After grappling with disappointing earnings results, stock price pressure and executive turnover, New York Community Bancorp Inc. is now facing a run on its employees.
Dime Community Bancshares Inc., Customers Bancorp Inc. and Peapack-Gladstone Financial Corp. announced the hiring of several deposit gathering teams from the company this month. The departures include a total of 26 teams, with Peapack-Gladstone and Customers Bancorp hiring 10 each and Dime Community hiring six, compared to New York Community's total of 134 private banking teams according to its full-year earnings report for 2023.
The departures are troubling analysts because they come at a pivotal time for the company, which is set to unveil its path forward with new management and a fresh capital raise after facing headwinds since reporting its 2023 fourth-quarter earnings results in January.
"It's not insignificant," Piper Sandler analyst Mark Fitzgibbon said in an interview. "It is certainly a bit troubling."
Facing more deposit declines
The news that deposit specialists are leaving is a "clear negative" for New York Community because maintaining and growing deposit funding is a vital part of the company's path forward, Stephens analyst Matthew Breese wrote in a note following the announcements.
The moves could result in large deposit losses, with Peapack estimating it can win over about $2 billion in deposits from the hires, according to a note from Fitzgibbon.
"This certainly seems reasonable to us, if not conservative. For perspective, if [Peapack] were to add $2 [billion] in deposits, this would imply a 38% increase in total deposits," Fitzgibbon wrote.
Separately, Dime Community's press release said the six teams it hired managed "several billion" in deposits.
The departures and potential for deposit movement come after the company was already facing deposit pressure.
In the wake of its 2023 fourth-quarter earnings results and subsequent stock price pressure and negative headlines, the company's deposit base was unstable, but its capital raise helped to stabilize it, executives said on a call in March. Those outflows came after sequential deposit base declines of 6.6% in the 2023 third quarter and 1.39% in the 2023 fourth quarter, according to S&P Global Market Intelligence data.
To make up for the outflows and comply with heightened regulatory capital requirements for banks with more than $100 billion in assets, New York Community leveraged wholesale borrowings, which totaled $20.3 billion at Dec. 31, 2023, and included Federal Home Loan Bank (FHLB) and Bank Term Funding Program borrowings.
If deposits continue to flow out because of the team departures, more FHLB or Federal Reserve discount window borrowings are possible but are unlikely to be a major source of funding after the first quarter, Janney Montgomery Scott analyst Chris Marinac said in an interview.
"Broadly speaking, the new leadership team should desire to pay down the FHLB and other borrowings and replace these funds with new deposits," Marinac said.
Potentially in an attempt to do that, New York Community recently raised its interest rate for its digital bank, My Banking Direct, to 5.55% — the highest rate offered by a US bank for a high-yield savings account, according to DepositAccounts.com.
"We see recent hires and the promotional rate as related," Breese wrote.
Defending remaining teams
New York Community could see further departures as several other banks are interviewing New York Community teams, and the company is trying to figure out how it can prevent more teams from leaving, Fitzgibbon said. Keeping the remaining teams on board will "undoubtedly" take New York Community spending more money and offering incentives to keep the rest of its deposit gathering teams in place, he added.
Former US Treasury Secretary Steven Mnuchin, who now serves on New York Community's board of directors, has been spending an "enormous" amount of time with deposit gathering teams, Fitzgibbon said. Mnuchin invested $450 million in the company's recapitalization through his Liberty Strategic Capital fund.
"I know that they're spending a lot of time handholding these teams and making them want to stay," Fitzgibbon said. "You would think that they are going to try to find a way legally to prevent some of these teams from leaving."
Going forward, New York Community can have employees sign noncompete or non-solicit agreements to reduce its vulnerability from other banks poaching its deposit specialists, said David Warner, a labor and employment lawyer at Dorf Nelson & Zauderer. Even so, such agreements are generally disfavored under New York law and must be narrowly tailored in terms of scope, geography and time, Warner said.
Furthermore, deposit gathering hires are usually reluctant to sign noncompete and non-solicit agreements to have more flexibility to move around, Fitzgibbon said.
High risk, high reward
Analysts were upbeat on the deposit gathering and market share expansion opportunities for Dime Community, Peapack and Customers, but the hires come with some risk for those companies.
"We can't imagine that New York Community (which we also follow) will sit idly by while a large number of teams depart their organization, especially while they are in the midst of a recap/turnaround," Fitzgibbon wrote. "Although we have no idea what the legal merits of any claim would be, we suspect [New York Community] could at a minimum delay the teams from joining and cost [Peapack] some money to defend the position of these teams."
Further, it remains to be seen if the poaching efforts will be successful for these banks, or if the teams and deposits are a flight risk.
It is possible the newly hired teams could decide to move again, Janney's Marinac said in an interview, pointing out that some of the employees have moved banks multiple times throughout their careers.
Moreover, some of these teams and deposits were acquired through the FDIC-assisted Signature Bank deal, which means they were less sticky to begin with.
"It's not like these were stable deposits for sure," Marinac said. "[New York Community] will figure it out. ... We saw that last year with PacWest and Western Alliance Bancorp. Both of those companies stabilized and I think New York Community is stabilizing too."
