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

DBRS, Inc. (DBRS) confirmed the ratings of New York Community Bancorp, Inc. (NYCB or the Company), including the Company’s Long-Term Issuer Rating of BBB (high). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, New York Community Bank (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is A (low), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The ratings confirmation and maintenance of the Stable trend reflects NYCB’s sound earnings and proven low credit risk loan portfolio, which is focused primarily on rent-controlled/stabilized multi-family buildings in New York City. With consistent cash flows and low vacancies, this multi-family portfolio has exhibited very low, through-the-cycle credit costs. The ratings also consider NYCB’s limited revenue diversity, reliance on wholesale funding, and a deposit mix geared toward rate-sensitive non-transaction accounts, as well as its geographically concentrated loan book that includes some larger exposures. This funding mix results in a liability sensitive balance sheet, which pressures earnings during periods of rising rates, but benefits earnings if rates decline. Additionally, DBRS notes that the new rent regulation laws (New York State’s Housing Stability and Tenant Protection Act of 2019) is expected to change the dynamics of multi-family lending in NYC, which may reduce competition, but also may lower the value of multifamily real estate. Given that NYCB lends on current cash flows, the effect on the loan portfolio is expected to be muted, although loan growth could be impacted if property-owners are unable to grow cash flows.

RATING DRIVERS
Over the longer-term, sustained levels of better-than-peer earnings generation, greater revenue diversity and an improved funding profile could result in upward ratings pressure. Conversely, an increase in lending risk appetite, or negative asset quality stemming from new NY state rent regulations could have negative rating implications. Additionally, sustained lower returns, could also pressure ratings.

RATING RATIONALE
NYCB has benefited from the upward revision of the SIFI buffer from $50 billion to $250 billion. The Company had been actively preparing to cross this threshold and this revision eliminated the Company’s self-imposed $50 billion asset cap, as well as some of the expenses associated with managing greater regulatory expectations. As a result, asset growth has improved, although it has not been sufficient to offset net interest margin (NIM) pressure in the rising rate environment, given NYCB’s liability sensitive balance sheet. However, the recent reversal of interest rates should lead to an improving NIM, as the Company reprices its funding, while loans still reprice to a higher coupon. DBRS notes that volatility in long-term interest rates causes variability in multi-family loan refinancing activity and associated prepayment fees, causing some quarterly fluctuations in the NIM and net interest income depending on customer behavior. Positively, the Company’s cost savings program has resulted in lower expenses. This, plus a higher NIM, should lead to an improving efficiency ratio.

NYCB’s asset quality remains pristine, with nonperforming assets and net charge-offs remaining at very low levels. NYCB’s asset quality metrics have exhibited superior results over many credit cycles and remain a key underpinning of the Company’s ratings. 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. DBRS views NYCB’s taxi cab medallion exposure as very manageable, as it only represents about 0.2% of loans held for investment. DBRS notes that this exposure represents a disproportionate share (about two-thirds) of non-accrual loans.

NYCB remains somewhat reliant on wholesale funding, primarily FHLB advances secured by its loan portfolio, to fund the balance sheet. Additionally, the deposit mix is heavily tilted towards CDs and non-transaction accounts. As a result, NYCB’s cost of funds is higher than peers and, in the rising rate environment, deposits repriced at a faster pace compared to other DBRS-rated banks. Capital levels are solid, including a Common Equity Tier 1 ratio of 10% at June 30, 2019. Capital levels have declined, following the resumption of balance sheet growth and a modest buyback program. Limiting capital flexibility, DBRS notes that the Company has a large dividend payout ratio.

NYCB, a multi-bank holding company headquartered in Westbury, New York reported $52.8 billion in assets as of June 30, 2019.

The Grid Summary Grades for NYCB are as follows: Franchise Strength – Good; Earnings Power – Strong/Good; Risk Profile – Strong/Good; Funding & Liquidity – Good; Capitalisation – Good.

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

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (June 2019), which can be found on our website under Methodologies.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

For more information on this credit or on this industry, visit www.dbrs.com.

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