DBRS Comments on Q4 Earnings of New York Community Bancorp, Inc. – Senior at BBB (high)

DBRS has today commented on the Q4 2008 earnings of New York Community Bancorp, Inc. (NYCB or the Company). DBRS rates the Company’s Issuer & Senior Debt at BBB (high) with a Stable trend. Even with a deteriorating economic environment, NYCB reported solid earnings of $102.2 million for the quarter. Net income was up considerably from $58.1 million for Q3 2008 and $67.4 million for Q4 2007. On a sequential quarter basis, lower other than temporarily impaired (OTTI) securities charges, higher net interest income driven by net interest margin expansion of 19 basis points and a $16 million gain recorded in connection with the repurchase of debt more than offset higher credit costs and lower fee income resulting in a return on assets (ROA) of 1.27%. Excluding OTTI and the debt gain, operating earnings increased to $92.4 million from $84.8 million in Q3 2008, primarily from higher net interest income. This equated to a ROA of 1.15%. Overall, NYCB remains well positioned to navigate through this very challenging economic downturn.

While credit costs, non-performing loans (NPLs), and net charge-offs (NCOs) all increased during the quarter, DBRS notes that asset quality remains strong, especially relative to most banking peers. NYCB’s history of strong asset quality continues to underpin its ratings and DBRS expects loss rates for the Company to be considerably lower than those of most banks. NPLs jumped to a still-manageable 0.51% of total loans, from 0.29% in Q3 2008 and from 0.11% in Q4 2007. More importantly, NCOs remained very low, at $3.4 million, or 0.016% of average loans. DBRS views the Company’s levels of loan loss reserves to be sufficient to cover its current pace of losses. However, the jump in NPLs during the quarter caused NYCB’s loan loss reserve-to-NPLs to fall to 83%. While DBRS believes that erosion in NYCB’s asset quality is likely, due to the recessionary economy, conservative underwriting standards should allow the Company to maintain strong asset quality.

Relying heavily on wholesale funding, the Company benefited from the Fed’s dramatic rate cuts as funding costs dropped considerably more than asset yields. Indeed, even without significant prepayment penalty income, NIM expanded 19 bps to 2.87%. With fewer competitors actively lending, NYCB should be able to continue demanding higher spreads, which should benefit NIM in the coming quarters. Solid loan growth once again outpaced deposit growth, further increasing the Company’s reliance on wholesale funding, and is a ratings concern.

With solid capital and a healthy balance sheet, the Company opted out of the Treasury’s Capital Purchase Program. Even without the Treasury investment, regulatory capital ratios remain well above well-capitalized standards. Furthermore, the ratio of tangible stockholder’s equity to tangible assets was 5.66% at the end of the quarter.

Given the Company’s long-standing and prominent presence in its niche business, banking rent-controlled and rent-stabilized multifamily building customers in New York City, together with a conservative business management style and sound financial fundamentals, DBRS expects NYCB to continue generating operating results and maintaining credit fundamentals expected of banks in its rating range.

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

The applicable methodology is Rating Banks and Bank Holding Companies Operating in the United States, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.