Is New York Community Bancorp stock worth buying?

New York Community Bancorp (NYSE:NYCB) It was recently on the brink, forced to drastically cut its dividend and accept a $1 billion bailout. Now in full turnaround mode, the company’s financials are pretty ugly. But management remains committed to returning to comparable earnings by the end of 2026. What should investors do?

New York Community Bancorp posts dismal results

If you look at New York Community Bancorp’s second-quarter 2024 financial results, you’ll probably want to run for your life. The company’s net loss totaled $323 million, which was slightly better than the $327 million loss in the first quarter but significantly worse than the $413 million in positive net income in the second quarter of 2023. Those numbers translate to a second-quarter 2024 loss per share of $1.14, a first-quarter loss of $1.36, and a second-quarter 2023 profit of $1.66 per share.

Obviously, things aren’t looking great at New York Community Bancorp right now. That’s no surprise.

Someone's feet are on the ground with a turn around sign. — Image source: Getty Images.

The bank has been facing significant operational and performance problems in early 2023 after two major bank acquisitions in the past few years. The biggest operational problem is that New York Community Bancorp had grown so quickly through acquisitions that it faced increasing regulatory scrutiny. It was unprepared for the additional oversight. On the earnings side, a number of large loans deteriorated, leading investors to worry that more problematic loans might be lurking in the loan portfolio. The stock collapsed, the dividend was cut to a token cent per share per quarter, and the bank ultimately took on $1 billion to help it through the recovery.

New York Community Bancorp’s turnaround is still ongoing

Although difficult to read, New York Community Bancorp’s second-quarter results were essentially the result of efforts to get its business back on track. According to CEO Joseph Otting:

Our second quarter results reflect ongoing actions by management during this transitional year as we reposition the Bank for long-term success. During the quarter, we expanded our comprehensive loan portfolio review beyond the top 350 commercial and multifamily loans to include 75% of those two portfolios and increased our loan loss reserves and charge-off levels accordingly. This positions us in a better position to resolve those loans going forward.

We also continued to simplify our business model by agreeing to sell certain parts of our mortgage business, including our mortgage servicing rights Mr. Cooperone of the nation’s leading mortgage companies. This comes on the heels of the closing of the sale of our mortgage warehouse business earlier this week. In addition to simplifying our business model, these two transactions together also strengthen our liquidity profile and result in higher capital ratios.

The board is essentially doing the right thing, including adding “nine experienced leaders to the management team.” Many of these new hires come from other companies, so they are likely being paid handsomely to join what is essentially a bank going through a restructuring process.

So costs are likely to rise here, even as productivity plummets. That said, the $1 billion in cash that New York Community Bancorp received gives it a solid financial foundation on which to reorganize its operations. In that regard, it’s understandable that “seasoned leaders” might be willing to take a chance on taking a job at the bank.

It’s also understandable that more aggressive investors looking to buy into turnaround stocks would find the New York Community Bancorp story interesting. Given that the stock is down more than 70% in the past year, there’s likely to be upside potential here.

But that will only happen if the board keeps making tough decisions, as it has for several quarters now. Given that the CEO was hired specifically to rebuild the bank’s business, it seems likely that the restructuring effort will continue. In the meantime, the timeline calls for another two years of hard work. Only the most aggressive investors in the restructuring are likely to find the stock attractive, realizing that the bank is still in the early stages of a turnaround.

Most investors will want to avoid New York Community Bancorp

A struggling bank that is selling assets, working to strengthen its finances, reviewing the quality of its loan portfolio, bringing in new leaders, and posting significant losses is not something most investors will want in their portfolios. New York Community Bancorp is a turnaround stock that only very aggressive investors will appreciate. Even then, buying the stock likely means sitting out at least a few more quarters of poor earnings results, which won’t be easy. Unless you have a very strong constitution, you’ll probably want to wait for more progress in the turnaround before buying this bank.

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Reuben Gregg Brewer has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.

Is New York Community Bancorp a Buy? was originally published by The Motley Fool