New York Community Bancorp (NYCB) announced recent "internal controls" concerns amid a CEO shakeup — Executive Chairman Alessandro DiNello will step up as both president and CEO. The regional bank's share price plunges further into Friday's trading session.

David Chiaverini, Wedbush Managing Director of Equity Research — Mid-Cap & Regional Banks, sits down with Yahoo Finance Live to talk about major concerns surrounding NYCB's customer deposit flows and commercial real estate exposures.

"The main risk in New York Community's portfolio, at least in our view, is their rent-regulated multi-family exposure, which is 22% of total loans. That is far and away the highest in our coverage, the next highest is 5% — so a big step down," Chiaverini explains. "So it does seem to be idiosyncratic to New York Community Bank, at least on an acute basis. Now will CRE be a headwind for the overall banking industry? Yes, absolutely, but the rest of the industry will have a runway to set aside reserves as we go."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: New York Community Bancorp turmoil surrounding that bank is dragging the sector, dragging regional banking stocks. Lower shares of NYCB plunging 21% in the pre-market after the New York-based lender warned that fourth quarter losses blew in a $2.7 billion.

The company also disclosing the departure of its CEO citing, quote, "material weaknesses" in its internal controls. Now, the stock facing some pressure so far this year after it surprised analysts just about a month ago by slashing its dividend and setting aside even more money for loan losses.

So for more on the bank's troubles and what happens next, we want to bring in David Chiaverini. He's Wedbush Managing Director of Equity Research Mid-Cap and Regional Banks.

David, it's great to have you back on "Yahoo Finance." So we spoke just about a month ago, when we first got the announcement of the cut in the dividend, when we first got the announcement that they were setting aside more money here for losses going forward. Now, we have the extent of the profit hit here in the most recent quarter. What's next for New York Community Bancorp?

DAVID CHIAVERINI: Yeah. I think the key focus going forward is going to be their deposit flows. With today's stock action, the stock action over the past month, people are going to be wondering what's happening to their core deposits, given all the turmoil that the company is going through?

Now, what they had said about a week after the earnings release is that total deposits were up $1 billion year-to-date. But it was unclear how much they were relying on brokered deposits to generate that level of growth.

So the concern is core deposits, particularly, non-interest bearing deposits, which, of course, come with zero cost. Whereas, brokered deposits have a similar cost as borrowing. So that could pressure their net interest margins.

So that's really the key concern here. The other concern naturally is with the deficiencies in their internal controls related to their loan review process, it opens the door to them, potentially, having to set aside more reserves related to their CRE exposure. So those are the two key items that investors are looking at.

BRAD SMITH: Have they made the necessary executive changes to really show investors that going forward, they will have a handle on this?

DAVID CHIAVERINI: Yeah. So Sandro DiNello, he really navigated Flagstar coming out of the financial crisis. And he did a fantastic job doing so. And I think that's why they elevated him and brought him into the executive chairman role, and, now, president and CEO to really work with the regulators and get the bank back on track.

So I think it is confidence inspiring for the bank.

SEANA SMITH: David, this has raised some concerns just about the risk that this could pose to the larger regional banking industry. Is this a one-off case scenario? Or is there any risk of contagion?

DAVID CHIAVERINI: Yeah. So the main risk in New York communities portfolio, at least, in our view is their rent regulated multifamily exposure, which is 22% of total loans. That is far and away the highest in our coverage.

The next highest is 5%. So a big step down. So it does seem to be idiosyncratic to New York Community Bank, at least, in on an acute basis. Now, will CRE be a headwind for the overall banking industry? Yes, absolutely. But the rest of the banking industry will have a runway to set aside reserves as we go.

So CRE is a headwind. But in the near term, this is very much focused on New York Community Bank with their specific exposures.

SEANA SMITH: David, diving into that a little bit more. So CRE being a headwind here for the regional banking sector at large over the next couple of quarters. When you talk about that challenge, I guess, put it in perspective for us how big of a hit do you see this potentially being to some of those biggest players within the space?

DAVID CHIAVERINI: Yeah. So the biggest players like the money center banks, they should OK. Because they are subject to elevated capital requirements. Whereas, some of the mid-sized banks, they're the ones that could-- and smaller banks. They're the ones that do have outsized exposure to CRE.

So it is a concern, particularly, in this elevated interest rate environment and, especially, since the Fed has been incrementally more hawkish over the past month or so. When these borrowers look to refinance, that's where issues could arise. So maturities will be a key item to track this year.

BRAD SMITH: And David, just lastly while we have. What are the other better options in terms of the regional banks that you're tracking right now? We're looking at New York Community Bank down 54% year-to-date here. So a lot of people have, obviously, flowed out of this stock. Where else might they be taking opportunities to flow into?

DAVID CHIAVERINI: Yeah. So our top picks, First Horizon, FHN, First Citizens, FCNCA. Western Alliance, we like WAL. They were caught in the crosshairs about a year ago. But they've rightsized the bank. And steadied it. So those are a few names that we like here.

SEANA SMITH: All right. David Chiaverini, always great to get your insight. Thanks so much for hopping on with us this morning. Wedbush Managing Director of Equity Research Mid-Cap and Regional Bank. Thanks, David.

DAVID CHIAVERINI: Thank you.