OREANDA-NEWS. Fitch Ratings has affirmed the ratings for New York Community Bancorp, Inc. (NYCB) at 'BBB+/F2'. The Rating Outlook remains Stable. A full list of rating actions follows at the end of this release.

Fitch reviewed NYCB as part of its U.S. Niche Real Estate Bank Peer Review, which also includes Astoria Financial Corporation, Inc. (AF), Dime Community Bancshares, Inc. and Emigrant Bancorp Inc.

While the business models of the U.S. Niche Real Estate Banks vary, these banks are generally characterized by their limited deposit franchises and geographic concentrations when compared to larger U.S. banks. Fitch views these limitations as ratings constraints across the peer group. The group is composed of banks with total assets ranging from approximately $5 billion to approximately $50 billion that lend primarily in the New York City metropolitan residential real estate market.

KEY RATING DRIVERS - IDRs, VRs, AND SENIOR DEBT
NYCB's ratings primarily reflect the bank's consistent performance. The bank has exhibited strong asset quality with low credit losses over many business cycles. Ratings are further supported by stable earnings during the most recent financial crisis and other real estate downturns. These strengths are partially offset by NYCB's relatively higher reliance on wholesale funding, weaker liquidity profile and a concentrated loan portfolio.

On Nov. 3, 2015, Fitch reviewed and affirmed NYCB's ratings following the announcement of the potential merger with AF. Fitch believes integration risks associated with the pending transaction are relatively low given AF's relatively simplistic business model, solid credit performance and the common footprint. Fitch further expects the transaction to be accretive to NYCB's earnings, capital and franchise and will strengthen the residential mortgage lending business.

The merger also provides NYCB the opportunity to diversify its loan portfolio that is concentrated in multifamily loans. As of Dec. 31, 2015, NYCB's multifamily loans consisted of 68% of the total loan portfolio or 740% of tangible capital. Fitch believes this concentration is also offset by NYCB's niche expertise and track record in multifamily lending in the New York City metropolitan region.

Fitch views NYCB's asset quality as the company's primary rating strength. NYCB's net charge-offs peaked at 35bps in 2011 and in 2015 recoveries exceeded charge-offs. 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.

On a risk-adjusted basis, Fitch considers earnings performance to be reasonable. While refinancing charges related to wholesale funding resulted in a net loss position for 2015, Fitch believes the benefits from a more permanent and lower cost funding profile will offset this once-off expenditure over the long run. Adjusting for the $546.8 million after-tax charge from the refinancing, the ROA was relatively flat year-over year. NYCB's liability sensitive balance sheet will expose it to earnings headwinds over the coming years if interest rates normalize.

Fitch views NYCB's capital position as reasonable relative to the overall risk profile. Successful execution of a planned capital raise provided net proceeds of $630 million in the fourth quarter of 2015. The Astoria merger is also expected to be accretive to capital. Fitch notes however that the dividend pay-out ratio remained flat at around 90% of adjusted net income in 2015. This pay-out ratio is not sustainable over the long run given the company's growth aspirations and current levels of internal capital generation. However, NYCB reduced earnings distributions in the first quarter of 2016 to $0.17 per share from $0.25 per share in the previous quarter and expects that NYCB will maintain its risk-based capital ratios at relatively stable levels over the near term and through the merger process.

NYCB will likely cross the $50 billion threshold in 2016 and would be considered a D-SIB bank by regulators. Preparations for this transition have been underway for some time, and Fitch expects the merger to provide additional scale to absorb the compliance related costs. Assuming that the pending merger with AF closes in the fourth quarter, NYCB will be part of the 2018 CCAR process.

NYCB's liquidity profile is ratings constraint. The company is relatively more reliant on non-core funding sources, such as FHLB advances and repurchase agreements, than other depositories. In 2015, average borrowings totalled 33% of total liabilities. 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.

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 that earnings could face headwinds in 2016 from 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.

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.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
NYCB's preferred issuances are notched below NYCB's Viability Rating (VR). The notch differential reflects loss severity and an assessment of incremental non-performance risk.

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.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS
NYCB's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. Fitch believes U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

RATING SENSITIVITIES- IDRS, VRS, AND SENIOR DEBT

NYCB's ratings are solidly situated at its current levels. Fitch foresees limited upside given the more limited business model of the company. The deposit franchise and broker originated business are relatively weaker than similarly sized, rated banks. 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.

The affirmation is based on the assumption that regulators will approve the merger with AF and that NYCB's projected figures for the transaction will materialize. Should operational or integration challenges arise, which lead to changes in our base assumption, negative ratings pressure could develop.

Incorporated in the affirmation is the assumption that NYCB will successfully complete the CCAR process and reach compliance with the regulatory requirements associated with being a D-SIB bank. Negative changes to this assumption could pressure the rating.

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 7.3% is on the lower end compared to its rating category.

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.

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.

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.

Fitch has affirmed the following ratings:

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-'.