Earlier this morning, regional lender New York Community Bancorp, Inc. (NYSE:NYCB) reported earnings for the fourth quarter of 2012. While the bottom line figure came in consistent with estimates, here are three critical takeaways buried in the high-yielding bank's earnings release.
1. Lower provisions fueled the bottom line
If you were to look only at NYCB's bottom line, it'd be hard to conclude that the bank had anything but a solid quarter.
For the three months ended Dec. 31, NYCB earned $122.8 million, or $0.28 per share, compared to $117.7 million, or $0.27 per share, in the year-ago period. Its earnings, in other words, grew a respectable 3.7% -- this is particularly impressive when you consider that the overall economy grew a mere 2.2% for the year, and actually contracted in the fourth quarter.
Once you move away from this figure, however, the numbers don't seem to add up, as both its net interest income and noninterest income were down on a year-over-year basis, and its noninterest expenses were up. What gives?
The answer is that NYCB benefited from a net $31 million swing in loan loss provisions. In the fourth quarter of last year, it set aside $5 million for future loan losses compared to the $20 million that it set aside in the fourth quarter of 2011. This boosted the bottom line by $15 million.
Also, as opposed to setting aside an added $12.7 million in provisions for so-called "covered" loans in the final three months of 2011 – these are partially insured loans acquired by NYCB in a FDIC-arranged transaction -- it recovered a net $3.3 million from the FDIC in the fourth quarter of last year. This equated to a swing of $16 million.
Excluding loan loss provisions, in turn, NYCB's net income would have actually contracted by roughly 4% on a year-over-year basis.
2. Net interest income fell
As I alluded to, NYCB's net interest income declined year over year by $10 million, going from $300 million in the fourth quarter of 2011 down to $290 million last quarter.
Aside from the mere decline, the bad news in this regard is that NYCB's total interest income fell by nearly $20 million thanks to falling interest rates. But the good news is that its total interest expense benefited from the same trend, dropping by roughly $8 million. Expressed in percentage terms, NYCB's net interest margin fell by a staggering 30 basis points on a year-over-year basis, and two basis points compared to the preceding quarter.
If you've been following earnings season thus far, this probably doesn't come as a surprise to you, as many of NYCB's competitors have reported similar trends. Two weeks ago, Wells Fargo & Company (NYSE:WFC) , the nation's fourth largest bank by assets and largest mortgage lender, posted a 10-basis-point sequential decrease in its NIM in addition to the 25-basis-point fall that it reported in the third quarter. And last week, U.S. Bancorp (NYSE:USB) , the nation's largest regional bank, posted a four-basis-point decline in its NIM.
Indeed, it's been a rare occurrence when banks have bucked this trend. The two that come to mind are Huntington Bancshares Incorporated (NASDAQ:HBAN) and Bank of America Corp (NYSE:BAC) . With respect to the former, its NIM expanded in the fourth quarter by three basis points, but as its chief financial officer reminded analysts on the conference call, Huntington presides over one of the lowest yielding securities portfolios in the industry and thus has significantly more flexibility to move the NIM needle. And B of A's, which similarly fell by three basis points sequentially, is a moving target considering the aggressive changes that the nation's second largest bank continues to make to its balance sheet -- click here to read my take on B of A's fourth-quarter earnings.