New York Community Bancorp Inc. in the first quarter partially offset a slowdown in home-mortgage production with more fees from New York apartment-building owners who repaid loans early.
As result, the Westbury, N.Y. thrift's net income declined 18% from the prior quarter and less than 1% from a year earlier, to $123.2 million.
New York Community's home-mortgage income fell by more than half from the prior quarter as it originated $2.4 billion fewer home loans to sell to the federal housing agencies.
It got involved in home mortgages last year after buying a bank with a mortgage division. That unit enabled it to generate a lot of fee income in the second half that made up for soft demand for its core product, mortgages on New York apartment buildings.
Joseph Ficalora, the chief executive of the $41 billion-asset lender, told analysts in a conference call Tuesday that demand is picking up for apartment-building loans, which account for about 60% of its $28.5 billion of loans.
"We see some very large production," Ficalora said, noting that New York Community has about $1.8 billion of apartment-building loans in the process of closing. "There is a growing marketplace in our niche, and we are going to see more activity. We are going to see more prepayments; we are going to see more production."
He said the company had its best quarter for originations to apartment-building owners since the third quarter of 2004.
More of those owners refinanced their loans in the first quarter in anticipation of higher rates, which eased margin pressure by adding $19.6 million of loan prepayment income, about 30% more than in the prior quarter, he said.
Apartment-building loans expanded by $92 million, or less than 1%, from yearend. Commercial real estate loans grew modestly, too. But runoff of construction and development loans and falling balances of home loans held for sale shrank total loans by nearly 2% from the fourth quarter.
The mortgage production slowdown hurt loan and fee income and margins. Lower rates collected on a $4.8 billion portfolio of securities hurt, too.
Net interest income was essentially flat from the prior quarter, at $303.3 million. The net interest margin declined 3 basis points, to 3.54%. Offsetting some pressure on margins in the quarter was a $10 million gain from securities sales and lower funding costs.
Thomas R. Congemi, New York Community's chief financial officer, said in the conference call that the margin may decline another 5 to 7 basis points in 2011, though it may not fall if interest rates increase or prepayments remain strong.
"Rates are still very low," said. "Assume we have a lower spread."
Provisions were $26 million, up 53% from the prior quarter and 30% from the prior quarter.