New York Community sets sights on M&A

New York Community Bancorp is hunting for merger partners in an effort to remix its deposit funding base and transform itself into a full-service commercial bank.

With a new CEO for the first time in 28 years, the Westbury, N.Y., company intends to focus on multifamily lending but says it is considering myriad ways to attract lower-cost deposits, including adding more products and services that would lead to stickier relationships and hiring teams of bankers from rival firms.

But the real shift will happen by merging with or acquiring another bank, President and CEO Thomas Cangemi said.

Speaking to analysts in an earnings call Wednesday, Cangemi said the company is committed to diversifying its balance sheet “over time” and is not interested in building a business line “from scratch.”

“We’re going to partner [because] partnerships will get it done a lot quicker and will make rational sense,” he said.

Cangemi took over as CEO of the $56.3 billion-asset New York Community just four weeks ago after longtime CEO Joseph Ficalora abruptly retired at the end of December. Industry watchers have been curious about how Cangemi, previously the company’s chief financial officer, might diversify the funding mix, which for years has been heavily skewed toward higher-cost certificates of deposit.

At the end of 2020, CDs accounted for nearly a third of New York Community’s $32.4 billion deposit book, according to the company’s latest quarterly presentation. The Federal Reserve’s interest-rate reduction in March gave the company a chance to start repricing CDs at lower costs, but analysts have said that making a traditional bank deal would be the fastest way to cut deposit costs and, in turn, generate more profit.

New York Community hasn’t completed an acquisition since March 2010. A bid to acquire Astoria Financial in Lake Success, N.Y., fell through in December 2016, more than a year after it was announced.

One of its key challenges in finding a merger partner is the value of its shares. New York Community’s stock has generally underperformed in recent years and now trades at 80% of its book value. Shares were trading at $10.69 late Wednesday, down 2.5% from Tuesday’s closing price.

As it waits for the right deal to come along, the company is focusing on making better use of its 236-office branch network, which is spread across five states but predominantly in the New York metropolitan area.

That means tapping those branches to deepen relationships and bring in core deposits, Cangemi said.

“I’ve been saying this for years: The low-lying fruit of the full relationship lending is out there,” he said. “If you have a very wealthy family who is looking for a line of credit — and we tend not to service lines of credit — that’s an easy exercise for us. We know the customer. We know the opportunity.”

There’s also a focus on acquiring banking teams from other companies that could help the company move into new business lines. New York Community built its specialty financing this way and as of Dec. 31 that segment accounted for about 7% of its loan portfolio, with $3.2 billion of outstanding loans and $4.8 billion in commitments.

“We’re looking at all unique things in the marketplace and we’re very comfortable, like we did with specialty finance, bringing in a team of people from the outside, management left out,” Cangemi said.

The new strategy was met Wednesday with approval by some of those who follow the company.

Mark Fitzgibbon, an analyst at Piper Sandler, said in a note to clients that management appears to be “focused on finding a value-creating M&A opportunity to help speed the transformation of the company” and expects it “will be disciplined on pricing” for any such deal.

“In short we have confidence in management’s ability to grow earnings, smartly evolve the mix of business...and do prudent M&A,” Fitzgibbon wrote.

The company's fourth-quarter net income rose 87% from a year earlier, to $189.7 million. Earnings per share were 39 cents, beating the consensus estimate of 26 cents from analysts surveyed by FactSet Research Systems.

The spike in earnings is tied to a one-time income tax benefit of $55.3 million and a double-digit increase in the net interest margin driven by lower funding costs, including a decrease in the average cost of CDs.

Credit-wise, nearly all of the $5.9 billion of multifamily and commercial real estate loans deferred as of June 30 have returned to making payments, leaving $80 million in deferral status, the company reported.

In particular, the non-luxury, rent-regulated portion of New York Community’s multifamily portfolio “continues to hold up extraordinarily well,” Cangemi said. Over the summer, there was some concern that multifamily loans could face headwinds if landlords struggle to make payments and delinquencies tick upward, but the segment has proven to be more resilient than expected as vacancy rates have stayed low and rent collections have been consistent.

“Our borrowers continue to pay us and rent collections have remained above pre-pandemic levels,” Cangemi said. “Moreover, the vaccine rollout and an additional fiscal stimulus by the new [presidential] administration should help the local economy and that should support multifamily and [commercial real estate] properties in our region.”