Good morning, everyone. This is Salvatore DiMartino, and I'd like to thank you for joining the management team of New York Community for today's conference call. Today's discussion of the company's third quarter 2022 results will be led by Chairman, President, and CEO Thomas Cangemi, joined by Chief Operating Officer Robert Wann, and the company's Chief Financial Officer, John Pinto. Joining them on the call will be Alessandro DiNello, President and CEO of Flagstar, and Lee Smith, President of Flagstar Mortgage. Before we begin, I'd like to remind everyone that certain comments made today by the management team of New York Community may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 presentation for more information about risks and uncertainty which may affect us. Now, I would like to turn the call over to Mr. Cangemi.
Thank you, Sal. Good morning to everyone, and thank you for joining us today to discuss our third quarter 2022 performance. Before diving into the quarterly results, and in anticipation of questions, I just want to say that neither New York Community nor Flagstar is going to comment on or address any questions regarding our pending merger on today's conference call. With that being said, let's turn now to our third quarter results. Overall, the company had a solid third quarter despite aggressive Fed tightening and an inverted yield curve. Still, we produced solid loan and deposit growth, lower operating expenses, and continued strong levels of asset quality, which remains our hallmark. In terms of the net interest margin, given our liability-sensitive balance sheet, not surprisingly, we witnessed margin compression during the quarter. However, we still reported diluted earnings per share of $0.31, excluding merger-related expenses.
This was unchanged compared to the third quarter of last year and in line with consensus. Turning now to the main drivers of our quarterly performance. After three consecutive quarters of double-digit loan growth, loan growth moderated as expected. Total loans held for investment rose nearly $450 million during the quarter to $49 billion compared to the previous quarter. Year to date, total loans held for investments are now up $3.2 billion, or 9% annualized. Loan growth continues to be centered on the multifamily specialty finance portfolios. At September 30, the multifamily portfolio totaled $37.2 billion, representing strong growth both on a year to date and a linked quarter basis. Multifamily loans increased $407 million sequentially, and $2.6 billion or 10% annualized since the beginning of this year.
We continue to take market share in the multifamily space. A recent survey by S&P Global Market Intelligence ranked NYCB as the second-largest multifamily portfolio lender nationally, and we believe we are by far the largest multifamily portfolio lender in our non-luxury, rent-regulated lending niche in the New York City market. Specialty finance loans also continue to increase up $117 million to $4.3 billion compared to the previous quarter and up $755 million or 29% annualized so far in 2022. As of the third quarter, specialty finance had total commitments of $7.3 billion, up 11% compared to $6.6 billion at the end of the second quarter.
Of the current third quarter amount, 78% or approximately $5.7 billion are structured as floating-rate obligations tied to either prime or SOFR, which have and will continue to benefit the company in a rising interest rate environment. I would also point out that as of the end of the third quarter, we had approximately $7.4 billion of multifamily and CRE loans which come up onto their contractual maturity or option repricing date over the next two years. This includes multifamily loans with an average weighted average coupon of 3.74%, $5.7 billion, and $1.7 billion of CRE loans with an average weighted average coupon of 3.52%. Going forward, our loan yields should benefit from low coupon loans repricing to higher current market rates.
In terms of this pipeline, as we head into the fourth quarter, it stands at a robust $2.3 billion compared to $2.5 billion in the previous quarter. Of this amount, 87% represents new money to the bank. On a liability front, we also grew our deposits during the quarter. Despite higher interest rates, which led to outflows in certain categories, total deposits increased $461 million compared to the previous quarter and have increased $6.6 billion or 25% annualized so far during 2022 to nearly $42 billion. As you've heard me discuss many times over the past eighteen months, the focus is on and will continue to be on deposit gathering. Last year, we reemphasized bringing in more deposits from our borrowers, and we also launched our banking-as-a-service initiative.
We are pleased with the success we have garnered with those two programs and expect they will continue to be primary drivers of our deposit growth going forward. On a year-to-date basis, loan-related deposits are up just under $800 million or 26% annualized. Since we started refocusing on this deposits channel during the first quarter of two thousand and twenty-one, total loan-related deposits have increased $1.3 billion or about 37%. Additionally, business operating accounts are 32% of total loan-related deposits. Banking-as-a-service deposits total $7.9 billion at third quarter two thousand and twenty-two. Our BaaS deposits fall generally into three verticals.
Traditional BaaS, which totals $5.3 billion in deposits. Mortgage as a Service, which caters to mortgage banking and servicing companies totaling $2 billion, and Government Banking as a Service, which caters to states and municipalities as well as the U.S. Treasury's preloaded debit card program, totaling $579 million. Mortgage as a Service and Government as a Service are two verticals expected to drive current growth within the overall Banking as a Service segment. Recently, the company won two new BaaS mandates. Both of these should result in fee income and deposit growth opportunities for the company. Moving on to one of the company's hallmarks, credit. Our asset quality and credit trends remain superb and continue to rank the company as among the best in the industry.
Non-performing assets totaled $50 million, down $6 million compared to $56 million in the prior quarter, and were eight basis points of total assets. Additionally, we recorded 0 net charge-offs during the current third quarter compared to $7 million of net recoveries last quarter. The strong asset quality metrics reflect our conservative underwriting practices and historically low level of losses in our core portfolios. Before moving on to the next topic, I'd like to provide a brief update on the New York City real estate environment. New York City residential real estate remains healthy, and commercial real estate continues to gradually improve. Monthly median rents for Manhattan multifamily apartments jumped 21% year-over-year to about $4,000, to the third highest on record. Median rents appear to have stabilized at record high levels as well. Turning now to the commercial side.
Average retail asking rents in Manhattan recorded a quarterly uptick, rising for the first time since the fourth quarter of 2016. Manhattan third quarter 2022 office leasing surged to a post-pandemic high. This was driven by several large relocations and the continuing flight to quality trend, particularly in Midtown. Also, the Manhattan availability rate decreased to 18.4% with positive absorption for the first time in 12 quarters. New York City office occupancy increased in September, likely due to many large companies urging their employees to return to office. Similarly, there was a significant increase in MTA ridership, seated diners in New York City, evidencing continuing strength in New York City economic activity. Each of these drivers are evidence of continuing strength in the New York City economy. Moving on now to the income statement.
Third quarter net interest income total of $326 million, up $8 million or 3% on a year-over-year basis. Excluding the impact from prepayment penalty income, net interest income on a non-GAAP basis increased $14 million or 5% to $316 million on a year-over-year basis. In terms of the net interest margin, excluding the impact from prepayments, third quarter NIM declined 23 basis points on a linked-quarter basis to 2.15%. This was due to a higher cost of funds given aggressive Fed policy tightening. On the expense front, our non-interest expense remained in check despite continuing to make investments. Non-interest expense totaled $136 million during the third quarter, which includes $4 million of merger-related expenses.
Excluding this item, operating expenses were $132 million, down $2 million compared to the previous quarter and up 2% on a year-over-year basis. At yesterday's meeting, the board of directors declared a $0.17 dividend on common shares. The dividend will be paid on November seventeenth to common shareholders of record as of November seventh. Based on yesterday's closing stock price, this translates into an annualized dividend yield of 7.6%. With that, we will be happy to answer any questions you may have. We will do our very best to get all of you within the time remaining, but if we don't, please feel free to call us later today or during the week. Operators, please open the line for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question.
Good morning.
Morning. I guess, so first, maybe let's start with the margin outlook in terms of what you expect to happen in the fourth quarter. Give us some color around, if you could, your views around, one, where you see the margin troughing if you assume the forward curve plays out as is over the next few quarters. And then anything in terms of the BaaS deposits that helps you mitigate that margin pressure. Yeah.
Sure, Ebrahim. I'm gonna pass on the question on the margin to our CFO, Mr. Pinto. John?
Yeah. On the margin front, when we look at the fourth quarter, what we expect and we'll talk about it in really two different ways, right? If we assume the Flagstar deal would have closed on October 1, we'll look at what the impact of that transaction would be. When you look at where we start from the third quarter ex-prepay at 2.15%, we would be up 40 basis points in the fourth quarter. That's our forecast with Flagstar closing on October 1. Exclusive of Flagstar, we expect the margin ex-prepay to be around 1.95, so down 20 basis points on a standalone basis, slightly better than what we did in the third quarter.
The impact of Flagstar for the fourth quarter, we're looking at a 60 basis point benefit when you look at margin ex-prepay. The BaaS deposits, you know, when we talk about the BaaS deposits, as we talked about them on the last couple of calls, they are primarily floating rate, right? And they have high betas, especially the Mortgage as a Service deposits. You know, their beta is very close to 100%. The other deposits are a little less than that when you look at some of the other Banking as a Service deposits that we've brought in. You know, we're monitoring that. The goal is, of course, to bring other operating accounts tied to those and continue to build out those relationships and also to build out the Government Banking as a Service deposit relationship.
You know, that's where the benefit, hopefully, we're gonna see when those deposits start to come in because those are non-interest-bearing deposits.
Ebrahim, it's Thomas. I just said that has started. We were awarded a very significant Government Banking as a Service contract, which kicked in at the end of October. That is gonna be significant as we go into the period ahead. In addition to that, we have a number of wins on the government side that's about to kick in in addition to that in 2023. We're excited about the impact of that because that is all zero-cost deposits.
John, just going back to your 1.95% margin outlook ex-prepay. Do you expect the cost of deposit increase that we saw this quarter to accelerate next quarter? Or because of some of these deposit dynamics, you expect that to be a little more tempered versus the third quarter increase?
Yeah. I mean, we saw that, you know, the third quarter was difficult from a deposit beta perspective, no doubt. We expect with these government deposits to come in, that that'll get a little bit better or hopefully stabilize at that third quarter level.
I guess just one question. I appreciate, Tom, what you mentioned about the deal upfront, but clearly, you still expect to close the deal based on what John said and what you have in your slide deck. Given the change in the macro, has anything changed from your perspective, and I'm not sure if anyone from Flagstar is on the line, that would make you think differently about the strategic merits of the deal today or November first versus when the deal was announced?
Let me be clear, my opening comments are relatively clear. We're not going to speak specifically about the pending merger. However, as far as going back to our discussion of the transaction itself, we're very comfortable that this business combination is a powerful opportunity for two companies to come together and build a new co that has good diversity, a tremendous unique opportunity on the deposit side on funding, and give us an opportunity to transition a thrift to a commercial banking enterprise. We're excited about that. We're not going to be specific about the transaction itself. Clearly, when we came out with this partnership, I know Sandro and Leo are on the line, we were very positive about the concept of putting these balance sheets together.
But-
Sandro.
Go ahead.
Did you reference me, Tom?
I know they referenced you on the line. I see Sandro and Leo on the line, but Sandro, by all means, please.
Yeah. Yeah, sure. Thanks, Thomas Cangemi. Thanks for the question, Ebrahim Poonawala. Look, if this was Flagstar's earnings call, I would start out by telling you that it's the best quarter we've ever had. Not the most profitable quarter, but the best quarter. Because if you look at our margin, you know, nine years ago, it was under 2%, and virtually all of our income came from mortgage. Our margin now is over 4%, with the vast majority of it coming from banking. We've got a high-quality loan portfolio. We've got efficient funding. While much smaller due to market conditions, we're still profitable in our mortgage business where many originators are not. That mortgage business will be there to take full advantage of the next refinancing market, which will come. We don't know when. It will come.
On top of all that, we have a very formidable servicing business. When you look at our expenses, we've been able to manage them to revenues. It's our efficiency ratios have declined pretty significantly. If given the opportunity, getting back to your question, combining this company with NYCB, taking what they do well, running a similar playbook that we've run as we rebuilt Flagstar, I'm excited about our ability to produce something very, very special going forward.
Just one, Sandro, since you mentioned it was one of the best quarters for Flagstar. Pardon my lack of familiarity, but it sounds like your outlook for margin is relatively flat next quarter versus this quarter.
Yeah.
Is that implying that margin is peaked for the cycle?
You know, Ebrahim, what we—how we try to structure our balance sheet, viewing ourselves as an independent organization is we feel very comfortable with the 4% margin with our business model. Given what we believe we can get out of mortgage in this environment, what we believe we can get out of servicing in this environment, and the servicing piece of it is pretty certain. 4% margin on top of a clean loan book, I think the bottom line number feels really good. At this point, I think the challenge is managing the betas on the deposit side in a way that doesn't compromise the margin going forward because there's going to be margin pressure, and there's no question about it.
I think that we're very comfortable at Flagstar that we can hang in there in that 4% range, going forward. That's my outlook, you know. I mean, we only give you outlook for the next quarter, but, you know, we're confident about that, at least for the next quarter. You know, I think overall, as I said, given our business model, that's a margin that works very well for us.
That's good. Thanks for taking my questions.
Thank you. Our next question comes from line of Bernard von Gizycki with Deutsche Bank. Please proceed with your question.
Good morning. Hi. My first question is, you still had good growth in the multifamily portfolio, but as you noted, it moderated, but it seems in line with expectations. I'm just wondering, with rates continuing to rise, is there a level of rates, where that could drive growth to peers who might be pricing, maybe a bit more aggressively like the agencies?
You know, it's interesting. It's been a very interesting pipeline going into Q4. You know, Q3 is typically a seasonality quarter for us. Q4 pipeline is relatively strong. The coupon is extremely strong given the I mean, you look on a year-over-year comparison basis. We're going from a 3% market to a 6% market overnight, which is powerful towards repricing this book of business. We anticipated moderate growth in the second half of 2022. We probably grew a little bit better than we expected as we go into the pipeline. Our overall net loan growth for the year is still gonna come in around 8%-9.5%.
Even if we're, you know, at the consistent level of third quarter, which is unlikely, given fourth quarter activity typically is a robust activity in general, coming off of a seasonality quarter of Q3. It's been an interesting opportunity here, given where the agencies are today, where the shape of the curve is. You know, I think in general, most portfolio lenders are getting good economics. I think the opportunity here is moving that coupon from the low threes to the market, which is significantly higher than low threes. We're excited about what's coming due.
We've offered some unique options for our customers that are going into the repricing period, and we're trying to move our balance sheet to more interest rate risk to an interest rate risk compatible towards getting away from liability sensitivity to asset sensitivity. Offering SOFR options has been a high percentage of those customers are opting for a SOFR option, and we'll then work on moving our balance sheet to more asset sensitivity. I think that sets us very well to look at this large book of business towards more of a SOFR option in a rising rate environment.
As far as the agency is concerned, I think in the long run, as we focus on merger plans, we're gonna have a capital markets tool that'll allow us to be more competitive. We're gonna be able to offer an option that could compete on a derivative perspective to do long-term financing and take those fixed rate loans and swap them out to floating rate. I think that's gonna be another competitive opportunity on the benefits of the merger. We're looking forward to the capital markets benefit. Now, that also comes with some fee income opportunity as well. We're still very, very bullish about valuations and sponsorships. You know, we're also cognizant that things have slowed down because of the substantial interest rate increases that happened in such a short period of time.
Going from 3% in the beginning of the year to 6% at the market is a big move. We should benefit on repricing the portfolio, which could really bode well for future margin benefits.
Okay, great. I appreciate that color. I obviously understand about the commentary on the pending deal, but you know, I was just wondering recently you filed some S-4s, and you know, you provided a better snapshot of some of the assumptions from you know, the time of the deal announcement to 3/31 and 6/30 of this year. I was just wondering, could you provide us any updates on your tangible book value or earnings accretion estimates or anything you can comment on that?
John. Yeah. When we announced the deal on the tangible book value side, we were 3.5% accretive. When we looked at it and we talked about it in June, that tangible book accretion jumped pretty dramatically. It's almost probably 8% or 9%. Our estimate now is at 930. It's come back down around that 4% level, and it's really just due to the purchase accounting adjustments given the changes in interest rates. It's, you know, highly dependent on where interest rates are at the day of closing. That's where we look at it. We're still probably right around that same level, a little better than when we originally anticipated the deal.
Okay. Got it. That 4% you said is as of 9:30 A.M.?
Yes.
All right. All right, great. Thank you so much.
Thank you. Our next question comes from the line of Dave Rochester with Compass Point. Please proceed with your question.
Morning, Dave.
Hey, good morning, guys. For the NIM guidance, what are you guys assuming for those puttable borrowings rolling into new structures? Then, you know, what are you rolling those into at this point?
You know, we had a handful of puttable borrowings put back to us in the third quarter, and then we'll have some that we're forecasting a large portion of them to get put back given where rates are today in the fourth quarter. You know, we're hoping to fund it with deposits, of course. But any shortfall on the deposit side, we'll backfill with you know, with FHLB advances. We'll put some swap funding on depending on where those levels are. You know, the puttable market's still out there, so we can look at some puttables as we go forward as well. It's really a mix of different liability structures that we'll look to to refinance those puttables into as they come back to us.
From an interest rate risk perspective, you know, you're taking on money with under a three-month duration. Whatever you put it on, you're gonna gather a little bit interest rate risk benefits in both the third and the fourth quarter by putting that out a little bit longer. Dave, I would just add to that commentary that given the government project that we just started to book recently in October, that's gonna be significant for the quarter. So it could be on average in the billions, between $2 billion-$3 billion on average for the quarter. That would be at a 0% cost of funds. That's the Middle Class Tax Refund prepaid card program that we're involved in.
That's a very good piece of business for the bank, and we'll be able to leverage that opportunity as we look at the repricing mechanism. In the big picture, if you think about the balance sheets, you know, the assumption of coming together with our potential partnership with Flagstar, we have optionality as we choose how we wanna move this balance sheet forward in the future. That's gonna be a very unique opportunity at the time as we assume we can put these balance sheets together. That's a really powerful position to be when it comes to having significant optionality on funding. You know, this is something we're focusing on a daily basis.
You know, it's fourth quarter, and we're excited about the new government piece of business that's coming on, as well as the potential of balance sheet consolidation, which will give us some significant choices as we embark upon a transformational opportunity here.
Yeah. Does that 20 basis points of pressure, does that include the $2-3 billion in deposits that you're hoping to get or expecting to get in the fourth quarter? Yes.
Yeah, I think that would also assume 75 next week on-
Yeah.
the $50 probably in December.
Yeah. Correct.
Yeah. It's just following consensus of the
Got you.
of the forward curve.
That also bakes in Flagstar's expectation that the margin does not go up in the fourth quarter as well, I would guess. Is that right?
Yes.
Yeah. Okay. Cool. Just going back to the deal accretion, what were you guys saying is your updated math on the earnings accretion that you're expecting to get from that? I heard you on the tangible book part. I just may have missed the earnings accretion piece.
Yeah. We haven't really commented on updated guidance on earnings accretion because, you know, it was really based originally on IBES estimates and, you know, IBES estimates now have consolidated deals in them. The deal is still accretive. We don't see any need to change that guidance. We're pretty comfortable with what's out there. We haven't specifically updated that from a deal announcement.
Got you. What's your updated interest rate sensitivity if you close the deal on October one?
If we close the deal on October one, right now we're estimating it would be slightly asset sensitive, but pretty close to neutral.
Great. Maybe just one last one on expenses. How are you thinking about 4Q or just the year overall? I know you got the annual guidance out there. Any updated thoughts there?
Yeah, I mean, you know, the annual guidance of $540 I think will come in a little better. We did a little better this quarter with managing expenses. You know, I would assume the fourth quarter will be right around that $134-$135 range. You know, that's kind of where we've been. So yeah, I think we'll do a little better, from a year perspective than we from our original estimate at $540. The fourth quarter I see coming in around that $135 level.
All right, great. Thanks, guys.
Okay.
Thank you. Our next question comes from the line of Christopher Marinac with Janney Montgomery Scott. Please proceed with your question.
Hey, thanks. Good morning. John and Tom, I wanted to ask you just about the liquidity, figures. You know, from the last quarterly call report, it seemed that you had a very low level of pledged securities, a lot of potential collateral. In fact, you know, some of those measures were better now than it would have been pre-pandemic. Standalone, has anything changed at the end of September? You know, do you see any, you know, I guess, ability to add more debt if you wanted to on the balance sheet?
I'll start and then I'll pass it on to John. Bottom line is in the quarter we looked at a heavy liquidity position and put it into short-term U.S. Treasuries inside of six months. That being said, there was an opportunity to take a lower yield in cash and move it into a we'll call it a category that's which is almost consistent as cash, which is six-month Treasury bill inside of that as a strategic move as we saw rates significantly rise here. John, if you want to add anything.
Yeah. That's where you'll see, you know, the securities portfolio increase for us, which we haven't seen in a very long time. You know, that is just putting on, as Tom mentioned, U.S. Treasury securities six months or under, just trying to pick up some yields based on, you know, what we could get at the Fed at the time. Collateral-wise, it's just as good as cash. Liquidity, just as good, of course, as high-quality liquid assets. That's what that was. We're not looking to put duration on in that portfolio yet. We'll continue to monitor that, but with the strong loan growth that we've had, we haven't had a need for that. That the growth in the securities portfolio is really a liquidity, just a liquidity play from cash to securities.
Got it. Just a follow-up question on the banking as a service deposits. As you look beyond a couple quarters, I know these are high beta for the moment, but is there any issue with retaining those funds or do you think actually that their retention is going to be high and they'll just behave differently as rates move around next year?
I indicated in my prepared remarks that we're going to anticipate, you know, Government Banking as a Service to ramp up here. It takes a while to get these contracts, you know, nailed down and put in place, and they're long-term contracts. We have a nice book of business going forward. We indicated that we have a very significant ramp-up in Q4. I think it's about $400 million-$500 million a week in cash drops, and it could go up to about $6 billion for one transaction. That's a significant piece of business. At the same time, we are the bank provider for U.S. Treasury, and as any programs that come out of the Treasury Department, we are now, you know, onboarding that. It's a long-term contract.
We're very pleased about our partnership with First Data and Fiserv. It's been a very good opportunity for the bank to use that type of funding. At the same time, we're committed to Mortgage as a Service. I think there's great opportunity on a planned merger with Flagstar, and we think there's a great opportunity there to build that. You know, that is probably more high beta because it is tied to SOFR index type funding. But we're committed to that because we're gonna be a large player, assuming the transaction comes, you know, closes. When we come together, that Mortgage as a Service business could be very powerful as we work a lot of the correspondent customers.
When it comes to traditional BaaS, you know, we're out there working hard, trying to get new business, and it's been a good journey for us. But I think in general, we're focused on the three verticals. Ultimately, as we look at digitization as a company, there's a tremendous opportunity to digitize the mortgage space. That's where I think great opportunity will come. Even though it's not tied to traditional BaaS, our team in digital are focusing on a lot of projects that's going to hopefully lean towards some good deposit growth. We think there's a tremendous deposit opportunity on mortgage. You know, having the ability to transact loans, service loans, and get the deposit activity, I think that's a tremendous benefit of the planned merger with Flagstar.
The Mortgage as a Service is going to be a focus as well.
Great. Thank you, Tom, and thank you, John. Appreciate the feedback this morning.
Thank you.
Thank you. Our next question comes from the line of Steven Alexopoulos with JP Morgan. Please proceed with your question.
Morning, Steve.
Hi, good morning. This is Alex on for Steve.
Morning, Alex.
Image?
Good morning. You mentioned the benefits from the banking as a service business. Do you expect any investments needed to scale this business and get those new opportunities?
We're gonna be very mindful of what our requirements are here. We've been adding staff. We have built out the chief digital office directly reporting to the CEO, I think as a priority. This is an interesting opportunity. As indicated, mortgage in our opinion, given the history of NYCB and Flagstar, there's a lot of long-term history there on how to service the escrow accounts, the P&I payments. That is embedded within the franchise, within our operating people. We're gonna move people around, and we're gonna make sure we have the right support for these lines of businesses.
I will tell you the challenges is onboarding some of the unique opportunities in traditional BaaS because obviously it takes time and it's API interfacing within the core, and we're working on a new opportunities within the core that can make it a lot more efficient. But we are staffing that area. We're moving people around within the organization. I think that's also what's great when you put two big companies together and think about, you know, opportunities within the organization. There are going to be opportunities in the organization to shuffle people around to support growth of different verticals within the company. Our vertical here on the funding side is gonna transition from wholesale to more of a traditional type funding mechanism, and part of that will be BaaS.
In particular, Government Banking as a Service has been, you know, it's been a long trajectory of getting them onto the balance sheet. We had a good run during the pandemic, and we were very successful there. That led us into other opportunities. We have a bunch of transactions that we won and we plan on onboarding. I think 2023 could be a nice tick-up there on very core stable accounts, although they're not permanent because they do, you know, move on.
You know, we do have the opportunity for an ongoing benefit of good funding sources as we look at the planned merger, as we look at our choices on balance sheet and look at this one vertical as a clearly different funding mechanism, a traditional nontraditional funding that NYCB is accustomed to. Moving from a thrift to a commercial bank is the strategy. As Sandro indicated, he's been through his journey. We hope to do this together, and it's a very powerful change when you look at funding. Like I said in my opening remarks, funding, funding. We're focused on that. We're razor-focused on that. You see a significant shift on our ability to bring in deposits, and we're gonna continue.
Thank you. You touched on this briefly earlier, but can you talk about the fee opportunities that you're seeing from this Banking-as-a-Service business as well?
No, I'd say initially it varies just on card fees. It's not significant, but it, you know, they do add up. When you have 5-10 million cards out there, you know, a couple of pennies per card per month, it adds up. It's not significant to the total P&L, but we are seeing some nice fee income opportunities there, and it's consistent. As we onboard more municipalities, more states throughout the country, we'll have more consistency of fee income. It's another avenue that we're focusing to justify the investment in the business.
Thanks. A follow-up to the comment you mentioned about the multifamily and commercial real estate loans repricing. Can you talk about the market rates for those loans and maybe specialty loans as well?
On the specialty side, it's mostly SOFR plus the spread. It's been consistent. About 80% of our book is floating rate. We're doing predominantly mostly floating rate structure in the specialty. They're all credit buy-up opportunities at you know very high quality senior secured position. We've been in this business for a while now, and our team that runs it has done an excellent job. We've never had a late pay, we never had a charge-off, we never had a delinquency, so we're really positive of the asset quality of that. It's been a good growth business. We have quite a bit of commitment out there, so in the event that markets do have some volatility, there's a possibility that there'll be some good drawdowns. We'll make some good money on the drawdowns.
We think that may happen given the uncertainty of markets in the current environment today. With respect to the CRE and multi, it's been a very significant increase in total interest rate cost to the borrower. Going from 3% to 6% is real. We're around that level right now. It's about 175-185 off the five-year treasury. That's been the traditional short-term type multifamily product. Really not quoting much on the back end on 10 and seven-year money, but if we do that, it's at higher spreads. We're gonna hopefully synthetically structure that if we wanna put on balance sheet so we can have a better interest rate risk profile going forward. On the CRE side, you know, tack another 50 basis points to that.
You're in the mid-sixes right now to the market. That's a sizable change as indicated with the coupons in the threes going to the sixes, with a lot of money that has to reprice. We offered a SOFR option. I think that's a good option for customers versus locking in six. It may take a one-year approach towards floating it in hopes that rates may come down in the future, but we're giving that option to customers, and it's been about a close to 50% receptivity with that as loans that are actually repricing in the period. We think that's going to bode well for our future interest rate risk management opportunity when we think about the combined balance sheets going forward.
Thanks for taking my question.
Sure.
Thank you. Our next question comes from the line of Matthew Breese with Stephens Inc. Please proceed with your question.
Morning, Matt.
Morning. The new loan yields question was asked. I was curious, though, on the opposite side, what is the current spot rate of deposits?
Yeah, as of 9:30 A.M., our current spot rate is 1.59%. 159.
Okay.
That's on total interest-bearing deposits.
Understood. Thank you. Okay. You know, if the Fed stops hiking in early 2023, do you have any idea on where and, you know, perhaps, when after the Fed stops hiking, you could see the core NIM stabilize for New York Community standalone?
Matt, we're not gonna give forward guidance, but obviously if that does take place, it's positive for a liability-sensitive balance sheet ex the consolidation of Flagstar. Clearly, on a standalone basis. If we're running at the dot plots, we're planning for continuing hikes, and we're prepared for that. In the event as they pivot, I think that's going to be a positive shift on a standalone basis for our business model. On a combined basis, we have an opportunity to really think about where we want to put our balance sheet, look at a transformational opportunity here, and set the balance sheet for what's prepared for the future. That's I think that's the real excitement of the upside. In the event that we look on a standalone basis, we're prepared for the forward dot plot.
It is a period where we have rising interest rates continuing. I think it is for the first quarter, then eventually going down towards the back end of 2023. With that being said, we're prepared for, you know, making sure that we have solid focus on deposit gathering. We're going to continue focusing on building out a funding mechanism here as we grow the institution. Culturally, there's been a drive towards, you know, we make loans with deposits. We're not going to make the loans to customers that aren't going to bring the deposits. That's been a cultural shift here, that's been successful.
As we talked about some of the other initiatives, it's all about deposits as we go forward here on our vision, as we transition from a thrift to a commercial bank, with the acceleration of putting together two balance sheets where, from Sandro's perspective, he's been working on this for quite some time, and you can see the results. He's showing a very strong margin because of his assets are all repricing, and his funding is very different than our funding.
Understood. Okay. Just going back to the deal, you know, what is the estimated first year accretion from the deal? At the current price, what is the expected, you know, bargain purchase gain?
Sorry. The bargain purchase gain is really highly dependent on two things, right? The final purchase accounting marks and the stock price at the day of closing. We estimated as of 9:30, given where we think the marks will come out and assuming a current stock price. We're just under $200 million bargain purchase gain is our estimate. Like I said, those two items will be the driver really, along with, of course, equity growth in the quarter on the Flagstar balance sheet. That's our estimate right now. It moves around, you know, pretty significantly depending on stock price and the final purchase accounting mark.
Rate, yeah.
Yeah, due to interest rates, of course. We really haven't updated our guidance, I think I mentioned earlier, on earnings accretion from the deal. We're at that 16% level that we announced originally. You know, we haven't really updated that as we've gone along. We still believe the deal is highly accretive, especially in this marketplace.
You know, I would just add one point to that. The energy level and the time spent on analyzing the P&L and how these companies work together, we're pretty confident on our original cost savings estimates. If anything, you know, having this excess time to really understand how these proxies work together, you know, we feel very confident on what our estimates were on cost savings. Sure.
Okay.
just, you know, the merger termination date is less than a week away. Can you just talk about expectations for the deal if approvals are not obtained by then?
As indicated, you know, I apologize for reiterating my opening remarks. We're not going to discuss the pending merger transaction in respect to timing.
Okay. All right. That's all I had. Thanks for taking my questions.
Thank you. Our next question comes from line of Chris McGratty with KBW. Please proceed with your question.
Great. Yeah, good morning. I want to go back to a comment Sandro made earlier about they're excited the optimism around the deal if I think the quote was, if given the opportunity. That to me reads regulators just slow playing the approvals. You both are on the call today, so it feels like the commitment from both parties is there. I guess maybe a comment. Is that the right kind of read?
I guess you're addressing that to Sandro or you're addressing it to Mr. Cangemi?
Yeah. Well, my comment. I don't think you should read anything into it. Every earnings call we've had, we've always talked about what we think the opportunity is. You know, we're being consistent with what we said previously. The regulatory process is what it is, and we're going to continue to work towards what it would be if we get an approval until such time as we don't get one. You know, we're still focused on it. No, I don't think you should read anything into any of our comments today other than we're, you know, we're still hopeful because we see that as we always have. We've seen that the opportunity and power of the combined organization is really something special.
Okay. Thank you for that, for that color. Just on the dividend, obviously you're comfortably earning it now, but maybe thoughts pro forma on the dividend, I guess, with or without Flagstar.
Look, we have a long history here of a very strong dividend, and it's a very focused capital management process. We are very comfortable with asset quality. We're very comfortable with how we look at capital deployment. Going forward, we feel very strongly that we'll continue to pay a very strong dividend. Obviously this has been the history and culture of the company going back for decades. We're very confident. Company had record earnings going into this, in the beginning of the first half of this year. We're seeing some margin pressure based on substantial movements on Fed action.
However, over time, this company will navigate through it, and we'll have strong asset quality and foster on a standalone basis, a very focused expense management philosophy to generate good returns to our shareholders at a very strong dividend. That's always been our culture. You know, on a projected combined basis, we just earn more money.
Okay, thanks.
Thank you. Ladies and gentlemen, this concludes our question and answer session. Mr. Cangemi, I'll turn the floor back to you for final comments.
Thank you again for taking the time to join us this morning and for your interest in NYCB. We look forward to chatting with you again at the end of January when we'll discuss our performance for the fourth quarter of 2022.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.