WESTBURY, N.Y. ( TheStreet) -- Investors responded enthusiastically after New York Community Bancorp ( NYB) took over the failed AmTrust Bank of Cleveland Friday night and announced an offering of 60 million shares before the market opened Monday.

The shares closed up 8.7% to $13.40 Monday, after rising as much as 11% earlier in the day, despite the coming dilution. The stock has climbed 22% this year, beating the 9% advance of the S&P 400 Financials Index.

New York Community acquired $11 billion in assets, $8 billion in deposits and $3 billion in wholesale borrowings in the government-assisted transaction Friday. The Federal Deposit Insurance Corp. agreed to share losses from $6 billion in single-family mortgages and consumer loans. The FDIC retained AmTrust's nonperforming loans, private-label mortgage-backed securities and mortgage servicing rights.

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New York Community said the deal boosted its total assets to $42 billion, making it the 24th-largest regional bank. Its deposits rose 55% to $22 billion. The company expanded its footprint to Ohio, Arizona and Florida.

Last month, we included New York Community Bancorp in a profile of three banks that pay high dividends. The shares yielded 9.4% at the time, but the stock had dropped as investors questioned the company's ability to keep paying its annual dividend of $1. The company's payout has exceeded earnings for the past three years.

The transaction boosted the portion of funding that comes from retail deposits to 60% from 50% as of Sept. 30. New York Community plans to use the $4 billion in cash acquired from AmTrust to pay down wholesale borrowings. The company has been trying to reduce its reliance on wholesale funding.

The AmTrust acquisition will add to earnings and help the company support its dividend, CEO Joseph Ficalora said on a conference call Monday. He said AmTrust branches were highly efficient, with "a larger deposit base per branch than our existing branches." He expects strong deposit growth on Florida's southeast coast, where 23 of the 25 acquired branches are located. "AmTrust had been reducing deposits, but we are confident in our staff's ability to grow deposits again."

New York Community has been one of the most efficient U.S. holding companies, with an efficiency ratio of 35% for the third quarter. This measure takes a bank's noninterest expenses and divides it by the income from providing services. Lower is better, and the industry average for the third quarter was 55%, according to the FDIC. Hudson City Bancorp ( HCBK) was the only company with a better ratio at 19%, according to SNL Financial.

A Unique Sweetener for the Government

New York Community's takeover of AmTrust included a way for the government to profit as the company's shares rise. New York Community agreed to pay the FDIC 25 million times the difference between the weighted-average price of the preceding two days and $12.33, Friday's closing price. If the weighted-average share price is $13.66, the cash payment made to the government would be $33.3 million.

Supporting the Dividend

The company estimates its tangible common equity ratio will increase to 6.4% from 6%, based on Sept. 30 financials. Looking at regulatory capital ratios, New York Community estimated that its tier 1 leverage ratio would drop slightly to 7.8% from 7.9%, but that its total risk-based capital ratio would increase to 14.2% from 12.1%. These estimates are well ahead of the 5% and 10% for most banks to be considered well-capitalized.

With the expected increase in earnings performance (the company targeted a return on assets of 1.4%, compared to 1.2% in the third quarter) and strengthening of its capital base, talk of a possible reduction in the dividend should end, at least for now.

Investment Thesis

This deal is a home run for New York Community Bancorp. The company has plenty of experience integrating bank acquisitions, and this one will help it increase efficiency, net interest margins and earnings. The company plans to focus its loan businesses on multifamily mortgages secured by buildings with rent-controlled or rent-stabilized dwellings with below-market rents, an area where New York Community has decades of experience and a track record of low loan losses.

Even with Monday's price increase, New York Community's shares look remarkably cheap for a long-term play, and are still yielding over 8%.

-- Reported by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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