DBRS Ratings on New York Community Bancorp Unchanged after 4Q11 Results – Senior: BBB (high), Stable
DBRS, Inc. (DBRS) has commented today that its ratings for New York Community Bancorp, Inc. (NYB or the Company), including its BBB (high) Issuer & Senior Debt rating, are unchanged following the release of 4Q11 results. The trend on all ratings is Stable. NYB reported net income of $117.6 million for 4Q11, down 1.75% from $119.7 million for 3Q11. Lower q-o-q earnings mostly reflected higher levels of provisions for loan loss reserves, mostly for FDIC covered loans, and, to a far lesser extent, non-covered loans, along with a decline in non-core securities related gains. DBRS notes that FDIC indemnification income offsets the bulk of the increase in provisions for FDIC covered loans. Positively, the Company continues to have some success in growing its loan portfolio and its net interest margin (NIM) widened during the quarter. Specifically, on a linked-quarter basis, lower earnings were attributable to an 82% increase in provisions for loan loss reserves (11% or $2 million increase for non-covered loans), partially offset by a 4.0% decrease in noninterest expense and a 2.0% increase in total revenues.
The pick-up in total revenues during the quarter mostly reflected the Company’s higher NIM, loan growth and FDIC indemnification income. Specifically, higher q-o-q revenues reflected a 1.8% increase in net interest income and a 2.9% increase in noninterest income. Higher spread income was attributable to a 12 basis point (bps) widening of net interest margin (NIM) to 3.45%, somewhat offset by a 1.7% decrease in average interest earning assets. The decline in earning assets was driven by an 18.4% decline in securities and money market investments, partially offset by a 1.9% increase in loans. The increase in loans reflected higher levels of multifamily and commercial real estate loans. The decline in securities was driven by prepayments due to the low market rates, and utilization of the cash flows towards loan production. The wider NIM was attributable to an increase in earning asset yields and a decrease in funding cost. Higher earning asset yields reflected an increase in loan prepayment penalties.
Although noninterest income expanded during the quarter, on a core basis (excluding securities gains and FDIC indemnification income), noninterest income contracted 5.3%, reflecting lower fee income, partially offset by an increase in mortgage banking income and BOLI revenues.
The Company’s expense base is well managed, as its broker driven lending platform drives a low cost business model. The linked-quarter decrease in total non-interest expense was mostly attributable to lower compensation/benefit expense, somewhat offset by higher general and administrative costs. Lower compensation/benefit costs reflected staff cuts.
Despite the protracted slow growth economy, NYB reported lower levels of nonperforming loans (non-covered). During 4Q11, non-covered nonperforming loans (NPLs) contracted by $91 million, or 21.8%, to $325.8 million and represented 1.11% of loans, down from 1.44% at September 30, 2011. The decline in NPLs was represented across all loan categories, with the largest decreases within NYB’s multifamily and acquisition, development and construction loan portfolios. Meanwhile, net charge-offs (NCOs) increased $9.0 million during 4Q11, yet represented a still low 0.28% of average loans (annualized), up from 0.16% for 3Q11. Finally, DBRS notes that NYB’s reserve coverage remains modest at 42.1% of nonperforming non-covered loans, yet is acceptable given the current level of NCOs. At December 31, 2011, NYB’s loan loss reserves (for non-covered loans) of $137.3 million equated to approximately 6 quarters of 4Q11 NCOs.
Although the Company’s liquidity profile remains adequate, NYB utilizes a sizable level of wholesale funds, which in general is a less stable funding source and could significantly raise its funding costs, compress margins and constrain profitability.
NYB’s capital provides sound loss absorption capacity at current loss rates. At December 31, 2011, NYB’s tangible stockholder’s equity to tangible assets ratio was 7.78%.
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. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. Both can be found on the DBRS website under Methodologies.
The sources of information used for this rating includes company documents, the Federal Deposit Insurance Corporation and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.
Lead Analyst: Mark Nolan
Approver: Roger Lister
Initial Rating Date: 13 October 2006
Most Recent Rating Update: 22 July 2011
For additional information on this rating, please refer to the linking document under Related Research.
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