This company is a tough call. In the past growth carried the EPS. Obviously, today is a different story.
It does appear that the bank's profitability is being hampered by its margin on a large piece of its balance sheet.
Take a look at the banks total borrowings - 13.5 bil at a cost of 3.84%. That means for a large portion of the balance sheet the bank can only produce a margin of 1.84%.
I also looked into the 10q and it appears that the bank also relies on brokered deposits. Here is what the q says:
In keeping with our practice of utilizing brokered funds to supplement our funding, brokered deposits represented $3.8 billion of total deposits at September 30, 2011, as compared to $3.5 billion and $3.0 billion, respectively, at June 30, 2011 and December 31, 2010. Brokered NOW and money market accounts represented $3.5 billion of the September 30th total, with the aforementioned brokered non-interest-bearing accounts representing the rest. At both June 30, 2011 and December 31, 2010, the entire balance of brokered deposits consisted of NOW and money market accounts.
I am sure they are borrowing at attractive rates on the brokered but this type of borrowing does cost the bank even more margin.
Taken this all into account technically NYB only has core deposits of 18 bil.
This leaves NYB the option of growing the balance sheet to drive EPS. They have been successful at in the past but now is not that easy and capital preservation is the agenda.
I would imagine that NYB will continue to have a hard time widening its margin as the mix of assets to borrowings will not turn over or change.
With all that said, I do believe that NYB is the lesser of the evils. Getting a higher EPS number lies only in its ability to grow through aquisition.
At 11+ I believe it is attractive but I wouldn't bet that this business model will move the price in any substantial manner.
I would agree that the margin will be hampered until the expensive wholesale funding can be repriced. I think the part of the solution is to grow the earning asset base to drive more incremental income. They do have capital to support additional growth in their high quality lending areas. Imagine if they prepaid the wholesale funds and took a charge they could replace the wholesale borrowings at over 80%+ cheaper if they were to float and 50% cheaper if they were match funding.
This stock is not going to provide huge capital appreciation near term. It is more like a bond at these levels and in my opinion without the interest rate risk if rates rise. Where can you get 8% plus dividends with that kind of structure?