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New York Community Bancorp Inc. reported its third quarter 2012 adjusted earnings of 32 cents per share, beating the Zacks Consensus Estimate of 29 cents. However, results were in line with the prior quarter’s earnings.

The company’s results reflected a fall in expenses and stable credit quality. However, a decline in the top line was the dampener.

Considering amortization and appreciation of shares held in stock related benefit plans and amortization of core deposit intangibles, the company reported net income of $128.8 million or 29 cents per share in the quarter under review. Taking into account the impact of the comparable items, earnings came in at $131.2 million or 30 cents per share in the prior quarter.

Quarter in Detail

New York Community Bancorp’s net interest income declined 3.9% sequentially to $285.0 million. The decline was mainly due to a fall in interest income.

Net interest margin fell 13 basis points (bps) sequentially to 3.17%. The decline was primarily as a result of lower spread between short term and intermediate term interest rates, which were partially offset by prepayment penalty income.

New York Community Bancorp’s non-interest income came in at $81.7 million, down 16.9% sequentially. The decline was mainly attributable to lower mortgage banking income and FDIC indemnification income, partially offset by a rise in other income.

Non-interest expense totaled $153.3 million, down 1.4% sequentially. The decline in occupancy and equipment expenses and general and administrative costs were partially mitigated by an increase in compensation and benefit expenses.

Efficiency ratio was recorded at 40.50% compared with 38.12% in the prior quarter. The hike indicated a decline in profitability.

Credit Quality

Credit quality remained stable at New York Community Bancorp. Non-performing non-covered loans were 0.82% of total loans as of September 30, 2012, compared with 0.84% as of June 30, 2012. Non-performing non-covered assets to total assets were 0.66% versus 0.69% reported in the prior quarter.

Allowance for losses on non-covered loans to non-performing non-covered loans was 56.38% in the reported quarter compared with 54.73% in the prior quarter. Allowance for losses on non-covered loans to total non-covered loans remained flat at 0.52% compared with the prior quarter.

The ratio of net charge-offs during the period to average loans on a non-annualized basis was 0.03% compared with 0.05% in the prior quarter.

Capital Position

During the reported quarter, New York Community Bancorp’s capital levels remained strong. As of September 30, 2012, book value per share was $12.85 compared with $12.78 in the prior quarter.

As of September 30, 2012, stockholders’ equity to total assets was 12.80% compared with12.90% as of June 30, 2012. Moreover, tangible stockholders’ equity to tangible assets was 7.62% compared with 7.64% in the prior quarter.

Dividend Update

New York Community Bancorp’s Board of Directors declared dividend of 25 cents per share for the reported quarter. The dividend will be paid on November 16 to shareholders of record on November 7.

Our Take

Going forward, we believe New York Community Bancorp’s diverse revenue stream and strong asset quality will benefit the company in the future. Further, its strong capital position and regular dividend payment will boost investors’ confidence in the stock.

Yet, the unsettled economic environment, low interest rate and stringent regulatory issues are the matters of concern.

New York Community Bancorp currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Among its peers, Meridian Interstate Bancorp, Inc. (EBSB - Snapshot Report) retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

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