New York Community Bancorp Inc. (NYCB) saw its stock plunge 38% on Wednesday after the bank reported an unexpected fourth-quarter loss and slashed its dividend by over 70%. The regional lender has been hit hard by rising provisions for credit losses in its multifamily loan portfolio.
Overview of NYCB’s Earnings Report
On January 31st, NYCB shocked investors by posting a net loss of $260 million for the fourth quarter of 2023, compared to a profit of $113 million a year earlier. The loss amounted to $0.55 per share, far below analyst estimates of $0.32 per share profit (Yahoo Finance).
The regional bank took $561 million in provisions for credit losses during the quarter to guard against possible defaults in its loan portfolio as the economy slows. This was far higher than the $28 million set aside a year ago and dragged earnings deep into negative territory (CNN).
In addition, NYCB slashed its quarterly dividend by 71% to $0.17 per share “to enhance capital flexibility” (MarketWatch). The dividend cut will preserve $446 million annually.
| Financial Highlights | Q4 2023 | Q4 2022 | Change |
|---|---|---|---|
| Net Income | -$260 million | $113 million | -330% |
| Earnings Per Share | -$0.55 | $0.32 | -272% |
| Provisions for Credit Losses | $561 million | $28 million | +1,907% |
| Quarterly Dividend | $0.17 | $0.60 | -72% |
Table summarizing key metrics from NYCB’s Q4 2023 earnings report compared to Q4 2022. Data sourced from company filings and news reports.
Share Price Collapse
As a result of the dismal earnings and dividend reduction, NYCB’s stock price collapsed 38% on January 31st, its worst single-day drop ever as a public company. Over 17 million shares changed hands, nearly 5 times its average daily volume.
The plunge reignited fears about regional banks, sparking a sell-off across the sector. The KBW Nasdaq Regional Banking Index fell over 4% as investors worried about contagion risk from potential credit issues at other banks focused on multifamily real estate lending (WSJ).
What Drove the Surprise Loss?
According to CEO Thomas Cangemi, NYCB’s poor Q4 results stemmed from “unprecedented moves” in interest rates last year and the ensuing slowdown in economic growth that is putting stress on its borrowers (Reuters).
The Federal Reserve raised rates aggressively in 2022 to combat high inflation, taking the Fed Funds rate from near zero to over 4.5%. This rapid tightening has raised recession concerns and made financing conditions much tougher, especially for rate-sensitive sectors like real estate.
As the nation’s largest multifamily lender, NYCB has over $56 billion of exposure to apartment buildings and complexes in and around New York City (Barron’s). The bank grew rapidly in recent years by gobbling up portfolios from distressed lenders.
But now the environment has shifted due to sharply higher interest rates and expectations for declining property values. NYCB boosted its provisions substantially in expectation of higher delinquencies and defaults. The CEO stated the dividend cut will provide “maximum flexibility…to cover future credit issues should the local economy deteriorate” (Bloomberg).
What’s Next for New York Community Bancorp?
NYCB had hoped to join the “$100 Billion Club” of mid-sized regional banks soon. But now its path to hitting that asset milestone is blocked by the need to preserve capital given economic uncertainty (Reuters).
In addition, credit ratings agencies have put NYCB on review for potential downgrades given the surprise loss and dividend cut. Moody’s indicated it may cut NYCB all the way to junk status due to heightened risk. A downgrade would raise the bank’s borrowing costs and further restrict its growth plans (Yahoo Finance).
Meanwhile, NYCB stock remains down 35% even after a small rebound. At under $7 per share, it trades 70% below its 2021 peak. Some analysts have downgraded the stock or cut price targets by over 50% in response to the dismal earnings results (TipRanks).
With economic headwinds still strong, it may take time for investor confidence to return. NYCB faces a long road ahead to restore its financial health and growth trajectory after this week’s ugly surprise. Careful navigation will be required to avoid hits to credit quality and capital as challenges multiply for the battered mid-sized lender.
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