DBRS Comments on New York Community Bancorp’s 2Q13 Results – Senior at BBB (high), Stb

DBRS, Inc. (DBRS) has today commented on the 2Q13 results of New York Community Bancorp, Inc. (NYCB or the Company). DBRS rates the Company’s Issuer & Senior Debt rating BBB (high), with a Stable trend. For the quarter, NYCB’s net income increased by 3.2% to $122.5 million compared to $118.7 million for 1Q13. The Company earned $131.2 million in the year earlier quarter. For 2Q13, earnings equated to a 1.12% GAAP return on average assets and 8.74% return on average stockholders’ equity, slightly higher than the linked quarter’s returns.

NYCB continued to reflect sound fundamentals, including relatively stable earnings, solid and improving asset quality, and adequate capital. For the quarter, higher net interest income and lower expenses were partially offset by a decline in mortgage banking income and sharp decrease in securities gains, driving the linked quarter increase in net income. The growth in net interest income was derived from a 20 basis points linked quarter increase in the Company’s NIM resulting from multifamily refinance activity driven prepayment penalty income. Prepayment penalty income contributed 47 bps of 2Q13 NIM compared to 21 bps in 1Q13.

On a linked quarter basis, total revenues (excluding securities gains) increased $19.4 million or 5.8% to $353.3 million. This was driven by a $24.7 million increase in net interest income partially offset by a $5.3 million decline in noninterest income. A drop in mortgage banking income reflecting a decline in refinancing activity, as mortgage rates have risen, as well as a drop in other income. Meanwhile, also reflecting the increase in interest rates, higher prepayment penalty income, driven from NYCB’s large multi-family portfolio, drove the increase in net interest income. The Company has also been taking steps to reduce the cost of wholesale borrowings which, including the maturity of certain higher cost repurchase agreements, declined 13 basis points QoQ. To date, the company has repositioned $6.6 billion in wholesale borrowings including $580 million in 2Q13.

Noninterest expense decreased $4.4 million from the linked quarter, reflecting a $6.1 million decrease in compensation and benefit expense which were elevated in 1Q13 due to the recognition of retirement and severance costs. 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 0.54% of total loans at June 30, 2013, improved from 0.62% at the end of 1Q13. Meanwhile, annualized NCOs for the quarter continue to be very modest representing just 6 bps of average loans. Finally, DBRS notes that NYCB’s reserve coverage remains sound at 84.2% of nonperforming loans (non-covered), especially given the Company’s historically low level of NCOs. At 2Q13, the Company’s loan loss reserves (non-covered) of $140.7 million equated to approximately 30 times 2Q13 NCOs of $4.7 million.

Finally, NYCB’s capital levels remain relatively stable and sufficient given current loss rates. At June 30, 2013, NYCB’s tangible common equity represented 7.74% of tangible assets, up from 7.61% at March 31, 2013.

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

[Amended on May the 23rd, 2014 to remove unnecessary disclosures.]