Updated: Jun 1
"New York Community Bancorp finally makes a much-needed acquisition with the $2.6 billion all-stock deal to buy Flagstar Bancorp."
By: Allan R. Kirby
Flagstar shareholders will receive 4.0151 shares of New York Community common stock for each Flagstar share they own.
1.15 Price to Tangible book value per share.
New York Community shareholders represent 68% of the combined Company, Flagstar shareholders represent 32%.
Values Flagstar Bancorp at $2.6 billion.
The combined company will have over $87 billion in assets and operate nearly 400 traditional branches in nine states and 87 loan production offices across 28 states.
New York Community Bancorp, Inc. (NYCB) and Flagstar Bancorp, Inc. (FBC) entered into a definitive merger agreement on April 26th under which the two companies will combine in an all-stock merger. As Thomas R. Cangemi highlights, "When I was appointed President and CEO of New York Community earlier this year, one of my top priorities was to seek out a like-minded partner that would provide NYCB with a diversified revenue stream, and improved funding mix, and leverage our scale and technology, as we transition away from a traditional thrift model. In Flagstar, we have found such a like-minded partner. The combination of our two companies will allow each of us to continue our transformation to a full-service commercial bank by broadening our product offerings while expanding our geographic reach with no branch overlap."
Broader Service Offerings
This is great news as N.Y. Community Bank has finally taken steps to become more of a commercial bank and moving away from the thrift model. The Merger of Flagstar will immediately help NYCB provide a broader set of products and services such as Mortgage and Warehouse banking along with Residental and HELOC portfolio lending.
Additionally, NYCB will also see zero-cost non-interest-bearing deposits double from 10% to 21% and will mean less reliance on wholesale funding, which is needed. Other key benefits of the proposed transaction are highlighted:
Key Benefits of the Proposed Transaction
Financially Attractive Metrics:
The transaction is expected to be 16% accretive to NYCB's earnings per share in 2022 (assuming fully phased-in cost savings).
Also expected to be 3.5% accretive to NYCB's tangible book value per share.
Exceptional pro-forma profitability with ROAA of 1.2% and ROATCE of 16%.
Strong pro-forma capital ratios and reserve coverage.
Enhanced capital generation after dividend of $500 million, annually.
NYCB dividend maintained.
Accelerates NYCB transition towards building a dynamic commercial banking organization.
Creates a top-tier regional bank with significant scale and geographic and business line diversification.
Drives strong financial results and enhances capital generation.
Improves funding profile and interest rate risk positioning.
Market-leading rent-regulated multi-family lender, mortgage originator and service.
Maintains each Bank's unique low credit risk model.
Combines two strong management teams and boards.
Is New York Community Bancorp stock a buy?
The new president Thomas Cangemi pulled off a reasonably priced deal and we like the fact that the transaction is expected to be 16% accretive to NYCB's earnings per share in 2022 with cost savings. Additionally, the combined bank will become much more diversified and less reliant on a multi-family loan portfolio which currently totals $32.2 billion and represents 75% of total held-for-investment loans. As per the merger deck, the multi-family total loan portfolio will be reduced to only 56% which is a good start. I also believe the combined company will also bring much-needed improvement in their deposit base, with non-interest-bearing deposits increasing from 10% to 21% while reducing the needed to leverage higher cost and interest-sensitive certificates of deposits. Source
So is the stock a buying opportunity? The acquisition does make New York Community a much more intriguing investing opportunity. However, the bank still needs to execute on the merger while also continuing to find ways to grow its branch network as well as deposits organically or with additional mergers. Flagstar is a very good start but scale matters and New York Community Bancorp will need to continue to grow in order to stay competitive and keep up with other competitors. Overall this is a good stock to own over the longer term, especially with its 5.78% dividend however do your research and see if this is a stock to add to your portfolio.
Disclosure: mysmallbank.com nor the author received any compensation from the mentioned security for this article. The article is our opinion only and is written to help readers learn more about the stock mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.