Bancorp are “isolated” with “no read-through to other names.”
Horowitz said his price target on the bank is now under review, but said the stock reaction “seems a bit overdone but, regarding the uncertainty and surprise factor, not unreasonable.”
Jefferies analyst Casey Haire said New York Community Bancorp built up its reserves “to address multi-family/office weakness” and absorbed $185 million in losses tied to two loans.
The bank’s guidance for 2024 implies a roughly 40% downside to the latest analyst estimates for preprovision net revenue, he said.
“Despite the changes, [New York Community Bancorp] still lags Category IV peers on capital/reserve/liquidity and carries a riskier credit profile,” Haire said.
New York Community Bancorp reported a fourth-quarter loss of $260 million, or 36 cents a share. In the year-ago quarter, it earned $199 million, or 27 cents a share.
Breaking out one-time items, New York Community Bancorp’s adjusted loss was 27 cents a share, below the FactSet consensus estimate for earnings of 26 cents a share.
Fourth-quarter revenue of $886 million rose from $577 million in the year-ago quarter, but missed the analyst estimate of $929.5 million, according to FactSet data.
Fourth-quarter net interest income of $740 million also missed the $788.1 million estimate.
The bank said its net-charge offs rose to $185 million in the fourth quarter from $24 million in the third quarter, mostly due to two loans.
The first loan had a unique feature that prefunded capital expenditures, the bank said.
“Although the borrower was not in default, the loan was transferred to held-for-sale during the fourth quarter,” the bank said.
It expects the loan to be sold during the first quarter.
The bank said it performed a review of other co-op loans and did not find any others with similar characteristics.
The second charge-off came on an office loan that went nonaccrual during the third quarter, based on an updated valuation, the bank said.
“Given the impact of recent credit deterioration within the office portfolio, we determined it prudent to increase the allowance for credit losses coverage ratio,” the bank said.
Janney analyst Christopher Marinac said the bank “is taking sincere action to address credit risk, build capital faster and not lose long-term credibility.”
Marinac said the stock faces “short-term pain,” but that the bank will avoid problems down the road by not waiting to recognize credit risk.
The bank cut its dividend to 5 cents a share from 17 cents a share as it builds up capital to meet requirements for larger banks.
“We recognize the importance and impact of the dividend reduction on all of our stockholders and it was not made lightly,” Chief Executive Thomas R. Cangemi said. “We believe this is the prudent decision, as it will allow us to accelerate the building of capital to support our balance sheet as a Category IV bank.”
After acquiring the ailing Signature Bank and its $38 billion in assets last year, New York Community Bancorp now meets the regulatory definition of a Category IV bank. It also closed its acquisition of Flagstar Bank in late 2022.
As of Dec. 31, total assets were $116.3 billion, up from $111.2 billion on Sept. 30 and $90.1 billion as of Dec. 31.
While the bank acquired Signature Bank, it did not buy the ailing bank’s commercial real-estate portfolio.
Citi analyst Horowitz said the bank’s forecast for net interest margin of 2.4% to 2.5% “seems to reflect higher wholesale funding/cash balances to raise liquidity, but also lower loan repricing.”