NYCB Faces a Tough Road to Profitability

New York Community Bancorp (NYCB) shares fell Thursday after the troubled regional bank’s path to profitability was muddied by disappointing second-quarter earnings results.

NYCB slashed its 2025 diluted core earnings per share guidance to a high of just 5 cents, down from its previous estimate of 35 cents to 40 cents. For 2024, the bank expects to lose between $2.20 and $2.30 per share, wider than a previously expected 50 cents to 55 cents.

Shares of NYCB fell 3% on Thursday. The stock has lost roughly two-thirds of its value this year.

“Our second-quarter performance reflects the ongoing actions management is taking during this transitional year as we reposition the bank for long-term success,”  Chief Executive Officer (CEO) Joseph Otting said in a statement. 

Otting, who was appointed in March, has pledged to reduce NYCB’s reliance on commercial real estate (CRE), which includes multifamily loans. CRE loans for the bank fell 4% year-over-year, or by $362 million, in the period, while multifamily loans declined 2%, or $848 million.

“During the quarter, we expanded our comprehensive review of the loan portfolio beyond the top 350 commercial real estate and multifamily loans to encompass 75% of these two portfolios and increased our loan loss provision and charge-off levels, accordingly,” Otting said.

Loans to Rent-Regulated NYC Buildings Hurt

A pain point for NYCB is its loans to rent-regulated multifamily buildings in New York City. High interest rates, persistent inflation and falling property values are putting owners of such buildings in a bind, jeopardizing their ability to repay loans. 

NYCB has reduced its multifamily portfolio to $33.9 billion at the end of June from $35.4 billion as of June 30, 2023. In May, NYCB agreed to sell about $6 billion of mortgage warehouse loans to JPMorgan Chase (JPM). The transaction closed on Monday.

Flagstar Bank Deal

NYCB also said Thursday that its Flagstar Bank unit agreed to sell its residential mortgage servicing business to Mr. Cooper Group (COOP) for $1.4 billion.

“While the mortgage servicing business has made significant contributions to the Bank, we also recognize the inherent financial and operational risk in a volatile interest rate environment, along with increased regulatory oversight for such businesses,” Otting said. 

The transaction is expected to close in the fourth quarter.

NYCB posted a loss of $1.14 per diluted share, much wider than the 43 cents expected by analysts, per Visible Alpha. Net interest income was $557 million, below expectations of $587.6 million.