DBRS Ratings on New York Community Bancorp Unchanged after 4Q12 Results – Senior at BBB (high), Stb

DBRS, Inc. (DBRS) has commented today that its ratings for New York Community Bancorp, Inc. (NYCB or the Company), including its BBB (high) Issuer & Senior Debt rating are unchanged following the release of 4Q12 results. The trend on all ratings is Stable. Mostly reflecting lower mortgage banking income, NYCB’s net income decreased 4.6% to $122.8 million for the quarter, down from $128.8 million for 3Q12.

Despite the uneven economic environment, NYCB continued to reflect solid fundamentals, including healthy earnings, sound asset quality and adequate capital. Highlights for the quarter included higher levels of loans and deposits and lower levels of net charge-offs (NCOs).

During 4Q12, the Company’s non-covered loan portfolio (held for investment) increased by 1.7% ($459.7 million), mostly driven by a 3.4% ($243.0 million) increase in commercial real estate (CRE) loans and a 0.7% ($129.8 million) increase in multifamily loans. In part, higher loans reflected elevated property transactions, due to property owners’ expectations of higher tax rates in 2013. Nonetheless, the 1Q13 CRE and multifamily loan pipeline remains healthy, at approximately $2 billion. Supporting loan growth, period–end deposits were up a solid 1.4% ($355.9 million) sequentially. Deposit growth was broad-based, led by a 10.6% ($264.4 million) increase in noninterest bearing deposits.

Total revenues decreased $21.1 million to $345.5 million, due to a $26.2 million, or 32.0%, decline in noninterest income, partially offset by a $5.1 million, or 1.8%, increase in spread income. The decrease in non-interest income was mostly attributable to a $20.0 million, or 38.0%, decline in mortgage banking income, as volumes contracted due to rising mortgage rates and seasonality. Meanwhile, improved net interest income reflected a 2.3% increase in average earning assets, offset by a 2 bp narrowing of net interest margin (NIM) to 3.15%.

Noninterest expense was up a modest $1.2 million, or 0.8%, sequentially, mostly reflecting an $847,000, or a 1.7%, increase in general & administrative (G&A) expense, and an $834,000, or 1.1%, increase in compensation and benefit expense. Higher G&A expense was driven by elevated variable mortgage banking expense and higher costs associated with managing and disposing of foreclosed properties. Meanwhile, the increase in compensation and benefits costs reflected normal salary increases and incentive awards.

Despite the difficult business environment, asset quality remained sound. Specifically, non-covered non-performing loans represented a manageable 0.85% of loans at December 31, 2012, up slightly from 0.82% at the end of 3Q12. Meanwhile, NCOs declined to a very low 0.04% of average loans (annualized) for 4Q12, down from 0.12% for 3Q12. Finally, DBRS notes that NYCB’s reserve coverage remains modest at 53.9% of nonperforming loans (non-covered), yet is acceptable given the Company’s historically low level of NCOs. At 4Q12, the Company’s loan loss reserves (non-covered) of $140.9 million equated to approximately 45.5 times 4Q12 NCOs of $3.1 million.

Although the Company’s liquidity profile remains adequate, NYCB 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.

Finally, NYCB’s capital remains sufficient and provides sound loss absorption capacity, especially at current loss rates. At December 31, 2012, NYCB’s tangible common equity represented 7.65% of tangible assets, up from 7.62% at September 30, 2012.

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

[Amended on June 25, 2014 to remove unnecessary disclosures.]