DBRS Comments on Q2 Earnings of New York Community Bancorp, Inc. – Senior at BBB (high)

DBRS has today commented on the Q2 2009 earnings of New York Community Bancorp, Inc. (NYB or the Company). DBRS rates the Company’s Issuer & Senior Debt at BBB (high) with a Stable trend. Reflecting the negative impact of the recession, the Company’s Q2 2009 earnings decreased to $56.4 million, from $88.7 million for the prior quarter. On a sequential quarter basis, earnings were negatively impacted by an $8.4 million after tax FDIC special assessment fee, a $24.2 million (after tax) OTTI related charge, and a doubling of provisions for loan loss reserves, of which 23% was for reserve build. Partially offsetting these headwinds was a 17 basis points widening of net interest margin to 3.06%. On an annual quarter basis, earnings were improved from a loss of $154.8 million in Q2 2008, which reflected a $199.2 million after tax debt repositioning charge.

While credit costs and nonperforming loans (NPLs) increased considerably during the quarter, net charge-offs (NCOs) remained low. At June 30, 2009, the Company’s nonperforming loans (NPLs) increased to 1.5% of total loans, up from 0.79% at March 31, 2009 and 0.15% at June 30, 2008. Meanwhile, NYB’s NCOs represented a low 0.16% of average loans (annualized), versus 0.09% for the prior quarter and 0.02% for Q2 2008. DBRS comments that the increase in NPLs reflected increases in multi-family, commercial real estate, and acquisition, development and construction exposures. DBRS views the Company’s level of loan loss reserves to be sufficient to cover its current pace of losses. However, the jump in NPLs during the quarter caused NYB’s loan loss reserve to non-performing loans ratio to fall to a modest 29%. While conservative underwriting and collateral requirements have historically led to relatively low net charge-offs, a pro-longed period of high unemployment and a longer than anticipated recession, could result in higher than expected charges. DBRS expects that NYB will build its reserves over the near term.

Relying heavily on wholesale funding, the Company benefited from the Fed’s dramatic rate cuts during 2008. With fewer competitors actively lending, NYB is likely to be able to continue demanding higher spreads, which should benefit NIM in the coming quarters. Loan growth outpaced deposit growth further increasing the Company’s reliance on wholesale funding, which is a ratings concern.

The Company’s security portfolio of $5.6 billion, which represents 17% of total assets, is mostly good quality. However, there is the potential for additional OTTI related charges over the intermediate term, as the available for sale portfolio holds $75.5 million (amortized cost) of capital trust notes and preferred stock, with gross unrealized losses of $26.8 million, and within the held to maturity portfolio there are roughly $218 million of capital trust notes with gross unrealized losses of $77 million.

With solid capital, the Company chose not to participate in 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 5.59% 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 its conservative business management style and sound financial fundamentals, DBRS expects NYB 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 methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.