DBRS: NYCB’s 2Q Core Results up on Negative Provision; OREO Sale Gain

Summary:
• NYCB reported 2Q15 net income of $123.7 million, a 3.7% increase compared to $119.3 million earned for 1Q15. Quarterly results were boosted by $7.8 million gain on the sale of an OREO property.
• DBRS views NYCB’s 2Q15 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) 2Q15 results as a continuation of recent performance trends, highlighted by solid deposit and loan growth. The Company, with $48.6 billion in total assets at quarter-end, is managing its balance sheet to remain under the $50 billion 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 decreased from the linked-quarter reflecting lower prepayment penalty income and a decline in average interest earning assets. A decline in mortgage banking income was offset by improvements in other areas including fee income and the gain on sale of the OREO property. NYCB expense discipline continues and expenses were down this quarter largely reflecting severance expense in the previous quarter that was not repeated this quarter. The Company maintains an enviably-low efficiency ratio, which was 43.4% for 2Q15.

Asset quality continued to be sound and improved linked quarter on lower levels of nonaccrual loans and OREO. Additionally, the company experienced a net recovery on non-covered assets for 2Q15. Given the ongoing extremely modest loss levels, NYCB released reserves this quarter through a negative provision on non-covered loans.

Reflecting a modestly growing balance sheet and earnings retention, NYCB’s capital levels were relatively flat 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.