DBRS: NYCB’s 2Q14 Earnings Increase QoQ on Higher Fee Income and Lower Income Tax Expense

Summary:
• NYCB reported 2Q14 net income of $118.7 million, a 3% increase compared to $115.3 million for 1Q14, as lower income tax expense and higher fee income offset a decline in net interest income and a modest increase in expenses.
• DBRS views NYCB’s 2Q14 results as reflecting continued sound fundamentals, including strong long growth, 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) 2Q14 results as a continuation of recent performance trends highlighted by solid deposit and loan growth. Noninterest income increased from the linked quarter, reflecting a gain on sale of real estate owned (REO) as well as improved results from mortgage banking. This was partially offset by a decrease in net interest income, driven largely by declining yields on newer loans and securities and lower prepayment penalty income. While NYCB continues to do a good job of controlling costs, expenses inched up this quarter primarily on higher costs to manage and dispose of REO. However, the Company continues to maintain an enviably low efficiency ratio in the low 40% range.

Asset quality continued to be sound and improved as a group of nonperforming multi-family loans to single borrower transitioned to REO and were subsequently sold for a gain. Given current loss levels, DBRS views the Company’s level of reserve coverage as solid.

Reflecting balance sheet growth, NYCB’s capital levels declined modestly quarter-on-quarter. 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.

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