DBRS Comments on Q3 Earnings of New York Community Bancorp, Inc. – Senior at BBB (high)

DBRS has today commented that the ratings of New York Community Bancorp, Inc. (NYB or the Company), including its Issuer & Senior Debt rating of BBB (high) are unaffected by the Company’s Q3 2009 earnings results. The trend on all ratings remains Stable.

Despite the severe downturn in the economy and high unemployment, NYB reported earnings of $99 million for the quarter, up from $56 million for the prior quarter. On a linked quarter, recurrent basis, NYB’s Q3 2009 earnings reflected higher core revenues, partially offset by slightly higher recurrent expenses and higher provisions for loan loss reserves. On a core basis, there were positive trends in higher sequential quarter revenues, driven by an 11 basis point (bps) widening of net interest margin (NIM) to 3.17%, spurred by higher levels of average earning assets and lower retail and wholesale funding costs. The Company’s slightly higher recurrent non-interest income benefited from higher fee revenues and bank owned life insurance income. The Company’s core non-interest expenses (excluding the FDIC special assessment fee) reflected higher compensation and benefit expenses, partially offset by a slight decrease in occupancy and equipment expenses. NYB’s provisions for loan loss reserves increased 25% during the quarter to $15 million.

On a sequential quarter basis, reported earnings reflected multiple non-core items. During Q3 2009, NYB’s earnings were positively impacted by a $13.3 million resolution of tax audits and a $5.7 million gain on the Company’s debt exchange. Earnings were negatively impacted during the quarter by a $13.3 million other than temporary impairment (OTTI) charge. During Q2 2009, NYB was negatively impacted by a $39.7 million securities related OTTI charge and a $13.9 million FDIC special assessment fee.

The sharp downturn in the economy continues to negatively impact NYB’s asset quality, albeit to a far lesser extent than most banking companies. Nonetheless, nonperforming loans (NPLs) increased during the quarter, while net charge-offs (NCOs) slightly contracted. Specifically, at September 30, 2009, the Company’s nonperforming loans (NPLs) increased to 2.0% of total loans, up from 1.5% at June 30, 2009. Meanwhile, during Q3 2009, NCOs represented a low 0.11% (annualized) of average loans, down slightly from 0.16%, for Q2 2009. The bulk of the NCOs were C&I, multifamily and acquisition, development and construction exposures. Meanwhile the majority of the Company’s NPL’s were multifamily loans. DBRS views the Company’s level of loan loss reserves to be modest, yet sufficient to cover its current pace of losses. Nonetheless, the jump in NPLs during the quarter caused NYB’s loan loss reserve to non-performing loans ratio to fall to a fairly small 23% from 29% at June 30, 2009. While conservative underwriting and collateral requirements have historically led to relatively low net charge-offs, a prolonged period of high unemployment and a longer than anticipated downturn in the economy, could result in higher than expected charges. DBRS expects that NYB will build its reserves over the near term.

The Company continues to heavily rely on wholesale funding, in part because of the current low interest rate environment. Although interest rates are anticipated to remain relatively low for the near term, NIM could be negatively impacted, if rates were to increase rapidly. DBRS notes that during Q3 2009, 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 $5.4 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. The available for sale portfolio holds $102 million (amortized cost) of private label CMOs and $72 million (amortized cost) of capital trust notes and preferred stock, with gross unrealized losses of $28 million. Within the held to maturity portfolio, there are roughly $219 million of capital trust notes with gross unrealized losses of $56 million.

With a solid capital position, 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. Moreover, at September 30, 2009, the Company’s tangible stockholder’s equity to tangible asset ratio was solid at 6.03%.

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.