DBRS Comments on New York Community Bancorp’s 3Q13 Results – Senior at BBB (high), Stb

DBRS, Inc. (DBRS) has today commented on the 3Q13 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. The ratings are unchanged following 3Q13 results. For the quarter, NYCB’s net income decreased by 6.8% to $114.2 million compared to $122.5 million for 2Q13. The Company earned $128.8 million in the year earlier quarter. For 3Q13, earnings equated to a 1.03% GAAP return on average assets and 8.16% return on average stockholders’ equity, below the linked quarter’s returns.

NYCB’s results reflect continued sound fundamentals, including relatively stable earnings, solid and improving asset quality, and adequate capital. The Company saw strong origination volume in the quarter as loans originated for investment rose 38% to $3.4 billion including $2.6 billion of loans in its traditional multi-family lending niche. For the quarter, lower net interest and noninterest income were partially offset by lower expenses.

On a linked quarter basis, total revenues (excluding securities gains) decreased $9.6 million or 2.7% to $344 million. This was driven by a $5.6 million decrease in net interest income and a $3.0 million decline in noninterest income. Lower noninterest income reflected a 30% drop in mortgage banking income, driven by a decline in refinancing activity as mortgage rates have risen, as well as a drop in other income. The drop in net interest income was derived from a 11 basis points linked quarter decrease in the Company’s net interest margin (NIM) resulting from a slowdown in multifamily refinance activity driven prepayment penalty income. While down from the linked quarter, 3Q13 prepayment penalty income remains elevated and contributed $39.6 million to net interest income and 41 bps to the NIM as compared to $44.4 million and 47 bps, respectively, for 2Q13.

Noninterest expense decreased $1.3 million from the linked quarter, reflecting a decrease in general and administrative expense as well as compensation and benefit expense. 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 0.43% of total non-covered loans at September 30, 2013, improved from 0.60% at the end of 2Q13. Meanwhile, annualized Net Charge-Offs (NCOs) for the quarter continued to be very modest representing just 6 bps of average loans. Finally, DBRS notes that NYCB’s reserve coverage remains sound at 114% of nonperforming loans (non-covered), especially given the Company’s historically low level of NCOs. At 3Q13, the Company’s loan loss reserves (non-covered) of $141.3 million equated to approximately 32 times 3Q13 NCOs of $4.4 million.

Finally, NYCB’s capital levels remain relatively stable. At September 30, 2013, NYCB’s tangible common equity represented 7.48% of tangible assets, down from 7.74% at June 30, 2013 primarily due to balance sheet growth. Management believes that they currently meet the fully-phased in Basel III capital requirements. While DBRS views the Company’s capital levels as sufficient given current loss rates, NYCB’s large dividend payout ratio does reduce financial flexibility.

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

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