DBRS Ratings on New York Community Bancorp Unchanged after 3Q12 Results – Senior at BBB (high), Stb

DBRS, Inc. (DBRS) has today commented 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 3Q12 results. The trend on all ratings is Stable. NYB reported net income of $128.8 million for 3Q12, down 1.8% sequentially from $131.2 million, but up 7.6% from $119.8 million in 3Q11. Lower QoQ earnings reflected a 7.2% decline in revenues, partially offset by a 1.4% decrease in noninterest expense and a 33%, or $5 million decline, in loan loss provisions (for non-covered loans).

Despite the slow growth economic environment, NYB displayed some positive balance sheet fundamentals, during 3Q12. On a linked-quarter basis, the Company reported a moderate increase in loans, mostly driven by higher levels of multifamily loans and loans held for sale (residential mortgages). Meanwhile, average deposits grew QoQ, due to the Aurora Bank acquisition (June 28, 2012). However, with the Company purposely running off higher cost maturing certificates of deposits, period-end deposits declined QoQ. Finally, asset quality continues to trend positively.

Lower linked-quarter revenues of $366.6 million reflected a 16.9% sequential decline in noninterest income and a 3.9% reduction in spread income. Noninterest income decreased $16.5 million to $81.7 million, in part, reflecting a 9.8% ($5.7 million) reduction in mortgage banking income to $52.6 million, largely driven by a 3Q12 $13.9 million servicing loss, which represented a $19.3 million swing from the prior quarter. Somewhat offsetting, was the 26% increase in mortgage origination income to $66.5 million, reflecting the significant volume of residential mortgages produced for sale during 3Q12.

The Company’s net interest income decreased by $11.7 million to $285 million, attributable to a 13 bps narrowing of net interest margin (NIM) to 3.17%, partially offset by 0.6% increase in average earning assets to $36.1 billion. The growth in average earning assets was mostly driven by a 0.4% increase in loan balances. Meanwhile, prepayment penalty income contributed $31.5 million, or 35 bps, to NIM compared to 36 bps during 2Q12. Margin contraction reflected declining earning asset yields outpacing decreasing liability costs.

Consistent with its disciplined, low-cost business model, noninterest expense declined 1.4% to $153.3 million, mostly reflecting a 4.8% decrease in General & Administrative expenses to $51.1 million. Specifically, the decline was driven primarily by lower expenses related to managing and disposing of foreclosed properties. Additionally, lower expenses reflected a 1.3% decrease in occupancy and equipment expense to $23.0 million. Positively, the Company’s efficiency ratio of 40.5% (Company calculated) remains far below that of most other banks.

Asset quality continued to trend positively, reflecting the eighth consecutive quarter of improvement. Nonperforming loans (NPLs, non-covered) and net charge-offs (NCOs) declined over the prior quarter. Specifically, non-covered NPLs contracted by $5.4 million, or 2.2%, to $246.6 million and represented just 0.82% of total loans, down from 0.84% in the prior quarter. Positively, the decline in nonperforming loans was mostly broad based, with the largest decline (11.1%) within multifamily loans. Levels of CRE and Acquisition, Development and Construction (ADC) nonperforming loans also improved. Conversely, one-to-four family nonperforming loans grew marginally over the prior quarter. Meanwhile, NCOs declined $5.0 million to $8.9 million during the quarter and represented a very low 0.12% of average loans (annualized). Finally, DBRS notes that NYB’s reserve coverage remains modest at 56.4% of nonperforming non-covered loans, yet is acceptable given its low level of NCOs. At 3Q12, NYB’s loan loss reserves (for non-covered loans) of $139 million equated to approximately 15.6 times 3Q12 NCOs.

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 potentially raise its funding costs, compress margins and constrain profitability. During the quarter, the Company’s total period-end deposits declined modestly by 1.9%.

Finally, NYB’s capital remains sufficient and provides sound loss absorption capacity at current loss rates. In 3Q12, NYB’s tangible common equity represented 7.62% of tangible assets compared to 7.64% at 2Q12.

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 and Rating Bank Preferred Shares and Equivalent Hybrids. These methodologies 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
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.