NYCB tumbles 40% as bank slashes dividend as bad office space loans soar
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New York Community Bancorp (NYCB) released its Q4 earnings report, reporting a loss of $0.36 per share, well below analyst expectations of $0.26 per share. This disappointing performance resulted in a significant drop in the company's stock price, which initially plunged 19% and eventually plunged 46% in intraday trade before recovering some of its losses. Shares are still down 37% on the session.
Analysts expressed dissatisfaction with the lack of detailed guidance provided by management considering the stock's decline.
In response to the challenging environment, NYCB made several strategic moves to strengthen its financial position. The company significantly boosted its reserve levels by recording a $552 million provision for loan losses, aligning its allowance for credit losses (ACL) coverage with peer banks. This move aims to address weakness in the office sector, potential repricing risk in the multi-family portfolio, and an increase in classified assets.
The company recorded Q4 charge-offs of $185 million, a significant increase from the $24 million reported in the previous quarter. The increase was mainly driven by two bad loans, one of which offices involved.
Additionally, NYCB took steps to enhance its on-balance sheet liquidity and meet the enhanced prudential standards applicable to banks with $100 billion or more in total assets. To support its balance sheet as a Category IV bank, the company made the prudent decision to reduce its quarterly common dividend from $0.17 to $0.05 per common share. NYCB acknowledges the significance of this dividend reduction on its stockholders but believes it is necessary to accelerate capital-building efforts.
The company reported revenues of $886 million for Q4, showing a year-over-year increase of 53.6%. However, this fell short of the consensus estimate of $929.51 million.
The net interest margin (NIM) for the quarter was 2.82%, down 45 basis points compared to the previous quarter. The provision for credit losses for the three months ended December 31, 2023, amounted to $552 million, reflecting a substantial increase from the $62 million provision in the previous quarter. This surge in provisions primarily resulted from higher net charge-offs, as well as concerns regarding the office sector, potential repricing risk in the multi-family portfolio, and an uptick in classified assets.
The negative Q4 performance and the subsequent drop in NYCB's stock price had a significant impact on regional banks, as evidenced by the 4% decline in the KRE regional banking ETF.
Investors are concerned about the elevated charge -offs, especially considering NYCB's previous bailout less than a year ago. The company had received a favorable bailout deal from the Federal Reserve due to its financial deterioration at the time.
In conclusion, NYCB's Q4 earnings report reflected a disappointing loss per share, which led to a substantial decline in its stock price. The company took necessary steps to strengthen its financial position, including increasing reserve levels and reducing the dividend to accelerate capital-building efforts. However, the market's negative reaction indicates investor concerns regarding the elevated provision for loan losses and the impact on regional banks.