New York Community Bancorp (NYCB -3.26%) has had a rough go of it since announcing earnings on Jan. 31, when it reported a surprising loss after taking significant charge-offs related to a couple of loans in its portfolio. The regional bank has faced more turmoil, announcing last week that it wouldn't file its annual report on time due to deficiencies in internal controls. The bank is down significantly, but is it cheap enough to make the bank a buy? Here's what investors should know before diving in.
New York Community Bancorp's recent earnings result caught investors off guard
New York Community Bancorp is the parent company of two banks -- New York Community Bank and Flagstar Bank -- and its $116 billlion in assets at the end of the fourth quarter makes it the 28th largest bank in the U.S.
Last month, the bank plummeted 38% in the days following its earnings, the largest single-day decline ever. The bank surprised investors when it reported net charge-offs in Q4 of $185 million, primarily from two loans, which was up from $24 million in the third quarter.
The bank's woes continue
The bank has since disclosed that it would not file its annual 10-K report. Its delay was due to a material weakness in its internal controls. Internal controls ensure the integrity of financial information and are necessary to ensure a company's financial statements are accurate and timely. A material weakness is a term used in accounting to describe a deficiency in internal controls where a material misstatement may not be prevented or detected on a timely basis.
New York Community Bancorp said the weakness was related to its loan review process. Specifically, there was ineffective oversight of risk assessment and monitoring activities on its loan portfolio, and the bank is working to resolve this issue. The bank will take a $2.4 billion goodwill impairment charge, affecting its income statement for Q4 ending Dec. 31, 2023, and resulting in an even larger loss than previously reported.
The weakness led to an overhauled management team
Tom Cangemi, the bank's CEO since 2020, announced he would be stepping down. Taking his place is Joseph Otting, who was previously Comptroller of the Currency. In addition, the bank has named George F. Buchanan III as Executive Vice President and Chief Risk Officer, and Colleen McCullum as Executive Vice President and Chief Audit Executive. Buchanan has 30 years of experience in financial services-related risk management and credit, while McCullum was recently chief audit executive at United Community Bank.
In addition to the moves above, New York Community Bancorp recently announced it would raise $1 billion in equity, backed by Liberty Strategic Capital, Hudson Bay Capital, Citadel Global Equities, and other institutional investors. It also added former Treasury Secretary Steve Mnuchin to its board of directors.
Is it a buy?
A lot has occurred since New York Community Bancorp announced earnings at the end of January. The company is dealing with several things at once, including a large commercial real estate portfolio, a material weakness and additional charge-offs, and a changing management team that will look to turn things around.
On top of that, the recent equity raise will further dilute the bank's shareholders. Given the tremendous uncertainty surrounding New York Community Bancorp, investors are best off avoiding the stock for now.
