(Bloomberg) — New York Community Bancorp plunged a record 46% after reporting a surprise loss tied to deteriorating credit quality and a cut to its dividend.
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The company lowered its quarterly payout to shareholders to 5 cents from 17 cents as it prepared to meet stricter capital requirements. A worsening credit outlook contributed to the unexpected fourth-quarter loss, as the bank’s loan-loss provision surged to $552 million, more than 10 times analysts’ estimates. Shares of other regional lenders sank as well.
Management had previously said asset quality was strong, so “something has clearly changed in their tone,” Jon Arfstrom, an analyst at RBC Capital Markets, said in a note to clients. “This was a material negative surprise.”
New York Community Bancorp has grown rapidly in the past 18 months through a pair of acquisitions, lifting its total assets above the $100 billion threshold that brings more regulatory scrutiny. The bank’s 9.1% key capital ratio is below peers such as KeyCorp and Regions Financial Corp. that are in that category.
It also said it wanted to build up loan-loss reserves to be better in line with its other banks of its size and get ahead of potential weakness in the office and multifamily property sectors. The amount of the company’s loans that were 30 to 89 days past due jumped 48% in the last three months of the year.
The bank said net charge-offs in the quarter were primarily related to two loans. One was a co-op loan with a feature that pre-funded capital expenditures. The borrower wasn’t in default, according to New York Community Bank, but the loan was transferred to held-for-sale status. The bank expects the loan to be sold during the first quarter of 2024.
“We also performed a review of other co-op loans and did not find any other loans with similar characteristics,” the bank said in a statement.
The other major charge-off was an office loan that went non-accrual during the third quarter, based on an updated valuation, the company 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 two loans accounted for the bulk of the $185 million of net charge-offs the bank took during the fourth quarter, which was more than its combined net charge-offs over the past decade.
Raymond James cut its rating on the bank to market perform from strong buy, with analyst Steve Moss writing in a note to clients that the quarterly results “will likely put the stock in the penalty box” until there’s “greater clarity around capital, credit and future business plans.”
Shares of the company tumbled 36% to $6.65 at 11:38 a.m. in New York, after slumping a record 46% earlier Wednesday. The KBW Regional Banking Index dropped 3.7%, led by New York Community Bancorp.
“We recognize the importance and impact of the dividend reduction on all of our stockholders, and it was not made lightly,” Chief Executive Officer Thomas Cangemi said in the statement. “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.”
An earlier decline in Treasury yields accelerated after New York Community Bancorp results were announced. The interest-sensitive two-year Treasury was down as much as 15 basis points in the immediate aftermath with 10-year yields also down over 8 basis points at one point.
In the swaps market, traders increased their bets on Federal Reserve rate cuts in 2024, with the potential for an early reduction in March now priced with about two-thirds odds versus one-third on Tuesday. Almost 150 basis points of rate cuts are now priced in for the entirety of 2024.
The purchase of Signature Bank’s deposits moved New York Community Bancorp into a regulatory category that requires additional capital levels. The company said that was responsible for the dividend cut and the boost to its provision for loan losses. The provision was $552 million, compared with analysts’ estimates of just $45 million.
The loss for the final three months of last year was $252 million, compared with a $206 million profit analysts had predicted. Revenue of $886 million fell short of expectations for almost $932 million.
Read an Earnings Snapshot: NYCB Sinks as Adjusted Loss Per Share Misses, Dividend Cut
Signature was among three US banks that collapsed in rapid succession last year as they tried to adjust to a jump in interest rates that devalued their holdings. New York Community Bancorp, through its Flagstar Bank unit, agreed to purchase $38 billion of Signature’s assets, including $25 billion in cash and about $13 billion in loans, from the Federal Deposit Insurance Corp.
–With assistance from Edward Harrison and Bre Bradham.
(Updates with details of bank’s growth starting in fourth paragraph, downgrade in 10th.)
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