CRE Loan Losses Pile Up For NYCB As New Leaders Chart Path To Profitability
New York Community Bancorp’s new leadership has a long road ahead as the beleaguered bank reevaluates its loan portfolio.
In its first earnings report since an investor group led by former Treasury Secretary Steven Mnuchin infused the multifamily lender with $1B, NYCB revealed that it ended the quarter with $798M in nonperforming loans, almost double the $428M it had at the end of December.
The bank, which posted a quarterly loss of $335M on Wednesday, attributed the increase in nonperforming loans to its multifamily and commercial real estate loans. Multifamily loans make up 45%, or $36.9B, of NYCB’s portfolio, according to a company presentation.
Multifamily loan losses across the country have spiked in the last year, with the rate of multifamily losses hitting 16% in 2023, up from around 5% in the prior two years, according to MSCI data.
The bank expects $2.6B of its multifamily book to reprice in 2024, after $2.1B has already been repriced over the past 15 months. Of those that were repriced, 28% were paid off and 69% went to a 7.8% rate from a 3.8% rate.
NYCB also has a $3.1B portfolio of office loans. Many office borrowers have defaulted on their loans, and even some of the biggest landlords have willingly handed their keys to lenders.
In a call with investors, NYCB President and CEO Joseph Otting said the bank has experienced the same.
“The office market is pretty stressed,” Otting said. “It was a couple of stressed office loans that got to the point where the investors chose to just come to us, and we had to take over the property.”
To mitigate the anticipated distress in the industry, NYCB has set aside $1.2B to cover losses. That includes $469M to cover the multifamily sector and $323M for office. That number is up from $992M at the end of December and $550M from a year prior.
As part of its review process, the bank and an independent third party analyzed its books, finding that the risk for smaller loans is significantly lower than the large loans it is carrying.
And the bank is optimistic about its “clear path to profitability over the following two years,” Otting said in a statement. That caused the stock, which had halted trading after nearing an all-time low in March, to jump 33% in early trading. It is still down more than 66% in 2024.
During the earnings call, Otting said the bank expects to sell $5B in assets in a transaction that could close within 60 to 70 days. In the medium term, NYCB plans to diversify its loan portfolio, including by limited exposure to office and multifamily.
In addition to adjusting its portfolio, NYCB has made significant changes to its leadership since the cash infusion. In April, it brought in four new executives, including replacing its chief financial officer with banking industry veteran Craig Gifford.
