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New York Community Bancorp Q3 Shows Lots of Upside

Amanda Alix
October 25, 2012

Earnings season for U.S. banks has focused more than usual on the issue of net interest margin, which is being painfully compressed by falling interest rates spurred by the Fed's QE3 program.

Like many other regional banks, New York Community Bancorp (NYSE: NYB  ) has also noted this pressure in its Q3 earnings report. However, increased loan activity and the improving quality of those loans have helped boost the bank's bottom line.

Refi boom has been sweet for NYB
Although New York Community reported a decrease in NIM from 3.30% last quarter to 3.17% for Q3, net income increased for the bank by nearly 5% year over year, an improvement over the 7.5% decrease reported in last year's Q3 statement. NYB has historically concentrated on multi-family mortgage lending but notes that refinance activity has been a boon to the bank as well, more than doubling income in that area from last year. Pre-payment penalties have also contributed substantially to that total.

The quality of the loans being written is improving, too. Net charge-offs fell to 0.03% in Q3, continuing a downward trend from 0.05% and 0.04% in sequential quarters. Asset quality improved as well. Non-performing, non-covered loans represented just 0.82% of all loans in this past quarter, compared with 1.44% one year ago.

NIM pressure is making investors nervous
Depressed net interest margins have been a common thread in banks' earnings this month, and there's no letup in sight. Despite increased income from mortgage banking, Regions Financial's (NYSE: RF  ) stock was walloped by investors after reporting a NIM drop from 3.16% last quarter to 3.08% in Q3. Credit Suisse has noted that even regionals with decent NIMs, like BB&T (