Q4 2022 New York Community Bancorp Inc Earnings Call
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Good morning everyone. This is Sal DiMartino and thank you for joining the management team of New York Community for today's conference call. We apologize for the long wait time for the call but we were having technical issues with our vendor.
Today's discussion of the company's 2022 results will be led by President and CEO , Thomas and Jamie, along with the company's chief financial officer, John Pintel, and Lee Smith, President of Mortgage.
Before the discussion begins, I'd 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 1995.
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.
Now, I would like to turn the call over to Mr. Kanjami.
Thank you Sal. Good morning everyone and thank you for joining us today.
This morning we're going to focus on four topics.
the facts or acquisition, the decision to restructure the mortgage business,
and our operating performance along with our outlook for the new Flag Star.
2022 was a watershed year for New York Community culminating in our acquisition of Flagstar.
our largest acquisition to date, which closed on December 1st.
As you have heard me say many times on these calls and in one-on-one meetings, this is a transformational acquisition for us and we are already seeing some of the benefits you have outlined when the transaction was first announced.
The transaction to a dynamic commercial banking model is underway with a more diversified balance sheet.
which was evident at year end as commercial loans represented 33% of total loans compared to 24% before the merger announcement.
Legacy Flagstaff brings a number of new lending related businesses to the new company, most of which are CNI businesses. All of these are higher margin businesses and they are typically tied to floating interest rates.
These new businesses include a nationally recognized mortgage warehouse business.
We'll be currently ranked number two in the country based on eleven and a half billion dollars of commitments outstanding
Building finance is another great business where we do business with 70% of the top 100 businesses in the world as well as nationwide.
These spreads in this market base as approaching 400 bases for a particular business.
In addition, Pfizer-Edit Significant Wholesale Banking Operation focusing on several verticals. These loans are conservatively underwritten and also generate significant see-income that legacy NYCV did not have.
Going forward, we plan to allocate more capital to these higher margin businesses.
The same is also true on the funding side.
Legacy flags are contributing significantly lower cost deposit base including traditional retail deposits and a large amount of commercial balances related to mortgage businesses including escrow balances.
Additionally, both companies have a very strong market share position within each of the respective core markets, which will aid in acquiring more deposits as we grow.
The benefits of flag source deposit base are already evident in the fourth quarter results, as non-interest bearing deposits increased to 21% of total deposits compared to 9% prior to the merger announcement.
Another important benefit is to our interest rate sensitivity. Our sensitivity to interest rate changes has improved materially due to the acquisition.
As you will recall, Legacy New York Community has historically been liability sensitive, while Legacy's flags were significantly asset sensitive.
On a combined basis, the new company will have a more balanced interest rate sensitivity position and we will have more flexibility in managing our sensitivity to market rate changes.
Given the nature of our new asset classes paired with lower-cost funding mix, the new company will be able to enjoy a stronger margin going forward.
As for our mortgage business, we disclosed early today actions aimed to optimize our mortgage platform.
The substantial and aggressive shift in Fed monetary policy over the past year resulted in significantly higher mortgage rates. This rapid increase has stifled refinancing activity and also dampened purchase activity.
While legacy flags that were proactive throughout 2022 in right sizing its mortgage business, the mortgage market is expected to remain challenged in 2023 with annual origination volume expected to decline by 25% year over year to 128 trillion after dropping 46% last year compared to 2021. What's your zero payment's risk, for example, of Wh inf projected Hmm?
Shortly after the transaction closed, we made the strategic decision to swiftly restructure the business, which occurred late last week. To better reflect demand and align to where our strengths lie, our distributed retail channel will shift to a branch footprint only model, resulting in a 69% reduction in the number of retail home lending offices.
Mortgage Origination Headcount is expected to decline to less than 800 FTEs compared to a high of 2100 FTEs in 2021.
The headcount reduction represents approximately 10% of total employees at The Divine Company's previous structuring.
These decisions are among the most difficult our senior leadership team has to make. However, they are necessary to ensure the long-term success and viability of our mortgage business. These actions are expected to improve profitability in the mortgage business during the current down cycle while still allowing us to participate in the upside in the event the interest rate environment becomes more favorable.
Despite these actions, we remain one of the top players in the mortgage business. We are a leading bank originator for the mortgages, the sixth largest sub-servicer, and the second largest warehouse lender. In addition, we continue to lend in all six channels and remain committed to the correspondent broker business.
Turning now to our 2022 operating performance. Despite the significant shift in Fed policy last year, 2022 was still another record year for the company. On a non-GAB basis, we reported fully-gulated EPS of $23 before the year 2022. Relatively unchanged compared to the $24 reported for 2021. Tragedy pesky, hospitals malnutritionless, low- history, 27. Irritated Meredith Gr
Net income available to common stockholders as adjusted totals $603 million for full year 2022 compared to $585 million in 2021. Net income in 2021 was a record at that time and in 2022 we broke that record.
While our financials were impacted by one month of combined results, Legacy New York community performed extremely well with strong organic growth in loans and deposits. Multifamily loans increased $3.5 billion or 10% to $38.1 billion compared to 2021 with virtually all of the growth coming organically.
Specialty finance loans rose $912 million or 26% during the year to $4.4 billion.
At the same time, organic deposit growth was $7.6 billion up 22%. It's improved about $3 billion growth during the fourth quarter of a quarter of a government banking it to service business.
A fourth quarter manager's margin improves six basis points to 228 compared to the prior quarter.
Exploding impact from pre-paminate from the fourth quarter margin was 224 up nine basis points prepared for the previous quarter, which is better than our original guidance.
Our credit quality metrics remain solid and reflect a strong credit culture of both legacy organizations. MPAs to total assets equals 17 basis points, while MPLs to total loans were 20 basis points, continuing to rank us among the best in the industry.
These metrics are proof positive that our conservative underwriting standards have served us well over various business cycles. This one with a high quality balance sheet should serve us well in the event of a downturn in the economy.
As for real estate trends in our primary New York City market, the residential rental market remains healthy despite some moderation in the effective median rent due to weaker performance in the luxury market while our bread and butter non-luxury rent regulation niche remains very small.
Manhattan monthly meeting in November rose nearly 20%, year over yet to 4,033, up month over month following three straight months of decline, and up, there was up 15.2% above the pre-pandemic levels. On the officer's front, Manhattan, direct, asking in the fourth quarter, decreases 0.6% from the third quarter to 74% off.
due to a resurgence in travel and tourism and consumer demand.
Also, as of year-end, our capital ratios remain very strong. Accordingly, last week of World Directors Decreta, a quarterly cash dividend of 17 cents per share and the company's common stock. The dividends pay up on February 16th to comment share on the record of February 6th. Based on last night's closing price, the repressor dividend yields approximately 7%.
Looking forward to 2023. This is what you can expect from the new company throughout the year and into 2024. First, we're going to have one brand across the divine organization.
The divisional bank concept has worked well for Legacy NYCB, but we're mostly in the New York City metro region. Now that we are one of the largest regional banks in the country with 395 branches in nine states, along with a national presence in several businesses, we are confident that a unified brand will position us to thrive. We will have one bank, one brand, one culture.
A new brand will be Flagstaff. The Flagstaff name will be reigned. The Associated Brand looks feel logo, purpose, and what the name stands for will change. We plan to essentially roll out a new logo and brand publicly in late 2023.
but it will not be fully operational and used externally until systems conversion which is scheduled to occur during the first quarter of 2024.
As for guidance given the current outlook, we expect average loan growth of 5%.
First quarter names will expand from fourth quarter levels to a range of 255 to 265, including pre-payments which are expected to have less of an impact on the name going forward. First quarter gain on sale muggies loans are 18 to 22 million.
Fourier nongist expense range of 1.3 billion to 1.4 billion, excluding modularity expenses and intangible asset amazement.
And a full-to-year tax rate of approximately 25.
Finally, I would like to send a big shout out to all of our employees at both banks. None of what we have accomplished so far would have been possible without their patience, support and hard work. Their commitment to our customers and borrowers over the past several years has truly been remarkable. A sincere thanks to them all. With that, we would 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 you don't, we will be happy to answer any questions you may have.
and Q. You may press star two if you would like to remove your question from the Q4 participants using speaker equipment, it may be necessary to pick up your answer before pressing the star keys. One moment please while we pull for your questions.
Our first questions come from the line of Ibrahim Punehwal with Bank of America. Please proceed with your question.
Our first questions come from the line of Ibrahim Punehawal, Bank of America. Please proceed with your question. Want to get it right? Good morning.
Good morning. So, I'm closing the deal. I guess maybe the first question if I heard you correctly Tom, I think you mentioned systems conversion not until first quarter of 24 sounds a bit longer than usual just wondering if there are any reasons why it's going to take that long to move do the system conversion
Secondly, just remind us in terms of the cost savings from the franchise and where you think the expense base resets once you have all the expense savings tied to the deal, maybe as we think about post-conversion what it looks like. Let's start with the latter question for us. By the way, we apologize for the long delay this morning. That was unfortunate.
the transaction we estimated about $125 million of merger related cost benefits exclusive of the mortgage business specifically. We kind of carved that out when we looked at the combined operation. We're assuming that obviously we're restructuring mortgage going into 2023. That is taking place as we speak. In addition to that, we also have the ongoing continuation of synergy.
frame, but it's going to be our largest conversion. And a lot of upgrade systems that we're getting on a combined basis will be part of that conversion. So we're taking this process obviously very seriously. We want to make sure that we have the appropriate time to integrate. So clearly, first quarter of 2024 is where we're targeting.
I would not expect that to become any earlier than that. So first quarter 2024 is the date, but a lot of work has been done as far as choices on systems. A substantial amount of decision-making is gone into what's best for the customer. And we're changing a lot on the NYCB side to upgrade ourselves to be more in the regional bank space into other technology systems that we don't currently have. It goes all into-
that historically the company has been an integrator of institutions. We have a great roadmap here. We spent a lot of time getting to know each other. At the same time we are building an institution that is going to be very diverse. And in our run rate has some build out of additional what we call cost centers that are going to drive revenue opportunities on a combined basis.
And I think that range is a reasonable range given that we are restructuring mortgage on a combined basis. So I think the range that we gave you 1.3, 1.4, hopefully we will come in towards the front end of the range, but we feel pretty confident about that. Naveen? Naveen I guess Tom, but given all the investments you are making I think it all makes sense.
Is it fair to assume that's a steady state experiment? You might get some savings for the system's conversion next year, but then you're also investing in the franchise.
That's a fair statement, Abraham. We didn't give out 2024 guidance, but you assume that a lot of the system conversion will result in significant overlap on technology as well as the benefits for cost. Maybe Jonathan, if you want to add some more color to that. Yes, I think that's right. You know, you'll see.
Some of those that 125 in in savings come through over the next couple of months as part of the process We're going through and then there'll be more as Tom just mentioned that'll come once the systems conversion done in Q in Q1 of 2024 so I think Abraham you're right that that makes a lot of sense is to where we can kind of see a steady state going forward at least in 2023 and 24
That's why we feel very confident that the date makes sense for us. This is not the historical NYCB thrift model. We are going to a commercial banking model with unique technology tools that are consistent with regional banks of our size.
Understood. That's helpful. And just on a separate question, you gave the first quarter NIM guide. How do we think about the net interest margin on the two scenarios in a world where rates just stay higher for longer? How do you think the NIM plays out? And then on the other hand, if rates get cut, do you still expect the balance sheet to be liability sensitive and benefit from the NIM benefiting from rate cuts?
Thanks. I'll start the conversation. I'm going to defer to John , but big picture. We're assuming that we're going to have probably two more hikes coming in the short term and probably a pause and probably looking at the forward curve, an adjustment towards November is for the first cut. That's really much playing through the forward curve, but the reality is that where we stand today on positioning, we're probably going to have a little bit of a pause.
Well, sitting here, just probably slightly liability sensitive and we have the ability to pivot very quickly. So maybe, John , do you want to add some more color towards the sensitivity on the market rate? Yeah, and just to highlight what Tom said, you know, now that we're not as significantly liability sensitive as NYCB has been historically, it just gives us the opportunity, you know, to be able to manage towards a neutral, a neutral, adopted.
the 2023 guide.
And Tom you mentioned restructuring of the balance sheet like should we be expecting any meaningful restructuring once there is clarity on the path of Fed Interstates.
I think the reality is that we put the company together at year end. We have an opportunity to look at some of the assets that in particular mortgage related that we can structure into a opportunity for liquidity and liquidity is expensive right now. Whether it's cash or short term securities.
We are not going at zero anymore. It's around approaching close to five, assuming two more rate increases. So we have flexibility here. We believe that eventually when the securitization market is open, we have lots of liquidity we can pour through given the assets that were acquired through the fact of transactions, some of those residue portfolios and other asset classes. But the reality goes back to the opportunity to really deploy capital into higher margin businesses.
We're being very cautious in respect to pricing. We have a very interesting opportunity in front of us regarding yields. If you think about our multi-family business, you know, they're in averaging in the three years and the market's closer to six right now. We're not seeing a lot of refinance active. We're not seeing a lot of purchase activity. But we are seeing that we still have about 8 billion dollars over the next two years repricing.
mandatory re-price and they have to make a decision and that market is a much higher rate environment. Assuming the Fed holds it for longer, I think our customers will have to just go into a different option which will be a higher interest rate to do nothing. So we'll manage to do that very carefully. We're seeing about half of those loans go right into our new product which is a SOFR product which is a floating rate product which is great for interest rate risk.
our capital spend to ensure better margins going forward. Starting the year off with a much stronger margin with the opportunity to redeploy capital into higher margin businesses is an attractive position to be in.
Thank you. Thank you for taking my questions. Thank you. Our next question has come from the line of Mark Fitzgibbon with Bipersantler. Please proceed with your questions.
Good morning, Bob. Hey, good morning, income graphs. Tommy, I wonder if you could help us think about total fee income and say the first quarter. I know it's all given mortgage bumpiness, but help us think about the combined companies fee income capabilities.
So, we have a lot of moving parts here that's new to the company, particularly the capital markets activity. I think that that's going to be, again, it's not modeled in, it's not anticipated as part of the synergies of the mergers, benefits of the merger, but we think that now that we have a capital markets division that's going to look at options for our customer base to put on derivative synthetic positions to hedge their loan products.
I think that's going to be a great benefit to the bank. In addition to that, we could also be creative for our multi-family customers as well to offer those similar products. And we're not going to put on long duration of paper without any synthetic position which tries into the income. At the same time, I'm going to defer to least Smith because he's obviously running a mortgage business. And that's always going to be...
A very interesting opportunity if the mortgage business does start to pick up, but the reality is that we're starting at probably the low point. So we're hoping it doesn't get much worse than this, but we're starting at the low. So maybe Lee Smith could add some color on the income between servicing and mortgage production. Lee? Yeah, thanks Tom. And we provided this in the guidance. So we're guiding for Q1 gain on loan sale.
to be between 18 and 22 million. And then the net return on the MSR asset is, we're guiding eight to 10%. I think we'll be at the top end of that range. So if you combine those two numbers, we're sort of in the 45, 50 million range from a fee income point of view on the mortgage originations.
really be up in the net interest income line and so we're going to get a benefit from that even though you don't quite see it from a GAAP point of view when we break out the servicing P&L you do see that fee income given the significant sub servicing business we have
With that being said, just to add on to Lee's commentary, assuming there is a said pause and it moves the other way, say towards the end of this year, that will also generate a higher fee income because now the cost of that liability becomes much lower as we manage that servicing portfolio.
Okay great and then Tommy could you share with us sort of the timing and cost associated with rebranding?
So we're not going to throw a cost number out there. It's ongoing. We feel very comfortable that we've done a ton of work over the past two years now on really setting the new car, which is going to be the new Flagstar. A lot of spend has been already taken place. As far as the branding efforts for the future, more towards 24 than 23, I'd say where the dollar outlay will come in.
culture, one name, and that will start towards the back end of 2023 and with maybe some marketing dollars going into 2024 run rate.
And last question I had for you was on the loan to deposit ratio Is there a level at which you'd sort of cap that wouldn't wouldn't exceed? Thank you. So so I would say big picture is that our passion as you can see over the past few years We've done a significant shift in how we're funding the balance sheet, right? There's been a lot more deposit growth We're looking at alternative solutions to fund our business
That's going to be part of our DNA going forward. We are focusing on funding this balance. It's very different than it was historically. We want to get away from our dependency on non-traditional funding. We believe that various mortgage as a service business, the government as a service business are focused on trying to take the embedded nature of mortgage and go after the clientele at the $90 billion organization, put us in a very unique position to gather more
we can have a much better cost of fund and better stability on our funding mix. If you think about the magnitude of our wholesale book of liabilities, if you replace that with what we'll call true core deposits, it's a game changer for multiple. So the goal here is to be less dependent on mortgage, less dependent on wholesale, and focus on multiple expansion over time. And that's our passion. That's our business model every day.
Thank you. Our next question has come from the line of Dave Rochester with Compass Point. Please proceed with your questions.
Good morning guys and congrats on the deal.
They're a long time, David, but we're very pleased to be here. Yeah, absolutely. I'm excited to see it. On the putable advances you guys have, is it fair to say that the margin results as quarter and the guy for next quarter includes the repricing of all the like a billion or so of those advances that you have at this point? You're not really expecting a cliff repricing it at in two Q or B.
The cost of that is in the 330 range, 340 range. So there'll be a bit of a lift there, but nothing significant. There are puttables on the books, as you mentioned, but they're spread out on what their lockout dates are. There are puttables on the books, as you mentioned, but there'll be a bit of a lift there, as you mentioned, but there'll be a lift there.
We don't expect to have the cliff issue that we had in the third and the fourth quarter of 2022.
You know Dave, I would just say, just for John's point, we want to have some flexibility to go into 23 depending on our balance sheet maneuverability, you know, depending where rates start to normalize here and we have an opportunity to really look at the assets that we've acquired and see what assets we're going to hold. There has been no restructuring as of year end. We priced, we looked at the marketplace.
We believe when the marketplace becomes more opportunistic for us to think about maybe reshipping our proceeds into maybe a debt reduction or a debt restructure that's always on the table, we'll look at what makes sense in the marketplace. Clearly having the optionality is going to be important, especially with most likely a pause coming and perhaps if the back end of the curve continues to be.
been working on a number of deposit initiatives that you talked about earlier and in prior calls. I was just wondering if you can size the new opportunities that you now have post the deal close. I know you talked about the warehouse customer deposit that you could go after previously. Once you close the deal, if you could just kind of size that, how big that opportunity is at this point and then hit on any other areas that you could point to.
the type of credit facility that we offer some of our clients given our size now. Our balance sheet at $90 billion, managing this business as being number two in warehouse in the country, gives us a good shot at really bringing in real funding opportunities for the bank. That being said, we still have a very interesting opportunity to take the technology that then wants to be curly habit that will be improved only for Maggie Rod like on route.
In addition to the other lines of areas that we're building up which includes government as a service, doing some technology deposit opportunities, as well as going after the legacy NYCB customers to ensure that we make loans with deposits. Maybe Lee if you want to add some color on the deposit gathering opportunity on the mortgage side.
Yeah, I think to Tom's point, and he's mentioned mortgage as a service for 18 months now, I mean we have today about 4.2 billion of escrow deposits from our servicing and sub-servicing book and NYCB has at least a couple of billion of escrow deposits and so we can bring more of those deposits in from our servicing and sub-servicing books.
the New York Community Bank has that we haven't had at Flagstar, there's an opportunity to go and raise core deposits from our TPO base and remember we're dealing with about 3,000 TPOs, correspondence brokers.
by having this sort of technology that allows them to do their business banking with New York Community Bank and I think that's a big opportunity and we can also take that technology to our warehouse customers as well which we haven't done previously so I think we can go and bring more escrow deposits in.
as well as core deposits as a result of the enhanced technology. And like I indicated, we are a major credit provider for some of these clients. And when you get to the point where we are their primary credit facility, we should have a shot out of all of the deposit opportunities that they typically utilize in the marketplace. Not a guarantee.
But clearly, the more money you have on the table, the more opportunity you have to really drive the relationship opportunity. In addition to that, digging about the C&I opportunity, we have a long history here of not being in the market with boots on the ground on a standalone basis legacy on YCB. Flash that has made that transition. The goal here on a combined basis is to have boots on the ground, focus on C&I, mid-market technology.
that's going to be the positive driven. As the start focusing on the lending facilities, we're gonna focus on the positive growth. And the positive growth is gonna be core value to our DNA to improve the balance sheet metric of this company. And we're gonna focus on the positive growth.
Sounds good. Maybe one last quick one. I'll just back on your comment that you're upgrading systems. What are some of the bigger systems that you're going to be upgrading?
We're going into a complex platform with Pfizer. We have a DNA platform. They have architect. We'll have a hybrid version of something very unique, best opportunity as our core. But what's interesting to that, we also have a relationship with, they have a relationship with Salesforce on a business development opportunity that could be very powerful for the company.
that are significantly ramping up ourselves to a regional player when it comes to technology utilization. At the same time, we are also giving Flagstar on the commercial services side an opportunity to really upstart the treasury function, the treasury capability of our current relationship that we have with FiveServe on commercial services which is...
It's been very successful for us. We've been really growing our core deposit base for our customers with the commercial service and technology platform where five years ago that was not an offering. That has changed our ability to solidify the relationship lending on the deposit side. That's going to be a big win for the folks over at FlaxR to utilize that technology.
Sounds good. Thanks guys. Appreciate it.
Thank you. Good.
Thank you. Our next questions come from the line of Brody Preston with UBS. Please proceed with your questions.
Good morning, everyone. Hey, Tom, I just wanted to follow up on the expense commentary. I'm sorry if I missed it, but could you tell us what the cost savings are from the mortgage restructure and the timing of when those kind of work in to 2023 and then separately kind of what's a good run rate for operating expenses for the first quarter of the year?
on our opening commentary were taken into our firm to turn around 800 FTEs where before at the high in 21 that was 2100. So it's a significant downsizing when it comes to a line of business. That being said, there is a benefit there on cost reduction at the same time we took into account the revenue offset of that as well, right? So it's...
You're taking out an on-use balance sheet opportunity, so you have to look at the revenue side. We also went into a call shared services tied to embedded mortgages. All in, that number is well over $100 million standalone. At the same time, we also have our own cost structure that we have to focus on on a combined basis on just the synergies of the companies combining.
And that number is indicated back when we announced a deal with about 125. Least Smith has done a phenomenal job over the past year and a half managing a very tough business. He's always managed a business well, but 2022 was a challenging year. So they've been cutting and cutting and cutting at the end of the day. We looked at the business at the fourth quarter and we wanted to make sure that this business
is not losing any money. So we think that at this stage of the game where we focus on mortgage, we're at a position where we have optionality to make a lot of money in the mortgage market change. But we're not going to be losing money in the current environment. That's important as we set the stage for the run rate. And think about the concept that was explained on the call is that we want to be in a position where our multiples are not tied solely to mortgage and our multiples are tied solely to mortgage.
So clearly we want to focus on multiple expansions. We think this is one of the pieces of the puzzle to get there, and we acted promptly right after the closing given the conditions in the marketplace. So when it comes to cost structure, like gave guidance at $1.3 to $1.4 billion, we hope to be on the low end of that guide, but clearly we think it's a number that's achievable for us.
And that, of course, structure starts to see discernible adjustments starting in February . I apologize. I apologize. But there's a lot of moving parts here, because you have to look at both mortgage revenue and mortgage expense. Maybe if you want to add some commentary on the mortgage, you can see this journey, and this is...
This is your hard work and effort which we want to commend for the effort as well. Yeah, thanks, Todd. I mean it's a significant restructuring. There is going to be noise in the first quarter because we're still running off the pipeline as it relates to the branches that we're closing down. We're paying severance.
And then there's going to be some payments as we exit certain leases. We will isolate that as a restructuring charge, but the risk going to be noise in the first quarter as a result of that from a cost point of view. When I think it'll be very clean, we'll be April 1.
But having said that, and as Tom alluded to, we're going to start seeing benefits from what we've done as soon as February , given we executed on this restructuring last Thursday.
Got it. Okay. And Tom, maybe just one follow-up on the expenses. Just given the conversion isn't happening until the first quarter, you know, I guess what percent of the 125 should we think about being more, you know, 2024 oriented versus 2023?
Now, Brody, I'd say half, but again, we've done a lot of transactions in our lifetime. We are going to, we have hit the ground running hard. We know what we have to deal with for our integration. This is typical when we look at transactions and there's an opportunity here on a standalone basis. I get indicated we looked at the business X-Murgish when we announced the deal.
We looked at, you know, a run rate was probably like a billion six to bring almost a billion seven total cost structure. And we tacked on about 125 x mortgage. But mortgages change, as I indicated, at least taken out a lot of costs in 22. We think this is it. This is where we feel very confident that we're lean. I think this is probably the lowest headcount that Flaxo has had.
probably close to maybe eight, nine years now. So I think we're in a very good position to really capitalize. A lot of investment in technology has been made by Flax, so on the mortgage side we can benefit here. The servicing platform is substantial. We did a great opportunity to think about cost selling some product on the servicing side both on the HELOC loan position as well as the positive.
If there's a resurgence in opportunity in the mortgage business. Got it. And then maybe just switch over to the next one. One other point. The goal here was not to believe. We don't want a hemorrhage red as we come together and Lee was challenged last year. Every quarter was a challenge when it comes to the changing, interest rate environment. And we're going through quarterly repositioning on FTEs. So point where we looked at the business versus balance, versus not balance utilization. And we really want to go back to the.
So I just I wanted to ask near term kind of where do you see you know you Depot your your cost of interest bearing deposits or your deposit beta going you know as the Fed kind of continues dyke early in the year and then Paws is then secondarily just given the the back end of the forward curve is Starting to head down how are you thinking about structuring your deposits from a from a maturity perspective?
for that question. I'll look for that question in the John Pinto, I'll see if I'll John . So, yes, so we look at deposit data, you know, the balance sheets really broken out into two different types, right? If you're looking at our deposit sites, either mortgages of the service, banking as a service.
some of the brokered business, you know, that's high beta. It's remained high beta since the beginning of the rate hike cycle. And then if you look at the more retail, the more stable piece from both Legacy NYCB and Legacy Flagstar, they have been, you know, much, much lower betas, of course, than that. They've started to tick up, I think, like just about everyone has seen.
other banks have seen over the last couple of quarters, so we'll monitor that as well. But when you look at where the curve is, it gets to, I think, what Tom was talking about a little bit earlier. You know, we do have a lot of flexibility in the borrowing base as well, so we'll be able to look at both where our deposits are funded and how they're funded, as well as borrowings to
ensure we're ready for either of those positionings, right? Either liability sensitive, slightly liability sensitive, or if we needed to move, we could move that to asset sensitivity without too much difficulty with some, you know, with some shrinkage on the asset side. So I think we have the opportunity to do both there and I think our deposit base, like I mentioned, is kind of split between what's in normal retail.
and what we have in the banking as a service business. So, Rodeo, just to follow up on that, I made a very clear commentary probably about a year and a half ago that if you go from zero to a much higher rate environment, now we'll just reiterate the point, zero to let's say 5%, I don't think you're hiding from people getting paid on excess liquidity. So, that's the marketplace.
a phenomenon in the financial services business right now, that money is very expensive right now, people want to get paid. The reality here is that this company we have now is not going to be 20, 30% liability sensitive. We're going to be closer to neutral. I think that's the game changer for us as we look at this combined business of Flax or NYCB that we're going to position ourselves.
to not be vulnerable to rates going up. We want to take advantage of rates up and down as a business model. And that's the uniqueness of the verticals, the type of assets we're going to have at a floating rate, and having a better funding mix. So I think that's really the benefit of the merger that we're super excited about today. And I think, like I said, we put the banks together and we're around 4-5% liability sensitive without any repositioning or any assets.
We think that we have a lot of liquidity if we want to tap liquidity at the appropriate time assuming market conditions warrant that. I think having optionality is good here and I think that the new Flagstar is a much bigger balance sheet with a lot of great clients that we can service. I call them the five star clients that we're going to go after and bank them and go after the funding opportunity. But our DNA is going to fall.
Morgan Stanley . Please proceed with your questions. Good morning. Hi, good morning. You noted the 3 billion contribution from banking as a service product for government entities. Can you talk a little bit more about the growth opportunity there, especially given that those are lower cost deposits? We've done a really solid job on partnering with our FinTech providers and…
has been a very good line of business for the bank as an alternative solution for funding the balance sheet. This particular program in the fourth quarter was driven off the California inflation stimulus benefit that was out there. We were the bank partner that didn't provide, along with a very large tech company that partnered into the Money Network Card business. That will dissipate, but that was another program that we rolled up. Bear in mind, we've......
is going really well. We have a bunch of onboarding happening in 2023. I will tell you that it's hard to predict what quarter they come in. We don't really count them because they come in and they're fairly large. What's interesting about this model is that not only did we ramp up the opportunity to work with our technology providers, but we're also able to get our bankers into the municipal side of things.
top technology companies and it's an RFP process and we've been very successful over the past year and a half but it does take time to onboard so I don't want to give any look what aggressive vision of how much can come on but when they do come on it becomes meaningful so for example California was about a three billion dollar average balance and the cost of that was zero
We have some other programs that are coming in this year, depending on how quickly we ramp up U.S. Treasury, that could be depending on what program is actually endorsed by the government. And we would be then the company that's ready to go if you cause, you know, at their will when they're ready to make a decision on funding. So it's an interesting program. It's a good line of business. It's one of our three pillars of the banking as a service business that we carved out among with mortgage and tax.
and it's been very successful. It started out back during the pandemic and we were a very large balance sheet provider for stimulus payments and we were able to hold some nice balances for a considerable period of time on the card side and we continue to leverage off of that.
Got it. And can you just remind us of the seasonality within the Banking as a Service portfolio?
I mean, there's obviously the three components. The one that's very seasonal is obviously escrow payments. When you have mortgages coming in and out, you have tax payments. But we think that's going to be something that we could really drive further the positive opportunity. Like I indicated in my previous commentary on the leasiness business, this tremendous opportunity to really be focused on managing the PNI payments and the tax payments for our...
We have a few billion dollars of pre-consolidation with flags, but I have a lien that I think he was at four. So probably around six now, but I see a ten-billion dollar opportunity there just by the current client base as we go after it. It's very volatile and respect the interest rates. It is a cost to that, but as things start to normalize on interest rates, so we have an opportunity to have a...
indicated that the true operating activity that we could be helpful given our size and balance sheet and our technology offering as well.
Great, thank you.
Thank you. Sure.
Thank you. Our next question has come from the line of Steven Alexopoulos with JP Morgan. Please proceed with your questions.
Hey, good morning everyone. Steven, how are you? Good. How are you, Tom?
I wanted to start on NIMM. So I appreciate the 1Q23 guidance. Tom, what does it mean in the release? Here you say you expect 2023 margin above where you ended the year. I would think that would be on a spot basis, maybe consistent with 1Q23.
I appreciate the 1Q23 guidance, but Tom, what does it mean in the release? Here you say you expect 2023 margin above where you ended the year. I would think that would be on a spot basis, maybe consistent with 1Q23 guidance.
Can you talk through that? I'll give a broad discussion upfront John we're going to the details But we're kind of indicating that you know we have one month of fights bar at the fourth quarter going into our current NIM on a historical look-back basis for q4 and we're in the low 220 with a 228 John 28 28 so you think about our guy for q1 at 255 to 255
We have the benefit of a lot more floating rate assets, different verticals that are priced to floating rate indices. At the same time, we have a significant amount of customers that are rolling into their option period. For example, in Q4, we had about half a billion dollars of multifamily loans that went to silver plus 225, 250, coming off of 3% coupon. That's adding to the benefit of repricing.
When you think about the choices going forward, absolute funding is not only assets, we really do have a unique opportunity to have a lot more assets repricing into the marketplace, as well as a much more high yielding offer when it comes to the floating rein instrument. And more of a focus to allow our customers to utilize derivatives to finance there.
their loan terms as an alternative solution in traditional fixed rate terms. So we've been proactive on running out the capital markets activity at Flaxo office to their customers to some of our larger multi-family players that are doing larger transactions we want to synthetically structure for the balance sheet. So we really do have an interesting...
a series of choices on the verticals to really drive capital into businesses that are high yielding businesses. That being said, the funding is where you have still pressure. Obviously, I indicated about a 4-5% liability sensitivity as we close the books at year end, but that's going to have a couple more rate hikes and obviously the full curve has...
I paused for a while, so we're going to deal with that. Ultimately, we think we can move that 5% to neutrality very quickly depending on where we want to position some of these assets. I think we're going to have higher margins going back to my point. We're starting in the low 2s and we're already in the mid 2s in just about the year. It's a different margin business given that we have new asset classes going into 2023.
and with the focus of really building out more C&I business as a home for the company in addition to our legacy businesses which we're going to support, we'll have a lot more choices.
Which will drive margin? Yep, do you think you can hold in, because the next quarter is going to be the first quarter where we have the new company, right, for the full quarter? Do you think you can hold in this one queue range beyond the first quarter through the rest of the year? You're not going to get me to a point to get public items in the margin, but this is good try. I'll give you a second.
you know if we could be successful in moving some of these wholesale liabilities into true court deposits then it's a game changer for a multiple that's the strategy that's not going to be an overnight strategy we've done a lot of work over the past two and a half years uh... but we're starting the year very strong with solid margin to pay a test and on m y c b with the benefits of a much higher average margin for the year knowing that we we're gonna have probably an increase tomorrow and another
right? We had that program really kick off at the end of 2022. And then the, you know, we see now we start to see the really the utilization of those funds that we're seeing that start to roll down as we would have expected in the first quarter. And that is, you know, not interest bearing accounts.
So, you know, that's just another item for that we'll see that's beneficial in the first quarter that we lose a lot of that benefit when we go forward. Yeah, I would say I would add internally and look at the business on them even on the multifamily side going back to 2012-2013, we had a high fee income opportunity and the actual yield on that asset class is much higher because of the propensity of prepayment.
We ended the year this year at the lowest level of prepayment activity compared to the financial crisis, literally if you go back. It was significantly lower than we had anticipated and we had a very strong year. We had another record year in earnings, but you get multiple is what it is. We were liability sensitive. But if you think about where we ended up about $45 million in total prepayment activity, if you go back to 13 that number was $140 million.
in our forecast internally, even though we don't go out the full year of how this asset class will react because the asset class is very stable right now. There is no activity on prepay. There's no large purchase transaction activity. We think that'll change once rates start to become more expected based on the borrowing base. Right now, customers are not doing a whole lot, so we're kind of having a larger balance sheet with lower yields as they be priced.
We're getting a nice benefit on that particular core asset class. Tom, if I could also ask, if I look at the guide, it's the average loan growth of around 5% for full year 23, which doesn't make sense because you have Flagstar for the full year of 2023. What's the base that you're comparing that to? We're very conservative right now. It's early in the year. Last year we had Tempest.
sure we get the best economics given the market condition. Steven, as you know, it's expensive right now to finance short-term. When you look at, let's say, a three-year average life financing against a multifamily credit with a three-year average life, we need to get paid economically. That number's around 6% in the market, $225 off the five-year treasury. That's where we're holding our line. I think that's the right economics for us as we look at the lines of business.
changing interest rate environment, I think it's reasonable. Warehouse could change dramatically, dramatically if rates go down. If for some reason we're in a different rate environment, so at the back end of this year, we have $11.5 billion warehouse book that has about $3 billion outstanding. That number could double very quickly. So we have an opportunity at very high spreads.
along with some of the other lines of businesses. So we really are being conservative and we want to be conservative. So 10% was a big year for us on a standalone basis. And if you take Flagstar's help for investment portfolio out of the Resi side, they were relatively flat or down slightly for the year given the challenge in the mortgage business.
some of the other lines of businesses. So we really are being conservative and we want to be conservative. So 10% was a big year for us on a standalone basis. And if you take Flagstar's help for investment portfolio out of the Resi side, they were relatively flat or down slightly for the year, given the challenge in the mortgage business. Got it. Okay. So just to clarify, you're assuming 5% over...
year 2022 average. It's an early guide. Thanks for thinking by questions. Sure.
Thank you. Our next question has come from the line of Chris McGrady with KBW. Please proceed with your questions. Hey, good morning. Hey, good morning, everybody. John , just to make sure I'm clear on the expenses, the midpoint of your guide is pretty good to consensus. I call it 50 or 60 million.
The amortization expense needed a little help there. It looks like it was $5 million, which would annualize to about $60. Is that about the right amortization expense for the year?
Yeah, it is. When you look at this change in the interest rate environment, not only did it have impacts on the purchase accounting adjustments for loans and securities, but also for CDI, I think originally we expected CDI to be a much lower number when we announced the deal, but it's definitely changed given this interest rate environment. So yeah, when you look at that.
that all intangible amortizations, that 5 million a month is a good run rate for 2023. Yeah, on the 1.3 to 1.4, that excludes amortization of CDI. That's exclusive of amortization. No, yeah, that makes sense. It looks like they offset each other. In terms of the accretion, John , what's the accretable yield that might be considered in the guide?
on average in the $10 million range, I would say, from an accretion perspective per month. That we'll probably see. The hard part about getting exact guidance on that is when you look at the Flagstar loan portfolio, especially, and even some of the securities portfolios, the floating rate pieces are marked pretty close to par, if not really ad par from an interest rate risk.
some of those pretty big discounts as you go forward. Yeah, I can just to put my accounting hat on. Offstanding that in 2024, assuming most of the CDs are short-term and that discount, that band that premium will be gone so you have the possibility of higher accretion in the following. Yeah, the CD mark is definitely a little bit shorter than the security in the loan.
I guess question one is that about plus or minus where we should think about help for sale and The guy for four mid single-digit. I'm looking at your average balance sheet That's a that is that off a 56 billion dollar base. Is that what you're using? the mid single for the long growth
about plus or minus where we should think about help for sale and the guide for mid single digit. I'm looking at your average balance sheet. Is that off a $56 billion base? Is that what you're using? The mid single for the loan growth? That's great.
No, yeah, it's based off of the spot loan balance at 1231. So 69. So we're doing it up, you know, 1231 to 5% 1231 23 to get back to the previous question, as compared to the 1231 22 spot to spot as far as the loans. It helps us so maybe Lee Smith can hit some color on the business and we got Lee on the call. Lee. Yeah, yeah, no, I think that's a billion dollars that you mentioned, you can expect us to be on.
Okay, great. Thank you. Thank you. Our next question has come from the line of Peter Winter with DA Davidson. Please proceed with your questions.
Thanks. Morning, Tom. Thanks. Thanks, Tom.
Can you just give an update on the capital priorities going forward and maybe some thoughts on shared buybacks?
I'll start out with the first priority. Our dividend will continue at the current rate. That's been a priority historically and we're very confident there. Obviously, we had a substantial...
an accounting event at year end, markets have changed and we had to deal with that in respect to capital so we traded some of the look value benefits to earnings accretion going forward under the capital side, but that did have an impact. That being said, I'll defer to John specifically on how we're going to get that back and obviously where our capital is back currently sits, but going back to my priority is we're going to continue to pay the current dividend rate for the combined shareholder base.
And historically the company has had a multifaceted capital plan when it's from payback to shareholders with dividends and years ago, stock purchases of course. So first the use of capital as Tom said is the dividend and the second is for growth. So any excess capital that we have after those two things we would absolutely look at.
credit perspective on office? Yes, well both on office and really throughout the CRE and portfolio has been unbelievably strong from a credit perspective. We have seen no transition into the 30 to 89 day buckets or delinquency buckets. Really no real concerns even that have come out of the deferred loan process that we went throughITION
Payments have been, you know, as we would have expected. So we've really started to see a little bit of occupancy kick up there as well. So the performance in that portfolio has been, you know, has been better than we originally expected coming out of the pandemic. I would just add to Jon's comments, a strong sponsorship, very low LTV, very comfortable with the relationship, long-term relationship.
Lending you know tied to some of the multifamily investment as well So there's a lot of history there on the MRCB standalone. We picked up some Commercial real estate from the Flagstaff folks as well on office a lot of material and I think it's maybe about a billion John totals It's total Yeah, total office is 3.4 billion and again it goes back to the history as John indicated We're not seeing any negative trends
and the LTV is relatively low and in the event that we have to sit down and deal with a situation that has maybe some credit deterioration, we think we're well protected as a sponsorship as well as overall value. The Abington Indian Active Trends piece has been very, very solid.
And when those loans come up for refinance, can you just maybe update it LTVs or dead service coverage ratios when they come up for refinance?
We have about a billion and 23 that's coming up in total CRE. That's not off. That's just off. That's cut out to 568 coupon. That coupon is probably closer to seven and change now. Then next year and 24 is about another billion. We don't have a ton of money. Let's say it's 50% of the CRE book over the next two years coming due. Next year I think it's a 5% coupon. We think we have an up.
great potential on re-pricing them, but when you look at the average LTV, I'm not sure they have that on you John , it's a pretty low average LTV. 56% average LTV. On office. On office, and I think we feel pretty confident that, again, we haven't seen at all any deterioration. As John indicated, a 30-day bucket, the consistency buckets are zero. Zero. We're pretty good about that, given the current environment.
But in the event, even during the pandemic, we had a handful of customers that were thinking about maybe having issues and we gave them some balance sheet, we gave them some relief and ultimately we got them to the other side. And in the event there was any maneuverability on our end, we're very comfortable in exiting the asset class. And there's plenty of investors that look at these assets as...
You know, we'll call them unique New York City assets that will be well owned but would love to be owned by investors that are comfortable on taking the keys from the bank if necessary. We haven't had to have that problem right so far. But in the event we do, we have low leverage and we have strong sponsorship. So hopefully the sponsors stay strong and if they have the kick-and-sum or equity, they're keep them going. That's the expectation.
And they've been willing to kick in the equity if needed? We haven't had to have this conversation yet, but we're very focused on conservative underwriting and that's how we look at our book. We don't have a huge portfolio relevant to the total balance sheet, but what loans did you have, their relationship, sponsorship type transactions that were very comfortable that historically in the past we have seen customers write checks.
We've had a couple of handful over the past six to nine months and these are very large families that are comfortable on keeping their coveted asset classes in their family's
Thanks, Tom. Congratulations on closing the steal. Thank you, Peter. It's been a journey, but we're looking to the future. We're super excited.
Thank you. Our next question comes from the line of Matthew Breeze with Steven. Please proceed with your questions. Hey, good morning. Just to clarify, the $10 million a month of a credible yield, is that just for the first quarter of, I'm assuming the fourth quarter of this year, the first quarter of 23? And if it's not, could you give us some sense?
for the cadence of accruable yield in 23. Usually it's pretty front end loaded. I just wanted to get a sense for the cadence there. Yeah, I mean, it can be front end loaded, no doubt. But that's the average. That's what I would assume for 2023. You know, you will have, like I said, when you have some deep discounts and you do have some payoffs, you can have some spikes, you know, here and there. But I don't expect it to be dramatically different than that in 23. CD run up will start in really in 24. That will benefit.
24 is number 12. Okay, and then just on the core NIM components, could you give us the year-end spot rate on interest-bearing deposits? And then what are incremental nearby family and commercial real estate yields coming on it today?
I'll go to the yield. So Matt, we're looking at, like I indicated, we're pushing towards 225ish with the 5-year. We're trying to hover around 6% on a traditional 5-year deal. Commercial is probably another 50 bits above that. We're not really doing any long-term financing. If we do long-term financing, we're really pushing our capital markets group to sit down with the customer and structure.
something synthetically which does change the economics for the bank as well as for the customer. So we are giving them more choices. I indicated a lot of our customers that aren't doing a whole lot, they have an option and the option was a very expensive option. We gave them a third option which is a SOFR option which is 250 off the SOFR and SOFR has been rising. So it's not as attractive as it was six months ago but it's an alternative and we are seeing it moving forward so we really hope to see it.
probably half-lawed customers on the multi-family side opt into that choice, which we like that for interest rate risk, balancing as in perspective, but a much higher coupon. I think I indicated the commercial slide what's repricing, but in 23 we have about another 2.5 billion, about 388 on the multi-side, and if you've taken over the next two years about
But just about 6 billion on multi with like a 370, 375 coupon and market yields are around 6 assuming they all go into a 5-year structure. Not doing a whole lot of 7-year or 10-year. We're reluctant to do that as we look at the marketplace and in general I think people are sitting on the sidelines right now. So we're getting the benefit of repricing.
just from the optionality of them making a choice. And in very rare circumstances, you're seeing property transactions. So we could have a higher balance for longer because of less activity. I've indicated in my previous comments that very little economics, internal forecast for prepayment activity. I think we had probably one of our worst years last year. We still had, you know, strong, who was record year on earth.
not going to be impactful in any meaningful way going forward in this current rate environment.
At year end, the spot rate on interest-faring deposits is 217. You know, matter, just one point. So I want to talk about some of the other lines of business. I mean, we have a great build-of-finance business. That number is close to 400 spread, worth of repricing what's for software indices. We have fees involved in those types of businesses.
We have the warehouse business that's a substantial spread and the 200 basis point spread. We look at that as a great opportunity because we know that business very well. We're very comfortable with that business, clearly a very attractive yielding business. We have other C&I businesses that are part of the legacy flash are coming over that we think we're going to grow very, very nicely.
on a combined basis. Those spreads are very high. They're not near what we are typically accustomed to. They're floating rate, they have fees, they have structure behind them, and they have very good incremental benefits to the margin, which is going to be a capital deployment opportunity in 2023 and beyond. That is the game changer that we're putting together here. So we're not just that one bank that does one thing.
So we have many, many verticals with different opportunities here. We're going to be very cautious given the rate environment to deploy capital to ensure we have the best capital allocation story to talk about as we build a new flag star.
No, understood Tom, I appreciate all that. I did want to also touch on the government as a service deposits. Just considered it comes in in lumps and then it sounds like as it's spent, it winds down. Could you give us a sense for the pace of attrition on the government as a service deposits and is it?
Is it expected to roll off to a near zero towards the end of the year or is this something that holds a residual balance and can grow off of that residual year-to-year? So I'm going to start. I'm going to defer to John . He's done a lot of work around on expectation and modeling and doing regression analysis on how this would react and we actually have an experience with the stimulus payments and how we're on the Italian analogy. More than we expect, we can serve it to the model it.
which is in our model. So we had a large benefit in the fourth quarter that came from the California stimulus opportunity that we were the bin provider for. It's holding better than expected. Probably there for longer than expected, but we might be modeling conservatively. Ultimately that will go down to a tail to a point and John can get some details on the tail. At the same time we have other ones ramping up in 2023. Although not the same type of program, there will be consistent with unemployment.
The average cost of those liabilities are very low, near next to zero in those cases. And John , if you want to talk about some of the... Yeah, we've tried to model it. It's been pretty close to the modeling we saw with the economic impact stimulus payments. So there is a tail that will sit around, but the bulk of the deposits do go pretty quickly.
Then you have like a slow draw after that. So yeah, we will have deposits, you know, as of I would assume is the end of the year. I don't think it's going to be that material of a number by then. But the first quarter will still have a really nice average balance, then we'll start to come down from there. Okay, understood.
And then what are the remaining one-time costs from the deal and the mortgage restructuring? And then could you give us a sense for timing throughout the year when they'll be taken? Well, let Lee talk about the mortgage restructuring. John , we'll get into some some estimates on what we think we have left. Go ahead, Lee. Yeah, sure. So the cost with the restructuring that we've just actioned, we estimate to be 12 to 13 million.
And that is predominantly severance, but as I mentioned earlier, there are some leases that we need to get out of. So there's some costs associated with that as a couple of contracts that we are also going to exit. We're going to isolate that as a restructuring charge and that will, we will take that in the first quarter. In addition, we probably need 60 days. That's what we're estimating to work off the pipeline.
to have a real clean run ride beginning April 1.
And then on the merger related charges, we'll see some in the next couple of quarters when it comes to primarily severance and just some consulting work to get through the consolidation of the two companies. So you'll see that as well in the coming quarters. And then there'll be some charges when we get to Q1 of 2024, when we get to the conversion date. Got it. Okay. Last one for me.
and a provisioning perspective, you know, we're comfortable where the capital ratios are, you know, with a common equity tier one ratio over nine. Um, you know, that's, that's a good spot for us to be, um, given the, given the loss content in those portfolios. So it's something we're going to have forced continue to manage. And we believe the best use of the capital right now is, is primarily dividends. Then of course the fund growth.
And then going forward, we can look at other capital initiatives depending on market conditions. Thank you. Our next question has come from the line of Christopher Maranac with Janney. Please proceed with your questions. Hey, Tom and John , I had a similar question as Matt on the capital. I'll say the 906 likely grows from...
content in them, including multifamily, mortgage, warehouse, um, they're a hundred percent risk weighted assets. So, you know, we do have that, that we have to kind of work through from a capital perspective, but you know, the goal is over time to ensure our capital ratios are, you know, where we want them to be in our capital target. So.
You know that that's no doubt the plan and obviously we're planning strong earnings growth as well to audience increase our capital position You know we played in the last question. It's just to be clear that we've traded off
capital for accretion on the adjustment given the change in interest rate. So you're getting a lot of as John indicated benefit as far as the marks on the assets and liabilities. So that does have an impact. You get that back over time. So we think you'll see some nice earnings for shared growth as well.
Got it. And then last question, John , just has to do with how the banking as a service and government as a service, you know, re-prices over time. Do you have to have an absolute fed cut before you can lower those rates, you know, thinking out just a couple of quarters from now? Well, the government as a service deposits are primarily not interest bearing or, you know, if there are, they're really specific as to exactly what those costs would be.
On the banking as a service deposits, to see big cuts, you'd probably have to see big drops in those rates. You probably have to see some Fed cuts, especially in this environment. But you know, times change and sooner or later, the spreads can narrow a little bit on what you're paying for a lot of those products. But I think we have to start to see a Fed pivot before we start to see some significant savings there.
And are those banking as a service still like maybe three quarters or two thirds of the Fed knows about right? Yeah, I mean, they're a range. Some are 100% betas and some are in that 75% range. So on the banking as a service side, it's a range of
Okay. And are those banking as a service toll rate maybe, you know, three quarters or two thirds of the fed fed moves about right? Yeah. I mean, that there are range, you know, some are 100% beta and some are in that 75% range. So on the banking as a service side, it's a range of what's tied to the change. Okay.
Got it. Great. Thanks for taking all my questions. Sure. Thank you. Our next question has come from the line of Abraham Puna-Walla with Bank of America. Please proceed with your questions.
Hey, we're having you back. Hey, I'm back. Sorry, I know it's been a long call. Just one question to all my think. You mentioned multiple times around becoming a commercial bank, multiple expansion for the stock. Give us a sense of what do you think this combined franchise will look beyond your system conversion next year. Like if you have any sense of where you think the bank is,
from ROTC ROE perspective what the franchise should be owning in a steady state environment? Look, I mean this is obviously going to be a block and tackle year. We're super excited about putting these companies together. There'll be branding effort that's going to take place. We are transitioning to some great technology that's going to really assist our customer base as we move towards commercial banking. We got to work a lot on the funding side and you know the company is going to be you know historically over the past couple years.
We're earning just under 15% TCE. We should be in the high teens. I think the reality in the high teens on a traditional multiple perspective, with return of assets well north of 1%, 110, 120ish, over time, it's going to take some work here. The reality is that the balance sheet has changed dramatically. If you think about the lines of businesses that we're going to have, the verticals that will be priced, very different than historical fixed rate lender that had vulnerabilities to rising interest rates. We want to be better balanced.
At the same time, we're going to get our cost structure right. We have work to do going back to 23 as a block and tackle year. And we look at 24 and hopefully a different rate environment will be able to take advantage of a better funding mix. We're going to go after the deposit funding. If we move that positioning to having better funding as a core competency of...
of our number one priority, that will change multiple. We feel very strongly that mortgage on a percentage basis, because the bank is much larger, will be less of a concentration on total income streams. We want to have less dependency on mortgage, less dependency on wholesale finance. We believe that will give us a better blended multiple. Multiple expansion is going to be key as we look at the transformation to a commercial bank.
You know, we have all the parts in place. It's going to take time to block and tackle, but we have, you know, the roadmap and, you know, the system conversion will be done in the first quarter of 24. At the same time, we're going to be, you know, rolling out the verticals, you know, proving to the marketplace that we're allocating capital to different lines of businesses that are better margin businesses, you know, and now at the point as a company, we're looking at loan by loan detail on a total return basis and we'll allocate capital accordingly and that's something very different when you have choice now. We have choice.
on a combined basis where historically we had limited choices when we had our business model. We're excited about the business model. We think we have a great story to tell. This has been a long time in the waiting of auto planning and we're super excited about launching out the new FACTS on a new brand. Go ahead. Thank you. Bye.
Thank you. That is all the time we have for our question and answer session. I would now like to hand the call back over to management for any closing comments. Thank you again, but taking the time to join us this morning in pure interest in NYCB. We are creating a unique multi-faceted financial services organization that will know long of the guidelines on any one particular on a business for the very exciting future. Thank you all. Thank you. This does conclude today's teleconference. We do appreciate your participation.
You may disconnect your lines at this time and enjoy the rest of your day.