Two weeks after disclosing "material weaknesses" in its internal controls, the Long Island-based company described a remediation plan that includes expanding the use of independent credit analyses, providing additional risk-rating process training for internal loan review employees and hiring a new loan review director.

The plan was included in New York Community's annual report, which was released Thursday after being delayed for a couple of weeks because new company management was working on a strategy to address the problems.

The annual report also includes other measures aimed at fixing the deficiencies, such as ramping up the frequency with which the bank's internal loan review team and first-line business units report to the risk committee of its board of directors.

New York Community also said that it will improve its internal loan review team's "ability to independently challenge risk rating scorecard model methodologies and results." And it promised to assess the "adequacy of staffing levels and expertise" in the internal loan review program, "taking into account … the size, complexity, and risk profile of the company's loan portfolio."

Those changes are on top of other remediation measures that New York Community, the parent company of Flagstar Bank, has already announced in the past few weeks. The company has overhauled its board of directors to include more members with deep industry experience and backgrounds in risk management. It has also hired a new chief risk officer and a new audit chief, both of whom have worked at larger banks.

In its annual report, the $114 billion-asset bank said that it has made some progress in addressing the deficiencies, but warned that it's still in the process of building out a full remediation strategy.

"We believe our actions will be effective in remediating the material weaknesses, and we continue to devote significant time and attention to these efforts," the company said in its annual report.

"In addition, the material weaknesses will not be considered remediated until the applicable remedial processes, procedures and controls have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective," the bank added.

Also included in the annual report, commonly known as a 10-K, was a letter from KPMG, the bank's primary auditor since 1993. KPMG said that based on a report it completed Wednesday, it concluded that New York Community's board of directors had not sufficiently overseen activities, leading to ineffective risk assessment and monitoring.

But despite those problems, KPMG gave the bank's financial statements from the past three years a clean bill of health.

Analysts who cover New York Community had different reactions to the bank's annual report. 

Peter Winter, an analyst at D.A. Davidson, said the document doesn't do enough to ease worries about whether the bank is going to need to again boost its reserves for souring loans. New York Community's downward spiral began in January, when it reported logging a massive $552 million provision to cover potential loan losses, up sequentially from $62 million.

"I think if you had questions about whether they have put aside enough reserves and what the outlook will be, this 10-K doesn't … put to rest any of those concerns," Winter said.

But Casey Haire, an analyst at Jefferies, said that the reported soundness of the New York Community's financial statements bodes well for the bank's reserve-building, since the updated filing didn't require additional provisions for credit losses.

The two analysts were also split about whether the improvements to New York Community's internal controls and risk management will lead to higher expenses this year.

Winter said it's possible that the company will revise its expense guidance when it issues its first-quarter earnings report in April, while Haire argued that KPMG's affirmation of the bank's previous financial statements supports the prior expense guidance for 2024.

New York Community said in its fourth-quarter earnings report that it expects noninterest expenses of between $2.3 and $2.4 billion in 2024, up from $2.2 billion in 2023, though last year's number excluded a goodwill impairment charge and merger-related expenses. 

All told, the bank's remediation strategies shouldn't add significantly to expenses, Haire said.

New York Community did not respond to a question about how much it expects to spend in aggregate to put all of its remediation plans in place.

The bank's first quarter has been tumultuous. Last week, New York Community landed a $1 billion capital investment led by Steven Mnuchin, who served as Treasury secretary during the Trump administration. The new investors are poised to own nearly 40% of the company.

(Jefferies acted as the exclusive financial advisor and sole placement agent to New York Community on the capital infusion.)

The capital infusion has brought a merry-go-round of managerial changes. Former Comptroller of the Currency Joseph Otting is set to become CEO on April 1, succeeding Alessandro "Sandro" DiNello, the company's executive chairman who was named CEO last month after Thomas Cangemi abruptly left the role. Meanwhile, the board has been massively revamped. For starters, Mnuchin will join the board and serve as the lead independent director.

He will be joined by Otting and two representatives from a pair of investment groups that contributed to the $1 billion rescue. DiNello, who formerly led Flagstar Bancorp, which New York Community acquired in December 2022, will remain on the board, as will two legacy Flagstar directors who joined New York Community's board after the acquisition.

Haire said that the leadership changes are indicative of the scope of the overhaul. "They're fixing a broken bank," Haire said.

In a separate securities filing on Thursday, New York Community disclosed that two current directors — Lawrence Savarese and David Treadwell — will resign from its board. Savarese, who joined the board in 2013, was set to depart after the 10-K was filed, while Treadwell, who joined Flagstar's board in 2009, plans to exit after his successor is found, according to the second filing.

New York Community did not respond to questions about whether it will fill those seats. 

Following Savarese's exit, the only director from pre-Flagstar New York Community will be Marshall Lux, who joined the board in February 2022. 

The latest report by KPMG comes at a time when the accounting firm's reputation has come under fire. KPMG was also the auditor for the three regional banks that failed last spring: Silicon Valley Bank, First Republic Bank and Signature Bank. 

In its report on New York Community, KPMG found that the bank's loan review process was flawed, lacking timely assessments, monitoring and controls.

"Specifically, the company's internal loan review processes lacked an appropriate framework to ensure that ratings were consistently accurate, timely, and appropriately challenged," KPMG's report said, adding that these deficiencies hindered the bank's ability to identify problem loans and allot appropriate credit losses.

KPMG expressed an "adverse opinion" regarding New York Community's internal controls for financial monitoring, contradicting its clean assessments from the past several years. 

In its annual report, New York Community also detailed some of its recent efforts to slim down its balance sheet. This week, the bank sold a $899 million book of consumer loans, it said. And last month, it sold a co-operative loan that had made up more than half of its fourth-quarter charge-offs. The sale reeled in a $26 million gain.

Haire said there are still plenty of questions about what the bank will do going forward. Management has said that the bank's next earnings call will provide more detail about its strategic direction.

"This first-quarter earnings call is essentially going to be an investor day," Haire said. "They're going to give you their business plan for what a new NYCB will look like."