- NYCB’s delinquent multifamily loans surged by 990% YTD, totaling $1.5B in non-accrual loans, largely due to revenue-limited, rent-regulated properties.
- The bank has boosted its loan loss reserves to a projected $1.1B–$1.2B for 2024, anticipating further risk as nearly $20B in loans reset to market rates over the next three years.
- To offset losses, NYCB is selectively selling off non-performing loans and boosted its cash reserves and deposits since a bailout in March.
According to The Real Deal, Long Island-based New York Community Bank is facing mounting financial pressure, reporting a shocking 990% YTD increase in delinquent multifamily loans, totaling $1.5B.
By The Numbers
Approximately half of these loans are tied to New York rent-stabilized properties, which have seen cash flow constrained by the state’s 2019 rent law. The new law limits rent increases, adding strain on owners who face rising costs and stagnating revenues.
To address the spike in distressed assets, NYCB increased its provision for loan losses to $242M for Q3 and anticipates between $1.1B to $1.2B in provisions for the year. The bank recorded $240M in net charge-offs in Q3 and expects a similar level in Q4.
The escalated provisions hit NYCB’s earnings, resulting in a net loss of $289M, a significant drop from the $199M profit posted a year earlier.
Managing Risk
NYCB has shifted $174M in non-performing loans into its “held for sale” portfolio. This figure, however, is minor compared to its $1.5B in non-accruals, largely due to market prices falling short of the bank’s expected returns.
According to Chief Credit Officer Kris Gagnon, NYCB sometimes chooses to work through troubled assets internally rather than accept current market prices, suggesting the bank anticipates improved outcomes from this approach over time.
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Loan Book Adjustments
Since narrowly avoiding collapse in March, NYCB has taken steps to strengthen its balance sheet. The bank reduced its overall loan portfolio by 11% to $77B, specifically to limit exposure to CRE and multifamily properties.
Additionally, NYCB bolstered cash reserves by 118% as a hedge against potential liquidity issues and achieved 11% deposit growth after a $1B equity injection from Liberty Strategic Capital and other investors earlier this year.
Potential Challenges
NYCB’s multifamily loan portfolio faces additional headwinds, with $20B set to reset to market rates by 2027.
Chief Credit Officer Kris Gagnon noted that the loan resets could lead to higher default risks for many rent-regulated properties, which face fixed income caps and rising costs.
The regulatory constraints have left many property owners struggling to meet expenses as revenue growth remains limited, creating significant ongoing challenges for NYCB in the rent-regulated sector.
