DBRS Confirms New York Community Bancorp, Inc. at BBB (high); Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings of New York Community Bancorp, Inc. (NYB or the Company) and its related entities, including its Issuer & Senior Debt rating of BBB (high). At the same time, DBRS discontinued several ratings including the Company’s FDIC guaranteed debt, which matured. The trend for all ratings remains Stable. The ratings action followed a detailed review of the Company’s operating results, financial fundamentals and future prospects.

NYB’s ratings confirmation considers the Company’s resilient earnings generation and sound and improving asset quality, which reflects positively on its lower-risk niche business of banking owners of rent controlled/stabilized buildings in New York City. The ratings also reflect NYB’s high, yet manageable level of wholesale funding reliance and lumpy loan portfolio.

Although the Company’s franchise is in non-contiguous states, including Ohio, Arizona, and Florida, its loan portfolio is overwhelmingly collateralized by properties located within the New York City metropolitan area. Specifically, NYB utilizes deposits generated across its non-contiguous branch network to fund its niche business. Historically, NYB’s growth has benefitted from acquisitions and DBRS expects this to continue. Nonetheless, ratings could be pressured if the Company were to take on a transformational acquisition.

Overall, NYB’s earnings capacity remains solid, benefitting from a low cost operating platform, sound net interest margin (NIM), healthy level of mortgage banking income and modest credit costs. For 2Q12, net income increased to $131.2 million, from $118.3 million for 1Q12, driven by a sizable 65.9% increase in mortgage banking revenues, a 6 bps widening of the NIM to 3.30% and a 1.0% increase in average earning assets. Higher mortgage banking revenue was attributable to elevated levels of residential mortgage refinancings, and to a far lesser extent, new home purchases, driven by low interest rates. Meanwhile, the wider NIM reflected higher loan prepayment penalty income, which was attributable to increased levels of multifamily loan refinancings. Positively, average loans increased 1.0% QoQ, spurred by an increase in multifamily loans.

NYB’s expense base remains well-managed, in DBRS’s opinion, as its broker driven lending platform drives a low cost business model. Indeed, the Company’s low efficiency ratio of 38.1% (Company calculated) is far below that of most banks.

Asset quality continues to trend positively, reflecting QoQ improvement in nonperforming assets (NPAs, non-covered) and net charge-offs (NCOs). During 2Q12, non-covered nonperforming loans (NPL) contracted by $54 million, or 17.7%, to $252.0 million and represented 0.84% of total loans, down from 1.01% in the prior quarter. The decline in NPL was broad-based. Additionally, non-covered OREO declined $13.6 million, or 22.3% sequentially. Meanwhile, NCOs decreased by $1.7 million to $13.9 million and represented a very low 0.20% of average loans (annualized) for 2Q12. Finally, although NYB’s reserve coverage remains moderate at 54.7% of nonperforming non-covered loans, it is acceptable, especially given the Company’s modest historic loss rates.

DBRS notes that the Company has multiple large relationship exposures. Indeed, the largest of these relationships in aggregate account for a relatively high multiple of tangible common equity. DBRS comments that the risk associated with these concentrations is somewhat offset by the fact that most large relationships consist of multiple loans. The risks are further reduced by NYB’s experienced and successful track record in financing this sector and its conservative underwriting standards.

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

Finally, with its historic low loss rates, NYB’s capital remains sufficient and provides sound loss absorption capacity. At June 30, 2012, the Company’s tangible common equity ratio was 7.64%.

NYB, a multi-bank holding company headquartered in Westbury, New York reported $43.5 billion in assets as of June 30, 2012.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Mark Nolan
Rating Committee Chair: William Schwartz
Initial Rating Date: October 13, 2006
Most Recent Rating Update: July 22, 2011

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