DBRS Ratings on New York Community Bancorp Unchanged after 1Q13 Results – Senior at BBB (high), Stb

DBRS, Inc. (DBRS) has today commented 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 1Q13 results. The trend on all ratings is Stable. Reflecting lower net interest income and mortgage banking revenues partially offset by securities gains, NYCB’s net income decreased 3.4% to $118.7 million for the quarter compared to $122.8 million for 4Q12.

NYCB continued to reflect sound fundamentals, including relatively stable earnings, solid and improving asset quality, and adequate capital. Highlights for the quarter included growth of both loans and deposits and lower levels of net charge-offs (NCOs) and non-performing loans.

During 1Q13, the Company’s non-covered loan portfolio (held for investment) increased by 3.0% ($829.9 million), driven by a 3.3% ($622.8 million) increase in multifamily loans, a 1.4% ($106.3 million) increase in commercial real estate (CRE) loans and a 50.1% ($101.9) increase in portfolio single family mortgage loans. Additionally, the current held for investment loan pipeline remained healthy, at approximately $1.8 billion. Supporting loan growth, period–end deposits were up a solid 2.4% ($600.2 million) sequentially. The Company attributed the growth in deposits to a favorably received retail deposit campaign. Meanwhile, wholesale borrowings declined 1.9% ($251.7 million) to $12.8 billion for the quarter as utilization of cash and a decline in loans held for sale reduced funding needs.

Total revenues increased $5.2 million to $350.7 million sequentially. The increase was predominately due to a $16.6 million increase in gain on sales of securities and a $6.2 million improvement in FDIC indemnification income. This was partially offset by a $14.8 million decrease in net interest income and a $6.5 million (19.8%) drop in mortgage banking income, as rising mortgage rates and seasonality led to a decline in volume. Meanwhile, the decline in net interest income largely reflected lower prepayment penalty income compared to 4Q12, which benefited from an unusually high prepayment of a large ($545.5 million) relationship that generated $17.9 million of prepayment income. The higher 4Q12 level of prepayments also drove the 20 bps narrowing of net interest margin (NIM) to 2.95%. Prepayment penalty income contributed 21 bps of 1Q13 NIM compared to 43 bps in 4Q12.

Noninterest expense increased a relatively modest $1.5 million, or 1.0%, sequentially, mostly reflecting an $8.3 million increase in compensation and benefit expense partially offset by lower G&A expense driven by a reduction in FDIC deposit insurance premiums and legal and other professional fees. NYCB continues to do a good job managing expenses and has maintained an efficiency ratio in the low 40% range.

Asset quality remained sound and showed improvement for the quarter. Specifically, non-covered non-performing loans represented a manageable 0.62% of loans at March 31, 2013, improved from 0.85% at the end of 4Q12. Meanwhile, annualized NCOs for the quarter continue to be very modest representing just 7 bps of average loans, up from 4 bps for 4Q12. Finally, DBRS notes that NYCB’s reserve coverage remains modest at 72.5% of nonperforming loans (non-covered), yet is acceptable given the Company’s historically low level of NCOs. At 1Q13, the Company’s loan loss reserves (non-covered) of $140.4 million equated to approximately 25 times 4Q12 NCOs of $5.6 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 levels remain relatively stable and sufficient given current loss rates. At March 31, 2013, NYCB’s tangible common equity represented 7.61% of tangible assets, up from 7.65% at December 31, 2012.

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

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