Shares of Westbury, N.Y.-based New York Community Bancorp Inc. fell over 6% in morning trading following a fourth-quarter earnings call on Jan. 25 during which the company blamed the "environment" for breaking up its long-anticipated acquisition of Lake Success, N.Y.-based Astoria Financial Corp.
Claiming that the Astoria deal was still a highly accretive transaction, New York Community President and CEO Joseph Ficalora said in the call that the collapsed merger wasn't an issue with the deal itself but was "a matter of the environment." When pressed to explain what that means, Ficalora was “a bit hesitant to be real, real specific,” according to Stephen Ellis, director of financial service equity research at Morningstar. Ficalora danced around the topic, offering a vague anecdote on how long the merger deal was stuck in pending status.
"Time is not a good thing for a seller," Ficalora said. "It's not a good thing for a buyer either, but particularly bad for a seller. So subjecting your staff, your employees to an elongated uncertain period is a very difficult thing. And a lot of consequences occurred in the 14 months."
Ellis saw that comment as a suggestion that it was Astoria’s board of directors that stepped away from the table, adding that New York could have also seen the attributes for a deal change with new expectations on the banking industry under a Trump presidency. New York Community CFO Thomas Cangemi said on the call that the termination was something "we mutually agreed to."
At $48.9 billion, New York Community insisted that it still considers a large M&A deal to be the "best way" for breaching the $50 billion-asset mark that comes with increased regulatory compliance. In the meantime, the company says based on average growth, it could still look for deals and grow as a non-SIFI bank until the last quarter of 2017. But the company hinted multiple times on the call that it could embrace an organic strategy for growing past $50 billion if there's regulatory reform from the new administration.
"We also truly believe there will be regulatory reform coming, and we have to be very mindful of that in a political aspect," Cangemi said. "We're in a unique position as a country so we have to - we think - step back and understand that we have a core business model that will be growing on a quarterly basis."
Its core business for now continues to focus on multi-family loans funded by deposits acquired at low costs. Multi-family loans rose 3.7% year over year to $27 billion, covering for a decline in CRE loans over the same period of 1.7% to $7.7 billion. Quarter over quarter, however, multi-family and CRE both declined due to a rise in market interest rates following the election.
Its deposits grew by $461.1 million year over year to $28.9 billion, which reflects a business model adjustment to shift its liabilities mix toward more CD accounts and less savings accounts.
Overall, the company reported fourth-quarter earnings that fell short of expectations, posting net income of $113.7 million, or 23 cents per share. The S&P Capital IQ consensus normalized EPS estimates were 26 cents for the recent quarter. New York Community's bottom line was hurt by falling mortgage banking income and higher expenses related to the cost of compensation and benefits.
In a note, FBR Research noted that New York Community's business model is "poorly positioned for a rising rate environment," adding that the $50 billion threshold will continue to be a ceiling for growth until the company can figure out a strategy in at least the next year or two. Ellis was less pessimistic, speculating that “once New York figures out these issues” with the regulatory ceiling, they’ll succeed in the key multi-family lending market of New York.
“They’re working with a very effective market,” Ellis said.