DBRS: NYCB’s 1Q Core Results up on Net Interest Income; Mortgage Banking

Summary:
• NYCB reported 1Q15 net income of $119.3 million, a 9.1% decrease compared to $131.2 million earned for 4Q14. The previous quarter was boosted by a $10.3 million (after tax) recovery on a previously written off investment security as well as higher securities gains.
• DBRS views NYCB’s 1Q15 core results as reflecting continued sound fundamentals, including strong loan and deposit 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) 1Q15 results as a continuation of recent performance trends, highlighted by solid deposit and loan growth. The Company, with $48.3 billion in total assets at quarter-end, is managing its balance sheet to remain under the $50 billion systemically important financial institutions (SIFI) threshold over the near term and, to help it achieve this, sold participations in certain multi-family and commercial real estate loans to other financial institutions.

Net interest income increased from the linked-quarter reflecting higher prepayment penalty income, despite a decline in average interest earning assets and the shorter day count. A boost in mortgage banking income and gain on sale of loans was not sufficient to overcome elevated securities gains and recoveries in 4Q14 although non-interest income was up year-on-year (YoY). NYCB expense discipline continues although expenses were up this quarter reflecting seasonally higher payroll taxes and $4.0 million in severance expense. The Company maintains an enviably-low efficiency ratio, which was 45% for 1Q15.

Asset quality continued to be sound and improved linked quarter on lower levels of nonaccrual loans. Additionally, the company experienced a net recovery on non-covered assets this quarter. Given the ongoing extremely modest loss levels, NYCB released reserves this quarter through a negative provision on non-covered loans.

Reflecting a modestly declining balance sheet and earnings retention, NYCB’s capital levels increased quarter-on-quarter.

NYCB’s ratings consider the Company’s resilient earnings generation and sound asset quality through the credit 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 which reduces financial flexibility.

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