NYB New York Community Bancorp, Inc.

With the acquisition of AmTrust Bank, New York Community Bancorp (NYB) is, for the first time, venturing out of its home market.

Such expansions have been proven risky to other banks. But New York Community Chairman and Chief Executive Joseph Ficalora said his deal to buy AmTrust Bank from the Federal Deposit Insurance Corp. will give him new funding to pursue his bank's current strategy.

AmTrust, of Ohio, failed Friday. It has $11 billion in deposits and branches in Florida and Arizona in addition to its northeast Ohio home. New York Community is only in metropolitan New York, and has $14.5 billion of deposits. It will not buy all AmTrust's assets and gets guarantees from the FDIC for those it takes.

New York Community will take AmTrust's deposits and invest them into the bank's single niche business: Loans to owners of New York apartment houses that fall under the city's rent regulations.

The bank said Monday it would issue 60 million shares to expand AmTrust and beef up its common equity capital. Shares of New York Community rallied as much as 11% in a mixed market for bank stocks Monday; most recently, the stock rose 6.7%, to $13.15. FBR Capital Markets analyst Bob Ramsey upgraded it to outperform from market perform because of the AmTrust deal.

New York Community's strategy has simply been to buy banks with attractive deposits but little means to deploy them. To fund its multi-family loans, New York Community acquired nine banks in as many years; it stripped them of the securities and loans they held on their balance sheets. New York Community doesn't use its branches to expand its loan book. Any consumer loans, such as mortgages, that are made in the branches are sold to other banks or outside investors.

In Florida, Arizona, and Ohio, New York Community will do the same. "This transaction is the best example of our intent to grow our best-in-class loan book with highly efficient deposit funding," Ficalora told investors during a conference call. He wants more such deals to follow, particularly in New York Community's new markets.

Yet, in buying AmTrust, New York Community is entering markets shaken by the mortgage meltdown. "There are no synergies between the AmTrust operations and NYB's core [multi-family] niche," BMO Capital Markets analyst Peter Winter wrote in a research note. AmTrust's deposits carry high interest rates and might run off, he noted. He does expect "the overall deal to be accretive to earnings."

New York Community calculates that about 15% of AmTrust's high interest deposits could run off, but Ficalora said that his bank's ownership of the struggling bank will now allow it to regain deposits.

There is little danger that New York Community will run out of demand for the multi-family loans in New York it likes to make. "We have about 15% of the niche that we in fact like," Ficalora said. "So we can easily grow this bank on the asset side to two or three or four times." His bank competes with Capital One Financial Corp. (COF), J.P. Morgan Chase & Co. (JPM), and Citigroup Inc. (C) for multi-family loans.

Rent regulated apartment buildings increase their cash flow--and therefore their value--constantly, because more and more tenants move out of rent controlled and rent stabilized apartments, allowing higher market rents. That pattern has reduced New York Community's lending risk and allows the apartment owners to refinance frequently, at a fee to the bank.

Ficalora has often said that his strategy can only take his bank so far, but during the financial crisis, New York Community has continued to generate profits because it had few delinquent loans. The bank's third quarter profit rose 70%, to almost $100 million.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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