Good morning, everyone. This is Sal DiMartino in the investor relations. We issued a press release announcing the acquisition of certain assets and liabilities of Signature Bridge Bank. Both the press release and the investor presentation have been posted on the company's investor relations website. Before we begin our discussion, I'd like to remind you that certain comments made today by the management team of New York Community may include forward-looking statements within the meanings 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 uncertainties which may affect us. Now, I would like to turn the call over to our President and CEO, Mr. Cangemi.
Thank you, Sal. Good morning to everyone. Thank you for joining us today to discuss the most recent step in our journey to a full-service diversified commercial bank. Joining me this morning are several members of our executive leadership team, including our CFO, John Pinto, President of Banking, Reggie Davis, and Lee Smith, President of Mortgage. Before we delve into the details of the transaction, I would like to take a moment to address our new employees. Over the past 20-plus years, New York Community and Signature have operated in the same markets, in the same businesses, vying for the same customers. Not only have we generated respect and admiration for the employee base, we have learned from these many years of friendly competition that each of our institutions have the same passion for their customers and for their organization.
I know that this passion will carry over to NYCB and help us become a more successful together. I appreciate the challenges that you have encountered over the past week, and I would like to personally assure you that we will get back to normal working environment as soon as possible and as seamlessly as possible. Please allow me to be the first New York Community employee to officially welcome you to our team, and I look forward to doing great things together. As you know, last night we announced that our bank subsidiary, Flagstar Bank, acquired certain assets and assumed certain liabilities of Signature Bridge Bank from the FDIC. Flagstar acquired only certain financially attractive and strategically complementary parts of Signature that will enhance our future growth.
These included approximately $25 billion in cash, $13 billion in C&I loans, and deposits of approximately $34 billion, respectively of deposits other than those relating to crypto. Including the $25 billion of cash is approximately $2.7 billion arising from a discounted beta net asset value. Also included in this transaction is Signature's broker-dealer and wealth management business, as well as 40 of their locations. Not included in this transaction are Signature's fund banking business, its digital asset banking business, or any crypto-related deposits. Strategically, this deal builds upon and significantly accelerates the transformation from a predominantly multifamily lender to a diversified commercial bank set in motion by the merger of New York Community and Flagstar Bank this past December.
Among the multiple benefits, it significantly strengthens our deposit base by adding $34 billion of deposits, including a substantial amount of non-interest-bearing deposits. The receipt of $25 billion in cash provides us with an opportunity to pay down a substantial amount of our wholesale borrowings, thereby improving our funding profile and overall cost of funds while maintaining a liquid balance sheet. It adds a significant number of highly productive client banking teams based in New York and California that have generated the majority of these deposits we assume with favorable growth opportunities as the combined institution comes together. Additionally, it enhances our current commercial lending platform by adding several new verticals, including SBA lending, healthcare banking, Signature Financial, and traditional C&I. This jumpstarts many of the initiatives we were planning to roll out over the course of the next several years.
Financially, this deal is expected to be significantly and immediately accretive to both our earnings per share and tangible book value per share. Expected EPS accretion is greater than 20%, while expected tangible book value creation is greater than 15%. As for the integration planning, we will be approaching the Signature conversion leveraging the same approach as our existing process while augmenting our team with new teammates from Signature. The Flagstar conversion is on track for the first quarter of next year. Given the different phase of the two efforts, we will be able to sequence work efforts between teams without adding significant risk. We have also informed key third-party partners, and they're ready to hit the ground running. Keep in mind that we have the benefit of being experienced at integrating acquired companies, having completed 11 previous acquisitions.
Before turning the call over to Q&A, our management team and board of directors would like to thank our regulators for providing us with this opportunity and having the confidence in us to help provide stability in the banking industry. We will work extremely hard to make this a successful transaction for all parties. 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, please feel free to call us later today or during the week. Operator, please open the line for questions. Operator?
Thank you. Ladies and gentlemen, 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 key. In the interest of time, please keep to one question each. Our first question comes from the line of Dave Rochester with Compass Point. Please proceed with your question.
Hey, good morning, guys. Congrats on the deal. It's great to see.
Thanks Dave.
I know I've gotten a lot of questions on this this morning already. just wanted to ask you guys about, you know, the culture side of things, right? Signature had a very unique incentive structure and culture there. You know, you guys have a unique culture. How are you guys gonna manage that? You know, what gives you the confidence that you can blend these cultures here? Thanks.
This is Tom, and I have Reggie Davis here as well, who is going to be working very actively on the culture building, as well with Lee and John. This is a remarkable opportunity. You know, we're in the midst of rolling out a unique model with very similar attributes when it comes to compensation, but we're just getting off the ground floor. This is adopting a proven platform, a long history where Signature has done an amazing job as deposit gatherers. These unique businesses, these teams have been built for many decades. In particular in New York have a proven track record of, we'll call it boots on the ground with white glove service. That's the model. It's very different than most commercial banks, but we're in our infancy of the transition for the new Flagstar.
This really jumpstarts the opportunity. We will embrace the team. We have significant retention in place, and we're looking forward to bringing on all these members of the team to build this unique way of doing banking. I think that's a very unique aspect of why we think we're different because of our uniqueness going into our own transformation as we build out the commercial banking model. Maybe, Reggie, you want to add a few words of that too as well, if you don't mind.
Yeah. I think it's overblown a little bit that the structure of the incentive compensation system is dramatically different. I think the business construct is different. I think therein where we have an opportunity. Quite frankly, a lot of what we're doing in Flagstar and NYCB is moving toward a model where we're compensating people for providing economic value to the company. I think that's not inconsistent with what Signature has. We see an opportunity to blend those two and actually create something that is better for both companies.
Yeah. Look, this is Lee. I think the Signature employees are gonna really appreciate the Flagstar values, the energy we bring to the table, our overall team approach and our transparent and communicative style.
Great. Thanks, guys.
Thank you. Our next question comes from the line of Manan Gosalia with Morgan Stanley. Please proceed with your question.
Morning.
Hey, good morning. On the deposits you're acquiring from Signature, you know, we know that they have a skew to some higher balance accounts, some non-insured accounts as well. You know, can you talk about, I guess, what you're doing to retain the deposits? What gives you the confidence that those deposits will stay in? You know, can you just clarify that the FDIC insurance is going to be up to $250K for these deposits? Thanks.
Let me just take big picture here. This bank was approximately a $89 billion deposit base, and we're assuming what's left of the deposits somewhere in the mid $30 billion range here. If you can imagine the amount of outflows that have taken place in a very uncertain climate. We feel highly confident that the team is in place. The leaders over at Signature Bank are mobilizing the relationship managers. The fact that we had a significant turbulent marketplace, this feels like things are stable across the banking system. There's no guarantee that's going to stay stable, it seems like things have really stabilized over the past week. We'll talk a little bit about our stabilizations. Potentially we can address that.
The reality is that, you know, you have a team that has a white glove, boots on the ground strategy, and they know their customers. With confidence of having a transaction where this bridge bank now becomes part of a strong bank that was in the marketplace since 1859 of stability, where we have the buy-in from our regulatory constituents to come in here and be helpful, I think will add a lot of confidence to the customers. It's important to understand, we share a lot of these relationships in the marketplace. You know, we've been competing in the multifamily space, the commercial real estate space, the C&I space in the New York marketplace. We have shared relationships.
You know, so when we had an opportunity here to be one, I don't think this would ever happen given the history on multiple, the differentiation and market conditions. You know, given this opportunity here, we felt that our customers know us and they know Signature. We have shared customers. We'll be very active to ensure that the leadership team is talking to the customers. We're out there talking about the strength, stability of NYCB, and we're very comfortable that this blessing to come in here and be part of the solution is important.
Got it. Maybe I'll take you up on your comment that you'd address the stabilization efforts in the legacy NYCB deposit base.
Sure. Sure.
You know, my follow-up would be in terms of paying down the wholesale funding. Can you talk about the speed and pace at which you would want to pay that down? Thanks.
Sure. Let me start off by saying the last few weeks was very interesting given the market conditions and the team performed much better than I could ever possibly expect. It's coming together as a new Flagstar. That's number one. Our entire team going back to this most recent, we'll call it a runoff of confidence. Our team mobilized together. With that being said, I think our standalone company has performed much better than we expected. I'm gonna pass it to John specifically to go through those few weeks as we've been relatively quiet because we had to manage the bank. We were very comfortable that it was strong institution where deposits are relatively stable. John, if you want to address.
Sure.
The recent path, and then we can talk about, you know, where we're going.
Yeah. Sure. Thanks, Tom. Starting on March 10th, we started borrowing excess funds, tapping our FHLB lines to ensure we had the liquidity necessary to meet any unanticipated outflows given market conditions. We've continued to keep excess funds at the Fed to ensure for that. If we go back to Thursday, March 9th, the total deposit base is down $6 billion. Out of that $6 billion, $2 billion of it was business as usual, mortgage escrow payments that happen on a monthly basis. Those deposits build up during the month, and then they pay down. Just happened to pay down last week. When you pull that out, we're only down $4 billion. Out of that $4 billion, almost $3 billion was to 1 customer that we have, which was the Circle relationship.
When you look at that, the one relationship and the normal custodial outflows, we were down about 2% in deposits since March ninth. An extremely stable base. From a retail side, Reggie, if you just want to give some quick update on the retail banking performance.
We're essentially flat, quite honestly, in the retail space. We did not see any runoff that was out of the norm, through the entire period of time.
That's really helpful. Maybe if you can just comment on the pace at which you would pay down the wholesale funding.
Oh. Yeah. Well, you know, we are cognizant we're still in, you know, uncertain times. We are gonna keep enough funds at the Fed to ensure for potential outflows, unexpected. We will be looking at paying down, of course, all of our short-term debt that we have outstanding. We'll be looking over the next days and weeks to start looking at our longer term wholesale borrowings and picking out the ones that are most likely to be paid down, right? We have optionality here. We're gonna look at some of the higher cost floating rate deposits first, well, wholesale funding first, and then we'll look at some of our fixed rate funding.
We'll be measured given that we wanna keep excess funds as we have been, but we'll be able to generate an awful lot of flexibility to really right-size the liability base of the company and ensure that our loans to deposit ratio gets more in line with peers, and we have a funding base that's much more diversified.
I appreciate it. Thanks for taking my question.
Thank you. Our next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please proceed with your question.
Hey, guys. Good morning. Good morning, Tom, and congratulations. Sort of a two-part question. First, do you envision the need to raise capital, either now or in the near term, maybe to support opportunistic growth for the combined company? Secondly, John, you know, what do you expect the pro forma NIM to look like in the second quarter?
Mark, we're gonna split this question. Let me just say in advance, how we looked at this transaction was very unique. We went into it with open mind that we know the property very well. We have a long history here. We also understood where our valuation was. We kind of collared the transaction valuation as we'll call it, as a credible player to be in this process by collaring capital. When you look at this concept of a negative asset bid, it was really driven by not moving our capital ratios at the spot. That's where this calculation where there's 2.725 became an adjustment to the balance sheet because we weren't willing to raise capital down at these prices. That was crystal clear.
That was where we looked at the marketplace, and we can be helpful. With that being said, I think the accretion to capital going forward, given the earnings profile of this combined institution, when we successfully integrate the new Flagstar with now Signature on top of that is a significant amount of capital build. Obviously we're gonna always be opportunistic, but you know, we collared the transaction to ensure that we didn't have to have, you know, standby level of capital. I will tell you though, we had many interests that would wanna help us at the table if that was the case. I think we were conservative. I felt strongly about knowing the property, and we also looked at the risk profiles. We wanted to make sure our capital levels are very strong. John, do you.
Yeah. On the Q2 NIM, it will be moving around, just given depending on where we are in the market with market conditions. You know, this transaction is accretive to the NIM going forward, it really will depend on how much cash we keep on the balance sheet. We're still going through that, Keith. We're not ready to give a Q2 forecast yet. It really will depend on market conditions. However, if you exclude excess cash that would be on the balance sheet, then we will see a definite like expansion in the NIM, when you look at Q2.
Yeah. Without going on a limb here, Mark, I mean, if you think just simple math, you're taking a NIM that was in the mid to upper twos, and you're probably looking at projected at somewhere north of three in this environment.
Thank you.
Thank you. Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question.
Good morning. I guess, two questions. One, just from a transaction standpoint, Tom, you mentioned about trying to keep the capital flat. Just give us, if you can run through the tangible book accretion of 15%, how much of the immediate hit do we see in to tangible common equity right away? It equates to about $800 million. Tangible common was about $5.7 at the end of last year. Talk to us about the math in terms of the capital impact at closing today. Incrementally beyond earnings, is there anything around capital that we should be mindful of?
I'll lead and have John go through the details. The reality is that this is immediately at close, which at close is tangible capital accretive. We estimate, based on various assumptions, that's about 15% today. Going forward, John, if you wanna talk about the, you know, capital as far as it moves on going through earnings and whatnot.
I mean, if you're looking at, you know, tangible equity, right, the tangible book value per share, that'll grow, as Tom said, at approximately 15% is our current estimate. Given the earnings power of the combined company, we will see continued growth in tangible book value per share.
Got it. Anything, John, in terms of expenses, what we should think about where the expenses, as he said, coming out of this?
Yeah. The so the expense side, I mean, we going back to history with the AmTrust days and, you know, working through transition services agreements, there's gonna be a lot of, you know, just movement back and forth between, you know, the Bridge Bank and us. You know, we believe that there are absolutely cost saves off the run rate just given the assets that, you know, that NYCB is acquiring. We're gonna be working through that over the next couple of days with the with our counterparties and ensuring that we have a transition service agreement that allows for both entities to run the institutions that they have left in an efficient manner.
What's the run rate?
We're still working through that.
Is there a run rate that you can disclose, John?
We're still working through that right now. We've been conservative in some estimates here, but, you know, we'll have a lot more detail for you as we go forward.
Hey, Ebrahim, I would just add to John's discussion that the conservative estimates, we're still projecting 20% plus earnings accretion...
Correct
On the transaction, assuming certain assumptions on the total cost structure of Signature. A lot of that's gonna get taken out pretty quickly because then we have the Bridge Bank, and then you have the new company coming into our through an asset purchase and a liability assumption. Very different than your traditional deal, but this is closed already. The DSA agreement is critical, but it's a very different calculation when you look at doing a whole bank deal versus an asset and assumption agreement.
Tom, just one. In terms of New York CRE, you didn't pick up any CRE loans. You obviously know these customers very well. You know, talk to us, one, about what's happening in the market and the risk to N.Y.'s your CRE book that you see. Do you see opportunities to move some of those loans to NYCB's balance sheet, maybe not now, but in the future?
Let me just stay high level here. We were very focused on the fact that, you know, we're rolling out the new Flagstar, which has an emphasis towards C&I and new verticals as we diversify this bank. We have a major presence in multifamily. We don't have a whole lot of office, but we are a major long-term lender in the non-luxury rent regulated marketplace in New York. We know this product very well. A lot of these customers are shared customers. We will service these assets over time. We will pick and choose relationship lending. That's our focus. As you know, when I took over CEO, it's all about relationship lending, not just about the credit, but the deposit relationship, the full opportunity to bank the customer.
I feel highly confident that, you know, we've been in this business competing for decades. You know, we, you know, Signature and NYCB were the go-to players in the, in the multifamily CRE space in Manhattan and in Five Boroughs. You know, we know the book. We know we're gonna service the book as long as we have to do that and be helpful for the FDIC and the government. I think at the end of the day, customers know that we're relevant in the market, and we're pricing it more towards relationship. We're not looking to just do transactions of loans in the fixed-rate market to put on assets.
We're gonna be very focused on diversification of who we are on the new Flagstar and bank customers that want relationship with, transactions with the bank. I mean, that's great. It's a great opportunity to really not double down on the same credits and be helpful for what the customers need in uncertain times. Obviously, you know, there's a lot of rumbling about office, so, you know, we just felt that it wasn't the appropriate time to, you know, be significantly higher there. We're comfortable with our portfolio. Let me be very clear about our portfolio. You know, we're getting closer to the quarter end. We feel really good about credit. It's been amazing how resilient our customers are, and we're proud that we're a conservative lender, and it goes back to decades.
This company has been through many crises, many changes in market rates, interest rates, and the portfolio is resilient, and we're seeing very strong asset quality coming into the quarter.
All right. Thank you.
Thank you. Our next question comes from the line of Chris McGratty with KBW. Please proceed with your question.
Morning.
Hey, great. Thanks. Hey, good morning. Tom, I want to just come back to the tangible question for a second. The 15%, I guess, can you help us just? I'm getting a lot of questions on the intricacies of the $2.7 billion that you referenced, the warrants, potentially prepaid penalties with the borrowings. I'm just trying to get a map of how you get to the 15%.
I'm going to start and give it to John because he has all the math. I mean, the bottom line is we want to fully load that accretion number because, you know, we assume that we were very confident that the stock appreciation warrant was, in our view, consideration. I think it was a very unique way to be a viable player to for the transaction. We've done this before. We created value under the AmTrust deal with the same structure, so we fully value the cap on that into the capital structure. That's in there. As far as overall going forward, our view of capital here is that, you know, going back to the concept of taking this balance sheet, the capital was derived from the negative discounted net value of the transaction that was put in place to call it capital.
John, do you wanna-
Yeah. I think.
Yeah.
Just to take a quick step back, let's take a look. If we had a balanced balance sheet with just cash, loans, and deposits, this is how we started the process to look at the deal. We ran that through the model and looked at what the dilution would be to our capital ratios and said, "How much more would we need in order to get our capital eight ratios to be consistent with where they were at 12/31?" That number was the $2.725 billion. When you add that $2.725 billion into capital with the risk-weighted assets that we're getting, that's where you can get our leverage common equity Tier 1 total risk base to be very close to flat to where they've been as of year-end.
That's basically the how we came up with the net asset discount that Tom was talking about. When you look at that now there, you know, we have forecasted some charges. If you look at our liability base is really not a huge mark to market right now. Of course, interest rates move around. You know, given where we are, given where we are on Friday, you know, we have a handful of liabilities that are out of the money, and we have a handful of liabilities that are in the money. We have the optionality to pick and choose what we want to look at there from a charge perspective.
In the modeling that we did, you know, we looked at a charge that was around $100 million to get out of the FHLB borrowings, and our wholesale borrowings in order to manage that capital, those capital levels that we mentioned flat to 12/31.
Okay. Thanks. I may need to follow up offline, but thanks, John. Just to follow up, interested in 2 things. Number 1, how we should think about any potential legal or put back risk given the P&A assumption, and also the pro forma, you know, asset liability, you know, what's the message on the pro forma company?
I will be very specific. We structured this as a purchase and assumption agreement. We didn't buy the bank. We didn't buy the stock. We didn't buy the company. We selected assumed liabilities and selected assets. Very different than a traditional M&A deal. As far as asset and liability, I mean, this is significantly a different company today given the changing of a funding mix, right? We have an opportunity here coming off the Flagstar transaction in December. We were getting more towards neutral and thinking about the mark to market that we had in all their securities portfolio. They're probably in this valuation close to either above the money. That was all marked in December. We have lots of opportunity there to be nimble as far as getting closer to neutral.
With this infusion, I think we can go either way. I would assume right now we're probably asset sensitive, right, John? With this infusion.
Yeah, depending. Yeah, I think that's right. that'll depend on, you know, how we do some of these restructurings, right? We do have some wholesale borrowings that are floating rate that we can take out. we have a lot of flexibility to toggle the balance sheet any way we want right now.
Yeah. I think when you think about the view here, this is high level. We want to look at the new Flagstar towards commercial bank model. We had, I said it some three years ago publicly, deposits, funding. This is a significant infusion of a change in how we look at the business, right? At the same time, what Reggie Davis team has been doing all along, positioning ourselves to really capitalize on that jolt of additional boots on the ground, that's in place. We're going to see results as we go into 2023 and 2024 now that we have Flagstar under our belt with technology initiatives, working with the teams that we're building.
Now we also have this unique private client group that has a white glove approach with the boots on the ground and that are focused on deposit gathering. That is very different than historical thrift model. This is where we're moving towards rounding out the commercial bank strategy. To say that this, you know, this is a significant infusion of that change. We're really excited that we can accelerate this transformation. This is the new Flagstar. This is what we want to build to be more commercial bank-like and also diversification on the lending side. I don't know, Reggie, if you want to add some more color to what we're doing on the deposit side?
No. I think Tom's right. I mean, we're converting the model. We've got some great businesses, and we got a great book of clients. Where we have opportunity is to broaden the relationship and our relevance with each of those clients, both on deposit side treasury, and then also there's some fee income opportunities. For us, it's just taking an existing high-quality book and quite frankly maximizing the profit potential within that book. We're also converting a lot of our business to be more outwardly focused. New client acquisition is also an opportunity. Talked about the retail book. One of the things that's undersold about the company is the stability and longevity of the retail book in both franchises. We have an opportunity to actually continue to drive more new client acquisition.
That's where our focus is over the next few years.
Great. Thank you.
Thank you. Our next question comes from the line of Bernard von Gizycki with Deutsche Bank. Please proceed with your question.
Morning.
Hi. Good morning. You guided to the 20% in earnings accretion, and you did provide some assumptions behind this. I was just wondering, what base is this off of? Is it off the full year 2022 EPS number? Are there earnings accretion expected to be realized in 2023? Just curious, you've kind of noted some opportunities to gain fees in the sub-servicing portfolios in fund banking, multifamily, CRE, and it looks like venture banking. Is that included in those numbers?
No. The fees aren't included, but, you know, we do have some cost saves in those numbers. You know, the if we keep some of the expenses, we may have a little more expenses if we have a lot more fees. It's not going to be entirely an incremental benefit, but there definitely will be a benefit. When you're looking at EPS accretion numbers, those are for full year 2024, EPS accretive accretion numbers. Like we talked about earlier, the second quarter of this year is going to have some noise in it just by, you know, all the additional liquidity that'll be on the books, depending on market conditions when we get there. There'll definitely be accretion, but that's a full year accretion number in 2024.
Got it. If I could just have one follow-up? You know, I noticed in the AK, I think you mentioned immediately overseeing all of Signature's operations, including like product pricing, underwriting, you know, risk management. You know, I'm sure there's a lot of overlap, you know, between the two cultures. You know, overseeing this process so quickly, how do you get comfortable with that process, without disrupting, the customer experience?
I would just say that the TSA agreement that we're going to, you know, stand through the next few days to reconcile that is key, right? We've worked with the FDIC in the past when we acquired AmTrust through receivership. We were experienced with that. At the same time, we know what businesses that we're focusing on. There are assets that, obviously we're acquiring that we'll have on balance sheet, but also many assets that we're servicing. As you know, we're the largest multifamily for portfolio lender in the country on balance sheet. This we have the experience. At the same time, we're going to be very active when the FDIC may move on some of these assets, and we're always here to help.
We have experience as commercial real estate service providers. We've done tremendous amount of third-party transaction, as being the lead on a multifamily space. This is not something not common to us. We've done this in the past, but ultimately, you know, we have tremendous bandwidth here, and we work together with the TSA agreement, and it's gonna be, you know, a short period of time. This is not gonna be years unless they want to go into a long-term contract. The goal here is to convert the system, you know, in short order and then roll it and then go into next year with the Flagstar conversion. That's kind of the strategy. I know Lee has a lot of experience on the servicing side, if you want to add some color.
Yeah, no, I mean, Tom, I think you're right. I mean, as it relates to the TSA agreement, I think the FDIC, the bridge bank, Flagstar, we're all aligned here in making sure this is seamless and we provide the best possible experience for the customers, and that's what we intend to do.
Yeah. That's right, Lee. The bottom line is that they have a very unique model. It's this boots on the ground, white glove service point of contact. I think that is a very interesting entrepreneurial model to bring in deposits. We're going to hopefully use that strategy and roll it out for the entire company and be a better company. This is something where we're in our infancy of our rollout. They've been doing it for decades successfully. That's going to be key when we build the culture of the bank.
Great. Thank you so much.
Thank you. Our next question comes from the line of David Chiaverini with Wedbush Securities. Please proceed with your question.
Morning, Dave.
Hi. Thanks. Good morning. First, a housekeeping on the equity appreciation rates. What is the strike price or at what price is the $300 million issued?
The strike, six, the closing price on Friday, $6.654. I think they made that decision already.
Got it. Got it. Thanks. Why not acquire the multifamily loans too? Was it a concentration issue?
You know, I'd say, look, with the shared customers, we know this business very well. I mean, we wanna have diversification. We have to acknowledge how much concentrated we are. You know, we are here to be a refinancing effort if the transaction on the table makes sense and we are the go-to lender in that space. I think it's clearly being prudent given the marketplace. We wanna look at the businesses to go transform to the new Flagstar. The C&I focus is what we're doing nationwide. They filled a nice opportunity here. The business banking business of this client service business is clearly right in our wheelhouse. This is what we want to do as a company.
We looked at the marketplace and, you know, having elongated assets at fixed rate right now and in a very unique marketplace. We'll service them and if there's a refi opportunity, we'll see if it makes sense for us. At the end of the day, we have a substantial presence. We're number 1 in the country for portfolio. This is one of our core businesses. We can be very flexible here. Clearly it's balance sheet diversification and transforming the new Flagstar, which is the CNI mentality of going after, you know, relationship deposits. That's where the strength of the legacy Signature was. That was their hallmark of growth and deposits, and that's gonna be a great complement to our mission.
Great. Thanks very much.
Thank you. Our next question comes from the line of Christopher Marinac with Janney Montgomery Scott. Please proceed with your question.
Hey, good morning, Tom. Just wanted to ask about deposit retention and in the past with AmTrust and other transactions. You know, is there any retention that we should be expecting, you know, it's not 100%?
Yeah. Look, great question. I mean, this is something very interesting because, you know, different environment, right? When we did AmTrust, they had a run, they failed. When we closed the deal on Monday, deposits came back pretty quickly. This environment is different, right? We have the concept of uninsured. You know, our history given on a standalone basis, we were 80% that was insured when you take out some of the escrow businesses that we had. You know, this is a unique environment. Obviously we hope that the government continues to build confidence in the system that regional banks are necessary, especially niche regional banks like NYCB on a combined basis. I think that's something that comes down to the people, the boots on the ground and the relationship.
We're very confident that for us to step in here in a very uncertain time should be a boost of confidence for the customers that, you know, we are here coming off of a very large transaction in December that we spent a lot of time getting to close and we're willing to come in and get this thing done. Doesn't mean there's not gonna be any outflows. We model certain assumptions, but at the end of the day, there's a possibility as things start to stabilize, that the relationship manager that has the long history with the account customer, the white glove service, will come back to be part of the team. A lot of that money, you know, you assume coming from $89 billion down to $30 billion-$34 billion-ish. This probably wasn't in flight.
The question is, how can we get those great relationships back that the right size back? We can't guarantee that. We're gonna work real hard with the people, the retention, the teams. It's a team approach. They have teams all over the country, and they're very focused. It's an entrepreneurial way of deposit gathering. Very different in the traditional commercial banking mentality. Now no guarantee in that, but we're very mindful of that. And also the marketplace is somewhat uncertain. You know, that's how we looked at our transaction. We, you know, we assumed when we value this with a with this type of valuation that was really part and parcel in how we looked at the model right now. You would imagine that there's certain assumptions that we have to have, you know. Let's hope that it goes the other way, you know. I mean, no guarantee.
I think the other thing is we were seen as a safe haven before this transaction by our existing clients. This only strengthens us as an organization. I would think that we would benefit, quite frankly, in the current environment.
Great. Reggie, thank you. Thank you, Tom. Anything to the kind of priority of the banking-as-a-service platform now that all of this has happened the last 10 days? Does this take a back seat or will it continue to grow together?
We have great verticals. We have deposit verticals. We have funding verticals. We have alternative funding verticals. That's a focus of ours, right? We wanna be very active in opportunity, and we've done a pretty good job on strategically looking at opportunity as alternative funding solutions. You know, the goal here has always been to look at the funding base and have better funding over time and get away from the traditional S&L type liability side of the balance sheet. We've made some great inroads. We've picked up some great partners along the way. We have some good opportunities that we're gonna onboard.
This just makes it even more tighter now because we can price it differently because the market's changed somewhat and larger relationships may be priced differently more towards the advantage of the bank, just given the current liquidity concerns in the marketplace. No question, it's just another vertical that we plug in to transform to the new Flagstar.
Sounds great, Tom. Thank you again and congratulations.
Thank you, Chris.
Thank you. Our next question comes from line of Matthew Breese with Stephens Inc. Please proceed with your question.
Hey, good morning.
Morning, Matt.
Morning.
I hate to belabor the point, still getting questions and frankly, I still don't fully understand the tangible book value accretion. Maybe can you walk me through? There's $2.7 billion, that's the net asset discount. If I go through my model and I try to get to the 15% tangible book accretion, to Abraham's point, it's about $800 million. What is the $1.9 billion delta that we're all missing here? You know, is it tax affected? Are there one-time charges that we're just not considering? I frankly don't fully understand what I'm missing on that.
Are you tax affecting the 2.7? Is that what you're saying?
I'm asking how do I bridge the gap from the $2.7 billion net asset discount to what appears to be about an $800 million benefit to TCE? I'm just curious, what are some of the moving parts underneath the hood?
Okay. Let me pull that together. I'll break it out and make sure I have all the details. We'll get that out to everybody.
Oh, I'm assuming there's a bargain purchase gain.
There's a $2.7 billion bargain purchase gain.
Right. That's capital.
It goes straight to capital.
Yep.
Right. I'll just try to walk through with the rest of the items.
Okay. Understood. Okay. Are you gonna do that now or at a later point in time?
No, I think it'll be easier if I just lay it all out and I'll, you know, we'll get it out to everybody.
Okay. Thank you. I'd appreciate that. Maybe slicing and dicing the acquired deposits a different way. How much of what you're acquiring is uninsured and how much of that is also non-interest bearing?
Hi, John.
The non-interest bearing piece, just give me a second. I got it right here.
It's about 40%.
Yeah. Is approximately 40% of the total deposits. On that, you know, When we looked at we looked at our total uninsured deposits on a combined basis, we're around 40% uninsured right now.
Okay. 40% combined.
Combined.
Yes.
Correct.
Okay. In understanding Signature's model, they had the single point of contact. A lot of it was based on, you know, teams and team leaders. In your initial discussions, you know, how have you, how have you handled kind of locking down those key team leaders? Have you been able to do that at this point, or is it still too soon?
Matt, it's not too soon. There's been tremendous amount of enthusiasm between the teams and what we're gonna plan to do. We're gonna continue to mandate that their structure continues. We have retention pools up front, and we're gonna continue doing the business model of what you call the secret sauce that works. We're not gonna impact their economics as a team. If anything, we'll enhance it with a bigger bank with more products on a combined basis. You know, we have the mortgage products now. We could do some very unique things here to bring more products to the team so they can generate revenue for their teams, which I think is very exciting. No question that this is a different type of commercial bank mentality.
As we go through our transition as a new Flagstar, this is a very unique way to differentiate ourselves from the traditional money center banks on the commercial side. This is something that we're very comfortable adopting. I think they've done a very great job as far as being entrepreneurial on their approach on deposit gathering teams. If you look at the New York and the West Coast teams, that's where most of these deposits are coming from. A lot of it is less, right? What we're left with is a much smaller foundation, but the teams are in place, and hopefully with stability, we can get those customers back, and we'll see some growth, not exit.
There's no question that this is a unique model. We've been always envious of the model, and it's something to put in place. You know, it takes years to build, right? Years to build, and it's culture. It's a very unique style of how you pay for these relationships. We're comfortable on continuing that way. Very comfortable.
Understood. Yep, understood. Okay. Then, you know, on the $60 billion of loans remaining in receivership, and it sounds like there's potential for a sub-servicing agreement. What is the potential benefit to fee income if you decide to take on that responsibility?
I would just say that, again, I wouldn't model it too long. It all depends on the appetite for the FDIC through receivership holding the asset. I mean, obviously they want an orderly disposition. That's the right way to do it. They'll look at some real value that's on the table. They'll go through their process. We're here to help. We've had a lot of experience in that space, and we've done this before. In the event that it's a year or 2 months, it could be, you know, 1 month. We're gonna be there as the bank was kissed in the transaction, and we'll get fair market value for servicing, which we've normally did in the past.
Understood. Okay. I appreciate it. That's all I had. Thank you.
You're welcome.
Thank you. Our next question comes from line of Brody Preston with UBS. Please proceed with your question.
Morning, Brody.
Good morning, everyone. How are you?
Very good.
I just wanted to maybe follow up. I understand, you know, that you're not acquiring any of the crypto-related deposits, or the Signet-related deposits, but I wanted to ask, you know, on the Signet front, are you acquiring the technology that kinda drives that platform?
No. We've opted not to add that to our platform. We were very clear and specific. Again, our asset purchase agreement, asset and liability assumption agreement was clear. This is... you know, we're cognizant of the risks out there, so we're structured that way by design.
Got it. Thank you very much. Maybe just following up on, you know, I understand that you didn't bring over the multifamily portfolio, just given the overlapping business lines, you know, the fact that you competed with Signature on a day-to-day basis, you know, following their failure, I guess, were you already kind of a net beneficiary of, you know, maybe some of the 1031 escrow? I'm thinking about some of the chunkier commercial relationships, that might, you know, you might have been able to bring over even prior to this acquisition.
I'd say in general, given the circumstance, you'd assume that the largest portfolio aggregator would be, you know, getting a lot of interest on bringing some of those funds over. You know, we were participating in a lot of conversations with like customers. We have shared customers that have significant wealth, so those conversations happened. In general, I think it was probably with many banks in the New York area. Some of the larger New York regional banks I'm sure were fielding a lot of customers, regarding the opportunity. Now that this transaction is closed and we are, you know, the portfolio lender and we have shared customers, I think there's a great long-standing relationship and, you know, obviously we have a better shot at getting more of those liabilities. I think that's always been the case.
Now that we have the teams that were the secret sauce that had Signature that did a very good job doing it, they're part of our team. I think it only enhanced the opportunity. You know, I think a lot of the larger deposit money probably left during the midst of last week's lack of confidence in the system. Let's hope they come back, you know. They know us, and if they want to get service their loans and relationship lending, that's how we're gonna move this bank forward. We're not looking at just closing loans and putting assets on the books and having fixed rate loans and we're looking at relationship opportunities. As we talked about the fee income strategy, we wanna have solutions for the client.
We wanna have the full service banking solutions, for structuring their interest rate risk, as well as the bank interest rate risk, as well as being a depository solution for them. We're gonna be very active on a full relationship banking model.
Got it. Tom, you know, obviously, you know, you all being positioned to execute on this transaction and the regulators, you know, allowing it to happen is obviously a pretty good vote of confidence for NYCB as it relates to the strength of the balance sheet, and the strength of, you know, the backend systems that you have in place. If you could maybe help me think about pinpointing a couple items if there's any that you can think of as to, you know, what are the things that kind of, you know, you think enabled you to execute on this transaction?
Maybe said another way, what do you think some of the, I guess the things that was maybe trying to look at Signature or any of these other institutions that have failed, what could trip them up in terms of not being able to successfully execute on it?
I would just say broad-based that we are very focused over the years of putting regulatory. There's no question that's my priority as CEO. I'm very confident that we built a very strong risk management team, and we strengthen it every day, and we're up for the challenge, and we're open to the regulatory landscape changing. That's our job, to be risk managers. Knowing that opportunity arises, you know, we were here in a time of concern in the marketplace, willing to jump in alongside with regulatory intervention here to be helpful. At the same time, you know, we had a very short process that would normally take a long time to roll up a bank into a process. As you know, it took us quite some time to close the Flagstar transaction.
This was done given in the midst of a bridge bank that was created. There was confidence there. You know, we're pleased and proud about the investment made on risk management, regulatory oversight. That's my priority. You know, this is important. You know, we're now a $100 billion bank. We're gonna ensure that we have all of the appropriate risk management tools to be a $100 billion bank. We've made sizable investments. We get some of the operating leverage now because we have more scale. Ultimately, you know, it goes back to probably 2012, 2013 when we were making the investment, we're crossing over the BC cards. There's a next plateau is now 100. We're very active on the liquidity side, on the capital risk side.
you know, we know what our obligations are as a large institution. We convey it with confidence and professionalism with our regulatory constituents.
Got it. John, if I could ask if you could maybe in the email or whatever you're going to send around later include some of the moving parts in the P&L as it relates to FDIC amortization of indemnification asset and all that stuff. I, you know, to be frank with you, I was 17 when the great financial crisis kicked off last time. I don't have much experience with this kind of stuff.
Well, no. There's no indemnification asset.
Okay.
That piece we don't have. We will just have the normal purchase accounting mark-to-market process on the loans and the deposits.
Awesome. Thank you.
You got it.
Thank you, Brody.
Thank you. Our next question comes from the line of Steven Alexopoulos with JPMorgan. Please proceed with your question.
Hey, good morning everyone.
Good morning, Steven.
Morning.
Tom, I wanted to start. In terms of the $34 billion of deposits acquired based on the pro forma, it seems most of those are uninsured. I know this is a very fluid situation, right? Based on the diligence that you guys did, how do you view that? Do you see that as a balance you'll need to defend here and there'll be some outflows? Do you see this as an opportunity to bring some of those deposits that left back? What's your best guess how this plays out, at least over the near term?
It's a great question, right? Obviously, they had a substantial deposit outflow. The vast majority of the deposits that are assumed here are tied to these groups, right? The private client groups. Of that, 40% of it is DDAs. They're businesses, operating accounts, payroll accounts. It's their ongoing relationship depository history that they have with Signature. They are in place. We are backing their model. Clearly, I think having stability where we step in here should bring some comfort. There's a lot of uncomfortableness in the marketplace. We're hopeful that the niche regional bank will have an opportunity to continue to have confidence in the system.
I can't say yes or no if that happens, Steven, I can tell you right now that this thing strengthens the fact that we're able to do this in a time of a lot of stress. You know, there's no guarantee. Like I said, we're going to work real hard. We're going to make sure the clients understand that, you know, we are backing the model. We're there for them, and we're there for the relationship managers. They have an opportunity here because, you know, there's an opportunity to bring some of that money back. A lot of the money left fast, right? That's why it's why they were stepping into receivership here. That bank, I believe, was about $89 billion in deposits. We took it down the deposits around in the mid $30 billion range.
That's a significant amount of outflow. Crypto aside, as well as other businesses aside that had much of this more volatile liabilities, core deposits are core deposits. You have real DDA here, and it's real relationship deposits tied to a long history with the managers that do a phenomenal job of managing their book. You know, based on the structure that we're going to continue, they want to bring that funding back so they can continue to manage what they do well, is relationship deposit management.
Mm-hmm. That's helpful, Tom.
Yeah.
Did you? Oh, go ahead.
Yeah, no. I mean, look, I think, you know, Tom has explained this a couple of times. We believe in the Signature team and the relationships that they have with their customers. There will be an outreach plan for the customers. We already know some of those customers. Tom made that point earlier. Reggie made the point our deposits have been flat from a retail point of view. We've done a good job internally managing our deposits. We think we can bring back some deposits that have actually left. And if we need to deploy deposit retention strategies, we will. All options, you know, are on the table, but it all starts with the people and the team, and we believe in the team.
That's right.
Got it. Speaking of believing in the team, did you guys take all of the teams with the exception of the digital assets team? Did all of the teams go to you guys?
Yeah. The two teams, obviously, digital assets we did not take. I believe the venture business as far as lending in that type of space, we just felt that it wasn't a vertical that would fit our niche. Other than that, the deposit teams that focus on relationship deposit gathering will join the company.
Okay. Finally on these equity appreciation units, looks like the FDIC is pretty deep in the money. How do we think about this from your side? Will you be basically issuing shares to them at that strike price? Is that how we should model this?
You would take the $300 million, if it gets to the max, divided by the strike price, and that would be the number of shares that we would issue.
I believe that's in John's calculation of tangible accretion. We assume that it's strike, and they've got full value.
Right.
Oh, got it. That's in the guidance. Got it, got it. That's in the tangible book value accretion, you assume. That's maxed out.
Yes.
Okay.
The share.
Perfect.
The shares would be included, correct.
Yep, exactly. That's net. Okay. Thanks for taking my questions.
No problem.
Thank you. Ladies and gentlemen, our final question this morning comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.
Good morning, Jon.
Good morning, guys. Hey, good morning. Just a couple here. John, you talked about on March 10th, you borrowed and held high excess funds. At what point do you think you feel comfortable enough to start to take that down or you're already doing so?
Well, we've taken it down from the heights of when, you know, we started last Friday, but we've taken it down slowly. We just wanted to be really conservative in the process just to be sure we were ready for anything that happened in the market. We've gotten more and more comfortable each day, so we've continued to slow down that the high level of borrowings that we kept in the Fed. I would hopefully anticipate that very shortly, we can get back to much more normalized numbers, and really take advantage of the flexibility this deal does in order to set up the funding base for the future.
Okay, good. Any changes in deposit pricing at all for you since this all started 10 days ago?
Maybe Reggie will handle that. Reggie?
Yeah. No, there hasn't been. That really hasn't been an issue. We manage our deposit book based at a client level, quite frankly. We've got some fairly exhaustive analytics where we watch the book at a fairly granular level. We have managed rate over the beginning part of the year. Over the last week or so, rate hadn't been the issue. The issue has been strength and confidence, you can't fix that with rate. We haven't had to resort to increasing rates.
I would just add one point to that. Given the amount of liquidity flushing in and out of the system, I think, you know, overall rates would be very interesting because larger chunky will call it money that could be not as predictable, maybe priced down in this environment given the challenges that banks had on the front of them. I know that with sticking with excess liquidity, we're not gonna be chasing rates. That I think that could be a function of just the marketplace.
Okay. Perfect. Just this is probably a good last question for you, Tom. Just a question on industry perception. I look at your deposit numbers that you talked about for legacy Flagstar New York Community. They're essentially stable, which is great, better than I thought, better than other people thought. You know, your stock went to under $6.50 on fears that deposits were running out of the company, right? Everybody that preceded me, I'm sure, had the same questions. You know, what's going on at New York Community? Can you talk about the differences between all of this outside noise that we're barraged with, and almost panic on deposit trends and what you guys actually are seeing internally. I...
You know, to put a finer point on other than a handful of banks with concentrated deposits, I know this is a high-stress time, but do you think this is all just overblown for you and for the rest of the industry? Thanks.
Look, I can't address the stock market, do I wanna address the stock market? I think we've done a really good job on managing client calls, dealing with the liquidity, funding position, and putting out the risk management tools to ensure that if the we'll call it the lack of confidence continues, that our risk managers are in place to have excess liquidity. At the end of the day, you know, we have a very stable source of funding, being a legacy thrift model with a lot of retail stability in the system. I will tell you that we feel highly confident that, you know, we had very good stability given our balance sheet. If you think about where we were, we had no held-to-maturity portfolio , zero.
We had an AFS portfolio that was probably the smallest for a bank over $50 billion in the country, all mark-to-market in capital, of which one-third of it was marked with the Flagstar deal back in December. In the money when it comes to valuation in this interest rate environment. In the event if we had to pull a liquidity situation, we would literally take down the securities without any real consequence to capital and be in a very unique position with significant lines available because our portfolio is pledgeable on the multifamily side. We have a very good risk management plan in place. We were specifically not putting on held-to-maturity assets for that reason.
Then, more importantly, when you look at the liquidity position of the bank, we had an abundance of liquidity knowing that there was a lack of confidence in the system. Our team got together, and like I said previously, extremely impressive to see one of the best cultural experiences you can have when you're putting together a merger with two banks coming together and you go through a tough time and watching these teams work together. As a CEO, to me, that's what it's all about. That was a cultural experience. We're very proud of being able to be there. At the same time, dealing with some uncertainty in the market when you have, you know, a bunch of banks that need solutions, we were proactive to try to create value for shareholders.
That's what this deal was, you know, this deal is about. Over the long term, it's about building the new Flagstar. You know, we wanna have a better balance sheet. We wanna have diversity amongst our verticals. We want to be in a position where we're not subject to rates going up or down, but we're balanced. I think we're on our way for that transformation. I like the fact it's accelerating probably faster than I expect, which is a good thing. You know, when things are very dark and gloomy, that's when opportunities arise. We did it back in the great financial crisis when we took AmTrust Bank down, and we were very comfortable in servicing a lot of assets for the FDIC, and it worked out well. We went through this fire drill before and, you know, you need to be focusing on opportunity, and we felt there was an opportunity here.
If I can just walk through the tangible book value for share questions. I have the math in front of me now. Sorry, I didn't have it before. The handful of items that you gotta look at to take out are CECL. You have all the day one CECL that we have to set up, purchase accounting marks, CDI, and of course, the bargain purchase gain. When you walk through those items, including transaction expenses, merger-related charges, and the cost of repayment of the NYC borrowings, you get to that $800 million change. You get to that $6.9 billion in tangible book value.
You look on the, on the side, on the shares, you have the additional increase from the potential exercise of the equity appreciation unit. So it starts at the 2.7 CDI mark-to-market, merger related charges, repayment of potential borrowings, penalties, and our day two CECL impact would be the would be the walk on how to get to tangible book value accretion of 15%.
Great. Well, in closing. Unless you have another question.
No. I'm sorry. I was gonna turn it back to you, Mr. Cangemi.
Great. Great. I'd like to thank our executive leadership team and employees who really came together over the past 10 days, first in with market volatility and then working around the clock to get this deal across the finish line in a compressed time frame. We are truly well on our way to becoming a top-performing commercial bank, and I'm excited and looking forward to the many opportunities this transaction provides. Thank you again for taking the time to join us this morning and for your interest in NYCB.
Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.