New York Community Bancorp Inc.’s Securities and Exchange Commission filing on Feb. 29 prompted investor uncertainty over the regional bank’s future.

NYCB is the parent company of one of the largest regional banks in the United States — Flagstar Bank — and has $116.3 billion worth of assets. Flagstar purchased $38.4 billion worth of assets from Signature Bank during last year’s banking crisis to diversify its loan portfolio and assets. 

In a filing with the SEC, NYCB reported that fourth-quarter earnings losses were $2.4 billion worse than expected and stated it would notify the SEC that it could not meet the filing deadline for its 2023 10-K. 

The bank cited “material weaknesses” in its internal controls relating to loan reviews as reasoning for the delayed filing.

Days before the filing, Thomas Cangemi — president and CEO of NYCB — alongside Presiding Director of the Board Hanif Dahya resigned from the bank. However, Alessandro DiNello, executive chair of the board and the Bank Board, was appointed CEO. 

Shares of NYCB reached their lowest level since 1996 on March 6, equating to $1.76 per share, representing an over 70% year-to-date decrease. 

However, shares rebounded after NYCB announced a $1 billion capital deal from several firms in exchange for equity in the bank.

DiNello would become non-executive chair and four new directors would join the board, including Joseph Otting, former comptroller of the currency, who would become the new CEO.

“We welcome the approach that Liberty Reverence, and the other investors took in their respective evaluations of the Bank and look forward to incorporating their insights going forward,” DiNello said in the press release. “Our new leadership team, with the support of the reconstituted Board, will continue to take the actions that are necessary to improve earnings, profitability and drive enhanced value for shareholders.” 

Analysts and investors noted that the business model and commercial real estate loans were unfavorable to the investment. Steve Mnuchin — founder and CEO of Liberty Strategic Capital, a firm investing in the bank — expressed that NYCB’s branch network makes it favorable, along with 80% of its deposits being insured, differing from the banks during last year’s bank run.

“I like the franchise a lot; it’s a top 20 bank in the U.S. with very attractive markets. It’s got a great branch network. Unlike the banks that had problems last year, this business has 80% of their deposits insured, so it’s got a very stable deposit base,” Mnuchin said on an episode of CNBC’s Squawk on the Street. “With putting a billion dollars of capital into the balance sheet; it really strengthens the franchise, and whatever issues there are in the loans we’ll be able to work through.”

Investors expressed that NYCB’s turmoil and loan participation showcase systemic risk within the regional banking sector. However, banks have time to build their liquidity as a cushion against risk. 

A participation mortgage is when two or more entities assume the risk of financing an asset but share in its proceeds. The borrower benefits from the lender’s low-interest rate, while the lender benefits from the stability of the set interest rate, which reduces risk and increases liquidity.    

“There’s a lot of risk that’s been spread out through participation and I would remind you that the FDIC [Federal Deposit Insurance Corporation] has the power to repudiate participations in the context of the receivership,” Christopher Whalen, Whalen Global Advisors LLC chair said on Bloomberg Radio. “I would tell you ‘Yes, Paul,’ [Paul Sweeney is the co-host of this Bloomberg Surveillance] but it’s institution by institution and, again, they have time.”