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New York Community Bancorp, Inc. (NYCB - Snapshot Report) reported third-quarter 2013 cash earnings of 28 cents per share, outpacing the Zacks Consensus by two cents. However, results were below the prior-year quarter figure of 32 cents.

Better-than-expected results came at the back of lower than expected expenses. Improvement in credit quality was positive but capital ratios showed mixed trend. However, lower revenues remain a lingering concern.

Considering amortization and price appreciation of shares held in stock-related benefit plans as well as amortization of core deposit intangibles, the company reported net income of $114.2 million or 26 cents per share. Taking into account the impact of comparable items, earnings came in at $128.8 million or 29 cents per share in the prior-year quarter.

Quarter in Detail

Total revenue was $478.4 million, down 8.8% from the year-ago quarter. The decline was primarily due to fall in interest as well as non-interest income.

New York Community Bancorp’s net interest income increased 3.3% year over year to $294.2 million, mainly due to a fall in interest expense. However, net interest margin was 3.04% in the quarter, down 13 basis points year over year.

Non-interest income came in at $50.7 million, down 37.9% year over year. The decline was mainly due to substantially lower mortgage banking income, partly offset by higher FDIC indemnification income.

Non-interest expense totaled $146.2 million, down 1.5% from the prior-year quarter. The decline stemmed from lower general and administrative costs, partly offset by rise in compensation and benefit expenses as well as occupancy and equipment expenses.

Credit Quality

Credit quality continued to improve at New York Community Bancorp.

Nonperforming non-covered loans were 0.43% of total non-covered loans as of Sep 30, 2013, down from 0.60% as of Jun 30, 2013. At the end of Sep 2013, nonperforming non-covered assets to total non-covered assets was 0.46%, marking a decline from 0.61% at the end of the prior quarter.

Allowance for losses on non-covered loans to total non-covered loans were 0.48%, marginally decreasing from 0.50% at the end of the prior quarter.

The ratio of net charge-offs to average loans on a non-annualized basis was 0.01%, down from 0.03% in the preceding year. Provision for loan losses on non-covered loans was $5.0 million in the reported quarter, down from $10.0 million in the prior-year quarter. On the other hand, provision for loan losses on covered loans was $9.5 million in the reported quarter, rising year over year from $2.8 million.

Capital Position

Capital ratios marginally declined in the reported quarter. As of Sep 30, 2013, stockholders’ equity to total assets was 12.45%, down from 12.87% as of Jun 30, 2013. Moreover, tangible stockholders’ equity to tangible assets was 7.48%, declining from 7.74% from the earlier quarter.

However, book value per share increased to $12.92 as of Sep 30, 2013, compared with $12.90 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 Nov 19 to shareholders of record at the close of business on Nov 7.

Performance of Peers

Among other companies in the same industry, Washington Federal Inc.’s (WAFD - Analyst Report) fiscal fourth-quarter 2013 earnings (ended Sep 30) came in at 41 cents per share, beating the Zacks Consensus Estimate by a nickel. Also, this compared favorably with 33 cents earned in the year-ago quarter. Better-than-expected results were driven by increase in net interest income and other income, partially offset by higher operating expenses.

Another firm, Hudson City Bancorp Inc. (HCBK - Analyst Report) reported third-quarter 2013 operating earnings of 9 cents per share, in line with the Zacks Consensus Estimate. However, this compares unfavorably with the prior-year quarter figure of 11 cents. Quarterly results at Hudson City mainly came on the back of increased non-interest income and lower provision for loan losses. Further, decreased expenses and a strong capital position were the tailwinds for the quarter. However, a decline in the top line due to lower net interest income was a negative.

Our Take

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

However, an unsettled economy, persistent low interest rate environment and stringent regulations remain matters of concern.

New York Community Bancorp currently carries a Zacks Rank #3 (Hold). Among other companies in the same industry, First Defiance Financial Corp. (FDEF - Snapshot Report) is expected to report third-quarter 2013 earnings on Oct 28.

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