New York Community Bancorp to Acquire Most of Signature Bank -- Shares Are Surging

What happened

Shares of New York Community Bancorp (NYCB -3.46%) had shot up nearly 32% as of 9:38 a.m. ET today after the bank and the Federal Deposit Insurance Corporation (FDIC) announced that NYCB would take over certain parts of Signature Bank (SBNY).

So what

As many now know, Signature Bank was closed by state banking regulators on March 11 after the bank experienced significant deposit outflows and regulators lost confidence in management.

NYCB in its announcement noted that the bank only acquired "certain financially and strategically complementary parts" of Signature, including $38 billion of assets, $25 billion of which is cash, and roughly $13 billion of loans. The deal does not include Signature's crypto business or its fund banking business, which had been lending to private equity and venture capital firms.

Included in the cash portion of the deal is a $2.7 billion discount to Signature's net asset value. NYCB also assumed $34 billion of deposits and 40 Signature bank branches, 30 of which are in New York City. The deal will cost the FDIC's insurance fund, which had roughly $128 billion in it at the end of 2022, roughly $2.5 billion, although that number could change.

NYCB will also get Signature's wealth management and broker-dealer businesses and is working on an agreement to service Signature's multi-family, commercial real estate and other loans that it didn't acquire.

"This transaction continues our transformation from a predominantly multi-family lender to a diversified full-service commercial bank," NYCB's CEO Thomas Cangemi said in a statement. "It builds upon and accelerates the transformation set in motion by the merger of New York Community and Flagstar, and we believe the financial metrics are extremely attractive."

Now what

Well, distress creates opportunity, and what a great deal this is for NYCB. The bank has historically had a liability-sensitive balance sheet, meaning its earnings struggles more than most in a rising interest rate environment because its deposits are not sticky and deposit costs rise.

But NYCB has been working for a few years to remix its balance sheet. It recently completed its acquisition of Flagstar Bank to help do this, a deal that took a very long time to complete.

The acquisition of Signature will continue to help further this mission. Not only will it continue to diversify NYCB's deposit base, but it will also add new lending verticals that will help diversify NYCB's asset base from mostly a multi-family lender. Signature Bank brings mortgage warehouse lending, specialty finance, healthcare lending, and U.S. Small Business Administration lending as well.

Furthermore, given NYCB's large New York presence, the bank will likely be able to consolidate Signature's branches over time. NYCB expects the deal to grow tangible book value or the bank's net worth by 15%, and boost earnings by more than 20%. Both numbers are unusually attractive for a bank acquisition, so NYCB shareholders should be quite pleased.