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New York Community Bancorp Downgraded by KBW

NEW YORK (TheStreet) -- "We believe the best source of investor return for NYCB shares is its attractive dividend yield of 6.0%, as it pays investors to wait for the NYCB's next move, whatever that might ultimately be."

That's what KBW analyst Collyn Gilbert wrote in a note to clients on Wednesday when she cut her rating for New York Community Bancorp (NYCB - Get Report) to "market perform" from "outperform," after the company reported its fourth-quarter results. The main reason for the downgrade was that the bank's share price was getting close to the analyst's $17 price target, but Gilbert also lowered her 2014 earnings estimate of NYCB to $1.04 from $1.09 and here 2015 EPS estimate to $1.19 from $1.27.

New York Community Bancorp has primarily been a dividend story for investors for quite a long time. The company pays a quarterly dividend of 25 cents a share, for a yield of 6.11%, based on Tuesday's closing price of $16.36. That's one of the highest dividend yields for any publicly traded U.S. bank. For many years, some analysts have continually questioned the bank's ability to continue paying out most of its earnings, but New York Community has paid the 25-cent dividend for 40 consecutive quarters.

Among the analysts who are negative on NYCB is Sterne Agee analyst Matthew Kelley, who on Wednesday reiterated his "underperform" rating for the bank, with a price target of $14.00. While he didn't discuss the dividend, Kelley in a note to clients wrote, "With profitability levels (ROA) expected to contract, the shares are overvalued vs. regional bank peers at 15.5x 2015E EPS (peers 14.4x), in our view."

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Shares of New York Community declined 2.2% on Wednesday, after the company reported fourth-quarter earnings of $120.2 million, or 27 cents a share, compared to $114.2 million, or 26 cents a share, in the third quarter, and $122.8 million, or 28 cents a share, during the fourth quarter of 2012. The main factor in the sequential earnings improvement was a recovery of $5.8 million that had previously been added to reserves to cover loans with partial guarantees by the Federal Deposit Insurance Corp. acquired in 2010 along with the deposits and branches of the failed AmTrust Bank of Cleveland. During the third quarter, the bank had added to $9.5 million to reserves for covered loans.

Provisions for losses on non-covered loans declined to $3.0 million during the fourth quarter from $5.0 million the previous quarter and a year earlier. The bank's credit quality was very strong with nonperforming loans making up 0.35% of non-covered loans as of Dec. 31, reflecting NYCB's focus on making loans secured by apartment buildings in the New York City area with below-market rents.

New York Community's net interest income rose to $297.3 million in the fourth quarter from $294.3 million the previous quarter and $290.0 million a year earlier. The bank's average loans grew 4.5% sequentially and 4.7% year-over-year to $32.4 million in the fourth quarter. The bank's growth in loans and securities investments was strong enough to outweigh a narrowing net interest margin. The fourth-quarter margin was 2.92%, down from 3.04% the previous quarter and 3.15% a year earlier.

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