Why New York Community Bancorp Stock Collapsed in January

Shares of little-followed financial stock New York Community Bancorp (NYCB -17.13%) collapsed 36.8% in January, according to data from S&P Global Market Intelligence. Investors are getting nervous about the bank. New York Community Bancorp bought the failed Signature Bank's assets last Spring after it cut its dividend and wrote down some more of its loans. Shares of the bank have struggled for years and are now off over 70% from all-time highs set 10 years ago.

Here's why the stock fell in January.

Commercial real estate troubles

After taking on Signature Bank's assets in 2023, it looks like New York Community Bancorp is having trouble absorbing its troubled real estate loans. With commercial office vacancies rising to record highs, developers and landlords are having trouble paying back loans. Well, New York Community Bancorp owns a lot of these loans.

In the fourth quarter of 2023, the company had a $552 million provision for credit losses, significantly higher than the $62 million provision from the same quarter a year ago. This was due to growing net charge-offs, deterioration in the office real estate space, and its multifamily real estate portfolio, according to management. Higher credit losses led to a $260 million net loss in Q4.

On top of this, New York Community Bancorp reduced its quarterly dividend per share to $0.05, or $0.20 annualized. This is compared to $0.68 over the last 12 months. Management performed this in order to keep the company well-capitalized after passing the $100 billion asset threshold. Bank stock investors love dividends, so a major cut like this likely led a lot of shareholders to sell their positions. Dividend cuts at banks can also be signs of major liquidity issues, which plagued the banks that failed last year, such as Silicon Valley Bank.

Is the stock a buy?

After falling so far, New York Community Bancorp trades at a price-to-book value (P/B) below 0.5. P/B is the best way to value a bank stock, with a ratio below 1.0 indicating a stock trades below the net value of the assets on its balance sheet. However, with all of its write-downs, New York Bancorp's book value per share has started to decline in recent quarters.

Niche banking stocks are for experienced investors. New York Bancorp is a troubled financial institution with a complicated balance sheet and major exposure to the commercial real estate sector. Unless you are confident in the health of its loan book, it's best to avoid this stock for now. Buy some simpler blue chips instead.