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

DBRS, Inc. (DBRS) has today confirmed the ratings for New York Community Bancorp, Inc. (NYCB or the Company), 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, as well as yesterday’s announcement of the cancellation of the previously pending Astoria Financial Corporation (Astoria) acquisition.

NYCB’s ratings confirmation and Stable trend considers the Company’s resilient earnings generation and sound, through-the-cycle asset quality, 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 consider NYCB’s relatively high level of wholesale funding reliance, geographically concentrated loan book that includes some large exposures, and limited earnings diversity.

The recent cancellation of the Astoria acquisition has no impact to NYCB’s ratings. While the acquisition would have provided additional deposit funding and scale to the Company, the absence of the acquisition does remove the potential risk of integrating a large, albeit in-market, acquisition. The formal termination of the merger agreement was announced on December 20, 2016 and NYCB had indicated that it did not expect to receive regulatory approval by YE16. Under the terms of the merger agreement, either company was able to terminate the merger agreement, without penalty, if the merger had not closed by YE16. The regulatory approval delay may indicate the extra scrutiny regulators are placing on NYCB given that the transaction would have pushed the Company over the $50 billion mark to become a D-SIB bank. Given the heightened regulatory burden for an institution with greater than $50 billion in assets, NYCB had been managing its balance sheet to stay below this threshold. The Astoria transaction had been earmarked to push the Company over the hurdle.

Overall, NYCB’s earnings capacity remains sound, benefiting from a low cost operating platform, a stable net interest margin (NIM), and low credit costs. DBRS notes that volatile long-term interest rates in recent periods have caused ebbs and flows in multi-family loan refinancing activity, and associated prepayment fees from the Company’s core customers, creating some variability in the NIM and net interest income depending on customer behavior. Generally, these customers move to lock-in rates as interest rates begin to rise. This prepayment activity has helped mitigate 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 far below that of most banks (in the low 40% range in recent periods). However, costs had been much lower and DBRS notes that preparation for D-SIB status has added approximately 800 basis points to the efficiency ratio.

The Company’s asset quality metrics have been tested through many credit cycles. During the most recent cycle, nonperforming assets increased, however losses remained very low, which is typically how NYCB performs during a credit cycle. 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 about two-thirds of the loan portfolio. Asset quality continues to trend positively with NPAs at very low levels and NCOs virtually non-existent.

NYCB remains somewhat reliant on wholesale funding, primarily FHLB advances secured by its loan portfolio, to fund the balance sheet. DBRS would view favorably a more robust deposit funding profile. Capital levels are solid and include a Common Equity Tier 1 ratio of 10.25% at quarter-end, which was up 13 basis points linked-quarter, benefiting from earnings retention and minimal growth in the balance sheet. During 4Q15, NYCB raised $650 million of common equity to help offset a loss on the prepayment of wholesale funding, as well as reduce its dividend.

NYCB, a multi-bank holding company headquartered in Westbury, New York reported $49.5 billion in assets as of September 30, 2016.

RATING DRIVERS
Sustained levels of better than peer earnings generation, supported by a higher component of fee revenues, and a lower level of wholesale funding reliance could result in upward rating pressure. Conversely, a sustained deterioration in asset quality or an increase in lending risk appetite could pressure ratings. A poorly integrated acquisition or a significant acquisition that results in the Company entering a non-familiar business line could result in downward rating pressure.

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

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (July 2016), DBRS Criteria – Support Assessments for Banks and Banking Organisations (March 2016) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2016), which can be found on our website under 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.

Lead Analyst: John Mackerey
Rating Committee Chair: Michael Driscoll
Initial Rating Date: 13 October 2006
Most Recent Rating Update: 29 October 2015

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.