DBRS Confirms New York Community Bancorp, Inc. at BBB (high); Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings of New York Community Bancorp, Inc. (NYCB or the Company) and its related entities, including its Issuer & Senior Debt rating of BBB (high). The trend for all ratings remains Stable. The ratings action follows a detailed review of the Company’s operating results, financial fundamentals and future prospects.

NYCB’s ratings confirmation and stable trend considers 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, geographically concentrated loan book that includes large exposures, and high dividend payout ratio which reduces financial flexibility.

Although the Company’s deposit franchise is in non-contiguous states, including Ohio, Arizona and Florida, its loan portfolio is overwhelmingly collateralized by properties located within the New York City metropolitan area. Specifically, NYCB utilizes deposits generated across its non-contiguous branch network to fund its niche business. Historically, NYCB’s deposit franchise has grown through acquisitions and DBRS expects this to continue. Given that the regulatory burden for an institution with greater than $50 billion in assets is considerably greater, DBRS would expect NYCB to stay below this threshold until the Company is able to complete an acquisition to move significantly above $50 billion. DBRS notes that ratings could be pressured if the Company were to reach for a large transformational acquisition or a new business line in a significant way.

Overall, NYCB’s earnings capacity remains sound, benefitting from a low cost operating platform, a stable net interest margin (NIM), and low credit costs. DBRS notes that volatile long-term rates in recent months have caused ebbs and flows in multi-family loan refinancing activity, and associated prepayment fees from the Company’s core customer, creating some variability in the NIM and net interest income depending on customer behavior. Generally, these customers move to lock-in rates as rates begin to rise. This prepayment activity has helped offset a decline in mortgage banking activity and continued asset yield pressure.

NYCB’s expense base remains well-managed, in DBRS’s opinion, as its multi-family lending platform drives a low cost business model. Indeed, the Company’s efficiency ratio remains enviably low (in the low 40% range in recent periods) and far below that of most banks.

The Company’s asset quality metrics were tested through the most recent cycle and while nonperforming assets increased, losses remained relatively low. DBRS views this as reflective of the Company’s conservative underwriting, as well as the highly predictable cash flows from its niche rent controlled/stabilized multi-family lending product that accounts for over two-thirds of the loan portfolio. Asset quality continues to trend positively in recent periods with both NPAs and NCOs declining.

Finally, NYCB’s capital remains sound and is of high quality with a large common equity component. As of September 30, 2014, the Company’s tangible common equity ratio was 7.21%.

NYCB, a multi-bank holding company headquartered in Westbury, New York reported $48.7 billion in assets as of September 30, 2014.

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

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria – Support Assessments for Banks and Banking Organisations (January 2014) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013). These can be found at: http://www.dbrs.com/about/methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: John Mackerey
Rating Committee Chair: William Schwartz
Initial Rating Date: 13 October 2006
Most Recent Rating Update: 7 October 2013

For additional information on this rating, please refer to the linking document under Related Research.