Fitch Affirms NYCB's Ratings at 'BBB+/F2' Following Peer Review; Outlook Stable

Tue Apr 8, 2014 5:07pm EDT

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(The following statement was released by the rating agency) NEW YORK, April 08 (Fitch) Fitch Ratings has affirmed the ratings for New York Community Bancorp, Inc. (NYCB) at 'BBB+/F2'. The rating Outlook remains Stable. The Stable Outlook assumes that asset quality will remain strong, and capital levels will remain relatively stable over the near term. The Outlook also incorporates the view that earnings could face headwinds in 2014 from reduced mortgage banking income and lower prepayment revenue. Spread income may also come under pressure given NYCB's liability sensitive balance sheet, and presumably higher interest rates over the near- to intermediate-term. A full list of ratings follows at the end of this release. KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBT NYCB's ratings primarily reflect excellent asset quality with nominal credit costs over many business cycles. The ratings are further supported by consistent earnings performance during the most recent financial crisis and other real estate downturns. These strengths are somewhat offset by NYCB's relatively higher risk funding profile and geographically concentrated loan portfolio. Fitch views NYCB's asset quality as the company's primary rating strength. NYCB's net charge offs peaked at 35bps in 2011, and totalled only 5bps in 2013, which is well below industry averages. Fitch expects asset quality to remain strong due to the company's conservative underwriting practices across its multifamily, commercial real estate and residential loan portfolios. Earnings performance was solid with an ROA of 1.07% in 2013 and in line with historical averages for the company. Fitch expects NYCB will face earnings pressures in the near term and believes refinancing activity will slow further in 2014, which would negatively impact mortgage banking income and prepayment fee income on commercial properties. Additionally, amortization of NYCB's $2.8 billion covered loan portfolio is expected to have a small but negative impact on net interest margin since accretable yields on covered portfolios are higher than existing and new loan production. NYCB spread income could also be adversely impacted with higher interest rates given the liability sensitive balance sheet. This is further compounded by a very high reliance on net interest income. NYCB's liquidity profile is a weakness for the company's overall credit profile. The company is relatively more reliant on non-core funding sources, such as FHLB advances and repurchase agreements, than its peer banks. In 2013, average wholesale funding balances totaled $12.9 billion or 29% of average assets. Since NYCB has relatively higher reliance on wholesale funding, the company can be vulnerable to disruptions in the wholesale markets and also carries a higher cost of funds. Fitch reviewed NYCB as part of its Niche Bank Peer Review, along with Astoria Financial, Dime Community, and Emigrant Bancorp. Niche banks are defined by their narrow business models, limited deposit franchises and geographic concentrations. Fitch views these limitations as ratings constraints across the peer group. The group is comprised of banks with total assets ranging from $4 billion to $47 billion that lend primarily in the New York City metropolitan, residential real estate market. RATING SENSITIVITIES - IDRS and VRs and SENIOR DEBT NYCB's ratings are solidly situated at its current levels. Fitch foresees limited upside given the more limited franchise of the company. The deposit franchise and broker originated business are relatively weaker than similarly sized banks, which Fitch rates. Conversely, NYCB's ratings are sensitive to the multifamily market in the New York City area. Material loosening of rent-regulations in the New York area could be a negative rating driver for the institution since rent regulations help maintain stable cash flows and valuations for multifamily properties in New York. Although seen as unlikely given past performance, material deterioration of asset quality metrics could result in negative ratings pressure. Aggressive capital management would also be viewed negatively. NYCB's tangible common equity ratio of 7.42% is on the lower end compared to its rating category. NYCB continues to eye potential large accretive acquisitions. Fitch would evaluate any acquisition to assess the financial impact, potential changes to strategy, or integration challenges to determine if there are any rating implications. KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES NYCB's preferred issuances are notched below NYCB's VR. The notch differential reflects loss severity and an assessment of increment non-performance risk RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES NYCB's preferred issuances are sensitive to changes in NYCB's VR. The rating sensitivities for the VR are listed above. KEY RATING DRIVERS - HOLDING COMPANY NYCB's IDR and VR are equalized with those of its bank subsidiaries reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. RATING SENSITIVITIES - HOLDING COMPANY Should NYCB begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company's IDR and VR below the ratings of its bank subsidiaries. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR NYCB's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR NYCB's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Fitch affirms the following: New York Community Bancorp --Long-term IDR at 'BBB+'; --Viability rating at 'bbb+'; --Short-term IDR at 'F2'; --Support at '5'; --Support floor at 'NF'. New York Community Bank --Long-term IDR at 'BBB+'; --Long-term deposits at 'A-'; --Viability rating at 'bbb+'; --Short-term IDR at 'F2'; --Support at '5'; --Support floor at 'NF'; --Short-term deposits at 'F2'. New York Commercial Bank --Long-term IDR at 'BBB+'; --Long-term deposits at 'A-'; --Viability rating at 'bbb+'. --Short-term IDR at 'F2'; --Support at '5'; --Support floor at 'NF'; --Short-Term deposits at 'F2'. Richmond County Capital Corporation --Preferred stock at 'BB-'. Contact: Primary Analyst Jaymin Berg, CPA Director +1-212-908-0368 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Doriana Gamboa Director +1-212-908-0865 Committee Chairperson Julie Solar Senior Director +1-(312) 368-5472 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'2014 Outlook: U.S. Banks' --'U.S. Banks: Liquidity and Deposit Funding' --'U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)' --'U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?' --'Fitch Fundamentals Index' --'Risk Radar Global - 1Q13' --'U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain)' --'Global Financial Institutions Rating Criteria Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' --'Fitch Global Corporate Rating Activity -- Third-Quarter 2013' --Corporate Bond Comparator 1Q14: US vs EMEA' --'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2013). Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here 2014 Outlook: U.S. Banks here U.S. Banks: Liquidity and Deposit Funding here U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) here U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? here Fitch Fundamentals Index here Risk Radar Global 1Q14 here U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) here Global Financial Institutions Rating Criteria here Fitch Global Corporate Rating Activity Report -- Third-Quarter 2011 Update here Corporate Bond Comparator 1Q14: US vs EMEA here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. 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