Q3 2022 New York Community Bancorp Inc Earnings Call

[music].

Good morning, everyone. This is Sal dimartino and I'd like to thank you for joining the management team of New York Community for today's conference call.

Today's discussion of the company's third quarter.

2022 results will be led by chairman President and CEO , Thomas Kim Jimmy Choo.

Joined by Chief Operating Officer, Robert Wann, and the company's Chief Financial Officer, John Pinto.

Joining them on the call will be central to Melo, President and CEO of Flagstar, and Lee Smith President of Flagstar mortgage.

Before we begin I'd like to remind everyone 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 1995 <unk>.

Such forward looking statements, we may make are subject to the safe Harbor rules.

Please review the forward looking disclaimer and Safe Harbor language.

Today's press release and presentation for more information about risks and uncertainties, which may affect us.

Now I would like to turn the call over to Mr. Ken Jimmy.

Thank you Sal.

Good morning to everyone and thank you for joining us today to discuss our third quarter 2022 performance.

Before diving into the quarterly results and in anticipation of questions I, just want to say that needed a new York community North Flagstar is going to comment on or address any questions regarding our pending merger on today's conference call.

That being said, let's turn now to our third quarter results.

Overall, the company had a solid third quarter, despite aggressive fed tightening and an inverted yield curve still.

Still we produced solid loan and deposit growth lower operating expenses and continued strong levels of asset quality, which remains a hallmark.

In terms of the net interest margin given our liability sensitive balance sheet not surprisingly, we witness margin compression during the quarter. However.

However, we still reported diluted earnings per share of 31 sentence, excluding merger related expenses.

This was unchanged compared to the third quarter of last year and in line with consensus.

Turning now to the main drivers of our quarterly performance.

After three consecutive quarters of double digit loan growth loan growth moderated as expected.

Loans held for investment rose nearly $450 million during the quarter to 49 billion get back to the previous quarter year to date total loans held for investments are now up $3.2 billion or 9% annualized.

Loan growth continues to be centered on the multifamily and specialty finance portfolios.

At September 30, as the multifamily portfolio totaled $37.2 billion, representing strong growth both on a year to date and a linked quarter basis.

Multifamily loans increased $407 million sequentially, and $2 $6 billion or 10% annualized since the beginning of this year.

We continued to take market share in the multifamily space in a recent survey by S&P Global market intelligence ranked N Y C B and the second largest multifamily portfolio lender nationally and we believe we are by far the largest multifamily portfolio lender and our non luxury rent regulated lending niche in the New York City market.

Especially finance loans also continued to increase up $117 million or five $4 $3 billion compared to the previous quarter and up $755 million or 29% annualized so far in 2022.

As of the third quarter, especially finance had total commitments of $723 billion up 11% compared to $6 $6 billion at the end of the second quarter.

Other current third quarter, Mt, 78% or approximately $5 7 billion a structure that's floating rate obligations.

To either prime or sofa, which have and will continue to benefit the company in a rising interest rate environment.

I would also point out that as of the end of the third quarter, we had approximately $724 billion of multifamily and Cree loans, which come up onto that contractual maturity or option repricing date over the next two years.

This includes multifamily loans with an average weighted average coupon of 374%.

$5 7 billion and $1 7 billion of cream loans with an average weighted average coupon of 352%.

Going forward, our loan yield should benefit from low coupon loans reprice into higher current market rates.

In terms of this pipeline.

Got into the fourth quarter stands at a robust $2 3 billion compared to $2 5 billion in the previous quarter of this amount, 87% represents new money to the bank.

On the liability front and you also go on deposits during the quarter, despite higher interest rates, which led to outflows in certain categories total deposits increased $461 million compared to the previous quarter and increased $6 $6 billion or 25% annualized so far during 2020 to nearly $42 billion.

Okay.

As you've heard me discuss many times over the past 18 months. The focus is on and will continue to be on deposit gathering.

Last year, we reemphasize, bringing in more deposits from our borrowers and we also launched our banking as a service initiatives.

With the success, we had gone in with those two programs and expect they will continue to be primary drivers of our deposit growth going forward.

On a year to date basis loan related deposits were up just under $800 million of 26% annualized since we started refocusing on this deposit channel during the first quarter 2021 total loan related deposits have increased $1 $3 billion or about 37%.

Additionally, business operating accounts or 32% of total dawn related deposits.

Banking as a service deposits totaled $7 9 billion at third quarter 2022.

As deposits fall generally into three verticals traditional bass, which totaled $5 3 billion in deposits mortgage as a service, which caters to mortgage banking and servicing companies totaling $2 billion and government banking as a service, which K to states and municipalities as well as the U S. Treasuries preloaded debit card program totaling $579 million.

Well he doesn't start within government as a service are two verticals and expect it to drive current growth within the overall banking as a service segment.

Recently, the company won two new bass mandates. Both of these should result in fee income and deposit growth opportunities for the company.

Moving on to one of the company's former credit.

Our asset quality and credit trends remain superb I continued to rank. The company is among the best in the industry nonperforming assets totaled $50 million down 6 million compared to $56 million in the prior quarter and were eight basis points of total assets.

Additionally, we recorded zero net charge offs. During this current third quarter compared to 7 million of net recoveries last quarter, the strong asset quality metrics reflect our conservative underwriting practices and historically low level of losses in our core portfolios.

Before moving on to the next topic I'd like to provide a brief update on the New York City real estate environment.

New York City residential real estate remains healthy and commercial real estate continues to gradually improve monthly median rents in Manhattan multifamily apartments jumped 21% year over year to about $4000 for the third highest on record.

Median rents appear to have stabilized at a record high levels as well.

Turning now to the commercial side average retail asking rents in Manhattan recorded a quarterly uptick rising for the first time since the fourth quarter of 2016.

Third quarter 2022 office leasing surge to a post pandemic high this was driven by several large relocations and the continuing fight to quality trend, particularly in Midtown.

I'll start with in Manhattan availability rate decreased to 18, 4% with positive absorption for the first time in 12 quarters.

New York City office occupancy increase in September likely due to many large companies urging their employees to return to office. Similarly, there was a significant increase in the MTA ridership seated diners in New York City, evidenced and continuing strength in New York City economic activity.

Each of these drivers are evidence of the continuing strength in the New York City economy.

Moving on now to the income statement.

Third quarter net interest income totaled $326 million up 8 million or 3% on a year over year basis, excluding any impact from prepayment penalty income net interest income on a non-GAAP basis increased $14 million of 5% to $360 million on a year over year basis.

In terms of the net interest margin, excluding the impact from prepayments third quarter NIM declined 23 basis points on a linked quarter basis to $2 one 5%.

Due to a higher cost of funds given aggressive fed policy tightening.

On the expense front on noninterest expense remained in check despite continuing to make investments noninterest expense totaled $136 million during the third quarter, which includes 4 million of merger related expenses. Excluding this item operating expenses were $132 million down 2 million compared to the previous quarter and up 2% on a year over year basis.

Yesterday, the board of directors declared a <unk> 17 dividend on common shares the dividend will be paid on November 17th to common shareholders of record.

As of November seven based on yesterday's closing stock price this translates into an annualized dividend yield of seven 6%.

With that we will be happy to answer any questions. You may have we will do our very best to get all of you within the time remaining but we don't please feel free to call US later today or the week well during the week operator, please open the line for questions.

Thank you at this time, we'll be conducting a question answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'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 the star keys.

Our first question comes from the line of Abraham pulling along with Bank of America. Please proceed with your question.

When we bought them.

Good morning, I guess.

Maybe let's start with the margin outlook in terms of what do you expect to happen in the third and the fourth quarter.

Give us some color around if you could your views at all one way you see the margin coughing. If you assume the forward curve plays out as is.

Over the next few quarters.

And then anything in terms of the basket deposits that helps mitigate that margin pressure. So.

Yes.

Hey man I'm going to pass on the question on the margins to our CFO Mr. Pinto, John Yeah on the margin front, when we look at the fourth quarter.

But we expect we'll talk about it in really two different ways right. If we assume the flagstar deal would have closed on October one we'll look at what the impact of that transaction would be so when you look at where we start from the from the third quarter ex prepay up to one 5%.

We would be up 40 basis points in the fourth quarter, that's our forecast with flagstar closing on October one.

Exclusive of Flagstar, we expect the margin X prepay to be around a 195, so down 20 basis points on a standalone basis slightly better than what we did in the third quarter.

So the impact of flagstar for the fourth quarter, we're looking at a 60 basis point benefit when you look at margin X prepay.

The best deposits, we're talking about the basketball so as we've talked about them in the last couple of calls.

They are primarily floating rate right and they have high betas, especially the mortgages of service deposits. They are beta is very close to a 100%.

The other deposits are a little less than that when you look at some of the other banking as a service deposits that we've brought in.

So we're monitoring that the goal is of course to bringing other operating accounts tied to those and continue to build out those relationships.

And also to build out the government as a deposit relationships you know that's where the benefit hopefully we're going to see when those deposits start to come in because those are noninterest bearing deposits ebrahim. It's Tom I would just add to that that has started we have a we've raw water. They very significant government as a service contract with kicked in at the end of October that it shouldn't be significant as we go into.

The period ahead.

In addition to that we have number of wins on the government side that starts to kick in in addition to that in 2023. So we're excited about the impact of that because that is a zero cost deposits.

And John just going back to your 195 margin outlook ex PPA do you expect the cost of deposit increase that we saw this quarter to accelerate next quarter or because of some of these deposit dynamics, you expect that to be a little bit more tempered.

The third quarter increase.

Yes, I mean, we saw that the third quarter was difficult from a deposit beta perspective, no doubt we expect with these government deposits come in that that will get a little bit better or hopefully stabilize at those at that third quarter level.

Got it and I guess, just one question I appreciate Don what you mentioned about the deal upfront, but clearly you still think it's.

You still expect to close the deal.

Oh, what John said and what you have in your slide deck.

Given the change in the macro has anything changed from your perspective and I'm not sure. If anyone from flex is on the line that could make you think differently about the strategic merits of the deal today on November 1st versus when the deal was announced.

But let me be clear I've met in my opening comments of relatively clear, we're not going to speak specifically about the pending merger however, as far as going back to our discussion of the transaction itself. We're very comfortable that this business combination is a powerful opportunities to companies to come together and build a new code that has the diversity of tremendous unique.

Opportunity on the deposit side on funding and gave us an opportunity to transition to a commercial auto and commercial banking enterprise works.

Excited about that and that's going to be specific about the transaction itself, but clearly when we came out with this partnership I know Sandro and Lee on the line.

We're very very positive about the concept of putting these balance sheets together.

No.

Sure.

Okay.

Did you.

Referenced Tom I know they they reference if you want to like I say, Sandro and Lee on the line, but sounded like by all means please yeah.

Yeah sure. Thanks, Tom and thanks for the question Abraham look as if this was flagstar as earnings call I would start off by telling you that it's the best quarter, we've ever had nothing.

Not the most profit a quarter, but the best quarter, because if you look at our margin.

Nine years ago, it was under 2% and virtually all of our income came from mortgage our margin now is over 4% with the far majority of it coming from banking has got a high quality loan portfolio, we've got efficient funding.

And while much smaller due to market conditions were still profitable in our mortgage business for many originators are.

Not in that mortgage business will be there to take full advantage of the next refinancing market, which will come we don't know when but it will come and on top of all that we have a very horrible servicing business.

And when you look at our expenses, we've been able to manage them to revenues, but our efficiency ratios have declined pretty significantly. So if given the opportunity getting back to your question. Combining this company with N Y C. P taken what they do well running a similar playbook that we've run as we've rebuilt flagstar.

I'm excited about about our ability to produce something very very special going forward.

And just one San Jos since you mentioned it what was the best quarter for Flagstar.

Pardon me.

Familiarity, but it sounds like your outlook for margin is relatively flat next quarter wasn't this quarter is that right.

Again, its peaked for the cycle.

Well you know Abraham what we how we try to structure our balance sheet viewing ourselves as an independent organization is we feel very comfortable with the 4%.

Our margin.

With our business model. So given what we believe we can get out of mortgage in this environment. What we believe we can get out of servicing in this environment and the servicing piece of it is pretty certain.

And a 4% margin on top of a clean and a loan book I think the bottom line number feels really good. So at this point I think the challenge is managing the betas on the deposit side in a way that doesn't compromise the margin going forward, because there's going to be margin pressure and there's no question about it but.

But I think that we're very comfortable at flagstar that we can hang in there in that 4% range.

Going forward. So that's my outlook, you know them I mean, we only give you our outlook for the next quarter, but you know we're confident about that at least for the next quarter.

You know I think overall as I said, given our business model that that's a market that works very well for us.

Thanks for taking my questions.

Thank you. Our next question comes from the line of Bernard.

With Deutsche Bank. Please proceed with your question.

Good morning.

So my first question is so you still had good growth in the multifamily portfolio.

You noted it moderated but it seems in line with expectations.

Just wondering with rates continuing to rise is there a level of rates, where that can drive growth to peers, who might be pricing, maybe a bit more aggressively like the agencies.

You know it's interesting it's been a very interesting pipeline going into Q4 Q3 is typically a seasonality quarter for us.

Q4 pipeline is relatively strong the coupon is extremely strong given the and when you look on a year over year comparison, basically going for 3% market to a 6% market overnight, which is powerful towards repricing. This book of business. So we've anticipated moderate growth in the second half of 2022, you probably go a little bit better than we expected as we go on.

The pipeline so our overall net loan growth for the year is still going to come in around eight to nine 5%. So even if were at a consistent level of third quarter, which is unlikely given fourth quarter activity typically is a robust activity in general.

Coming off of a seasonality quarter of Q3, so it's been an interesting opportunity here given where the agencies are today, where the shape of the curve is and you know I think in general most.

Portfolio lenders are getting good economics, and I think the opportunity here is moving that coupon from the low threes to the to the market, which is significantly higher than low threes. So we're excited about what's coming due what we've offered some unique options for our customers that are going into their repricing period, and we're trying to move off balance sheet to more interest rate risk.

Initially it was compatible towards why is it just getting away from liability sensitivity to asset sensitivity and often sofa options has been well received option for our customers and it seems like a high class problem.

A high percentage of those customers are opting for a sofa option and will then we will work on moving our balance sheet more asset sensitivity I think that sets us very well to look at this large book of business towards more of a sulfur option in a rising rate environment and as far as the agency is concerned I think in the long run as we focus on merger plans, we're gonna have a capital.

Mark as tool that will allow us to be more competitive we're gonna be able to offer an option that can compete on a derivative perspective to do long term financing and take those fixed rate loans and swap them out the floating rate. So I think that's gonna be another competitive opportunity on the benefits of the merger. So we're looking forward to the capital markets benefit now that also comes with some fee income opportunity as well so what's the.

We're very very bullish about our valuations and sponsorships, but we're also cognizant that things have slowed down because of the substantial interest rate increases that happen in such a short period of time going from 3% in the beginning he had a 6% at the market as a big move so we should benefit on repricing, the portfolio, which could really bode well for future margin benefits.

Okay, Great I appreciate that color and then obviously I understand about the the commentary on the pending deal, but you know I was just wondering recently filed a form S. Four.

You provided a better snapshot of some of the assumptions from the time of the deal announcement odd to 331 and 630 of this year I was just wondering could you provide us any updates on your tangible book value or earnings accretion estimates or anything you can comment on that.

John Yeah, So when we announced the deal on the tangible book value side were three 5% accretive.

When we looked at it we talked about it in June that tangible book accretion jumped pretty dramatically, it's almost probably eight or 9%.

Our estimate now is at 930, <unk>, that's come back down around that 4% level and it's really just due to the purchase accounting adjustments given the changes in interest rates, but it's you know it is highly dependent on where those where interest rates are at the day of closing so that's where we look at it we're still probably right around that same level, a little better than when we originally anticipated the deal.

Okay got it that that 4% you said it as of 930.

Yeah.

Alright, alright, great. Thank you so much.

Thank you. Our next question comes from the line of Dave Rochester with Compass point. Please proceed with your question.

Good morning, Hey, good morning, guys.

The NIM guidance. So what are you guys assuming for those portable borrowings rolling into new structures and then.

What are you rolling those into at this point.

So we had a handful of portable borrowings put back to us in the third quarter and then we had we will have some that we're forecasting.

Large portion of them to get put back given where rates are today in the fourth quarter.

We're using we're hoping to funded with deposits of course, but any shortfall on the deposit side, we'll backfill with.

With FHA advances will put some slop funding on depending on where those levels are.

The portable market still out there. So we can look at some portables as we go forward as well so it's really a mix of different our liability structures that we'll look to refinance.

Our refinance those portables into as they come back to us.

From an interest rate risk perspective.

Youre, taking off money with under a you know under a three month duration whatever you put it on you're going to gather a little bit interest rate risk benefits in both the third and the fourth quarter by putting that out a little bit longer Dave I would just add to that commentary that given the government project that we are that we just started to book recently in October that's going to be significant for the quarter.

So it could be on average in the billions between $2 billion to $3 billion on average for the quarter that would be at a zero percent cost of funds. That's the middle class tax refund prepaid card program that were involved in and that's a very good piece of business for the bank.

We will be able to leverage that opportunity as we look at the repricing mechanism and in the Big picture. If you think about the balance sheets.

The assumption of coming together with or without a potential partnership with flagstar, we have optionality as we choose how we want to move this balance sheet forward in the future and that's going to be a very unique opportunity at the time as we assume we can put these balances together, that's a really powerful position to be when it comes to having significant optionality unfunded. So.

This is a.

Something we're focusing on a daily basis, and its fourth quarter and we're excited about the the new government piece of business, that's coming on as well as the potential of balance sheet consolidation, which will give us significant choices as we embark upon a transformational opportunity here.

So does that 20 basis points of pressure does that include the two to 3 billion in deposits that you're hoping to get and we're expecting to get in the fourth quarter.

Yes, I think that would also assume 75 next week on that.

And the 50, probably in the September correct, Yeah. So it's just following consensus.

The adoption curve.

And then that also bakes in flagstar is expectation that the margin does not go up in the fourth quarter as well.

Right yes.

Yes.

Yeah Okay.

And then just going back to the deal accretion what were you guys, saying is your updated math on the earnings accretion that you're expecting to get from that I heard you on the tangible book part I just I may have missed the earnings accretion.

Yeah, we haven't given we haven't really commented on updated guidance on earnings accretion because you know it was really based originally on ibis estimates and ibis estimates now.

Consolidated deals and then so the deals are still accretive we don't we don't see any need to change that guidance, we're pretty comfortable with what's out there. So we haven't we haven't specifically updated that from deal announcement.

Gotcha and what's your updated interest rate sensitivity if you close the deal on October one.

Yeah. So what if he calls the October one right now, we're estimating would be slightly asset sensitive.

But pretty close to neutral.

Great and then maybe just one last one on expenses how are you thinking about <unk> or just the year overall and you've got the annual guidance out there.

Any updated thoughts there.

Yeah, I mean, you know the.

Annual guidance of $5 40, I think will come in a little better than we did a little better this quarter with managing expenses I would assume the fourth quarter will be right around that 134 135 range you know that's kind of where we've been so.

So yeah, I think we'll do a little better.

From a year perspective than we did from our original estimate at $5 40, but the fourth quarter I see coming in around that 135 level.

Alright, great. Thanks, guys.

Okay.

Thank you. Our next question comes from the line of Nomura.

With Janney Montgomery Scott. Please proceed with your question.

Alright, thanks, good morning.

John and Tom I wanted to ask just about the liquidity figures from the last quarterly call reports, saying that you had a very low level of floods securities a lot of potential collateral in fact, some of those measures work better now than it would have been pre pandemic. So standalone has anything changed at the end of September and you know do you see any I guess ability to add.

More debt if you wanted to on the balance sheet.

I'll start and I'll pass it onto Jon bottom lines in the quarter, we looked at looked heavy liquidity position and put it into a short term U S treasuries.

Six months, so that being said there was an opportunity to take a lower yield and cash and move it into a local at academy that puts us at almost consistent with cash which is six months treasury bills inside of that.

Strategic move as we saw rates significantly rise here and John if you want to add anything yet so that's where you'll see the securities portfolio increased for us, which we haven't seen in a very long time and you know that is just putting on as Tom mentioned U S. Treasury Securities six months are under just trying to pick up some yield based on you know what we could get at the fed at the time.

Collateral wise, it's just as good as cash liquidity just as good of course is a high quality liquid asset. So that's what that was but we're not looking to put duration on in that portfolio are yet we'll continue to monitor that but with the strong loan growth that we've had we haven't had a need for that so that that growth in the securities portfolio is really a liquidity liquidity.

Fly from cash to securities.

Got it and then just a follow up question on the banking as a service deposits as you look beyond a couple of quarters. I know these are high beta for the moment, but is there any issue with retaining those funds or do you think actually that the retention is going to be high and they'll just they'll behave differently as rates move around next year.

But so I indicated in my prepared remarks that we're going to anticipate no government as a service to ramp up here as it takes a while to get these contracts are nailed down and put in place and they have long term contracts. So we have a nice book of business a business going forward. We indicated that we have a very significant ramp up in Q4, I think it's about four or $500 million of weakened cash crops.

And it could go up to about $6 billion for one transaction.

That's a significant piece of business at the same time, we are the bank provided for U S Treasury and as any programs that come out out of the Treasury Department. We are now in the Onboarding that and so it's a long term contract. We're very pleased about our partnership with first data and fiserv. So it's been a very good opportunity for the bank to use that type of funding at the same time, we will we're committed to mortgage as a service.

I think there's great opportunity on our planned merger with five star and we think there's a great opportunity there to fill that so that is probably more high beta because it is tied to sulfur index type of fund.

Funding, but we're committed to that because we were gonna be a large play out assuming the transaction closes and when we come together that mortgage is a service business could be very powerful as we work a lot of the correspondent.

Customers when it comes to traditional basket, where we're out there working hard on on working trying to get new business and it's been a good journey for us, but I think in general what we're focused on the three verticals and ultimately as we look at Digitization as a company, there's a tremendous opportunity to digitize the mortgage space and that's where I think great opportunity will come in and see what you'll do it.

Tied to the traditional vas, but our team in digital are focusing a lot of projects that's going to hopefully lead towards some good deposit growth. We think there's a tremendous deposit opportunity on mortgage you're now having the ability to transact loan service phones in and get the deposit activity I think that's a tremendous benefit of the planned merger with lifestyle.

The mortgage at the service is gonna be a focus as well.

Great. Thank you Tom and thank you John I appreciate the feedback this morning.

Thank you.

Thank you. Our next question comes from the line of Steve Alexopoulos with Jpmorgan. Please proceed with your question.

Good morning, Hi, Good morning, this is Alex on for Steve.

Morning, guys you Mitch Good morning, you mentioned the benefits from the banking as a service business do you expect any investments needed to scale this business and get those new opportunities.

So we're going to be very mindful of what our requirements are here. So we've been adding staff. We have built out the chief digital officer directly reporting to the CEO I think that's as a priority. This is a an interesting opportunity as indicated mortgage in our opinion given the history of M. ICB and flagstar, there's a lot of our long term history on how to service them.

The escrow accounts of P&I payments, so that is embedded within the franchise within our operating people, but we're going to move people around and we're going to make sure. We have the right support for these lines of businesses I I will tell you. The challenges is onboarding some of the unique opportunities in traditional basket because obviously it takes time and it's it's the API interfaces within the core and we're working on.

Our new opportunities within the core that can make it a lot more efficient, but we ought to be our staffing in that area. We're moving people around within the organization I think that's also it's great. When you put two big companies together and think about you know opportunities within the organization that we're going to be opportunities in the organization to shuffle people around to support our growth of different verticals within it within the company and all of ours.

Here on the funding side is going to transition from wholesale to more of a traditional type funding mechanism. Then part of that will be bass and particular government as a service has been you know it's been a long trajectory of getting them onto the balance sheet. We had a good run during the pandemic and we were very successful there that led us into other opportunities, but we have we had a bunch of.

The transactions that we would that we that we won and we plan on on boarding so I think 2023 could be a nice pick up there on very core stable accounts, although they're not permanent because they do they do move on but that you know we do have the opportunity for a an ongoing benefit of good funding sources as we look at the planned merger as we look at.

Our choices on balance sheet and look at just one vertical as it clearly a different funding mechanism that traditional non traditional funding that M. I C. V's accustomed to moving from a thrift to a commercial bank is the strategy as Sandro indicated he's been through his journey.

We hope to do this together and it's a very powerful change when you look at funding. So like I said in my opening remarks funding funding funding we're focused on out of a razor focused on that you see a significant shift on our ability to bring in deposits and we're going to continue.

Thank you and you touched on this briefly earlier, but can you talk about the opportunities that you're seeing from this banking as a service business as well.

No I'd say initially the Harry's just up on coffees, it's not significant but they do add up when you have five to 10 million cards out. There you know a couple of pennies per car per month, it adds up but it's not significant to the total P&L, but we are seeing some nice fee income opportunities there and it's consistent as we onboard more municipalities more states throughout the country I will have more consistency.

The fee income so it's another avenue that we're focusing to justify the investment in the business.

Thanks, and a follow up to the comment you meant mentioned about the multifamily and commercial real estate loans repricing can.

Can you talk about the market rates for those loans and maybe specialty loans as well.

So on the specialty side, it's mostly sulfur plus a spread has been consistent about 80% of our book is floating rate, we're doing predominantly mostly floating rate structure and the specialty they're all credit buy up opportunities at very high high high quality senior secured position we've been in this business for a while now and I know our team that Ron just done an excellent job we've never had a late pay.

We never had a charge off and never had a delinquency. So we're really positive.

Asset quality at that but it's been a good growth business, we have quite a bit of.

<unk> commitment out there so in the event that markets do have some volatility there is a possibility that there'll be some good drawdowns and we'll make some good money on on the drawdown. So we think that may happen given the uncertainty of markets in the current time.

And today with respect to the decree and loyalty it's been a very significant increase in total interest rate cost of the bar so going from 3% to six is real so around that level right now its about 175 to 185 off the five year Treasury. That's been our traditional short term type multifamily product really not quoting much on the backend.

10, and seven year money, but if we do do that it's the highest spreads and wasn't going to hopefully synthetically structure that if you want to put on balance sheet. So we can have a better interest rate risk profile going forward and on the <unk> side, you know tack on another 50 basis points of that so you you were in the mid sixes right now to the market. So that's a sizable change it as indicated with the coupons in the trees going through the sixers.

With a lot of money that has to reprice and we offer the sofa option I think that's a good option for customers versus locking in fixed it may take a one year approach towards floating and hope that rates may come down in the future, but we'll give them that option to customers and it's been about close to 50% receptivity with that is as long as that are actually repricing in the period and we think that's going to bode well.

For our future interest rate risk management opportunity when we think about the combined balance sheets going forward.

Thanks for taking my question.

Sure.

Thank you. Our next question comes from the line of Matthew Breese with Stephens Inc. Please proceed with your question.

Good morning, and good morning.

Uh huh.

Loan yield question was was there. So I was curious though on the opposite side what is the current spot rate of deposits.

So yeah as of 930.

Current spot rate is 1.59% a percent 159.

Okay.

Total interest bearing deposits.

Gotcha understood. Thank you, Okay and then.

If.

If the fed stops hiking and in early 'twenty three do you have any idea on where and you know perhaps you know when after the fed stops hiking you could see the core NIM stabilize for New York community Standalone.

So that we're not going to give forward guidance, but obviously if that does take place it's positive for our liability sensitive balance sheet X through consolidation of feedstocks. So clearly I'm on a standalone basis, if we're running at the dot plots were planning for a continuing hikes and we're prepared for that but in the event as they pivot I think that's gonna be a positive shifts on a standalone basis for our biz.

This model on a combined basis, we have an opportunity to really think about what do you want it when we want to put our balance sheet look at a transformational opportunity here and sense of balance sheet for what is prepared for the future and that's I think that's been the real excitement of the upside but in the event that we look on a standalone basis. We're prepared for the forward that top partners is a period, where we have rising.

Just rates continuing I think it's the first quarter then it eventually going down towards the back end of 'twenty, three and with that being said, we're prepared for making sure that we have solid focus on deposit gathering we're going to continue focusing on building out a funding mechanism here is as we grow the institution and culturally there's been a a drive towards you know we'd make loans with.

Deposits were not going to make the loans to customers that are going to bring the deposits and that's been a cultural shift here. That's been successful as he talked about some of the other initiatives. It's all about deposits deposits deposits as we go forward here on our vision as we transition from a thrift to a commercial bank with the acceleration of putting to putting together two balance sheets, where when sandoz perspective, he doesn't work.

On this for quite some time and you can see the results as you sound like a very strong margin because of those assets all while repricing and its funding is very different than our funding.

Understood Okay.

And then just going back to the deal.

What is the estimated first year accretion.

From the deal and then at the current price what is your expected bargain purchase gain.

So we'll start the bargain purchase gain is really highly dependent on two things right. The final purchase accounting marks.

And the stock price at the day of closing so we estimated as of 930, given where we think the market will come out and assuming our current stock price were just under $200 million bargain purchase gain is.

Our estimate.

Like I said those two items will be the driver really along with of course, the equity growth in the quarter on the flagstar balance sheet so that.

Our estimate right now moves around pretty significantly depending on stock price and the final purchase accounting Mark range due to interest rates of course.

We really haven't updated our guidance I think I mentioned earlier on earnings accretion.

From the deal.

We're at that 16% level that we announced originally.

So we haven't really updated that as we've gone along we still believe the deal as it is highly accretive, especially in this marketplace. You know I would just add one point to that the energy level and at the time spent on analyzing the P&L and how these companies work together, we're pretty confident on our original cost savings estimates and if anything now having this excess time.

To really understand how these processes work together, we feel very confident on what estimates one on cost savings for sure.

Okay, and then just the merger termination date is less than a week away can you just talk about expectations for the deal if approvals or are not obtained by then.

You indicated I apologize for reiterating my opening remarks, we're not going to discuss the pending merger transaction with respect to timing.

Okay.

Alright, that's all I had thanks for taking my questions.

Thank you. Our next question comes from the line of Chris Mcgratty with <unk>. Please proceed with your question.

Great.

I want to go back to a comment Sandro made earlier about they're excited the optimism around the deal with it I think the quote was if given the opportunity.

That to me reads regulators, just slow playing the approvals.

You both are on the call today, so it feels like the commitment from both parties is there I guess, maybe a comment is that the right kind of read.

So I guess addressing Episodically Joseph Mr. Tien Tsin, yeah, well, if it's right Yeah. My comment I don't think you should read anything into it.

Every earnings call. We've had we've always talked about what we think the opportunity is and you know so we're we're being consistent with what we said previously.

The regulatory process is what it is and we're going to continue to work towards what would have what would what it would be if we get an approval until such time as we don't get one. So you know we're we're we're still focused on it but no I don't think you should read anything into any of our comments today other than we're you know we're still hopeful because we see that the.

As we always have we've seen that the the opportunity and power of the combined organization is really something special.

Okay. Thank.

Thank you for that color and just just on the dividend, obviously youre comfortably, earning it now, but maybe thoughts pro forma on the dividend I guess with or without the without flagstar.

So look we have a long history here of a very strong dividend and its very focused capital management process.

We are very comfortable with asset quality, we're very comfortable with how we look at our capital deployment and going forward. We very we feel very strongly that we'll continue to pay a very strong dividend and obviously this has been our history and culture of the company going back for decades. So we're very constant company had record earnings going into it.

This in the beginning of the first half of this year, we're seeing some margin pressure based on substantial movements on an.

That action. However over time this company will navigate through it and we will have strong asset quality and forced to a fall off on a standalone basis very focused expense management philosophy to generate good returns for our shareholders at a very strong dividend. So that's always been our culture on a on a projected combined basis, we just earn more money.

Okay. Thanks.

Yeah.

Thank you ladies and gentlemen, this concludes our question and answer session. Mr. Ken Jimmy I'll turn the floor back to you for final comments.

Thank you again for taking the time to join US This morning and for the rest of it if you're interested I might see be we look forward to chatting with you again at the end of January when we will discuss our performance for the fourth quarter of 2022.

Yeah.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.