New York Community Bancorp (NYCB -6.06%) stretched itself thin last year when it opportunistically expanded, and now the company plans to retrench to shore up its balance sheet. Shares of the banking company traded down 36% as of 10:30 a.m. ET Wednesday after New York Community said it would slash its dividend and take other steps to make sure it is on a firm footing.
A tough quarter of integration
Last year was a period of transformation for New York Community, which acquired Flagstar Bank to build its capabilities as a full-service commercial bank. Soon after that Flagstar deal closed, New York reached a deal to acquire assets and liabilities of the failed Signature Bank from the Federal Deposit Insurance Corp.
The transaction added a lot of low-cost deposits and new business relationships, but it came at a price. With the deal, New York Community went over $100 billion in total assets, placing it in a category that receives heightened scrutiny from regulators. It also stretched the company's resources.
On Wednesday, New York Community Bank reported a fourth-quarter loss of $0.36 per share. Wall Street had expected a $0.28-per-share profit. The bank reported net charge-offs of $185 million, up from $24 million in the third quarter, due to the souring of two large loans.
Post-earnings, the bank said it intends to cut its quarterly dividend to $0.05 per share, from $0.17 per share, and take other "decisive actions to build capital," according to CEO Thomas R. Cangemi.
Is New York Community Bank a buy after its big earnings miss?
The dividend cut is a big blow for bank investors, but New York Community is wise to take conservative steps and make sure it is well positioned for the future. Cangemi said the bank is working to strengthen its risk management processes, part of the necessary evolution as New York Community becomes a larger institution.
New York Community is also building its loan loss reserves in case of further issues.
In the long run, the moves should benefit shareholders and help make sure that New York Community doesn't get into the sort of situation that sank Signature Bank. But given the rapid growth, investors are likely to take a wait-and-see approach to how the bank is able to manage its larger size. Patience is the best approach with this stock right now.
