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New York Community Bancorp, Inc. (NYCB - Snapshot Report) reported fourth quarter 2012 adjusted earnings of 30 cents per share, marginally beating both the Zacks Consensus Estimate and the year-ago earnings by a penny.

The company’s results reflect a fall in revenue and hike in operating expenses. Improvement in credit quality was a positive but capital ratios showed mixed trend.

For 2012, the adjusted earnings came in at $1.24 per share, beating the 2011 earnings of $1.23 by a cent.

Considering amortization and appreciation of shares held in stock-related benefit plans and amortization of core deposit intangibles, the company reported net income of $122.8 million or 28 cents per share. Taking into account the impact of the comparable items, earnings came in at $117.7 million or 27 cents per share in the prior-year quarter.

Quarter in Detail

Total revenue was $502 .3 million, down 4.3% from the year-ago quarter. For 2012, total revenue stood at $ 2,088.5 million, down 0.6% from $2,102.0 million.

New York Community Bancorp’s net interest income decreased 3.4% year over year to $290.0 million. The decline was mainly due to a fall in interest income. Net interest margin fell 30 basis points (bps) year over year to 3.15%.

New York Community Bancorp’s non-interest income came in at $55.5 million, down 7.1% year over year.     The decline was mainly due to higher Federal Deposit Insurance Corporation (FDIC) indemnification expense and lower net gain on sale of securities, partially offset by increased mortgage income, fee income and other income.

Non-interest expense totaled $154.6 million, up 5.6% from the prior-year quarter. The increase was due to higher compensation and benefit expenses, occupancy and equipment expenses along with general and administrative costs.

Efficiency ratio was recorded at 43.37% compared with 39.15% in the prior-year quarter. The hike indicates a decline in profitability.

Credit Quality

Credit quality continued to improve at New York Community Bancorp. Non-performing non-covered loans were 0.85% of total loans as of Dec 31, 2012, down from 1.11% as of Dec 31, 2011. At the end of 2012, non-performing non-covered assets to total assets were 0.66%, reflecting a decline from 0.98% at the end of 2011.

Allowance for losses on non-covered loans to total non-covered loans were 0.52%, marginally decreasing from 0.54% at the end of 2011.

The ratio of net charge-offs to average loans on a non-annualized basis was 0.13%, falling from 0.35% in the preceding year. Provision for loan losses was $5 million in the reported quarter, reducing $15 million from the prior-year quarter.

Capital Position

Capital ratios displayed a marginal decline in the reported quarter. As of Dec 31, 2012, stockholders’ equity to total assets was 12.81%, dipping from 13.24% as of Dec 31, 2011. Moreover, tangible stockholders’ equity to tangible assets was 7.65%, declining from 7.78% from the year-ago period. As of Dec 31, 2012, book value per share was $12.88 compared with $12.73 in the prior-year quarter.

Dividend Update

Concurrent with the earnings release, New York Community Bancorp’s board of directors declared a quarterly dividend of 25 cents per share, payable on Feb 22 to shareholders of record on Feb 11.

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.

Yet, the unsettled economic environment, a low interest rate and stringent regulatory issues remain concerns.

New York Community Bancorp currently retains a Zacks Rank #3 (Hold). Stocks that are performing well and can be recommended for investment in the financial loan and savings sector include Bank Mutual Corporation (BKMU - Snapshot Report), Home Federal Bancorp, Inc. and First Financial Holdings, Inc. . All these companies carry a Zacks Rank #1 (Strong Buy).

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