On Thursday, Raymond James maintained a Market Perform rating for New York Community Bancorp (NYSE:NYCB), focusing on the bank's recent capital raise efforts.
The analyst highlighted the capital raise as a strategic move that provides the bank with ample time to address specific credit issues. New York Community Bancorp (NASDAQ:CTBI)'s interest-only multi-family portfolio, which expanded through competition with Signature Bank (OTC:SBNY) and agency lenders, is expected to be a persistent concern until it is fully resolved.
The bank's non-conforming disclosures related to Debt Service Coverage Ratios (DSCRs) and the analyst's own calculations indicate potential cash flow challenges for many borrowers upon loan resets in the face of higher interest rates.
The analysis suggests that the loans may have been underwritten with aggressive assumptions, leading to stress for borrowers if the high-interest-rate environment persists. Loan-to-Value (LTV) ratios for the interest-only portfolio are estimated to be between 80% and over 100%.
Further complicating the bank's financial outlook is the disclosure of material weaknesses in credit and risk management. The analyst believes that it would require a significant decrease in interest rates to mitigate structural issues within the bank's $18 billion interest-only portfolio. The expectation is that New York Community Bancorp will gradually increase its reserves, which, when combined with ongoing deposit remixing pressures, could lead to a considerable decline in earnings power.
The report concludes that until there is more clarity or adequate reserves concerning the multi-family interest-only credit risk, the stock price is likely to remain within a certain range. This outlook comes as the bank navigates a challenging financial landscape, with specific attention to its sizable interest-only multi-family loan portfolio.
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