Q2 2022 New York Community Bancorp Inc Earnings Call
Good morning, everyone. This is Saudi Martino.
Thank you for joining the management team of New York Community for todays conference call.
Today's discussion of the company's second quarter 2022 results will be led by chairman President and CEO Thomas Ken Jimmy <unk>.
<unk> Bye Chief operating officer, Robert Wann, and the company's Chief Financial Officer, John Pinto.
They are joined on the line by Central de Melo, President and CEO of Flagstar Bancorp and Lee Smith President of Flagstar mortgage.
Before we begin the discussion I would like to remind you that certain comments made today by the management team of New York Community May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Such forward looking statements, we may make are subject to the safe Harbor rules.
Please review the forward looking disclaimer and Safe Harbor language in today's press release, and Investor presentation for more information about risks and uncertainties, which may affect us.
With that now I would like to turn it over to Mr. Ken Jimmy to begin today's conference call.
Thank you Sal and good morning to everyone and thank you for joining us today to discuss our second quarter 2022 performance.
First however, I'd like to comment on our merger with Flagstar.
Both sides are fully committed to completing the transaction as soon as possible and we feel very good about where we stand currently.
For the past 15 months, both companies have diligently worked together to get us to a strong position to close the deal quickly once all regulatory approvals are received.
We're excited about the benefits of the deal today as we were when it was first announced in addition to the earnings per share and tangible book value accretion our merger with Phi saw significantly improves our overall funding profile and interest rate sensitivity.
It's just us away from relying on wholesale borrowings to being more significantly deposit funded and becoming asset sensitive as well.
In addition, it provides for both geographic and product diversification and accelerates our plan to transform our business model towards more dynamic commercial bank model.
Driving strong financial performance and capital generation.
As for our second quarter results. We are extremely pleased with the company's strong operating performance during the second quarter by almost any measure results exceeded expectations, despite higher interest rates and market volatility.
We recorded record net income another quarter of record deposit growth near record loan growth record originations and a higher net interest margin and stable operating expenses, while asset quality remains stellar.
These trends resulted in a solid year over year EPS growth.
For the second quarter of 2022, we reported operating diluted EPS of <unk> 35 cents, a share up 6% compared to 33 cents a share for the second quarter of 2022, and well ahead of the 32 analysts consensus.
Turning now to the details of our quarterly performance.
One of the primary highlights of this quarters operating performance was our deposit growth for the second consecutive quarter deposits grew by approximately $3 billion.
Growth continues to be driven by the banking as a service initiative and loan related deposits.
As I have discussed previously one of my top strategies, if not the top is to increase the banks focus on deposit gathering and deemphasize our need for wholesale borrowings and other less traditional funding sources.
Longer term our success executing on this strategy will result in higher net interest margin.
The early results are quite positive since launching these initiatives early last year total deposits have increased to 41 billion up $8 8 billion with 27% while core deposits increased to 33 billion up $11 billion or 50% at the same time wholesale borrowings primarily federal home loan bank advances <expletive>.
Klein, almost $2 billion or 11% of $13 7 billion.
During the current quarter total deposits increased $3 3 billion $6 2 billion through the first six months of the year our banking.
Banking as a service business was the biggest contributor to this growth banking as a service deposits rose $2 3 billion or 43% on a linked quarter basis, and $5 8 billion year to date.
Banking as a service deposits totaled $7 8 billion at June 32022.
Which is significant progress considering we started this business from scratch in the first quarter of last year with virtually zero deposits.
Banking as a service related deposits fall largely into three categories traditional bas, which primarily encompasses fintech related deposits totaling $5 5 billion.
Government banking as a service serving municipalities and eventually the U S. Treasuries prepaid debit card program totaling $652 million and mortgage as a service catering to mortgage banking servicing companies and consisting of escrow accounts for P&I payments totaling $1 6 billion.
We also are having great success in garnering deposits from our loan customers total loan related deposits rose just under $500 million during the second quarter to $4 $9 billion up 44% annualized on a linked quarter basis for the first six months of 2022. These deposits increased 900.
$21 million far surpassing the 475 million we generated for all of last year. All told since we focusing on this deposit source in the first quarter last year loan related deposits have grown one $4 billion up about 40%.
Moving now to lending.
Also had a very strong quarter in lending loan growth during the quarter was $1 $8 billion second only to the record $2 2 billion of loan growth, we generated in the fourth quarter of last year.
This quarter's loan growth was driven by our multifamily portfolio, where they continue to make market share gains as competition abate along with heightened refinancing activity as market interest rates moved higher during the quarter, forcing many borrowers that come to the table to refinance it probably sooner rather than later.
At June 30, the multifamily portfolio was $36 8 billion up $1 billion or 11% on an annualized basis compared to the previous quarter, while the specialty finance portfolio totaled $4 1 billion up $806 million on a linked quarter basis or 24%.
It is important to note that we have approximately $6 $8 billion of multifamily and CRE loans that come up on their contractual maturity date, and there will be pricing between now and June of 2024, with an average weighted coupon of 374%.
Multifamily loans with an average weighted coupon of $3 70 represents $5 3 billion of this amount while CRE loans with an average weighted coupon of 389% represent the remaining $1 5 billion.
The other driver was significant growth in the specialty finance portfolio due primarily to higher utilization rates at June 30th, especially finance segment had total commitments of $6 $6 billion up 16% compared to $5 7 billion at March 31 other.
Other junan out, 75% or $5 billion of these commitments are structured as floating rate obligations, which have and will continue to benefit us in a rising rate environment.
Despite higher interest rates, you've had a record quarter for originations in our current pipeline looks very good as we head into the third quarter loan originations set a new record as we originated $5 $3 billion during the second quarter up 49% compared to the previous quarter and up 72% compared to the second quarter of last year.
Second quarter originations far exceeded the prior quarter's pipeline by $2 $8 billion more than double last quarters, two and a half billion dollar pipeline.
The current quarter's originations, 37% were refinancing from our own portfolio.
39% of a refinancing from other banks portfolio and 24% were related to property transactions.
As for the pipeline and the current pipeline heading into the third quarter of the year is there a robust $2 $5 billion on par with last quarter.
Of this amount $1 8 billion or 72% of the pipeline was new money to the bank.
Moving now to asset quality.
Our credit trends and asset quality remains stellar and can enjoy again why FCB is among the best in the industry nonperforming assets totaled $56 million compared to $70 million last quarter, our nine basis points of total assets compared to 11 basis points last quarter.
Early stage delinquencies also declined and principal only loan deferrals or at a very manageable level decreasing 51% from the prior quarter to $139 million.
In addition, we had $7 million of net recoveries this quarter compared to net charge offs of $2 million from last quarter.
Before moving on to the next topic I'd like to provide an update on the New York City real estate environment.
New York City, with New York City residential real estate remains healthy and commercial real estate is improving gradually.
Retail prices across the three borrowers of Brooklyn, and Queens in Manhattan have reached new highs.
This has been due to low inventory and higher mortgage rates, which have pushed homebuyers to becoming renters medium residential rents in manhattan or above $4000 for the second straight month with rents continuing to make new highs over the past five months in Brooklyn, The median rents of $3300, marking a new high for the borrow for the second straight month.
While in Queens, especially in northwest Queens, which is closer to the proximity of the Manhattan rents were also a record highs on the rent stabilized side. The rent guideline board approved rate highs of three 5% for one year leases and 5% for two year leases beginning in the fourth quarter. These increases mark the largest increases in almost a decade.
And we will go a long way to offset some of the increases in operating costs.
Office leasing activity is showing signs of life of three 5% year over year with demand for class a space up 32% on a year over year basis.
Moving now to the income statement.
Second quarter net interest income totaled $359 million up $28 million or 8% on a year over year basis, excluding the impact from prepayment income net interest income on a non-GAAP basis increased $35 million of 12% to $339 million on a year over year basis.
Our pre provision net revenue was also a very strong second quarter, <unk> increased $31 million or 15% to $239 million on a year over year basis, excluding impact from merger related expenses, <unk> grew $25 million or 11% to $243 million year over year.
Moving next to the NIM the NIM improve during the second quarter. Despite the fed aggressively raising interest rates several times to combat inflation.
252% that NIM was up nine basis points sequentially.
Truly impact from prepayment income the NIM was 223, 8% up three basis points on a linked quarter basis and slightly better than expectations.
Given that flagstar has significantly asset sensitive and well and.
And we are liability sensitive we are very comfortable with the NIM on a pro forma basis.
On the expense front on noninterest expenses remain in check despite the economy is continuing to invest in various businesses and hiring more people noninterest expenses were $138 million for the second quarter, which includes $4 million of merger related expenses. Excluding this operating expenses totaled $134 million unchanged from the previous quarter and up only modestly on a year.
Over year basis.
Additionally, our efficiency ratio came in at $35, five 7% down compared to both the prior and year ago quarter.
This level is well below the peer average of approximately 55%.
As you can see we had a broad based strength throughout the organization during the quarter. This was all made possible by the hard work dedication and patients as part of our employees I'd like to congratulate them for helping the company to achieve the strong performance this quarter.
Yesterday's meeting the board of directors declared a <unk> 17 dividend on our common shares the dividend will be paid on August 18 to common shareholders of record as of August eight based on yesterday's closing stock price. This translates into an annualized dividend yield of seven 2%.
With that we will be happy to answer any questions. You may have we will do our very best to get to all of you within the time remaining but if we don't please feel free to call US later today or during the week.
Operator, please open the lines for questions.
Certainly we will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star.
Our one one moment, please while we poll for questions.
First question today is coming from Ebrahim <unk> from Bank of America. Your line is now live.
Good morning, Hey, Brad.
Good morning, Tom.
So I guess.
One quarter from a loan growth be P&L standpoint, I think you mentioned.
Comfort with pro forma net interest margins maybe.
If we can just start there give us a sense of where you see the margin going being stolen did he takes team had the one we'll probably get this afternoon.
You think about FY <unk> standalone and beyond just how do we think about funding cost.
And deposit betas.
Over the next few quarters, given all the actions you've taken to improve the deposit mix.
So David let me start off by saying, we're Super excited about the fact that we're getting close to.
Our engagement coming to our marriage with flagstar, So hopefully as we get closer to our expectation of closing that transaction. When you look at an asset sensitive institution emerging with a liability sensitive institution and we're very positive about the outlook for the margin, but that being said I'll have him. This depends I'll go through some of the details on what do we think given the most recent changes of interest rates and how that would impact the pro forma company.
John Yes, so when we look at the margin we were.
We're very happy with the second quarter as it continued the expansion of our margin that really has begun since the fourth quarter of 2019.
And as Tom mentioned in his opening remarks, the flagstar deal does provide many benefits and one of them is combining an asset sensitive institution into our liability sensitive balance sheet. So in order to illustrate this we looked at the third quarter and if we assumed that the flagstar deal closed on July one we are.
Estimated what the net interest margin would look like excluding prepayment fees and would come out to be approximately $2 six 8%. So that would be a 30 basis point increase to what we reported as margin X prepay in the second quarter.
When we look at the overall benefit would be about 45 basis points and what that entails is the 15 basis point reduction that we would on a standalone basis expect to see in the third quarter. This assumes the 75 basis point increase later today and a 50 basis point increase in September which is what currently is consensus.
Also it doesn't include any of the impacts from the from.
<unk> from purchase accounting as we believe that will be beneficial, but it won't be we won't be as material given the flagstar balance sheet, which is primarily floating rate on the loan side.
Got it so just a few follow up Jan So one I think I caught in that 15 basis point Standalone NIM compression.
68.
The data was closed as of July 1st.
So I just want to make sure that's right and why does flagstar not assume any margin expansion standpoint, I think if I saw the slides I didn't.
And then what's the 88 in June and the guidance isn't created to $2 90 range is there something one off going on there or do we expect that margin to kind of level off.
I think I think what John is saying is that the profit margin is anticipated to go off on a combined basis that includes the assets of flagstar emerging like the N Y C. D and if you look at if you look at to the Investor presentation that flagstar put out they put out a range of 380 to $3 90.
Right the comp, but these numbers are using the midpoint of that range, but you also got to remember if you look at their presentation that they did put on a swap so that has impacted the quarters as well when we put the two companies together.
Swap will get mark to market and removed so that the asset sensitive balance sheet that was that flagstar had back in December will be what we would have going forward.
So that's really I think.
Got it and just one separate question Tom.
But on the deal obviously sounds like.
Well, thanks very much onboard.
Just give us an update in terms of maybe adding to the extent you can in terms of the OCC application process and how realistic is an October 31st Ddos timeline.
So both teams are very confident we filed our application right. After we made the announcement will be made the announcement in April that we were moving to the OCC I believe in mid May we filed the application and waiting to hear back from both the OCC and the sad and we feel pretty good about where we are.
And what we're very focused on a closing date hopefully within that period that we have in October deadline and contract that we're pushing forward to get the closing done as far as the teams are concerned everyone's working on a daily basis. It's been a very long engagement. We're looking forward to the marriage and hopefully that will happen within that timeframe nothing more I can say as far as.
City around the process other than its in the hands of the regulators.
Got it thanks for taking my questions.
Right.
Thank you next question is coming from Steven Alexopoulos from Jpmorgan. Your line is now live.
Hi, good morning.
Good morning, how are you.
I wanted to start off with a theoretical question maybe for John .
If we assume the deal closed and these two banks keep together color. You. Just gave drams question was helpful. But what once these two banks are together.
For every 25 basis point increase in the fed funds rate what are you expecting them to do.
On a consolidated basis, what we would expect is that we will no longer be of course is liability sensitive as we are today will be it will be neutral to slightly asset sensitive. So we would expect an increase going forward to the margin, but that depends on market conditions and of course the rate increases at the time, Steve and I would just add to that point is that.
We're gonna be in a very unique position given the fed pivot on interest rates and our ability to look at this combined company positioning at best going forward on the balance sheet perspective. So if you think about liabilities. For example, when we started this process of merging with flagstar, our liabilities with substantially out of the money in this environment we are.
Par to slightly in the money so we have tremendous flexibility of exiting.
We'll call wholesale liabilities and use that opportunity to better position the bank for the long term on the proper funding mechanism for on a combined basis. As you know have been very public about this we were focusing on gathering better liabilities to fund ourselves more commercial bank line. The marketplace right now will give us a great opportunity if we have balance sheet repositioning on.
So we feel highly confident that when we come together, we will look at the balance sheet very carefully and focusing on how we can position ourselves best to generate shareholder returns going forward.
So basically what youre, saying Tom is when the banks come together, we should think of you as being maybe neutral to very slightly asset sensitive, but over time you plan to remix the balance sheet make yourself a bit more asset sensitive, but that's not going to be the case they want.
Basically the message.
I think I think day, one we're focusing on neutral to asset sensitive and they will get there.
Flexibility of repositioning I want to make this statement very clear the liability base is now significantly closer to par and are in the money that means a year ago that substantial costs out of the money liability position has changed and the value because of the market condition that gives us a lot of flexibility to figure out how we're going to.
This institution without taking consequences the capital to restructure. So this gives us more options to think about where the balance sheet going forward as far as the lines of businesses I think Mr. Pinto was very clear they are mostly floating rate. So there's not really a lot of negative marks that would be involved in their positioning because it's mostly floating rate type.
Type of investments and loans. So we have some good flexibility there and on the funding side at the same time, we're going to look at our asset classes and a focus on the verticals and put the bank in a position to benefit from the current market, which is obviously in a rising rate environment. Obviously in the long run we want to be more commercial bank like that'll take time, but the focus is to focus on funding.
For that the bank based on loan related deposits. The company has done a tremendous job. The passion here is that when we make alone they get the deposit balances. If you don't get the deposit balances were not making alone that's a cultural change that M. ICB and we've done some great progress there that is going to be the focus going forward on a combined basis.
That's helpful. And then final question. So if we look at the banking as a service deposits.
Can you talk about I'm trying to understand how these are changing your liability sensitive profile standalone or not so can you talk about the cost of those deposits you saw a strong growth, particularly the fintech bucket in the quarter, what what did you pay for those deposits in the quarter and are these changing you're liability sensitive.
Profile or are you just replacing expensive wholesale funds with basically market rate banking as a service deposits in the Fintech bucket that you will see it.
It's a carbonate is a combination of a lot of unique attributes here, there's really three functions here. So if you think about flagstar, there Oh, one of the top originators in the country number six in the origination of a five in servicing we are building out banking as a service in the mortgage side, we feel highly confident that when we merged together that could be a substantial business on a combined basis.
They have a lack of a need for certain liabilities given the structure, we have a desire to bring in lots of liabilities. So the banking as a service types of mortgage clearly as market. It is what it is in market and if you had the custodial relationship. It's close to zero. If you don't you work with the customer you have a lending relationships you could workout relationships in respect of reasonable funding in it.
It's going to be cheaper than a home loan bank advances. So yes. It does have a cost, but we believe it's more attractive than home loan bank advances and other wholesale type liabilities. When you focus on the government side, which again hasn't really kicked in yet, but we have tremendous contacts and the work. We won the department of New Jersey, The best one of the few.
Contracts that are currently in that in the pipeline that we're getting benefit from currently Rhode Island Department of Labor, Rhode Island Department of Health U S. Treasury Department, which is a substantial potential benefits of this company Commonwealth of Pennsylvania Commonwealth of Virginia. These are all wins for the bank. These roll out over time and the cost of those deposits are zero.
And when that starts to kick in going forward, that's going to be a significant catalyst to our funding position.
Oh of course funding now this takes time to onboard.
And I don't want to get ahead of myself as far as giving you guidance on when these kick in but we believe over the next 12 to 24 months. This will be a very sizable piece of our business. In addition, we also share in fees. So it's in addition to having a zero cost deposit liability and a tremendous opportunity to get our my banking direct a brand out there.
Within the marketplace, we also get a sharing of fees and a tremendous benefit on float the area on the on the digital side were caused by Neil Bank slashed.
Fintech relationships, we've been very proactive not only to just bank of the clients and have been provided for their services, but also focus on corporate type accounts that we can now bank their relationship. So we're working some fabulous.
Headwinds into that particular area, but most importantly, we're seeing results of this this is tied to short term interest rate Mister.
Mr Pencil didn't get through the specific details with each deal has its own structure and we're very proactive on building. This out over time. We believe there is a need for a bank of our size to to compete against some of the smaller players that are taking the banking as a service business model and we feel this has been a very good ramp up for the company as an alternative funding solution than a traditional.
The home loan bank advanced marketing in non traditional wholesale funding to focus on a diversified deposit betas. So John if you want to maybe talk about the funding side as far as cost of those types of liabilities. Excluding the government piece that Tom talked about when you're looking at the mortgage as a service or certain of the banking as a service transactions there primarily tied to effective fed funds.
Plus or minus a spread.
Small spread usually either way so.
They are tied to short term interest rates, but as Tom mentioned, there is still a more effective funding source than than the home loan bank given the inefficiencies potentially in that market. So.
Specifically tied normally to effective fed funds plus or minus.
Steven attributed.
Attributed this is very interesting is that as we work with these clients and look at opportunities on the banking side. We also work with our excess liquidity coming off of that their actual products that they're selling in the marketplace. So.
He comes in and out of those are all operating accounts, which you can see starting to build a very nicely for the bank. So we're looking at it not only its just the bas relationship, but as a commercial bank relationship as well and that's been very very positive for the past six months.
Okay.
Thanks for taking all my questions.
Sure.
Thank you next question is coming from Christopher <unk> from Janney Montgomery Scott. Your line is now live.
Thanks, Good morning.
John and Tom can you talk about liquidity and access to liquidity going forward and then also maybe mentioned flagstar. They mentioned there a draw.
Drop in liquidity ratio from the March to June .
From a liquidity perspective, what we've been doing it we're in a better spot now than we've been historically, especially when you look at on balance sheet liquidity and even some of the cash balances and unencumbered securities that we've been holding on the books. So as we continue to pay down our home loan bank borrowings our liquidity by bringing in deposits just continues to increase.
So we're very comfortable with the liquidity levels that we have you can see we're keeping a little extra cash on the balance sheet to be conservative.
As we bring in these banking as a service customers just to ensure that we fully understand the duration related to them and we don't have any surprises. So thats why youre seeing some some heightened cash and unencumbered securities on our balance sheet, which will we will continue as we continue to bring in deposits and pay down wholesale borrowing so from the liquidity side.
We feel very very confident where we stand now.
To bring in more deposits as we go forward only enhances that so Chris I would add to John's commentary that we've been very conservative on putting the cash the work we've been waiting on the sidelines given this environment short term liquidity can be invested in Atlanta spread right now which is advantageous to the bank. So we've been very cautious there. So we're looking forward as if we have excess liquidity, even with short term treasuries, we can there.
A spread on that excess.
Okay, Great. That's helpful. And then on Flagstar should we think about less about where the ratios are at 630 and more about kind of what you will do with it together because you have a lot of optionality as excellent absolutely.
Absolutely yes.
We're getting closer hopefully soon hopefully we'll get through it to the finish line and clearly this is going to be very opportunistic when we look at the choices of the balance sheet on a combined basis.
Great and then one quick one on prepayments any visibility to that and staying high for Q3.
You know you had some commentary about the mortgage market and in our backyard. We've had elevated levels in the second quarter was better than the first quarter, we see the continuation of that so we're very bullish about activity. There's pent up refi opportunity. There really is a lot of customers that need to come to the table here, given they're coming off a low threes markets close to five.
[noise] percent now so I believe that will accelerate prepayment activity we've.
We see good visibility right now we're seeing you know we're going through July we have some good levels and already so I'd say, it's still continues at a positive trend.
But we feel that can go much higher from here if rates continue to trend higher here now obviously, if it goes the other way they may wait on the sidelines, but we have a decent amount of loans coming due in the next two years they need to make a decision and all those coupons are out of the money. So they would have to pay up to get either a modification <unk> refi and we're being very selective.
<unk> on what we want to do going forward, we feel that in this environment you know our conservative underwriting standards is key and the fact that turning the coupon for us is more.
More viable than focusing on explosive growth the growth that we had this year for the first half was significantly front loaded I believe.
Think about the rest of the year, but our goal here is to turn the coupon will have some moderate growth for the rest of the second half of the year and we will still be well above what we would say at least meet our expectations of high single digit net loan growth last year that growth was backloaded. This year, which seems like it was frontloaded. So we're confident that we'll meet our goals and objectives of that high single digit net loan growth number and we also have.
Seeing very carefully on turning the coupon if we can turn that low threes or mid three coupon to upper fours low fives, that's very meaningful for the margin going forward.
Great. Thank you Tom and thank you John .
Right.
Thank you. Your next question is coming from Steve Moss from B Riley Securities. Your line is now live.
Good morning.
Maybe going back to be thinking of the service deposits here. It looked like that was a backend weighted for the quarter I'm curious if that's primarily due primarily due to your historical relationship that you announced late in the quarter.
I believe the that's part of it it's about that particular relationship with a global stable coin exchange company without me. He means is about just under $3 billion. So the rest is other technology companies on the tech side I didn't break it out in my prepared remarks.
So on the tech side.
Of that amount, though I think it was $5 8 billion to $8 billion is where we're focusing on stable foreign exchange and that's for.
They have liquidity requirements on the cash expectations.
One O six banks that service that relationship.
Okay. That's helpful and then in terms of on the liability side here curious.
On a standalone basis, you guys have about I think seven 5 billion or so put a bulls that come due or that could come.
Six months curious what are your thoughts, how you're going to fund them.
Good near term.
So look I think this goes into the into the commentary that I discussed about the pro forma balance sheet Optionality is on the table here to look at the liability based on the asset base in part consolidation of these two businesses coming together and the flexibility of something that's either in the money was flat the park without any consequences of exit gives us lots of flexibility.
So what we've been doing in the short term, we've been either refinancing or paying it off. So if you know from our prepared remarks, we're down $2 billion.
For the first six months of reducing our wholesale dependency at the home loan bank system.
That is a focus of the bank, so clearly having that that political position right now.
And a position that we could be flexible and look at the balance sheet on a go forward basis. We look at this we look at that as an opportunity clearly if we continue to see deposit growth, which we believe we will have a significant amount of other initiatives working into Q3 and beyond.
I'm going to give guidance on deposit growth, but we're still doing a lot of hard work in bringing in new depository relationships. Both on the var side as well as loan related and that'll also be a catalyst to the deal with advances as they get put back to us.
Okay and then.
One more question on the liability side with Cds curious what is in the bucket to reprice this quarter.
Right and maybe just.
I'm trying to figure out what is the dynamic with the portfolio in terms of like the average duration.
Alright, so if you look at well look it will take a couple of different pieces. So if you look at our maturing Cds in the third quarter at $3 6 billion.
And that's about a 50 basis point rate.
So we've had a really good quarter in the second quarter with retention of our Cds.
So when you look at our current CD rates of nine months is about 1% 12 months $1 75.
Two years is around 2% give or take so we brought in money under 1% in the second quarter it'll be up a little of course in the third but we don't think it'll be dramatically higher than that given given what we've seen so far this quarter in that.
The September raise happens so late in September when.
When you look on the borrowing side you mentioned the portables.
What our thoughts are there, it's only about $575 million of wholesale borrowings that are actually maturing.
In the quarter and that's about 1.81%.
Alright, Thank you very much I appreciate all the color.
You got it.
Thank you next question is coming from Brent <unk> from Deutsche Bank. Your line is now live.
Good morning, Hi.
Good morning. So my first question is on loan growth you had solid loan growth during the quarter. You know in your prepared remarks, you noted the multifamily portfolio you continue to gain market share as competition abate I was wondering first if you could talk to the competitive environment and what Youre seeing there and then just any color and a rebound in specialty finance and then just on CRE.
Noticed it hasn't been growing there for some time just anything.
It might be keeping you cautious there. Thank you sure. So I'd say big picture, we're conservative underwriting shop, but we're very focused on continuing holding to our standards of conservatism, so going forward and as part of our culture is that we underwrite in a cash flow basis and its if deals are tightened or they don't make sense. They will they'll leave the portfolio and were very.
Comfortable with that.
And that's our philosophy, we feel very good about the loan book, our Ltvs that the business in hand in the New York City marketplace and we're also working with some of our flagship customers that are moving outside of New York and building out their businesses away from New York City, and Thats been very successful and at the same time as we move with them. We're also working very hard to bring in.
The full depository relationship. So that's been a success for the bank historically the bank has always had a focus on strong underwriting criterias. When you think about the marketplace. Today, we are focusing on obviously moving the coupon higher being very selective on tree pure Craig I'll call. It retail and office. So you don't really see a whole lot of activity there for years now.
Not focused on that from time to time, we have good customer relationships that have a diversified portfolio and we'll consider financing it but the focus has been.
Which business being the multifamily non luxury marketplace and we've done a very very strong job over the past 18 months on getting back to a growth story with that being said I would say my prepared remarks, we had interesting backloaded growth last year. It was slow in the beginning of 'twenty, one and at the end of 'twenty, One we had a surge of.
Activity given the shift of interest rates that continued into the first half of 2022, and we think that that was a frontloaded story with that being said I feel very confident that we'll meet our target of high single digit net loan growth for the company on both both both multifamily as well as specialty finance on specialty finance, we had a couple of years.
Of uncertainty on utilization given the the the general economy Covid in and the supply chain issues that seems like that has changed quite a bit for us. So a lot of that has been drawdowns. The good news. There is that you know these are well underwritten credits that were very comfortable with and more importantly, they are committed for and they draw down and we get nice returns in that cause.
75% of that book is floating rate and that's been an explosive.
Six months I don't envision that same type of activity for the second half of this year, but I think specialty finance, even in a flat scenario had a phenomenal year they'll probably grow a little bit this year, but on a managed perspective and I think the target for the company is high single digit net loan growth with a focus on really moving the coupons within the portfolio and we're focusing very actively.
On that bucket of loans that are coming due to repriced and.
And in their option comes due and were being creative there to get them to the table sooner. So they can move that low three coupon into a into a high for a low five coupon and that will add value to the margin.
Okay. Great then if I could just one more question.
This is for flagstar.
So I know the gain on loan sale was $27 million in <unk> and I believe in the deck, you're guiding flat in <unk>.
I know a few quarters ago, there was guidance on the expected EPS gain on sales and just wanted to get an update on how much you had in the first half of this year any expectations for the second half and just wondering if these kind of finish and it'll be done by this year or if any of that spills into 2023.
Yeah, Hi, good morning.
Yeah, well, let me take that one yeah sure. So in the second quarter, we had approximately just under a million dollars of Epo giant what all I would tell you is as we move forward. The E. B O gains are going to be relatively neutral.
You might get a little bit similar to Q2, but it isn't going to make a meaningful difference to the quarters gain on sale.
The rise in the rising rate environment.
That's because you can't.
Secure its always the more of the game and so.
Those that were secured as always seen at a gain in some instances.
You can offset.
Boy those that are under water.
So we've made the decision in certain instances to just keep them on the balance sheet and portfolio. So net net you're not going to see a big impact from <unk> as it relates to the gain on sale going forward.
Okay, great. Thanks, guys.
Okay.
Thank you. Your next question today is coming from Matthew Breese from Stephens. Your line is now live.
Yeah.
I'm curious what is the Standalone, New York community NIM outlook for the third quarter.
John David and I, just wonder if NIM.
NIM X prepay down 15.
15, Okay, and then could you provide within that what the period end spot rate was for New York community deposits.
But what was the cost of deposits at the end of the period.
At the end of June 30th Yep.
I'll get that for you.
Yeah.
Total interest bearing deposits 53 basis points okay.
Outside of the partnership with Circle do you have any other stable coin relationships.
We should be aware of and just given some of the disruption in that market could you just talk to the <unk>.
Quality of those relationships. If you do have others in some of the dynamics of how they keep the stable stable.
So we have none other than the one that you did mention we're very confident in our positioning as a global exchange.
For Fiat currency.
As indicated we are in cash provider for you know obviously one of six banks had holds cash for their liquidity requirements. It's not it's not focused on.
Our combined basis, where were co mingling is clearly just a cash positioning and we're one of those.
One of six banks that provide banking.
Banking services to them to have a percentage of their allocations to cash I believe if you recall there was liquidity requirement is 30% of every dollar that they need to invest needs to be invested in cash and I believe the other.
70% is in short term treasuries, so USB C happens to be obviously, one of the more stable stable coin. So we're very comfortable with that relationship and we're working on a number of initiatives in respect to potential partners in the future, but clearly when it comes to our positioning is really just the corporate cash account that we have with our partners.
Yeah.
Got it great Okay.
The last one for me is just to just to get a temperature check on.
Obtaining regulatory approval for the deal from a corporate.
But structure standpoint, the flex our deal is has a few moving pieces one of which is flagstar seeking a national bank charter within the OCC versus an FSA I'm curious if any critical milestones at this point has been reached and approved and if you can speak to any of them, including that National Bank charter switch.
Different Sandro and Lee obviously.
We believe just wanted to start off by saying, we feel very confident where we are as indicated we filed our application in mid may.
We're coming to the end of July and things are progressing, but I'll push that over to sondra.
Sandra Sandra Yeah, Yeah. Thank you Tom I don't have anything to add relative to the regulatory status.
We're working through the process and as Tom said, we remain confident that we will get the approvals we need as it relates to the National Bank piece of it that flagstar, we've been considering moving to a national charter.
Since that option became available to US a couple of years ago. When Congress passed a bill that included that provision and and it's just.
Sensible to do it in parallel with this application so don't read anything into the National Bank piece of it.
It's it's just an easy way to get there.
And we would have gone there if we were independent we would've gone there.
Because you know we're not.
Thrift like as we used to be in as you think about that going forward. The National Bank charter just makes a lot more sense for our organization and for the combined organization as well. So again don't read anything into that there is no complication associated with the application because of the national bank piece of it.
Understood. Okay. That's all I had I appreciate taking my questions. Thank you.
Thank you. Your next question is coming from Chris Mcgratty from <unk>. Your line is now live.
One of them.
Hey, good morning.
John a couple of clarifying questions to make sure I heard you right.
The spot deposit cost was 53 basis points for the entire quarter.
Does that also you said it was also the June 30th costs.
No that was the average right not the spot sorry about that correct or do you have the thoughts.
I know I don't have that with me.
My follow up you can get John I'll follow up with that that's great and then did you provide a like you typically do the expectation for expenses for the third.
Quarter, sorry, I may have missed that.
Yes, no one 135 very consistent.
We were in the second quarter and the first quarter, we're comfortable with our original guidance and that $5 40 range, we'd beat it by a little bit in the first two quarters, we think we will be there.
Okay, and then last last one given the markets.
Expectations that were in some sort of a slowdown in the economy can you just speak to what you think is normalized losses for that spec fin book, given given some of the cyclicality there.
So just in general I mean, we haven't had a 30 day delinquency.
In nine years, so we're pretty confident in our underwriting and credit.
Credit buy up shop, there, we do a great job on sourcing through what makes sense for the bank going forward.
<unk> is a unique business model for us and it doesn't come with funding, but we are focused on the credit side. So we have not had a 30 day delinquency in 90 day in 99 years, and so we don't envision any real losses, there, but maybe Jon can specifically talk about it on a seasonal perspective, how that would kick in yes, even even just from a seasonal perspective, where the modeling comes out very low.
<unk> historically.
And currently given what we've seen I mean theres just so the collateral on it is just so strong the performance.
Has been so strong as well so the risk ratings on that portfolio are extremely low. So it's just a it's a very very high credit portfolio that we've built over the last almost 10 years, yeah. So super senior secured looking forward to the repricing of that obviously, we manage it for the past decade in a low interest rate environment.
This elevated interest rate environment on the short end of the crowd, we should see some good benefits on the yield side there.
Great. Thank you.
Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Thank you again for taking the time to join US This morning and for your interest in <unk>. We look forward to chatting with you again at the end of October when we will discuss our performance for the third quarter of 2022.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.