New York Community Bank, one of New York City’s largest multifamily lenders, is set to diversify its business strategy with the acquisition of Michigan-based retail bank Flagstar Bancorp. in an all-stock merger valued at $2.6 billion, the companies said Monday.
The announcement comes just a few months after Thomas Cangemi took over as CEO at slumping NYCB and vowed to shake things up with an acquisition. Analysts had noted NYCB was suffering from a 2019 legislative change in New York that limited the amount of rent landlords could increase on rent-regulated homes. That issue was magnified by the COVID-19 pandemic, which depressed demand for rental apartments in New York. The bank’s stock price was trading at a 26% discount to book value in late January.
NYCB had essentially exited the residential mortgage banking business in 2017 after selling its origination and servicing platforms. So its acquisition of one of America’s largest single-family mortgage lenders should raise some eyebrows.
Under the terms of the agreement made public Monday, Flagstar shareholders will receive 4.01 shares of New York Community common stock for each Flagstar share they own. Once the transaction is complete, New York Community Bank shares held by NYCB shareholders will represent 68% of the combined company. Based on closing prices as of April 23, the value is approximately $2.6 billion.
The new company will have over $87 billion in assets and operate nearly 400 retail branches across nine states. The combined company will have 87 loan production offices across a 28-state footprint. Flagstar’s brand will be maintained in the Midwest. Flagstar’s mortgage division will also maintain the Flagstar brand. Other states will retain their current branding, the firms said in a statement Monday.
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NYCB’s Cangemi will be president and CEO of the combined company and Sandro DiNello, currently the president and CEO of Flagstar, will become non-executive chairman. Lee Smith will continue to lead the mortgage division as senior executive vice president and president of mortgage.The Board of Directors will be comprised of 12 directors – eight from New York Community and four from Flagstar.
“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, an improved funding mix, and leverage our scale and technology, as we transition away from a traditional thrift model,” Cangemi said in a statement. “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.”
In 2020, Flagstar originated $48.3 billion in mortgages, making it the 18th-largest mortgage lender in the U.S., according to Inside Mortgage Finance. Flagstar closed $13.8 billion in mortgage loans in the first quarter. At the end of the first quarter, Flagstar also serviced and subserviced 1.1 million loans, up 6% from the prior quarter. It brought on 100,000 loans that other lenders originated. Mortgage revenue checked in at $227 million in the first quarter, with locks increasing by 3%.
Still, like many other lenders, the firm’s margins have been shrinking. Margins came in at 1.84% in the first quarter, down from from 1.93% in Q4 2020 and 2.31% in Q3 2020.
NYCB is best known for its commercial banking division, particularly regarding multifamily lending in the New York City region. It’s also known for its acquisitions appetite over the years. NYCB expanded beyond the New York region in 2009 when it acquired the failed Ohio bank Amtrust, which had 66 branches and $13 billion in assets. In 2017, NYCB sold its single-family mortgage business to Freedom Mortgage, which, at the time, had $21 billion in UPB.
It also purchased Desert Hills Bank of Phoenix in March 2010, which had been seized by the FDIC, as well as the assets of Aurora Bank from Lehman Brothers in 2015.
The transaction is expected to close by the end of 2021.
The NYCB-Flagstar deal comes amid a period of significant consolidation within the mortgage banking space. Caliber Home Loans, one of the nation’s top mortgage lenders, is being acquired by New Residential Investment Corp. in a deal valued at $1.7 billion; Guaranteed Rate acquired Stearns Lending in a private deal in early January; and AmeriHome (which, like Caliber, also failed to go public) was scooped up by Western Alliance for approximately $1 billion.
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