Residential origination fees were a surprise blessing for New York Community Bancorp last quarter, while its bread-and-butter lending to New York apartment building owners was weak at best.
The Westbury lender's earnings beat expectations, but market watchers are worried about how long it can sustain high profits by making home loans and selling them to Fannie Mae and Freddie Mac. It is a rocky business and one New York Community entered less than a year ago after buying the failed AmTrust Bank of Cleveland, a mid-sized player in residential finance.
During a conference call with analysts, Joseph Ficalora, the chairman and CEO of NYCB, said there's more money to be made in mortgages.
The thrift has $1.4 billion of agency-worthy loans on its balance sheet, with $3.6 billion in the pipeline. "We could fund twice what we are doing," he said. "We could do significantly greater volumes. We are being restrained. This is a business model that is different than our standard business model."
Low interest rates, meanwhile, threaten apartment lending, the $41.7 billion-asset company's main profit source. These loans almost never lose money because of the robust nature of New York real estate. But they're becoming less lucrative as rates fall. New York Community earned less loan interest last quarter even though average loans rose 1.6%, including $572 million in apartment loan originations.
There are dangers in making a lot of low interest rate loans that won't mature for five years, analysts said. Interest-bearing deposits — a key funding source yielding 1% right now — will almost certainly become more expensive in that time, they said. "I think they can make loans — the question is: are they an acceptable yield? That's the question," said Matthew Kelley, an analyst with Sterne Agee & Leach Inc. "The absolute level of rates has to be a little bit of a concern given that we're at historical lows."
The company earned $135.61 million in the third quarter, down less than 1% from the previous quarter and up 38% from a year earlier. Credit costs, meanwhile, remain negligible. It charged off $5.8 million of core multifamily loans in the quarter, even though $360 million were overdue. Total chargeoffs were $16.7 million.
Surging income from the mortgage business offset falling loan and securities income. It collected $60 million underwriting about $3.5 billion in mortgages on one-to-four family homes for sale to Fannie or Freddie. New York Community, like other banks, is benefiting because a lot of people are refinancing loans at lower rates. It had $24 million of mortgage origination income in the second quarter and none a year earlier.
Total noninterest income was $107.1 million, up 33% from the previous quarter. Interest income was $467.4 million, down 3.2%.
