A theme of second-quarter results has been lingering asset-quality troubles worsened by shrinking loan balances. Though New York Community Bancorp is not immune to the former, its focus on multifamily residential properties helped make it one of the few banking companies to expand its loan book in the quarter.
The $42 billion-asset company reported earnings of $136.3 million on Wednesday, up 8% from the first quarter. A shrinking securities portfolio caused a slight overall reduction in assets, but growth centered in its multifamily loan portfolio boosted its total loan balance. The company ended the quarter with $29 billion of loans, up $206 million from the first quarter and $744 million from Dec. 31.
Moreover, the company said loan production in the third quarter "is likely to rise."
NYCB's "niche in the New York multifamily market" explained the company's loan growth, its chairman and chief executive, Joseph Ficalora, said in an interview. Aiding the company, he said, was that some of its stiffest past competitors, lenders like Northfork Bank and Washington Mutual, have been acquired by new owners that are less focused on the multifamily sector.
"We are in a market that's going to see increasing opportunity to finance both properties coming out of [securitization and] conduits and properties that need to refinance to support their payments," he said.
Loan origination totaled $3.1 billion in the second quarter, including $2.2 billion of residential mortgages originated for sale. Of the $972 million of loans originated for investment, multifamily housing accounted for a little more than half. The company's loan-for-investment pipeline stands at $902 million, nearly double its first-quarter level.
Not counting the assets New York Community picked up from its government-assisted purchases of AmTrust Bank of Cleveland and Desert Hills Bank in Phoenix, the company also reported progress on its nonperforming loans, which declined 11.2%, the first drop in consecutive quarters since early 2008.
But the company set aside an additional $22 million for loan losses in the quarter, building its reserve to $141 million.
Thomas Alonso, an analyst at Macquarie Capital, said he expects slow and steady growth in the business that NYCB is pursuing. Because of the relatively light competition and the sheer quantity of cash the company has on hand, he said, NYCB is well-positioned.
"They've got $3 billion in cash from AmTrust and Desert Hills," he said. "Part of the reason their portfolio grew is that they've been a bit more flexible in terms of dealing with the lower yield on new originations than some players in the market."
With the bank sitting on so much cash, lending it at even relatively low margins to creditworthy borrowers is profitable, Alonso said.
NYCB also reported stronger capital, with shareholder assets in the quarter of about 7.5% of the company's balance sheet. Noninterest income rose 46%, to $25.4 million, driven largely by increases in mortgage origination and servicing fees.
It also reported improvement in delinquencies. The total of loans 30-89 days past due fell 29%, the second straight quarter in which delinquency declined.