DBRS Ratings on New York Community Bancorp Unchanged after 1Q12 Results – Senior: BBB (high), Stable

DBRS, Inc. (DBRS) has commented today that its ratings for New York Community Bancorp, Inc. (NYB or the Company), including its BBB (high) Issuer & Senior Debt rating, are unchanged following the release of 1Q12 results. The trend on all ratings is Stable. NYB reported net income of $118.3 million for 1Q12, up marginally from $117.7 million for 4Q11. Despite the difficult operating environment, which continues to pressure the Company’s net interest margin (NIM), NYB’s earnings reflect solid underlying fundamentals, including improved asset quality and sustained commercial and residential mortgage loan growth.

Despite the macroeconomic headwinds, the Company continues to have success in growing its loan book. Though moderately down from 4Q11 production, NYB’s loan originations totaled $4.6 billion in the quarter, including $2.1 billion of loans held for investment (HFI) and $2.5 billion of loans held for sale (1-4 family residential mortgage). HFI loan growth consisted of 49% multi-family loans with the majority of the balance in CRE loans. Aside from solid loan production, 1Q12 earnings benefitted from NYB’s improved asset quality and lower provisions for loan loss reserves, which declined 25% QoQ. Meanwhile, beyond higher foreclosure related costs during the quarter, NYB’s expense base remains well controlled.

During the quarter, NYB’s average earning assets increased 1.6% QoQ to $35.5 billion, but net interest income declined by 3.9% to $288 million due to a 21 basis point narrowing of net interest margin (NIM) to 3.24% as declining loan yields outpaced decreasing funding costs. Positively, non-interest income grew 3.8%, or $2.2 million, over the prior quarter to $62 million. Mortgage banking, which comprised 57% of total fee revenue, accounted for most of the increase in fee income.

The Company’s expense base remains well-managed, as NYB’s broker driven lending platform drives a low cost business model. Total non-interest expense increased moderately in the quarter by $3.8 million and was attributable mostly to salary increases, costs related to the Company’s stock incentive plan, and pension-related expense. Meanwhile, general and administrative costs also increased due to expenses related to the acquisition and management of foreclosed properties. Nonetheless, NYB’s efficiency ratio stood at a low 41.4% at March 31, 2012.

Despite macroeconomic headwinds, NYB’s asset quality remains sound and improved. Specifically, the Company’s non-covered nonperforming loans (NPLs) declined for the sixth consecutive quarter and represented 1.01% of loans, down from 1.11% at year-end 2011. The decrease in NPLs was represented across most loan categories with declining NPLs in multifamily, CRE, and 1-4 family loans, partially offset by a slight increase in acquisition, development and construction loan NPLs. Meanwhile, net charge-offs (NCOs) decreased $6.6 million, or 29.7%, over the quarter and represented a still low 0.20% of average loans (annualized), compared to 0.28% for 4Q11. Positively, the QoQ decrease in NYB’s early stage delinquencies point to future credit quality improvement. Finally, DBRS notes that NYB’s reserve coverage remains modest at 44.7% of nonperforming non-covered loans, yet is acceptable given the Company’s current low level of NCOs. NYB’s loan loss reserves (for non-covered loans) of $136.8 million remained steady and equated to nearly 9 quarters of charge-offs at 1Q12.

Although the Company’s liquidity profile remains adequate, NYB utilizes a sizable level of wholesale funds, which in general is a less stable funding source and could significantly raise its funding costs, compress margins and constrain profitability.

Capitalization remains solid and continues to provide sound loss absorption capacity at current loss rates. Indeed, NYB’s tangible stockholder’s equity increased $19.4 million on a linked-quarter basis to $3.1 billion and was 7.64% of tangible assets at 1Q12.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. Both can be found on the DBRS website under Methodologies.

The sources of information used for this rating includes company documents, the Federal Deposit Insurance Corporation and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Mark Nolan
Approver: Roger Lister
Initial Rating Date: 13 October 2006
Most Recent Rating Update: 22 July 2011

For additional information on this rating, please refer to the linking document under Related Research.