- New York Community Bank (NYCB) reported a second consecutive quarterly loss despite efforts to boost liquidity and restore investor confidence.
- The bank sold its residential mortgage servicing business to JPMorgan Chase (JPM) for $1.4B and $5.9B in mortgage warehouse loans.
- NYCB’s multifamily portfolio is under significant stress, with delinquencies and charge-offs surging dramatically from Q1.
- The bank has upped its allowance for credit losses to $1.2B and is reassessing its multifamily and CRE loans.
New York Community Bank (NYCB), a key CRE lender, reported its second consecutive quarterly loss in Q2, as reported in The Real Deal. The bank faces serious challenges, particularly within its multifamily loan portfolio, which saw a sharp rise in delinquencies and charge-offs.
Unloading Assets
In a bid to restore faith in its operations and boost liquidity, NYCB sold its residential mortgage servicing business for $1.4B to JPMorgan Chase (JPM), following the $5.9B sale of NYCB’s mortgage warehouse loans to the bank.
The sales were highlighted during NYCB’s Thursday morning earnings call, on which executives emphasized the bank’s recovery. CFO Craig Gifford noted, “We do find ourselves in a fairly strong liquidity position, which is nice to have.”
Multifamily Mayhem
NYCB reviewed 80% of its multifamily portfolio, revealing significant issues. Multifamily delinquencies surged by 767% from the previous quarter, with charge-offs growing by 590% and non-accrual loans increasing by 134%. This troubling trend in the multifamily sector, especially within NY’s rent-stabilized sector, has been a major source of investor anxiety.
The bank’s stock opened Thursday morning 17% below its Wednesday closing price, reflecting ongoing investor concerns. The lender reported a loss of $1.14 per share in Q2, slightly better than the $1.36 per share loss in Q1. Revenue, however, showed only a slight improvement, up 6% to $671M.
Shaking Things Up
To address solvency concerns, NYCB expanded its allowance for credit losses to more than $1.2B, a 113% increase from the same period last year. Delinquencies surged to $1.2B, a 468% increase from Q1. However, $709M of that has become current since Q2 ended, reducing delinquencies to around half a billion dollars as of July 24.
NYCB still boasts around $40B in liquidity, including $18B in cash. This is sufficient to cover its nearly $13B in uninsured deposits, often the first to be withdrawn if doubts about a bank’s solvency arise.
The bank has also undergone several leadership changes and strategic shifts. NYCB replaced its CEO twice and revamped the entire C-suite, focusing on its CRE loan book. Current CEO Joseph Otting stated the bank has re-underwritten loans, particularly those tied to breakeven buildings, and reordered appraisals. The bank has finished reviewing 75% of its CRE portfolio.
Moving Forward
To further boost liquidity, NYCB plans to unload more non-core businesses valued between $2B to $5B. “We will have a simpler organization,” Otting said to close the earnings call, indicating a strategic focus on core banking operations and a streamlined business model. The bank’s ability to navigate its multifamily loan challenges and maintain liquidity will be critical to its long-term recovery.
