Report summary from Janney Montgomery Scott analyst 6/20/2012
Dependable through different credit cycles, New York Community’s niche multi-family lending business drives franchise value, rather than its funding base as is typically the case for community banks.
Spreads related to multi-family loans are under pressure due to more unfavorable interest rates, but the company historically does not sacrifice underwriting standards to reach for loan volume. Our analysis suggests, however, that the pickup in mortgage banking income will be sufficient to support management’s commitment to maintain its cash dividend, although the payout ratio remains uncomfortably tight.
Despite this high ratio, we still believe that regulators will not ignore their guidelines and force well-capitalized banks with good earnings and few asset quality problems to reduce dividends. We, therefore, reiterate our BUY rating, but trim our 12-month fair value estimate by a dollar to $14, to reflect our reduced 2013 earnings per share estimate.
Mgt has to make the tough decision--are we better off paying out all our earnings as dividends, or should we be reinvesting for growth. With interest rates set to continue at a very low level, the 1.00 div may be impossible to maintain.