NYCB Pushes Back Profitability Forecast As Its Problem Loans Skyrocket
New York Community Bancorp may be starting anew with a different name, but its balance sheet continues to have the same problems: underperforming commercial real estate loans.
The regional bank, which nearly imploded earlier this year, reported its fourth consecutive quarterly loss Friday, with income $280M in the red. It updated its earnings forecast, pushing back profitability expectations from 2025 to 2026, according to an investor presentation.
In total, the bank had $2.5B worth of nonaccrual loans at the end of the third quarter, $1.5B of which were tied to multifamily properties. That figure is up by nearly $600M from the second quarter and up 487% from December 2023.
A nonaccrual loan is one on which the bank is no longer receiving interest payments or expects the borrower to default. The percentage of the bank’s nonaccrual loans that are current increased to 68% from 61% the previous quarter.
The company's stock was down 9% as of early Friday afternoon.
NYCB will convert its holding company name to Flagstar Financial and begin trading Monday on the New York Stock Exchange under the ticker FLG. However, the bank has more work to do before it is stable.
Following the report of a large loss in the fourth quarter last year, NYCB required a billion-dollar injection of rescue capital provided by a group of investors led by former Treasury Secretary Steven Mnuchin. The investment resulted in an ouster of prior leadership, with former Comptroller of the Currency Joseph Otting stepping in as the new CEO.
Under new management, the bank is undergoing a portfolio review to detect troubled loans and turn things around. It has nearly completed the review of its CRE portfolio but expects the full review to be done following the fourth quarter, executives said on the bank's earnings call Friday.
“People are waiting to see the next Fed move, but that should spur a fair amount of refinancing,” Otting said. “Our objective would be for [borrowers] to take those loans elsewhere and get financing.”
NYCB’s troubles are largely attributed to high exposure to multifamily, and at its time of turmoil, roughly half of those loans were for owners of rent-stabilized apartments in New York City. Those properties have seen their values crater in the aftermath of 2019 reforms to the city's rent control laws.
The bank had been a large purchaser of the assets of the collapsed Signature Bank, which was also an active lender to owners of rent-stabilized properties.
“We're essentially assuming a relatively flat balance sheet,” NYCB Chief Financial Officer Craig Gifford told analysts on an earnings call Friday morning. “We're assuming that we will see a transition from commercial real estate and multifamily loans into C&I loans as the real estate loans repay and run off.”
Under the review, NYCB’s multifamily exposure has decreased from $35.2B at the end of last year to $33.1B this quarter, according to its latest financial disclosures.
But the company has also taken substantial charge-offs. Its multifamily portfolio has taken $188M of net charge-offs year to date, while its office portfolio has taken $388M.
NYCB boosted its allowance for credit losses ratio to 1.78%, or more than $1.2B, up from 1.7% last quarter. During the same period last year, NYCB’s allowance for credit losses was just $619M, or 0.74%.
Overall, NYCB’s commercial real estate exposure declined 3% in the third quarter, according to the report.
That attempt to stabilize includes selling assets. In July, the company sold approximately $6.1B of mortgage warehouse loans. Last quarter, the bank announced that it was set to sell $1.2B of assets and subservicing business in a deal that will close next quarter.
The company has also laid off 700 employees and plans to cut another 1,200 jobs, Reuters reported. But Otting highlighted on the call that the bank has hired a group of new executives, including a head of workout, which will operate as a “SWAT team” to offload distressed loans.
The bank has been the subject of a class-action lawsuit from its investors, led by two pension funds, for failing to disclose underlying risks in its CRE loan portfolio. Such suits are common after a large loss of value at a publicly traded company, and NYCB's shares are selling at $10.44, down 66% from a year ago.
In a report this week, the Federal Reserve Bank of New York warned that by repeatedly extending the maturity date of commercial real estate loans, many banks are delaying disclosing the distress in their portfolios and creating a greater economic risk.
