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New York Community Bancorp, Inc. (NYCB) reported second-quarter 2013 adjusted earnings of 30 cents per share, beating the Zacks Consensus Estimate by a nickel. However, results came in below $0.32 earned in the year-ago quarter.

Better-than-expected results were driven by an increase in net interest income and lower expenses. However, a drop in revenues due to lower non-interest income was a headwind.

Considering amortization and appreciation of shares held in stock-related benefit plans, associated tax effects and amortization of core deposit intangibles, the company reported net income of $122.5 million or 28 cents per share. Taking into account the impact of comparable items, earnings were $131.2 million or 30 cents per share in the prior-year quarter.

Quarter in Detail

Total revenue was $441.9 million, down 12% from the year-ago quarter. However, revenues exceeded the Zacks Consensus Estimate of $337.0 million.

New York Community Bancorp’s net interest income inched up 1% year over year to $299.9 million. The rise was mainly due to a decline in interest expenses, partly offset by lower interest income. Net interest margin (NIM) fell 15 basis points year over year to 3.15%.

The company’s non-interest income came in at $53.7 million, down 45% year over year. The decline was mainly due to lower mortgage banking income, lower Federal Deposit Insurance Corporation (FDIC) indemnification income and lower net gain on sale of securities, partially offset by increased bank-owned life insurance, fee income and other income.

Non-interest expense totaled $151.7 million, down 2% from the prior-year quarter. The decline was due to lower general and administrative costs, partly offset by a rise in compensation and benefit expenses as well as occupancy and equipment expenses.

Efficiency ratio was recorded at 41.71%, compared with 38.12% in the prior-year quarter. An increase in efficiency ratio indicates decline in profitability.

Credit Quality

Credit quality continued to improve at New York Community Bancorp. Nonperforming non-covered loans were 0.54% of total loans as of Jun 30, 2013, down from 0.62% as of Mar 31, 2013. At the end of Jun 30, 2013, nonperforming non-covered assets to total assets were 0.57%, down from 0.59% at the prior quarter-end.

Allowance for losses on non-covered loans to total non-covered loans were 0.50%, stable from the prior quarter.

The ratio of net charge-offs to average loans on a non-annualized basis was 0.01%, down from 0.02% in the prior quarter. Provision for loan losses was $5 million, down from $15 million from the prior-year quarter.

Capital Position

Capital ratios improved in the reported quarter. As of Jun 30, 2013, stockholders’ equity to total assets was 12.87%, up from 12.73% as of Mar 31, 2013. Moreover, tangible stockholders’ equity to tangible assets was 7.74%, up from 7.61% from the prior quarter. As of Jun 30, 2013, book value per share was $12.90, compared with $12.85 in the prior quarter.

Dividend Update

Along with the earnings release, New York Community Bancorp’s board of directors declared a quarterly dividend of 25 cents per share, payable on Aug 16 to shareholders of record on Aug 7.

Our Take

Going forward, we believe New York Community Bancorp’s varied revenue stream and robust asset quality will benefit its financials. Further, strong liquidity and a sound dividend policy will boost investors’ confidence in the stock.

However, a volatile economy, low interest rate environment and stringent regulations remain plausible concerns.

New York Community Bancorp currently carries a Zacks Rank #3 (Hold). Stocks that are performing well and can be recommended for investment in the financial loan and savings sector include Banner Corporation (BANR - Snapshot Report),  First Defiance Financial Corp. (FDEF - Snapshot Report) and Fox Chase Bancorp, Inc. (FXCB - Snapshot Report). All these companies carry a Zacks Rank #2 (Buy).

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