DBRS: NYCB’s 1Q14 Earnings Decrease QoQ on Seasonally Lower Prepayment Penalty Income

Summary:
• NYCB reported 1Q14 net income of $115.3 million, a 4% decrease compared to $120.2 million for 4Q13 as lower prepayment penalty income, QoQ, led to a decline in net interest income and onetime items were largely offsetting.
• DBRS views NYCB’s 1Q14 results as reflecting continued sound fundamentals, including low expenses, solid 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) 1Q14 results as a continuation of recent solid performance, as well as accelerating deposit and loan growth, and a strong loan pipeline, indicating that loan growth is likely to continue in 2014. For the quarter, lower expenses and no provision for losses on non-covered loans was more than offset by lower net interest income and higher income tax expense. A change in NY State tax legislation led to a one time increase in the Company’s net deferred tax liability. This one time increase was more than offset by other items, including a gain on sale of both securities and Visa Class B shares. The decrease in net interest income was driven by a decrease in prepayment penalty income quarter-on-quarter (QoQ), in what is typically the Company’s weakest quarter for multifamily refinance activity-driven prepayment penalty income, although this income remains elevated from historical levels. Finally, NYCB continues to do a good job in managing expenses, which were lower QoQ, and the Company has maintained an efficiency ratio in the low to mid 40% range.

Asset quality continued to be sound although nonaccrual loans increased this quarter due to the addition of one loan. However, annualized quarterly net charge-offs remain very modest in the low single digits. 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.

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