DBRS Confirms New York Community Bancorp, Inc. at BBB (high); Stable Trend

DBRS, Inc. (DBRS) confirmed the ratings of New York Community Bancorp, Inc. (NYCB or the Company), including the Company’s Long-Term Issuer Rating of BBB (high). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, New York Community Bank (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is A (low), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The ratings confirmation and maintenance of the Stable trend reflects NYCB’s sound and resilient earnings and proven low credit risk loan portfolio. NYCB’s niche of lending primarily on rent-controlled/stabilized multi-family buildings in New York City, has exhibited very modest, through-the-cycle credit costs. The ratings also consider NYCB’s limited revenue diversity, reliance on wholesale funding, and a deposit mix geared toward non-transaction accounts, as well as its geographically concentrated loan book that includes some larger exposures.

RATING DRIVERS
While DBRS views the ratings as well-placed, over the longer-term, sustained levels of better-than-peer earnings generation, greater revenue diversity and an improved funding profile could result in upward ratings pressure. Conversely, a deterioration in asset quality, especially as a result of perceived underwriting weakness, or an increase in lending risk appetite could pressure ratings.

RATING RATIONALE
NYCB is poised to benefit from the upward revision of the SIFI buffer from $50 billion to $250 billion. The Company had been actively preparing to cross this buffer and this revision eliminates the Company’s self-imposed $50 billion asset cap. As a result, asset growth is expected to accelerate, which should boost the Company’s earnings, particularly if loans continue to reprice at higher rates and as the Company invests excess cash. This may help offset margin pressure given NYCB’s liability sensitive position (liabilities reprice faster than assets) stemming from its deposit structure and reliance on wholesale funding. DBRS notes that most banks are in an asset sensitive position and have benefitted from rising rates. Additionally, the Company has embarked on a cost savings program, which it expects will produce more than $100 million of savings in 2018 and ultimately bring the expense base and already industry-leading efficiency ratio closer to pre-crisis levels (to the mid-30’s versus 48% in 2Q18).

NYCB’s earnings have remained sound, although earnings growth has been stunted in recent years as the Company actively managed its balance sheet to remain below $50 billion in assets as well as the negative impact of rising rates on NYCB’s funding costs. DBRS notes that volatility in long-term interest rates causes variability in the Company’s customers’ multi-family loan refinancing activity and associated prepayment fees, causing some quarterly fluctuations in the net interest margin (NIM) and net interest income depending on customer behavior. In general, multi-family loan customers move to lock-in rates as interest rates rise. This prepayment activity has mitigated some asset yield pressure in the current rate environment.

NYCB’s asset quality remains pristine, with nonperforming assets (NPAs) and net charge-offs (NCOs) at very low levels. NYCB’s asset quality metrics have exhibited superior results over many credit cycles and remains a key underpinning of the ratings. DBRS views this as reflective of the Company’s conservative underwriting, as well as the highly predictable cash flows from its niche rent controlled/stabilized multi-family lending product that accounts for about two-thirds of the loan portfolio. DBRS views NYCB’s taxi cab medallion exposure as very manageable as it only represents about 0.2% of loans held for investment. DBRS notes that this exposure represents a disproportionate share (77%) of non-performing loans and losses and net charge-offs.

NYCB remains somewhat reliant on wholesale funding, primarily FHLB advances secured by its loan portfolio, to fund the balance sheet. Additionally, the deposit mix is heavily tilted towards CDs and non-transaction accounts. As a result, NYCB’s cost of funds is higher than peers and, in the current rising rate environment, deposits have repriced at a faster pace compared to other DBRS-rated banks. Capital levels are solid, including a Common Equity Tier 1 ratio of 11.2% at June 30, 2018. Without growth constraints, capital levels are expected to trend modestly lower over time. However, due to its concentration in commercial real estate, the Company has agreed with regulators to maintain loans secured by multi-family properties, non-owner-occupied CRE and ADC properties to 850% of total risk-based capital. This ratio was 755% at June 30, 2018.

NYCB, a multi-bank holding company headquartered in Westbury, New York reported $50.5 billion in assets as of June 30, 2018.

The Grid Summary Grades for NYCB are as follows: Franchise Strength – Good; Earnings Power – Strong; Risk Profile – Strong/Good; Funding & Liquidity – Good; Capitalisation – Good.

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

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (July 2018), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: John Mackerey, Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director – Head of NA FIG
Initial Rating Date: 13 October 2006
Last Rating Date: 21 August 2017

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.