Q1 2023 New York Community Bancorp Inc Earnings Call
Speaker 1: which we need to do. Yeah, but we're investing a lot. I mean, from our whole tech stack to how we use the cloud to across our entire portfolio, putting new systems, you know, the best systems there are for things like ACH, et cetera, those investments have been happening continuously for the last part.
Speaker 1: That's why we have our position in the marketplace because we really have built a substantially robust infrastructure and ecosystem across not only the tech.
Speaker 1: aspects of it, but all the compliance, third party risk, oversight, all those things are incredibly important for the programs that are our partners.
Speaker 1: Makes a lot of sense. Thank you.
Speaker 2: Okay.
Speaker 3: Hey, thanks for taking my follow up. I was actually going to ask, I had expenses, but since I'm on here, if I get a quick one, the tax rate was just a little bit lower this quarter, what are your expectations going forward?
Speaker 1: I'm going, the tax accounting is a little bit confusing, and I won't go into the details here. We do talk about it in our 10Q and so forth, but I think for your models, the normal historical rate of around 26% is closer to an annualized rate.
Speaker 3: So get perfect. Thanks. That's all for me. Thanks, Jim.
Speaker 2: But.
Speaker 4: Thank you.
Speaker 4: There are no further questions that this time Mr. Kuzlovsky, please go ahead.
Speaker 1: Thank you for joining us today. We really appreciate it and we'll talk soon. Top ready you can disconnect the call.
Speaker 1: have some loans and floors and many times reserves. So we haven't had any dislocation whatsoever in that portfolio. And we've had a lot of the wind down of the old portfolio and people have been finding financing, take out financing. So we haven't had any, I can't really respond other than it's slowed down a bit. I think that'll pick up once you stop having the steep curve and interest rates. But we have nothing to report really. On the S block side, that's about price sensitivity. So we had a lot of price sensitive clients, you had the historic interest rate rise. And people simply got a little sticker shock. We've seen that slow down though, substantially and moderating. And we expect our pipeline has been growing this month in the S block and I block side. So we expected to get more normal for the same reasons with the interest rate as the interest rates top out. So we're not concerned by that at all. We just got more liquidity from that from that business and that went into obviously.
Importantly, we also return retain virtually all of the savings is highly productive private client banking teams predominantly based in the New York region, along with those teams related distinguishes recent west coast expansion, primarily based in California.
Everyone here in your acuity is extremely pleased to have them and the other talented employees and signature bank join our team and we look forward to us doing great things together.
Lastly, the transaction is anticipated to be financially attractive with expected EPS accretion of more than 20%. While is also significantly and immediately accretive to tangible book value per share at.
At closing tangible book value per share jumped 20% to $9.86 a share at the end of the first quarter compared to the fourth quarter of last year.
Given our earnings power from this transaction, we expect tangible book value generation to accelerate.
Turning now to our results.
First quarter 2023 results on a GAAP basis were impacted by several items arising from significant transaction and the flagstone acquisition, including an approximate $2 billion bargain purchase gain and merger related expenses of $67 million and initial provision for credit losses of $132 million for the loans acquired from signature.
Adjusted first quarter diluted earnings per share with 23, a share slightly ahead of consensus estimates for the quarter net income available to common stockholders as adjusted increased 14% to $159 million compared to the fourth quarter of last year.
Operating results were driven by a full quarter's benefit from the <unk> acquisition, which closed on December one of last year approximately two weeks of signatures operations strong organic loan growth in the legacy franchise and a much higher net interest margin.
One of the many benefits from the effects of our acquisition is the impact of our net interest margin from adding it's mostly variable rate loan portfolio and its low cost deposit base. We saw some of this benefit in the fourth quarter, but it was more pronounced this quarter as the net interest margin was 260% up 32 basis points compared to the fourth quarter of 2012.
Two we believe that margin expansion will continue throughout the year with additional expansion opportunities from the signature transaction.
Turning to our loan portfolio, excluding loans acquired from the <unk> transaction of approximately $12 billion total loans and leases increased $1 5 billion. During the current first quarter up about 9% on a linked quarter basis about $1 $1 billion of this growth was in the C&I portfolio, particularly in specialty finance and the mortgage warehouse businesses.
The loan portfolio continues to become more diversified as we continue our evolution to a commercial bank model commercial loans at March 31 represented 44% of total loans compared to 33% at December 31, our multifamily loans stood at 46% of total loans compared to 55%.
As for the quality of our loan portfolio.
Both our asset quality metrics and trends remained strong total nonperforming assets of $161 million were up only modestly on a linked quarter basis and represents a low 13 basis points of total assets the allowance for credit losses increased to $159 million or 40% from year end to $549 million and the coverage improved to 370 <unk>.
Ascent of nonperforming loans or nearly four times.
Importantly, we reported another quarter of low or no loan losses as net charge offs was zero during the first quarter compared to a $1 million during the previous quarter.
Our office exposure remains very manageable and we remain comfortable with the credit trends in this sector. Our office exposure at quarter end was $3 4 billion or approximately 4% of total loans.
Provided some details in our investor presentation, but to summarize the average loan size is $11 million with a weighted average coupon of 460%.
<unk> average LTV is 56% and a weighted average debt service coverage ratio was 173 times. Furthermore, we have no delinquencies and no charge offs in this portfolio.
As you can see these metrics are proof positive that our conservative underwriting standards have served us well over numerous credit cycles. This along with a high quality balance sheet should serve us well in the event of an economic downturn, regardless, we will continue to be laser focused on credit quality across all lending verticals, especially those that we have recently entered.
On the deposit front of deposits totaled $84 9 billion at March 31.
Signature transaction after experiencing initial expected outflows contributed $31 $5 billion of deposits as of quarter end.
Legacy Flagstone <unk> deposit declined $5 4 billion due to anticipated spend down in the prepaid debit card program and the reserve accounts drove from circle.
All told these two categories accounted for over 80% of the decline in legacy deposit balances remained mostly institutional deposits.
In terms of liquidity, while we have always had ample sources of liquidity our liquidity position was enhanced by the $25 billion in cash from the signature transaction currently our available liquidity from cash Unpledged securities and our borrowing capacity at both the <unk> of New York and the fed has over $42 billion at the same time.
Uninsured deposits, excluding collateralized deposits totaled $28 7 million or <unk>, 34% of total deposits accordingly already liquidity represents a 147% of uninsured deposits.
In addition to our diversified business mix, we have a conservative and high quality available for sale securities portfolio, consisting primarily of GSE related securities. Approximately one third of these securities were mark to market in conjunction with the flagstone acquisition. Accordingly, the amount of a OCI is amongst the lowest in the industry and has minimal impact on capital also as part.
Our long term liquidity planning strategy, we do not have any securities designated as held to maturity.
In terms of our expenses total opex was $398 million up $194 million compared to $204 million in the fourth quarter or first quarter expense base includes a full quarter of flagstar expenses compared to only one month during the fourth quarter and 12 days of signature.
As for guidance given the current outlook, we expect first quarter 2023, NIM to expand from first quarter levels to a range of $2 seven zero percent to 280%.
First quarter gain on sale of mortgage loans of $20 million to $24 million and a full year tax rate of approximately 23%.
We've accomplished quite a lot in a relatively short period of time, we will devote the rest of this year to integrating and converting signature and flagstar, reducing our expenses growing our deposits further and building out each of our businesses as we evolved to become the new Flagstar Lastly, I would like to thank all of our teammates for their hard work and support over the past few months, especially the last two months.
None of what would have accomplished so far would be would it be possible without them.
With that we'll be happy to answer any questions. You may have we'll do our very best to get to all of you within the time remaining but if we don't PCR free to call US later today.
Operator, please open the line for questions.
Thank you, Sir ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchstone side. If you would like to withdraw your request. Please press star followed by the number Q1 normally please.
Okay.
Your first question comes from the line of <unk> <unk>.
Bank of America. Please go ahead. Your line is now live.
Good morning, everybody good morning.
So I guess, maybe first question just around deposit it's the slide that you have the waterfall.
Two things one give us a sense of what's underlying your assumptions I think I heard you say.
You would expect margin expansion not just in the second quarter, but throughout the year. So.
What's underpinning that in terms of deposits one.
Legacy Flagstar do you expect more runoff.
Similar to what you saw in the early part of the year the $5 5 billion how much more do you see leaving the bank there and then on the signature deposits I think they've held up much better than I would have thought so give us a sense of what do you expect that under signature deposit base.
So I'll start off Abraham then I'll pass it over to John and Reggie regarding the deposit base, but I will tell you given the timing of this transaction and the speed of execution.
Modeled approximately the 20% runoff because given the circumstances of the turmoil going on in March we felt that that was a conservative number we actually came in less than 10%.
Most important about that that structure and then go into into April if you look at what's the activity has been the DVA activity has been it's been Iraq. It's been solid as it has been actually up slightly throughout April .
And if you think about where we were a year ago as a as <unk> standalone and that was a $4 billion DDA balance that went to approximately $12 billion of the flagstar transaction now with 2000 $23 billion of DDA with 27% of deposits. So if you think about how that impacts the margin those cost is zero. So that's a very powerful position to be in when it looks at the historical Fran.
<unk> will be more focused on higher cost type liabilities. So we're very pleased on the stability of the DDA accounts as far as the stability overall, we're seeing a relatively flat position right now we expected some run off the first days following the announcement and its been very manageable with that I'll pass the baton over to John and then John will have to read you talk about what we see.
And throughout the whole organization.
Just quickly if you when we're talking about the margin guide one of the items to keep in mind too is on the borrowing side. So we have $6 billion of wholesale funding that is coming due or we expect to be put back to us in the second quarter.
And that set of $4 40, right. So we're going to get some margin benefit there by just paying that down in the quarter. We also have some some brokered CD run off at pretty high rates as well so with the stability of the noninterest bearing deposits, but Tom talked about and that Red Youll talk too quickly on the retail side.
We're looking that's coming due and paying down, especially in the second quarter.
Is higher rate wholesale borrowings and brokered Cds that were going to pay down with the excess cash that we have on the balance sheet.
Rajiv anything anything you want to add on the deposit side.
Yes, I would just say I think the first quarter was actually a validation of just how stable our retail and wholesale book or if you kind of look point to point December 22022.
Down 3% on a combined basis across <unk> and flagstar.
So that's like less than $1 billion on a $28 billion book.
I consider that a win and some of that quite frankly was kind of a natural surge runoff and kind of what we see in the portfolio on a run rate basis.
So I think the portfolio performed extremely well and we would continue to perform this year at the same in the same way.
So hey, Brian . This is just a comment on that again, just to reiterate and going to the margin. If you think about the cash position, we're sitting on an abundance of liquidity and what the funding costs was that we've acquired through the to the deposit side on signature net net that's like a 3% carry which is above our current margin specific sitting in cash and just.
Managing our cash flow as John indicated paying off higher cost debt as we go forward that is ultimately the strategy to have a much better funded balance sheet going forward here and more commercial bank like deposits, though the benefit of just sitting in cash right now is actually contributing to higher margins, but as we deploy it into other businesses and higher yields and more importantly, we focus on paying down some of the higher cost wholesale.
Liabilities would be more traditional funded that we'll continue to see some good margin benefits throughout the full year.
And I guess, just the second question Tom.
Talk to us around the alignment and integration means obviously, you had the flagstone integration going on with signature and you've kept.
<unk> seen it executive from signature, including Eric onboard give us a sense of how that integration is proceeding what should we be watching in terms of the success of keeping those teams on board and then what does that mean for just growth outlook going forward.
So great question Abraham So obviously, you know day, one we hit the ground running both Eric and I have spent significant energy on ensuring that we have the transition for the teams were very confident and very.
Happy on the results of that as indicated in my prepared remarks, we preserve the teams both on the east coast and the West Coast and also the business lines or other lines of businesses are in place and we're very pleased on bringing them onboard and when you think about the next step here, which is cultural culture culture, we have to integrate these companies culturally and it's going to be a substantial amount of energy.
We are super excited about the signature films coming onboard we know them well, we know that we know our competition. So we're clearly working together and when it comes to systems of Flagstar transaction is still scheduled for the first quarter of 2024 and will go into a deep dive right now in assessing what's best for the bank and more importantly, how the <unk>.
Customers are going to be served so it's also and it's all going to be about customer service as a truly take on a relationship banking model. So the most important aspect of that as we make these decisions that we integrate this at the appropriate timeframe. So to ensure there is no customer disruption of Mr. Pinto wants to add a little bit more on the integration side regarding signature versus lifestyle John yes.
The most important thing we've been doing from a from our teams and operations. It is just really making sure we understand the size and the scope of what the private client groups.
Yeah.
The teams at signature I used to do on the system side.
Our main focus is to ensure that we avoid any potential customer negativity minimize any customer impact. So we're going through that process now that that process will not will not impact.
The actual date of the flagstar integration, but it is something we're working towards now to finalize the data on and just to ensure that we get the systems converted in the most efficient and effective way possible, while minimizing customer impact.
That's right.
Thank you.
Thank you.
Our next question comes from the line of Chris Mcgratty <unk> dealt with you. Please go ahead. Your line is now live.
Good morning, Chris Hey, good morning.
I wanted to go to the guidance slide if you could for a moment the expense guide the 1 billion $3, four which is pre pre signature.
Understand there is a ton of moving parts and it's still early but can you help us just on the expense contribution from signature.
So I'll lead and I'm going to pass the baton back to John on the expense side, obviously, it's early days.
Look back where they were running they were running around 800 mid $800 million toller on rate on the previous year remember, we didnt take all of the businesses and there's a lot of.
Transactional benefits, we have as we restructure the transactions. So we were running at one three to one four and we reiterated that guide on a standalone basis, but as we put on the signature teams.
And a lot of obviously the actual private client groups, they're going to remain intact. So that's a lot of expense that we are forecasting within our run rate, but if you start with the mid eight hundreds and then you assume a transaction the nature of a transaction like that since it's not a traditional M&A deals and assisted licenses receivership.
Receivership transaction, we tend to believe there is much more saves.
Savings given the type of transaction. So historically, we've always been between.
35% to 50% range and probably look at the higher end of the range given the nature of the transaction over time, which then you can probably formulate a run rate as we as we integrate these companies I think that's a reasonable way to look at the combined company in America is dependent upon ahead as the CFO as well as what you're thinking there yeah. I think John said it makes a lot of sense and that's what we're working towards right now which.
As.
We know we know what our run rate is going to be we do believe that in the next couple of quarters. Our expenses will be elevated as we continue to go through the process of integration understanding exactly what we have and the processes, we're going to use to do it and especially until we get the systems converted what we do believe though is that we.
If you look back of course at our track record. We believe we've been very very consistent in how we manage noninterest expense, it's been extremely important to us.
Lot of history around effectively managing that in multiple different cycles, and even with the integrations and acquisitions that we've had in the past. So we're really confident in our ability to do that over time, but we do believe that in the short term expenses there'll be a little bit higher here as we go through this process and then once we get our systems converted.
We will be able to have a run rate that gets into the levels that Tom just mentioned right. So and the other thing just to bring up quickly on our last call. We talked about trying to front run some of the cost saves from the flagstar transaction into 2023 that process was ongoing given.
Given of course, the signature transaction that'll take a little bit of a step back. So thats why youll see just a little bit more expenses in the quarter than we anticipated and then from a run rate perspective, we.
Believe it will be able to manage to a really solid run rate combined once we get through our systems integration. So Chris I would also add just be mindful in the first quarter or the beginning of the year. We did a substantial mortgage banking repositioning for the for the franchise business that sells regardless of interest rates on the mortgage space and under leased with execution that was put in place I think it was late Jan.
We're into February ish. So you don't have the full benefit of that going forward. So we feel over each quarter as we put on signature and as we get through the benefits of the full mortgage repositioning youll see ongoing favorable.
Favorable adjustments as we walk as we work through the integration phase of it towards the end of the year with signature clearly, we'll see each quarter more steps made towards putting the franchises together, maybe Lee if you want to talk a little bit about on the mortgage side, what we will be accomplished with that Lee.
Yes, no. Thanks, Tom So yes, I think we mentioned on the last call that we execute on a big restructuring on the mortgage business.
700, Ftes go as we right sized the distributed retail business. So that we're just in branch footprint model, but when I say, even branch footprint that is a combination of both the Flagstar New York community Bank branches. So it's a bigger geography Norwich.
Did it because we want to be profitable on the origination side.
Even in these tough mortgage market, but we're still one of the biggest bank originators of mortgages originated in all fixed channels, we hold a considerable MSR asset, which generates strong returns we've got the servicing and sub servicing business that throws off a lot of fee income with second largest warehouse land.
We do MSR lending servicing advance lending and we're working on.
More aggressive deposit gathering from the mortgage ecosystem so well.
Whether you do b to B to C on the mortgage side.
Whether you get the biggest fund in the industry or whether you're an individual borrower you can come to flagstar, we take care of you. We look at it as the one stop shop, and we were able to generate strong earnings through the whole food China.
The mortgage ecosystem.
Thank you for.
And my follow up just want make sure I understand John .
So I'm starting eight mid eights for legacy expenses for signature and you said, 50% so that would get you low four hundreds.
Kind of as a destination and then we would add on top of that at the CDI that you've previously talked about is that is that the message we should be taking away yes.
Yes, I think that's maybe a little bit aggressive at the high end of the range. Don gave I think it's probably a little bit lower than that but that's a decent way to start to look at it because I think it's also the timing of it it's going to happen in phase quarters, as we get the order to when you think about assuming Q1 when the flagstar.
The actual transaction is integrated we're going to have significant benefits there on the tech side as well. So we're really looking at putting all these systems together and and as you remember when we announced the conversion date, you should get significant benefits on a standalone basis pre signature on flagstone.
The conversion date as well so when you come up with your estimate run rate I think that those are all fair assessments, when we're coming out with what you think about the expense run rate.
As we progressed during the year, we'll hopefully update our guidance as we dive deep into the signature franchise.
And then on the one timers to come maybe a little help there and also the.
Share count given the.
Given the once that I assume just the end of period is a good proxy yes at the end of period is a good proxy.
700, Twentyish range right, that's a good proxy to use for.
For share count going forward.
So yes.
That's where you need to be.
Okay and remaining one timers just for book value purposes.
Listen we got we do have a handful coming still from the both the flagstar transaction. So in the short term.
We probably got another 100 million to look at over the next couple of quarters two quarters, there alright, thanks a lot.
Great.
Thank you.
Our next question comes from the line of Mark Fitzgibbon from Piper Sandler. Please go ahead. Your line is now live.
Hey, guys good morning.
Just a follow up on your earlier question I think Tom the signature had something like 134 teams.
Do you have a sense for how many have stayed how many are there today.
Yes, so Margaret Great point, so honestly, we didn't acquire the entire institution or other teams that didn't come with the transaction. So we estimate is about $126 27 ish thing for like 125, now so I'd call that a huge success I think Eric had worked hard alongside with meetings to make sure that we have the retention plans in place and we're super excited about where.
We are there. So when you think about the teams that we were focusing on it's about 125 out of 127 ish.
Really good about that and the retention process has been very strong and more importantly.
The culture of getting this company together with a much larger balance sheet being able to do a lot more for the client is only enhanced so we're excited about that mark and I would say, it's a huge success for us and it's never ending.
To make sure that as we work on culture. The team understands that we do have other products other opportunities for but for the new customers. Some savings are coming on board to really enhance the customer experience. So Eric and I just had a lot of time on retention and we believe it's been a success.
And then secondly, unrelated what does the pipeline of new business and the banking as a service space look like today.
So look I think in general we are developing a lot of technology initiatives really trying to get a strategy focused on going out there and being within.
Within the middle of the pack and we've had some good work to do over time, and we see some good developments there.
Just on our side, if you think of what signature has done historically on technology developments with the clients. It's also been very innovative so collectively I think our opportunity is even more innovative now with with the talent skills over at signature our combined with our initiatives here on what we're doing banking as a service is there some good wins along the way we have.
The government business is obviously, a focus of ours and it's been a consistent and we're looking forward to partnering with technology partners to have and it's been it's been a very successful process for us and we're looking at all opportunities that makes sense for the bank going forward to tie into the to the customer need. So I'd say, it's been relatively strong and that we had the some run off that we expected during the turmoil in.
Launch, but the dollar amount of that mortgage as a service and a government as a service and banking as a service with about $7 five John maybe if I go to Walmart. So it's still a relatively strong number and we're looking forward to hopefully new developments with the.
The U S treasury relationship as that gets onboard and we're doing a lot around the digital side. That's all an automation analysis trying to get that up and running where they go from plastic to visit all of.
That is our plan is to work with the government on that so what we're excited about development, but it's a long journey market and I think the pick about the signature team is going to help that journey.
Last question I had for you is I wonder if you could share with us your thoughts on on capital or whether you have a target there and and also the dividend.
Well obviously.
Capital build is going to be significant tangible items in my prepared remarks, I made it very clear that.
We're talking about capital formation going forward, which is a very good place to be in this transaction is highly accretive both on the upfront tangible as well as the earnings per share going forward and our dividend coverage ratio just on pro forma analysis. The ratio comes down substantially. So we're very pleased about where we end up on.
On a projected basis, what we see is our dividend coverage ratio dramatically improving on the dividend side. So obviously the dividend is strong and we're very comfortable and going forward into <unk>.
Multiple transactions it becomes even more appealing.
Much stronger without being said on capital, we think that we're in a very good position to generate a lot of capital as we go into <unk> into the into the quarters ahead, and that's kind of my prepared remarks, focusing on the tangible book value creation, So Jonathan and the other thing that we started looking at too is when you look at our common equity tier one we are in the.
We increased it a little bit in the quarter.
So it came in a little better than we anticipated.
We've run at that 9% or under it was slightly under CET one in the past we're comfortable at those levels, but those levels are going to start coming up and the other thing to keep in mind Mark too is when you look at the unrealized loss on our securities portfolio.
And if you if you looked at our peer group analysis, including unrealized losses on Securities. We were closer to the top of the list and CET. One then the bottom of the list. So there's a couple of different ways that we do look at capital you know our history from a loss perspective.
We believe we can run that at these levels.
That's another factor of where we are from a peer perspective and that's why this transaction. We look so forward to because of the capital generation that provides mark just this one major point here when we put the transaction together working behind the scenes in getting this deal done.
Our regulatory constituents, we were very clear that we wanted to solve for capital where there was no negative impact to capital as a result of the transaction and then the accretion benefit is substantial and that's how we kind of thoughtful in how we formulated our bidding process to be able to be successful to acquire selected assets and liabilities assumed liabilities that we focused on that was key in our cap.
Little we view as far as coming in to figure out how we can put this transaction together. So we're very excited about the capital build formation post transaction.
Okay.
Thank you.
Thank you.
Our next question comes from the line of Brody Preston from UBS. Please go ahead. Your line is now live.
Hey, good morning, everyone.
I just wanted to put a finer point on the expenses again I know, it's tough, but you said the mid eight hundreds I think signature at the end of the year was running closer to like a 930 kind of run rate and I know you didn't bring over everything. So I just wanted to clarify is it starting from a mid eight hundreds level, John and then working its.
Way down to 35% to 50% cost savings from there.
Yes.
The 862, we mentioned was just the year right. The annual 2022 expense. So we just use that kind of is.
Kickoff point for the for the piece, but that's right we didn't take.
All of the businesses. So we think the number.
That perspective is just probably under $2 billion run rate on a combined basis I think thats the easiest way to look at it we think that's pretty conservative hopefully, we'll be able to do a little bit better than that over time, but we think thats really where this is going to shake out when you look at putting both companies together.
<unk>.
So the go forward period, when we get the systems converted.
Got it thank you for that.
I did want to follow up on just the legacy.
Deposit base.
Could you give us a sense I know, there's a lot of moving parts between all the programs and then the seasonality from the custodial deposits and whatnot, but I guess when you look at the legacy deposit base do you have any thoughts on you know.
What the seasonality will look like throughout the year and you know I guess, what your growth targets are for deposits.
Yes.
Yeah, Let me I'll just start that and then I can turn it over a little bit to Reggie on the retail side, but one item to keep in mind is the government as a service business.
Those deposits, which we've talked about on multiple calls.
Which worked out for us because they are noninterest bearing but that runoff does continue on those deposits. It is it is done slightly better than we originally anticipated but that runoff continues so that that we will see run off in that noninterest bearing segment throughout the next couple of quarters that totals $1 billion.
Three as of March 31, we will see some run off there.
We really a lot of the banking as a service type stuff that we expected to run off when the liquidity event happened has run off so there's probably a handful of smaller items.
In that perspective, we will see some slight run off but there is nothing really besides the government deposits theres nothing really that we see from a materiality perspective that we expect to run down here when they onboard.
And while new programs that were hoping new programs are coming from California.
By the end of the year, maybe even the end of the third quarter. So we're hoping that starts to kick in but I was just looking at the runoff piece, which we don't think there'll be that material. When we're looking at the banking as a service of the mortgages of service pieces.
Right Okay.
Okay.
I did I did have one just one more question if he doesn't have.
Any input there.
The only thing I would yes.
Yes, the only thing I would say and I don't want to be redundant, but we have pegged and plan for deposits to be essentially flat to slightly down and at this point in time, we would not change that when I say slightly down we're talking three to 500 million on that base of $28 billion or so so.
Again, we think we can kind of hold deposits, we have been successful even through the first quarter and so there is no reason to think differently.
Got it. Thank you and then I did I did have one more question just on the <unk>.
The slide I appreciate you putting that in there I wanted to ask if you happen to know of the 55% that's in Manhattan.
Where that's kind of geographically in Manhattan.
Percent is midtown.
<unk> versus the other neighborhoods.
We'll follow back on happens and I think the messaging is that we know our customers very well.
Comfortable with the Ltvs and debt service coverage ratio and we could follow up and get more granular there, but clearly.
A lot of that business is generated from the longstanding relationships, we had with our customers and a lot of that transactional.
Growth has been driven off a 10 31 exchanges. So if you have a significant asset gain.
<unk> been in a family business with so many decades in value is created.
Multifamily versus CRE or are they kind of move around depending on market conditions. That's been the history of our focus on this type of asset class, but not in the business of doing office building financed in very rare circumstances. So this is a culmination of many many years of relationship lending that tied out to the holistic position within it.
Given our strong relationship with the legacy NYSE V and again, we have had no delinquencies you have no charge offs in the space. If you look historically.
And going back to that sum from decades, I think the overall loss content and CRE is probably lower than multi family that goes I think Jonathan 10 basis points slightly lower than multifamily, we feel really confident in it.
Right now, we're seeing very strong performance while delinquency.
Norway pay and we're working with our customers in the event. There is some issues on just changes in square foot rent rolls. However, the ltvs are very low and our relationships are very strong and we know the customer very well and I think John can then follow up with more granularity or have it in front of US right now, but we can get back to you as far as what streets there on it.
I'd say its more towards AMB side, we don't do see lending period, and I think we're probably more driven towards the more towards the b to b plus ish, but we stay away from the C type.
Situations.
Awesome. Thank you very much everyone and I appreciate it.
Yeah.
Thank you.
Our next question comes from the line of Brian Jetski Deutsche Bank. Please go ahead. Your line is now live.
Hi, good morning.
So I know theres, a lots of puts and takes to 2023 like you've outlined obviously the uncertainty in the market.
But the purchase and assumption agreement for signature has provided a lot of liquidity.
Presented bigger growth opportunities like you've outlined.
I'm just wondering the initial targets from the flagstar deal, including the <unk> 16.
Percent ROTC that 52% efficiency ratio.
These would be considered a bit conservative given the benefits of the signature deal like are these targets.
You hit a more steady run rate.
What will you be thinking here.
So I'm going to take it from a very high level and I'll pass the baton to John again, because its financial questions on forward looking guidance. We don't have a lot of forward looking guidance. We gave some short dated forward looking guidance, but we're very pleased on culturally putting the flagstone transaction together, it's been a very good experience with the team senior team. The team is doing a great.
Job on focusing on getting the culture right and more importantly, our integration plans are on target with that being said you know the mortgage business has been up and down and it's a volatile business. So we were very proactive right out of the right post our closing to rightsize that and that was the first step to ensure there'll be continued profitability at all.
This rate environment.
Where we stand today, our institution is a very different place when it comes to liquidity when it comes to asset sensitivity versus liability sensitivity I can't remember ever being in the seat where we can talk about asset sensitivity to a pretty good place to be and having tremendous optionality about the business. The way, we're going to deploy that excess liquidity, but I think I indicated previously that are sitting on cash.
Right now and making those decisions, we're making a 3% spread based on the transaction on signature Standalone, which is pretty attractive on a module is I think close to 260. So.
As we deploy the cash is as you look at the round out of the commercial banking space. There are a lot of verticals you have some great great opportunity to really round out the verticals build out the commercial bank and clearly focus on on team bill focusing on integrating the signature culture into the into the new Frac style culture, and it's going to be about keeping the team's focus and bring those dips.
This back I mean, I, just don't underestimate the opportunity in front of US here that when there was a run in the system and all these accounts without close they were just moved out our goal is to get a lot of that money back and be creative with our clients, especially on the signature side to really be there a white glove service. That's that's the secret sauce of signature. So that's an exciting opportunity of this institution.
And then they can take the growth.
In the future and we're looking at a brick and mortar locations and phenomenal parts of the country, where they can take Eric I know its team to start ramping up growth and continue doing what he has done very well for the past 20 years, which is build value. So it's an exciting time and I think when you think about overall returns. This bank is not a traditional thrift model anymore, it's moving towards a commercial banking model.
I feel very strongly that we've accelerated that with the signature transaction and the flagstar transaction by a 210 years. So that's that.
It's a good place to date and that's just my opening Saudi So maybe John if you want to yes, I think remember too when we announced that the flagstar transaction that was all the way back in April and that was a totally different interest rate environment. So just.
Keep that in mind, when I went out of zero interest rates anymore right.
Right.
But we're pleased with it with the ecosystem I'd really think there's a great opportunity on the mortgage ecosystem is as least alluded to.
We are going to have the deposit opportunities at all parts of our business and I think it's an unchartered opportunity here with the GPO channel with the relationships with the warehouse business, we want to have our share of compensating balances. We have some great. Great team members here, that's going to go after it and it's going to be measured and strategize as a focus towards the new flagstar.
And then just a follow up you did provide some some guide too expensive regarding signature which is helpful. I'm just wondering from you.
You talked in your discussions with the FDIC I think there were a couple of things with the transition service agreement I believe.
The resulting conversation is what how you kind of like guidance I believe.
I'm not sure if there's anything you can share on that specifically I'm not sure if that's still being hammered out.
Mike.
What do you kind of alluded to is that some of the costs could be elevated in the next couple of quarters. I was just wondering if anything you can share there and then obviously.
If discussions on the <unk>.
Servicing the remaining loans.
Have been discussed and you can say anything there.
So yes that process is ongoing we're still just a little over a month from from the from the transaction. So that process is still ongoing so we're working through exactly what what loans what deposits.
What processes other assets other liabilities that were taking going through the whole pro forma analysis. So yes that is one of the reasons why in the short term will be slightly higher than the run rate we talked about earlier.
From a servicing perspective, we continue to service the loans for the FDIC and we will be reimbursed for our costs for the servicing of those loans and then once something happens and those loans are disposed of by the receiver.
Theres always an opportunity to see what happens and who that buyer is to see if there is a longer term potential benefit to continue servicing those loans, depending on what the buyer wants so yes that process is ongoing.
As you can imagine it takes a little while to kind of finalize that as we go through but yes, we're working towards all of that.
<unk>.
As we're speaking yeah, I would just add one comment on that whole process with respect to the real estate side of things. We have it's an in market transaction. This is.
What is our number one competitor in the multi CRE space. So they are in New York or in New York, and we have great consolidation opportunities to really take advantage of of the opportunity to bring people together in the appropriate real estate setting. So we're excited about our team diving into that deeply we don't have a lot of time to make those decisions in conjunction with the contract that we signed with the FDIC, but we think there is.
Great opportunity therefore for efficiency.
Okay, great. Thank you.
Thank you.
Next question comes from the line of Steven Alexopoulos from Jpmorgan. Please go ahead. Your line is now live.
Good morning, everyone.
So I want to start time, given the strong retention of the signature teams.
<unk> been able to draw back some of the deposits. They lost I would imagine the teams are fairly well set to do that.
I know, it's still early but what are you hearing from their customers right now.
So it's a great question and we were we went into this with the expectation of a much.
Significant outflow, because who knew what's going to happen on Monday, but whats most important that the team is excited the team has the incentive plan to bring the money back to the bank and as well as different solutions right. I think in general there is an industry, where there's a reluctance to be well above uninsured right. So we have to plan for that and be there for our clients and be creative.
Then I think the creativity under under Eric's leadership with his team is going to go after the opportunity and I think the way we structured it with the legacy signature model that they have strong incentive comp plans to be recognized based on our success on deposit gathering and that that's the model right. Stephen So so it's early days right.
During the quarter when yet because its agent who knows what happens on Monday of this week. So you've just got to be very cognizant that I don't think that the marketplace is still out of the winter.
Out of the woods in respect to this volatility, but there's no question that it's stable which is great.
Reiterate my point on DDA, if Iraq Hasnt moved that's that's a phenomenal statistic.
Operating DDA accounts have actually was slightly up in the month of April compared to the to the closing of the transaction, which is a testament to the.
Payroll account the operating accounts tied to the businesses, but the push here is to is to go back and convince the customers that banking is overall is in a safe perspective, and it was an idiosyncratic situation that happened in early March and ultimately the system is strong and highly regulated and then we have to convince them that that's our job to go out there and.
And handhold, the customers, who get back that confidence in the system and that's what we're doing and I'm very proud of my team because its been ongoing and even during the depths of that that crisis, we were talking to many of our clients and we're a regional bank that we handled our customers. It's important service. It's all about service on a standalone basis and why.
Folks that do a great job and now we've put on flagstone and that we're putting a signature it's all about service servicing and I want to reiterate again culture culture culture, and we have a tremendous opportunity in front of me here to really make sure its client first and get them comfortable with that.
With the standard approval of doing a transaction of this magnitude in the depths of a dock situation in banking I think it goes a long way when you talk to clients about the safety and soundness of our institution.
Got it.
Let me, let me follow up on that Tom. So you basically double the size of the company in a few quarters.
Anything, particularly from SBB et cetera.
Grew so quickly they probably outgrew their capabilities in risk management I'm sure you risk manage its finer also regulators would not have given you. The stamp of approval that you just talked about but you also just said in response to the prior question that you accelerated the transformation of the company by 10 years with these two deals so talk about the risk management.
Infrastructure that you have today, how much do you have to now invest in people systems et cetera, and how should we think about the cost of that.
So I would say to you Steve and this goes back to legacy CCAR and 50 right. We went through a journey at $49 95 for a private call out a CFO for about five years at the time holding the line at 40 and high <unk> and not crossing over on an average so that until we've really built a position to understand what was expected as our regulatory framework was uniquely different.
Some others, which gave us a lot.
Lot of.
Oversight at the time to be a CCAR bank and obviously those those rules and pronouncements have changed but we've held true to our position that we were going to have a bank that could be ready to be $100 billion that goes back and when we started that journey back in 2012 or 2011, and it's been a constant reinvestment over time. So we're really excited about where we are there's always going to.
Updates is always going to be evolving, especially given the regulatory landscape that we're in currently because who knows what's going to come out of all of this I'll call. It mini crisis of confidence, but I don't think it's going to get easier, but we're prepared to do what we have to do to manage a safe and sound organization and risk management is why.
Number one focus right. So we have a tremendous team and I'm proud of my risk team and they do a great job and we're going to add a lot of new people from from all three organizations. Together has also on the outside and be ready for what's required from us as a highly regulated institution, but this is nothing new to US. This is something we've been working on for quite some time and we're prepared to make sure we had the highest.
Standard.
John if you want to add a little bit more comments on risk and I think what Tom mentioned, just just to add when you look at some of the capital stress testing and liquidity stress testing framework that we built in that timeframe, we'll service extremely well here as we integrate <unk>.
Flagstar and signature onto those models from a from a stress testing perspective.
Our team has built out with the expectation of the 100 billion dollar threshold that we're at now so theres always there'll always be some incremental add but we don't think it'll be a material add given the structure and the backbone that we already have in place and I think in general you know looking at operating leverage that right. This is something we've been geared up.
And we assume the Blackstone transaction fees, we were ready to be at that $100 million, marking and getting ready, but we were there as far as operationally moving that direction at the same time, we get the operating leverage we're making very substantial investments going back to early days and we just continue to evolve from that so obviously its the most important aspect of this company going forward.
What is handling risks given the nature of the bank and our new products, but we're clearly excited and when I say 10 years, its really more the transformation from a thrift to a commercial bank.
That's a milestone of the vision to take a traditional thrift mentality and bring it to the commercial banking platform and having these great team members that come from all over the country with tremendous banking experience in commercial operations and dealing with the high touch White Glove service. That's the transition. So I think that's what it is acceleration and having different verticals having different.
Products, we've completely changed the dynamic of who we are going forward as the new flagstar.
Got it.
Helpful and just one final one maybe for John So you said you expect margin expansion through the rest of this year.
One what what rate assumptions, which rate backdrop are you assuming.
<unk>, which is even more important given the new balance sheet mix, what's better for your margin for the fed to start cutting rates in the second half or if the fed goes up and then holds for the rest of the year like which of those backdrops is better for this balance sheet. Thanks.
Yes.
So in a very short period of time, we've gone from.
On a stand alone <unk> sensitive to pretty significantly liability sensitive.
To layering in the Flagstar transaction, which got us to slightly moderately liability sensitive and now layering on signature where we're moderately asset sensitive. So we have an asset sensitive balance sheet right now.
That has an awful lot of flexibility in it given the cash that we have on the balance sheet. So theres a lot of flexibility a lot a lot of easy ways to kind of to move that asset sensitivity around in the short term, but to answer. Your question. Yes, we would we would benefit from the fed raise right now.
And when we look at.
When we're with the modeling to get to the next quarter or so as increase couple of items that I mentioned.
We are expecting one more.
Great high here in the Bloomberg forecasts next week.
And then pretty flat for the end of the year that might be.
And one at the end I think there's one cut that we forecasted and at the end of the year.
But when you when you look at what's coming due especially in the second quarter, that's going to help pick up a little bit to the margin Thats one of the main drivers as well.
As well as what Tom has mentioned, which is just the the noninterest bearing percentage.
And the stability that we've seen so far in those deposits and so Steve in the Big picture for US is that we're in a very unique position given the fact that we have a balance sheet that is very versatile tremendous optionality given its sitting in cash.
As I indicated previously that let's say, 5% of the cash temporarily and we picked up the liabilities that you know around too so the spread on that is about three it's still above our margin. So as we if we have to shift we have a position of cash to make that make that a smooth transition to rebalance our stellar depending on what Paula.
<unk> is going to be driving this.
So we're in a very interesting spot in respect to balance sheet.
Got it.
Thanks for taking my questions.
Sure.
Yeah.
Thank you. Your next question kind of from the line of Matthew Breese from Stephens. Please go ahead. Your line is now live.
When I map.
I'm wondering I just wanted to go back to the signature deposits.
Down less than expected, 9% versus expectations for 'twenty from here.
How much more runoff or if any do you expect and over what timeframe.
Just well just from a straight modeling perspective, we havent changed our modeling when we're looking when we're looking at forecasting for the original 20%. We're cautiously optimistic that we won't see anywhere near that runoff and hopefully.
Potentially could see some growth once this really and continues to stabilize but right now from a forecast perspective, we havent changed our initial modeling of the 20% runoff.
Okay.
For the quarter, what was the Accretable yields prepayment penalty income and then looking forward with signature what are your expectations for accretable yield through the end of the year.
So prepayment penalty income for the year was I think a $1 6 million. So really really small number on the prepayment side on the Accretable yield perspective with signature we're looking at.
Our best estimate now is picking up about $100 million a year.
Looking at if you look at the Mark that we booked.
About a four or five year average maturity.
Still of course finalizing that process as we go through all of our purchase accounting items, but we think it's going to be around that $100 million range.
And that's the that's the added accretion what was it for the quarter.
And maybe just because it was a partial quarter with signature full quarter for Flagstar give me some idea really yes.
Very very small amount for for signature I think the number was in the $5 million range.
To $5 million range.
I'll get you that.
Five star accretion number I don't have that in front of me.
Okay.
Could you comment a little bit on and understanding the business today is much more diversified than it has been historically, but give us some sense for.
New loan yields today, and what the rollout versus roll off dynamics are.
So it's interesting what's happening for us given the market conditions and commercial real estate and multifamily.
Spreads are 300 basis points spread off of the five year treasury with a minimum of 6.5% coupons, so you're not seeing much fixed rate product being done at all in general, but we've introduced over the past year, which I think is a very interesting opportunity for our customers and for choice is having synthetic opportunities to think about.
Structuring a transaction as the fixed to float and we get the opportunity to put a floating rate instrument, which historically, we've never done before so with that being said I think we put on about just one repricing about $2 billion of our multifamily business is now tied to silver plus $2 50, which came off of about three 5% and now it's yielding about seven 5%.
They figure out what they're going to do maybe next year if rates were to go lower and we'll make decisions upon.
The financing that in the future, but that's been a very positive.
<unk> contributed to having a more versatile asset sensitive balance sheet. So it is tied to floating rates.
Many customers now are contemplating on putting on a swap and then doing a floating rate structure with us and then at the same time, we're also introducing our capital markets business, which has a sizable benefit to sell them protection on that and be able to structure the transaction, where we generate a fee income. So that's part of our model going forward now we don't we havent.
To that end, but that's what we're seeing in the business and most of the other products are all floating rate. So.
Significant spreads so that's going to be the ongoing benefit of versatility within the asset classes, but it is a change in the market. When it comes to the multifamily CRE because of just the tightening of credit. There is no question that credit has tightened when it comes to the offering and I think more.
Most banks right around that level between $2 75 to three and a quarter spread while the five year treasury.
As an offering and I think many customers just kind of waiting and seeing what to do and you don't see a lot of actual transaction. When the transaction does take place I think the financing cost is very different than it was a year ago, which I think will be an advantage to the bank as long as they could handle the debt service coverage ratios right.
Yes.
Actually that brings to.
My next question just as you know all eyes are on office CRE. These days rent regulated multifamily has had its challenges on the top line given the right guidelines sport.
As you've seen those types of loans reset today coming out of 2018 vintages, how have debt service cover sheets coverage ratio has reacted to higher rates and have you had to do anything with those borrowers like lower rates or extend amortization periods just to keep.
Keep them going and keep them operating the properties.
Given that we're a low leverage lender and ltvs are traditionally lower we underwrite very differently than some of our competitors. We haven't had to have those conversations as of today.
We are seeing is that when there isn't an option period that choosing a soulful plus 250 option versus the home loan bank spread option, which is too punitive and in very rare circumstances, you're seeing refinance activity. So we're getting the benefit of pricing of three and a half coupon like a 750 in the current marketplace and that was a lot cheaper for them last year, but rates are elevated but we're still seeing you know what.
100% consistency on no delinquencies no late pays and customers are thinking about probably next year, though they'll take this option and come back to the bank if rates alone. So theyre, making a I guess a decision in the future to come back to the bank when they feel it's necessary, but it's been very very consistent on a monthly basis again growth.
On the multifamily side has been very slow it's going to be I'd say relatively flat, but what's interesting about our portfolio I'm not sure exact number maybe John has it but we probably $4 5 billion coming due on on that same role period on them.
Credits will have to refinance I actually have the option and right now were seeing about 75% of those customers take the option, which is a nice pick up for our margin.
Understood I appreciate it I'll leave it there thanks for taking my questions.
Thank you.
Your next question comes from the line of Mike <unk> from Morgan Stanley . Please go ahead. Your line is now live.
Good morning, Good morning, Hi.
Hi, good morning.
Just a couple of points of clarification for me.
You noted and you will continue to use the excess cash to pay down borrowings.
Does the pace of that accelerated beyond the second quarter or.
Youre doing a majority of what you intend to do in the second quarter itself.
So we're going to we're going to continue to look at the market conditions that we're in but right now we expect to pay down borrowings as they are coming due we just have most of our borrowings coming due in the second quarter, we got a little piece coming due in the third and the fourth as well. So the plan is to pay down borrowings throughout the year.
Depending of course on our liquidity position and other items loan growth one item just to keep in mind with our securities portfolio being so low and the security fast that percentage will hold a little bit more cash on the balance sheet.
Just as a as a placeholder for that piece as well, but yeah. The current plan is to continue to pay down borrowings, we will look to pay down some of our wholesale.
Deposits broker deposits as we mentioned earlier as they come due depending on market conditions and where we.
Where cost is on deposits like that just to just to add the point that when I. When I took over as CEO I made it very clear our challenge and our strategy is to be less dependent on.
Financing such as wholesale liabilities to run this business.
The transition from a thrift to a commercial bank and going back to the deceleration of the business for 10 years. This is a lot of liabilities that are not subject to wholesale liabilities, but a traditional commercial banking and going back to the DDA growth of 27% of total deposits that is.
In my opinion, a acceleration of where we have to be as a successful business and we're super proud that we're able to have a better funding mix to generate better returns over time. So this is going to be very powerful towards the story as we continue to hone in on commercial accounts and the DDA side of things as well as relationship banking.
So is it fair to say that despite the high asset sensitivity from the deals.
If the fed does start to cut rates gradually next year you should see.
Still see some sort of benefit to NIM from.
From cutting cost of funding.
So let's say this we're in a very interesting position given that my whole career had NY city, we've been liability sensitive. So we're excited about our balance sheet positioning and we think we have versatility and optionality to make the decision when that does take place, but if youre looking forward Fed fund futures in the one and one and done they hold for a while if they raise it.
Being asset sensitive will make more money and then we'll adjust accordingly, but having diversity of cash makes that a little easier to make decisions on that versus having fixed rate assets that are locked in long term, we have sitting on lots of cash right now to make those determination as we redeploy into assets that are more.
Bank lagged in traditional thrift type assets.
Yeah.
Got it and just the last question for me just given all the moving pieces in the quarter do you have what the spot deposit costs are as of March 31st So as of April .
Interest bearing deposits of $2 60.
Great. Thank you.
Sure.
Yeah.
Thank you that will be filed last question I would now like to turn the call over back to Mr. Ken Kenny for any closing remarks.
Thank you again for taking the time to join US This morning and for your interest in <unk>.
Okay.
Thank you so much presenters ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines I don't know if.