DBRS: NYCB’s 4Q13 Earnings Increase QoQ on Balance Sheet Growth and Reduced Credit Costs

Summary
• NYCB reported 4Q13 net income of $120.2 million, a 5.25% increase compared to $114.2 for 3Q13 as balance sheet growth helped to build net interest income despite a decline in the NIM.
• DBRS views NYCB’s 4Q13 results as reflecting continued sound fundamentals, including growing earnings, solid and improving asset quality, and adequate capital.
• DBRS rates the Company’s Issuer & Senior Debt rating at BBB (high) with a Stable trend.

DBRS, Inc. (DBRS) considers New York Community Bancorp, Inc.’s (NYCB or the Company) 4Q13 results as a continuation of recent solid performance. For 4Q13, earnings equated to a 1.04% GAAP return on average assets and 8.52% return on average stockholders’ equity, roughly in line with the linked quarter’s returns. For the quarter, flat expenses, higher net interest income and lower credit costs were partially offset by a volume driven decline in mortgage banking revenue. The increase in net interest income was driven by an increase in average earning assets, despite a 12 bps drop in the net interest margin (NIM). The narrower NIM resulted primarily from a slowing of multifamily refinance activity-driven prepayment penalty income. While down from the linked quarter, 4Q13 prepayment penalty income remains elevated and contributed about 11% to net interest income and 32 bps to the NIM. Finally, NYCB continues to do a good job in managing expenses and has maintained an efficiency ratio in the low 40% range.

Asset quality remained sound and noncovered nonaccrual loans continued their downward trajectory during the quarter. Meanwhile, annualized quarterly net charge-offs were very modest representing just 3 bps of average loans. Given current loss levels, DBRS views the Company’s current level of reserve coverage as solid.

Despite the balance sheet growth, NYCB’s capital levels remain relatively stable. DBRS views the Company’s capital levels as sufficient given current loss rates; however, NYCB’s large dividend payout ratio does reduce financial flexibility.

NYCB’s ratings consider the Company’s resilient earnings generation and sound asset quality through the cycle, which reflects positively on its lower-risk niche business of multi-family lending primarily on rent controlled/stabilized buildings in New York City. The ratings also reflect NYCB’s relatively high, yet manageable level of wholesale funding reliance, exposure to larger credits and geographic concentration in its loan book and its high dividend payout ratio. DBRS rates NYCB’s Issuer & Senior Debt at BBB (high) with a Stable trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]