Astoria Financial in Lake Success, N.Y., had no intention of being independent this year.

The $15 billion-asset company had planned to be part of New York Community Bancorp by Dec. 31, but the companies' $2 billion merger deal fell through as regulatory approval proved elusive.

So Astoria’s management now must tackle several issues it probably didn’t expect to confront, including, but not limited to, finding ways to boost profit, bringing in lower-cost deposits and deciding whether to look for a new buyer.

All of those matters might be challenging.

“It’s not a great outlook,” said Casey Haire, an analyst at Jefferies. Astoria might be best served finding another buyer, he added. “There’s not a clear, timely way to improve profitability given how their balance sheet is structured.”

Finding a buyer might be easier said than done.

Few banks in the Northeast have the size to absorb Astoria, including BankUnited, Investors Bancorp, M&T Bank, People’s United, Sterling Bancorp and Valley National Bancorp. Each has valid reasons to steer clear, including outstanding enforcement orders for M&T and Investors, and, in People's United's case, pending acquisitions. Other factors may include concerns over commercial real estate concentrations or a focus on other strategic priorities.

“There’s no obvious partner,” Haire said. “If you’re Astoria … your next partner has got to be almost a slam dunk in terms of getting their ability to get this deal done.”

Representatives from Sterling, M&T and Valley National declined to comment, citing company policy not to discuss merger speculation. Representatives from People's United and Investors declined to comment, while BankUnited was not immediately available.

Monte Redman, Astoria’s president and CEO, isn’t ready to commit to staying independent or agreeing to another merger.

“We’re reviewing our strategic plan, taking into account changes in the interest rate environment, changes in the business activity you expected and the expected changes in a regulatory climate,” Redman said Thursday during a conference call to discuss quarterly results. “Always management and the board's focus is to preserve and enhance our franchise and shareholder value.”

Pressed by Bob Ramsey at FBR Capital Markets for more commentary, Redman made it clear that he had already chosen his “words carefully.”

Still, Astoria would certainly want to avoid a repeat of its terminated sale to New York Community, which idled for 14 months before being called off. Over that time, the company’s fourth-quarter profit decreased by 15%, its loans receivable fell by 7% and its margin narrowed by 2 basis points.

Remaining independent has its own set of challenges.

Astoria’s ratio of CRE to total risk-based capital is roughly 287%, Haire said, which doesn’t give it much room before it crosses an informal threshold where regulators increase their scrutiny. The company also relies on wholesale funding, which tends to be more expensive than core deposits, he said.

Astoria also struggled to make loans during the fourth quarter. Multifamily and CRE originations fell more than 67% from a year earlier. Loan production won’t necessarily pick up this quarter either, management said.

“Clearly, our pipeline is low,” Redman said. “So we do not expect growth in the first quarter, but we expect to build that pipeline up and have growth as we go forward the rest of this year and … well after that.”

Astoria should be able to build its multifamily portfolio, bring in more commercial clients and become more efficient now that it no longer has the New York Community merger hanging over its head, Redman said.

As for the called-off deal, Redman pointed to New York Community’s inability to provide a clear closing timetable. Once regulators informed the companies of the delayed approval, Astoria’s management tried “to clarify the situation” by trying to figure out how long it might take.

“In December, New York Community informed us that there was no clarity as to if and when the deal would close,” Redman said. “That led us to mutually agree to terminate the deal.”

Basswood Capital Management, which had once pressed Astoria to consider selling, sent the company a letter in early December encouraging management to walk away from the deal due to changes in the market and regulatory landscape. Astoria should be able to fetch a higher price than what New York Community had agreed to pay, the letter said.

Astoria’s best move “might entail staying independent for a period of time before seeking a new merger partner,” Basswood said.

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