DBRS Comments on Q1 Earnings of New York Community Bancorp, Inc. – Senior at BBB (high)

DBRS has today commented on the Q1 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. Even with a deteriorating economic environment, NYB reported solid earnings of $88.7 million, down from $102.2 million for Q4 2008, yet up from $72.4 million for Q1 2008. On a sequential quarter basis, earnings were negatively impacted by a 24% decrease in non-interest income, which reflected a $16 million gain recorded in connection with the repurchase of debt during Q4 2008. Earnings were also negatively impacted by a 3.7% increase in non-interest expense and a 7.1% increase in provisions for loan loss reserves, partially offset by a 2 basis points (bps) widening in net interest margin (NIM) to 2.89%. Relative to Q1 2008, earnings benefited from a 48 bps widening of NIM, somewhat offset by a sizeable $6 million increase in provisions for loan loss reserves, a 22% decline in non-interest income and a 6.5% increase in non-interest expenses. Overall, NYB remains well positioned to navigate through this very challenging economic downturn.

While credit costs and nonperforming loans (NPLs) increased during the quarter, net charge-offs (NCOs) remained relatively flat. DBRS notes that asset quality remains strong, especially relative to most banking peers. NYB’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. Nonperforming loans (NPLs) jumped to a still manageable 0.79% of total loans at March 31, 2009, from 0.51% at December 31, 2008 and 0.11% at March 31, 2008. More importantly, NCOs remained very low at 0.02% of average loans during the period or 0.09%, on an annualized basis. 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 NYB’s loan loss reserve to non-performing loans to fall to a moderate 54%. While DBRS believes that erosion in NYB’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 during 2008. Indeed, on an annual quarter basis, NIM expanded 48 bps to 2.89%. With fewer competitors actively lending, NYB should 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.

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 5.75% 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.