First Citizens halts new office loans

First Citizens Bank is pulling the plug on new office loans to shore up for expected defaults.

The North Carolina-based bank will stop issuing general office loans, the company’s chief financial officer announced in an earnings call reported by Bloomberg.

The bank is setting aside more allowance for credit losses on the existing debt it holds on Class B office repositions and bridge financing, which Bisnow reported comprises a $1.3 billion loan portfolio.

CFO Craig Nix called the issues in the portfolio “manageable” and said the bank was working on “diversifying to other performing property types.” Nix added that maturing loans will be addressed with borrowers on a case-by-case basis.

The $138 billion in total loans owned by First Citizens is represented by an 11.9 percent share of exposure in commercial real estate. Roughly $2.8 billion are general office loans.

The average office loan issued by First Citizens is about $2 million. The delinquency rate on those loans is 6.7 percent.

First Citizens agreed in March to buy the assets and liabilities of SVB, assuming $72 billion in loans and $56 billion in assets. The bank was able to snag the assets from the Federal Deposit Insurance Corp. for a discounted $16.5 billion. At the time of the collapse, SVB had $10.9 billion in real estate loans on the books, including $2.6 billion in commercial real estate.

As rising interest rates and hybrid work continue to plague the office markets, distress has become more visible and lenders have been searching for an exit ramp from the property sector. JPMorgan Chase, Deutsche Bank and Barclays are among the institutions that have explored sales on their commercial debt, offering discounts ranging from 3 percent to 25 percent.

— Holden Walter-Warner