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New York Community Bancorp Inc
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Good morning, everyone. This is Sal DiMartino. Thank you for joining the management team of New York Community for today's conference call. Today's discussion of the Company's Second 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. They are joined on the line by Sandro DiNello, President and CEO of Flagstar Bancorp; and Lee Smith, President of Flagstar Mortgage.
Before we begin the 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 meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and investor presentation for more information about risks and uncertainties which may affect us.
And with that, now I would like to turn it over to Mr. Cangemi to begin today's conference call.
Thank you, Sal. Good morning to everyone, and thank you for joining us today to discuss our second quarter 2022 performance. First, however, I'd like to comment on our merger with Flagstar. Both sides are fully committed to completing the transaction as soon as possible, and we feel very good about where we stand currently.
Over the past 15 months, both companies have diligently worked together to get us to a strong position to close the deal quickly once all regulatory approvals are received. We're excited about the benefits of the deal today as we were when it was first announced.
In addition to the both earnings per share and tangible book value accretion, our merger with Flagstar significantly improved our overall funding profile and interest rate sensitivity. It shifts us away from relying on wholesale borrowings to being more significantly deposit funded and becoming asset-sensitive as well.
In addition, it provides both geographic and product diversification and accelerates our plan to transform our business model to a more dynamic commercial bank model, driving strong financial performance and capital generation.
As for our second quarter results, we are extremely pleased with the Company's strong operating performance during the second quarter. By almost any measure, results exceeded expectations despite higher interest rates and market volatility.
We recorded record net income, another quarter of record deposit growth, near-record loan growth, record originations and a higher net interest margin and stable operating expenses, while asset quality remains stellar. These trends resulted in a solid year-over-year EPS growth.
For the second quarter of 2022, we reported operating diluted EPS of $0.35 a share, up 6% compared to $0.33 a share for the second quarter of 2022 and well ahead of the $0.32 analyst consensus.
Turning now to the details of our quarterly performance. One of the primary highlights of this quarter's operating performance was our deposit growth. For the second consecutive quarter, deposits grew by approximately $3 billion. The growth continues to be driven by the Banking-as-a-Service initiative in loan-related deposits.
As I have discussed previously, one of my top strategies, if not the top, is to increase the bank's focus on deposit gathering and deemphasize our need for wholesale borrowings and other less traditional funding sources.
Longer term, our success executing on this strategy will result in higher net interest margin. The early results are quite positive. Since launching these initiatives early last year, total deposits have increased to $41 billion, up $8.8 billion or 27%, while core deposits increased to $33 billion, up $11 billion or 50%.
At the same time, wholesale borrowings, primarily Federal Home Loan Bank advances declined almost $2 billion or 11% to $13.7 billion. During the current quarter, total deposits increased $3.3 billion and $6.2 billion through the first six months of the year. Our Banking-as-a-Service business was the biggest contributor to this growth. Banking-as-a-Service deposits rose $2.3 billion or 43% on a linked quarter basis and $5.8 billion year-to-date.
Banking-as-a-Service deposits totaled $7.8 billion at June 30, 2022, which is significant progress considering we started this business from scratch in the first quarter of last year with virtually zero deposits.
Our Banking-as-a-Service related deposits for largely into three categories; traditional BAS, which primarily encompasses fintech-related deposits totaling $5.5 billion; government Banking-as-a-Service, serving municipalities and eventually the U.S. Treasury's prepaid debit card program totaling $652 million; and Mortgage-as-a-Service, Cadence on mortgage banking and servicing companies and consisting of escrow accounts for P&I payments totaling $1.6 billion.
We also are having great success in garnering deposits from our loan customers. Total loan-related deposits rose just under $500 million during the second quarter to $4.9 billion, up 44% annualized on a linked-quarter basis.
For the first six months of 2022, these deposits increased $921 million, far surpassing the $475 million we generated for all of last year. All totaled, since we're focusing on this deposit source in the first quarter of last year, loan-related deposits have grown $1.4 billion, up about 40%.
Moving now to lending. We also had a very strong quarter in lending. Loan growth during the quarter was $1.8 billion, second only to the record $2.2 billion of loan growth we generated in the fourth quarter of last year. This quarter's loan growth was driven by our multifamily portfolio, where we continue to make market share gains as competition abates along with heightened refinancing activity as market interest rates move higher during the quarter forcing many borrowers to come to the table to refinance the property sooner rather than later.
At June 30, the multifamily portfolio was $36.8 billion, up $1 billion or 11% on an annualized basis compared to the previous quarter, while the specialty finance portfolio totaled $4.1 billion, up $806 million on a linked quarter basis or 24%.
It is important to note that we have approximately $6.8 billion of multi-family and CRE loans that come up on their contractual maturity date and/or repricing between now and June 2024, with an average weighted coupon of 3.74%. Multi-family loans at an average weighted coupon of 3.70% represents $5.3 billion of this amount, while CRE loans with an average weighted coupon of 3.89% represents the remaining $1.5 billion.
The other driver was a significant growth in the specialty finance portfolio due primarily to higher utilization rates. At June 30, the Specialty Finance segment had total commitments of $6.6 billion, up 16% compared to $5.7 billion at March 31.
Of the June amount, 75% or $5 billion of these commitments are structured as floating rate obligations, which have and will continue to benefit us in a rising rate environment. Despite higher interest rates, we've had a record quarter for originations, and our current pipeline looks very good as we head into the third quarter.
Loan originations set a new record as we originated $5.3 billion during the second quarter, up 49% compared to the previous quarter and up 72% compared to the second quarter of last year. Second quarter originations far exceeded the prior quarter's pipeline by $2.8 billion, more than double last quarter's $2.5 billion pipeline.
Of the current quarter's originations, 37% were refinancing from our own portfolio, 39% were financing from other banks' portfolio, and 24% related to property transactions. As for the pipeline, the current pipeline heading into the third quarter of the year is a robust $2.5 billion on par at last quarter. Of this amount, $1.8 billion or 72% of the pipeline was new money to the bank.
Moving now to asset quality. Our credit trends and asset quality remains stellar and continue to rank NYCB as among the best in the industry. Non-performing assets totaled $56 million compared to $70 million last quarter and were 9 basis points of total assets compared to 11 basis points last quarter.
Early-stage delinquencies also declined and principal only loan deferrals are at a very manageable level, decreasing 51% from the prior quarter to $139 million. In addition, we had $7 million of net recoveries this quarter compared to net charge-offs of $2 million from last quarter.
Before moving on to the next topic, I'd like to provide an update on the New York City real estate environment. New York City residential real estate remains healthy and commercial real estate is improving gradually. Retail prices across the three borrowers of Brooklyn, Queens, and Manhattan have reached new highs.
This has been due to lower inventory and higher mortgage rates, which have pushed homebuyers to becoming renters. Medium residential rents in Manhattan are above $4,000 for the second straight month with rents continuing to make new highs over the past five months.
In Brooklyn, the medium rent is $3,300 marking a new high for the borrower for the second straight month, while in Queens, especially in Northwest Queens, which is closer to the proximity of Manhattan rents are also at record highs.
On the rent stabilized side, the Rent's Guideline Board approved rate hikes of 3.5% for one-year leases and 5% for two-year leases beginning in the fourth quarter. These increases marked the largest increases in almost a decade and will go a long way to offset some of the increases in operating costs. Office leasing activity showed signs of life of 3.5% year-over-year with demand for Class A space up 32% on a year-over-year basis.
Moving now to the income statement. Second quarter net interest income totaled $359 million, up $28 million or 8% on a year-over-year basis. Excluding the impact from prepayment income, net interest income on a non-GAAP basis increased $35 million or 12% to $339 million on a year-over-year basis.
Our pre-provision net revenue was also very strong. Second quarter, PPNR increased $31 million or 15% to $239 million on a year-over-year basis. Excluding the impact from merger-related expenses, PPNR grew $25 million or 11% to $243 million year-over-year.
Moving next to the NIM. The NIM improved during the second quarter despite the Fed aggressively raising interest rates several times to combat inflation. At 2.52%, the NIM was up 9 basis points sequentially. Excluding the impact from prepayment income, the NIM was 2.38%, up 3 basis points on a linked-quarter basis and slightly better than expectations.
Given that Flagstar is significantly asset-sensitive and we are liability-sensitive, we are very comfortable with the NIM on a pro forma basis. On the expense front, our noninterest expenses remain in check despite the Company's continuing to invest in various businesses and hiring more people.
Noninterest expenses were $138 million for the second quarter, which include $4 million of merger day expenses. Excluding this, operating expenses totaled $134 million, unchanged from the previous quarter and up only modestly on a year-over-year basis. Additionally, our efficiency ratio came in at 35.57%, down compared to both the prior and year ago quarter.
At this level, it's well below the peer average of approximately 55%. As you can see, we had a broad-based strength throughout the organization during the current quarter. This is all made possible by the hard work, dedication and patience as part of all our employees, and we to graduate them for helping the Company achieve the strong performance this quarter.
At yesterday's meeting, the Board of Directors declared a $0.17 dividend on our common shares. The dividend will be paid on August 18 to common shareholders of record as of August date. Based on yesterday's closing stock price, this translates into an annualized dividend yield of 7.2%.
With that, we will be happy to answer any questions you may have. We will do our very best to get to all of you within the time remaining. But if we don't, please feel free to call us later today or during the week.
Operator, please open the lines for questions.
Certainly, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Ebrahim Poonawala from Bank of America. Your line is now live.
So I guess, a strong quarter from a loan growth PPNR standpoint. I think you mentioned comfort with pro forma net interest margins, maybe if we can just start there. Give us a sense of where you see the margin going based on the rate hikes we've had the one we'll probably get this afternoon. If we think about NYCB stand-alone, and beyond just how do we think about funding costs and deposit betas over the next few quarters, given all the actions you've taken to improve the deposit mix?
So Ebrahim, let me start off by saying, we're super excited about the fact that we're getting close to our engagement coming to a marriage with Flagstone. So hopefully, as we get closer to our expectation of closing that transaction, we look at an asset-sensitive institution merging with a liability-sensitive institution, and we're very positive about the outlook of the margin. That being said, I'll have Mr. Pinto go through some of the details on where we think given the most recent changes of interest rates and how that would impact the pro forma company. John?
Yes. So when we look at the margin, we were very happy with the second quarter as it continued the expansion of our margin that really has begun since the fourth quarter of 2019. And as Tom mentioned in his opening remarks, the Flagstar deal does provide many benefits and one of them is combining an asset-sensitive institution into our liability-sensitive balance sheet.
So in order to illustrate this, we looked at the third quarter and if we assumed that the Flagstar deal closed on July 1, we estimated what the net interest margin would look like excluding prepayment fees and would come out to be approximately 2.68%. So that'd be a 30 basis point increase to what we reported as margin ex-prepay in the second quarter.
When we look at the overall benefit would be about 45 basis points. And what that entails is the 15 basis point reduction that we would, on a stand-alone basis, expect to see in the third quarter. This assumes the 75 basis point increase later today and a 50 basis point increase in September, which is what currently is consensus.
It doesn't include any of the impacts from purchase accounting as we believe that will be beneficial, but it won't be as material given the Flagstar balance sheet, which is primarily floating rate on the loan side.
Got it. So just a few follow-ups, John. So one, I think I got in there 15 basis point stand-alone NIM compression, 268, if the deal was closed as of July 1. So I just want to make sure that's right? And why does Flagstar not assume any margin expansion standalone? I think if I saw the slide right the NIM was 388 in June, and the guidance is in 380 to 390 range. Is there something one-off going on there or do we expect that margin to kind of level off?
I think what John is saying is that the pro margin is anticipated to go up on a combined basis that includes the assets of Flagstar merging into NYCB.
And if you look at to the investor presentation that Flagstar put out, they put out that range of 380 to 390, right. The come up with these numbers are using the midpoint of that range. But you also got to remember, if you look at their presentation that they did put on a swap. So that has impact to the quarters as well. When we put the two companies together, that swap will get mark-to-market and removed so that the asset-sensitive balance sheet that was that Flagstar had back in December will be what we would have going forward. So that's really, I think, the difference.
Got it. And just one separate question, Tom, around the deal, obviously, it sounds like both sides still very much on board with the deal. Just give us an update in terms of where we are in -- to the extent you can in terms of the OCC application process and how realistic is an October 31 deal close timeline?
So both teams are very confident. We filed our application right after we made the announcement. We made the announcement in April that we were moving to the OCC. I believe in mid-May, we filed their application, and we're waiting to hear back from both the OCC and the Fed, and we feel pretty good about where and we're very focused on our closing date, hopefully within that period.
We have an October deadline and contract we're pushing forward to get the closing done. As far as the teams are concerned, everyone's working on a daily basis. It's been a very long engagement. We're looking forward to the average. And hopefully, that will happen within that time frame. Nothing more I can say as far as specificity around the process other than it's in the hands of the regulators.
Our next question is coming from Steven Alexopoulos from JPMorgan. Your line is now live.
I wanted to start off with a theoretical question maybe for John. If we assume the deal closed and these two banks came together, color you just gave to Ebrahim especially was helpful. But once these two banks are together for every 25 basis point increase in the Fed funds rate, what do you expect your NIM to do?
On a consolidated basis, what we would expect is that we will no longer be, of course, as liability-sensitive as we are today. We'll be neutral to slightly asset-sensitive. So we would expect an increase going forward to the margin. But that depends on market conditions and, of course, the rate increases at the time.
Yes, Steven, I would just add to that point is that we're going to be in a very unique position given the Fed pivot on interest rates and our ability to look at this combined company positioning it best going forward on the balance sheet perspective.
So, if you think about liabilities, for example, when we started this process of merging with Flagstar, our liabilities were substantially out of the money. In this environment, we are probably part to slightly inventory. So, we have tremendous flexibility of exiting we will call wholesale liabilities and use that opportunity to better position the bank for the long-term on the proper funding mechanism on a combined basis.
As you know, I've been very public about this, we're focusing on gathering better liabilities to fund ourselves more commercial bank line. The marketplace right now will give us a great opportunity, if we have balance sheet repositioning opportunities. So, we feel highly confident that when we come together, we will look at the balance sheet very carefully and focusing on how we can position ourselves best to generate shareholder returns going forward.
So, it's basically what you're saying, Tom, is when the banks come together, we should think of you as being maybe neutral to very slightly asset sensitive. But over time, you plan to remix the balance sheet and make yourself a bit more asset sensitive, but that's not going to be the case day one. That's basically the mix, right?
I think, day one, we're focusing on mutual to asset sensitive. And I think we'll get there with the flexibility of repositioning. I want to make this statement very clear: the liability base is now significantly closer to par and/or in the money. That means a year ago that substantial, we'll call it, out-of-the-money liability position has changed the value because of the market condition.
That gives us a lot of flexibility to figure out how we're going to fund this institution without taking consequences to capital to restructure. So this gives us more options to think about where the balance sheet is going forward.
As far as the lines of business, I think Mr. Pinto was very clear, they're mostly floating rate. So there's not really a lot of negative marks that would be involved in their positioning because it's mostly floating rate type of investments and loans. So, we have some good flexibility there on the funding side.
At the same time, we're going to look at our asset classes and focus on the verticals and put the bank in a position to benefit from the current market, which is obviously in a rising rate environment. Now obviously, in the long run, we want to be more commercial bank like that will take time, but the focus is to focus on funding for the bank based on loan-related deposits.
The Company has done a tremendous job. The passion here is that when we make a loan, we get the deposit balances. If we don't give them the positive balances, we're not making the loan. That's a cultural change at NYCB, and we've done some great progress there. That is going to be the focus going forward on a combined basis.
That's helpful. And then final question. So if we look at the Banking-as-a-Service deposits, can you talk about -- I'm trying to understand how these are changing your liability-sensitive profile stand-alone or not. So can you talk about the cost of those deposits, right?
You saw strong growth, particularly the fintech bucket in the quarter. What did you pay for those deposits in the quarter? And are these changing your liability-sensitive profile? Or are you just replacing expensive wholesale funds with basically market rate Banking-as-a-Service deposits in the fintech bucket?
Well, Steven, it's a combination of a lot of unique attributes here. There's really three functions here. So if you think about Flagstar, they're one of the top originators in the country, number six in origination, number five in servicing, we're building out Banking-as-a-Service on the mortgage side.
We feel highly confident that when we merge together, that could be a substantial business on a combined basis. They have lack of a need for certain liabilities given their structure. We have a desire to bring a lot of viability. So, the Banking-as-a-Service type of mortgage clearly, is market. It is what it is and it's market. And if you have the custodial relationship, it's close to zero.
If you don't, you work with the customer, you have a lending relationship, you could work out relationships in respect to reasonable funding and it's going to be cheaper than home loan bank advances. So yes, it does have a cost, but we believe it's more attractive than home loan bank advances and other wholesale-type liabilities.
When you focus on the government side, which, again, hasn't really kicked in it, but we have tremendous contracts in the work, we won the Department of New Jersey. That's one of the few contracts that are currently in the pipeline that we're getting benefit from currently.
Rhode Island Department of Labor, Rhode Island Department of Health., U.S. Treasury Department, which is a substantial potential benefit for this company, Commonwealth of Pennsylvania, Commonwealth of Virginia, these are all wins for the bank. These will roll out over time, and the cost of those deposits were zero.
And when that's less to kick in going forward, that's going to be a significant catalyst for our funding position as zero-cost funding. Now this takes time to onboard. It's -- and I don't want to get ahead of myself as far as giving you guidance on when these kick in.
But we believe over the next 12 to 24 months, this will be a very sizable piece of our business. In addition, we also share in fees. So it's in addition to having a zero-cost deposit liability and a tremendous opportunity to get our -- my banking direct brand out there within the marketplace, we also get a sharing of fees and a tremendous benefit on float.
The area on the digital side, we call it neo bank/fintech relationships. We're being very proactive not only to just bank the client and have been provided for their services, but also a focus on corporate type accounts that we can now bank their relationships. So we're working some fabulous headwinds into that particular area, but most importantly, we're seeing results.
Now this is pie to short-term interest rates. Mr. Pinto can get through the specific details, but each deal has its own structure, and we're very proactive on building this out over time. We believe there's a need for a bank of our size to compete against some of the smaller players that are taking the Banking-as-a-Service business model.
And we feel this has been a very good ramp-up for the Company as an alternative funding solution than the traditional home loan bank advance market and nontraditional wholesale funding to focus on a diversified deposit base. So John, if you want to maybe talk about the funding side as far as cost of those types of liabilities.
Yes, excluding the government piece that Tom talked about, when you're looking at the Mortgage-as-a-Service or certainly the Banking-as-a-Service transactions, they're primarily tied to effective Fed funds plus or minus a spread, a small spread usually either way. So, they are tied to short-term interest rates.
But as Tom mentioned, there's still a more effective funding source than the home loan bank given the inefficiencies potentially in that market. So they specifically tied normally to effective Fed funds.
Yes, plus or minus. And I think, Steven, one of the attribute of this is very interesting is that as we work with these clients and look at opportunities on the banking side, we also work with excess liquidity coming off of their actual products that they're selling in the marketplace.
So money comes in and out, those are all operating accounts, which is going to build up very nicely for the bank. So, we're looking at not only it's just the BIS relationship, but as a commercial bank relationship as well. And that's been very, very positive for the past six months.
Your next question is coming from Christopher Marinac from Janney Montgomery Scott. Your line is now live.
John and Tom, can you talk about liquidity and access to liquidity going forward? And then also maybe mention Flagstar, they mentioned their drop in liquidity ratio from March to June?
From a liquidity perspective, what we've been doing, we're in a better spot now than we've been historically, especially when you look at on-balance sheet liquidity and even some of the cash balances and unencumbered securities that we've been holding on the books -- so as we continue to pay down home loan bank borrowings or liquidity by bringing in deposits just continues to increase.
So, we're very comfortable with the liquidity levels that we have. You can see we're keeping a little extra cash on the balance sheet to be conservative as we bring in these Banking-as-a-Service customers just to ensure that we fully understand the duration related to them and we don't have any surprises.
So that's why you're seeing some heightened cash and unencumbered securities on our balance sheet, which will continue as we continue to bring in deposits and pay down wholesale borrowings. So from the liquidity side, it's -- we feel very confident where we stand now and potential to bring in more deposits as we go forward only enhances that.
So Chris, I would add to John's commentary that we've been very conservative on putting the cash to work. We've been waiting on the sidelines given this environment, short-term liquidity to be invested in spread right now, which is advantageous to the bank. So we've been very cautious there. So we're looking forward as if we have excess liquidity, even with short-term treasuries, we can make a spread on that excess.
Okay. Great. That's helpful. And then on Flagstar, should we think a bit less about where the ratios are at 630 and more about kind of what you will do with it together because you have a lot of optionality as they come on?
Yes. Absolutely. I agree. Absolutely. Yes.
We're getting closer. So hopefully, hopefully, we'll get to the finish line. And clearly, this is going to be very opportunistic when we look at the choices of the balance sheet on a combined basis.
Great. And then one quick one on prepayments. Any visibility to them staying high for Q3?
I get some commentary about the mortgage market in our backyard. We've had elevated levels. I mean the second quarter was better than the first quarter. We see the continuation of that. So we're very bullish about activity. There's pent-up refi opportunity. There really is a lot of customers that need to come to the table here, given they're coming off of low threes, markets close to 5% now.
So I believe that will accelerate prepayment activity. We see good visibility right now. We're seeing -- we're going through July, we have some good levels in already. So I would say it still continues at a positive trend, but we feel they can go much higher from here if rates continue to track higher here.
Now obviously, if it goes the other way, they may wait on the sidelines. But we have a decent amount of loans coming due in the next two years, I need to make a decision and all those coupons are out of the money. So they would have to pay up to get either just the modification and/or refi.
And we're being very selective on what we want to do going forward. We feel that in this environment, our conservative underwriting standards is key. And the fact that turning the coupon for us is more viable than focusing on explosive growth. The growth that we had this year for the first half was significantly frontloaded.
I believe if you think about the rest of the year, our goal here is to turn the coupon. We'll have some moderate growth for the rest of the second half of the year, and we'll still be well above what we'd say, at least meet our expectations of high single-digit net loan growth.
Last year, that growth was backloaded. This year, it seems like it was front-loaded. So, we're confident that we'll meet our goals and objectives of that high single-digit net loan growth number, and we also are focusing very carefully on turning the coupon. If we can turn that low three, low mid-three coupon to upper fours, low fives, that's very meaningful for the margin going forward.
Next question is coming from Steve Moss was from B. Riley Securities. Your line is now live.
Maybe going back to the Banking-as-a-Service deposits here, it looked like that was back-end weighted for the quarter. Curious if that's primarily due to your circle relationship that you announced late in the quarter?
I believe the -- that's part of it. It's about that particular relationship with a global stablecoin exchange company without making names. It's about just under $3 billion. So the rest is other technology companies on the tech side. I did break it out in my prepared remarks.
So on the tech side of that amount, I think it was $5.5 billion, $2.8 billion is where we're focusing on exchange. And that's for their liquidity requirements on the cash expectations. And we're one of six banks that service that relationship.
Okay. That's helpful. And then in terms of on the liability side here, curious on a stand-alone basis, you guys have about, I think, $7.5 billion-or-so potables that come due or that could come due in the next six months. Curious, what are your thoughts how you're going to fund them if -- near term?
Yes, so look, I think this goes into the commentary that I discussed about the pro forma balance sheet. Optionality is on the table here to look at the liability base and the asset base upon consolidation of these two businesses coming together and the flexibility of something that's either in the money or flat to par without any consequence of exit gives us lots of flexibility.
So what we've been doing in the short-term? We've been either refinancing and they're all paying it off. So if you know from our prepared remarks, we're down $2 billion for the first six months and reducing our wholesale dependency at the home loan bank system. That is a focus of the bank.
So clearly, having that portable position right now at a position that we could be flexible and look at the balance sheet on a go-forward basis, we look at that as an opportunity. Clearly, if we continue to see deposit growth, which we believe we will, we have a significant amount of other initiatives working into Q3 and beyond.
We're not going to give guidance on deposit growth, but we're still doing a lot of hard work in bringing in new depository relationships both on the BAS side as well as loan related, and that will also be a catalyst to deal with advances as they get put back to us.
Okay. And then one more question on the liability side with CDs, curious what is in the bucket to reprice this quarter at what rate? And maybe just trying to figure out what is the dynamic portfolio in terms of like the average duration?
Right. So if you look at -- we'll look we'll take in a couple of different pieces. So if you look at our maturing CDs in the third quarter, it's $3.6 billion, and that's about a 50 basis point rate. So we've had a really good quarter in the second quarter with retention of our CDs.
So, when you look at our current CD rates of nine months is about 1%; 12 months, 1.75%; two years, it's around 2%, give or take. So, we brought in money under 1% in the second quarter. It'll be up a little, of course, in the third, but we don't think it will be dramatically higher than that, given what we've seen so far this quarter and the September raise happens so late in September.
When you look on the borrowing side, you mentioned the potables and what our thoughts are there. It's only about $575 million of wholesale borrowings that are actually maturing in the quarter and that's at 1.81%.
Your next question is coming from Bernard Von Gizycki from Deutsche Bank. Your line is now live.
So my first question is on loan growth. You had solid loan growth during the quarter. In your prepared remarks, you noted the multifamily portfolio, you continue to gain market share as competition abates. I was wondering, first, if you could talk to the competitive environment and what you're seeing there? And then just any color on the rebound in specialty finance and then just on CRE, notice it hasn't been growing there for some time. Just anything might be keeping you cautious there?
So I'd say big picture, we're conservative underwriting shop. We're very focused on continuing holding to our standards of services. So going forward and as part of our culture is that we underwrite on a cash flow basis. And if deals are tied into they don't make sense, they'll leave the portfolio and we're very comfortable with that. And that's our philosophy.
We feel very good about the loan book, our LTVs, the business in hand and the New York City marketplace. And we're also working with some of our flagship customers that are moving outside of New York and building out their businesses away from New York City, and that's been very successful.
And at the same time, as we move with them, we're also working very hard to bring in the full depository relationships. So that's been a success for the bank. And historically, the bank has always had a focus on strong underwriting criteria. When you think about the marketplace today, we are focusing on, obviously, moving the coupon higher, being very selective on CRE, pure CRE, we'll call it retail and office.
So you don't really see a whole lot of activity there for years now. We've been not focused on that. From time to time, we have good customer relationships that have a diversified portfolio, and we'll consider financing it. But the focus has been in our niche business being the multifamily non-luxury marketplace. And we've done a very, very strong job over the past 18 months on getting back to a growth story.
With that being said, I would say in my prepared remarks, we had interesting back-loaded growth last year. It was slow in the beginning of '21. And at the end of '21, we had a surge of activity given the shift of interest rates that continued into the first half of 2022. And we think that, that was a front-loaded story.
With that being said, I feel very confident that we'll meet our target of high single-digit net loan growth for the Company on both multifamily as well as specialty finance. On specialty finance, we had a couple of years of uncertainty on utilization given the general economy, COVID and the supply chain issues. That seems like that has changed quite a bit for us. So a lot of that has been draw downs.
The good news there is that these are well underwritten credits that we're very comfortable with. And more importantly, they're committed for and they draw down, and we get nice returns on that because it's 75% of that book is floating rate and that's been an explosive six months, I don't envision that same type of activity for the second half of this year. But I think specialty finance, even on a flat scenario, had a phenomenal year. They'll probably grow a little bit this year, but on a managed perspective.
And I think the target for the Company is high single-digit net loan growth with the focus on really moving the coupons within the portfolio, and we're focusing very actively on that bucket of loans that are coming due to reprice and their option comes due. And we're being creative there to get them to the table sooner so we can move that low three coupon into a high four, low five coupon, and that will add value to the margin.
Okay. Great. If I could, just one more question. This is for Flagstar. So I know the gain on loan sale was $27 million in 2Q and I believe in the deck, you're guiding flat in 3Q. I know a few quarters ago, there was guidance on the expected EBO gain on sales. And I just wanted to get an update on how much you had in the first half of this year? Any expectations for the second half? I'm just wondering, if these kind of finish and they'll be done by this year or if any of that's built into 2023?
Yes, I'll let Lee take that one.
Yes, sure. So in the second quarter, we had approximately -- just under $1 million of EBO gain. What I would tell you is, as we move forward, the EBO gains are going to be relatively neutral. You might get a little bit similar to but it isn't going to make a meaningful difference to the quarter's gain on sale -- and with the rising rate environment, that's because you can't securitize them all at a gain.
And so those that were securitizing it again in some instances are being offset by those that are underwater. And so we've made the decision in certain instances to just keep them on the balance sheet in portfolio. So net-net, you're not going to see a big impact from EBO as it relates to the gain on sale going forward.
Next question today is coming from Matthew Breese from Stephens. Your line is now live.
Curious, what is the stand-alone New York Community NIM outlook for the third quarter?
John gave it. Do you want to take that?
NIM ex prepaid down 15.
Down 15. Okay. And then could you provide within that what the period-end spot rate was for New York Community deposits as a whole? What was the cost of deposits at the end of the period?
At the end of June 30?
Yes.
I'll get that for you. Total interest-bearing deposits 53 basis points.
Okay. Outside of the partnership with Circle, do you have any other stablecoin relationships that we should be aware of? And just given some of the disruption in that market, could you just talk to the quality of those relationships, if you do have others and some of the dynamics of how they keep the stablecoin stable?
So we have none other than the one that you've mentioned. We're very confident in their positioning as a global exchange for fiat currency. We -- as indicated, we are a cash provider for obviously one of six banks that hold cash for their liquidity requirements.
It's not focused on a combined basis where we're comingled. It's clearly just a cash positioning, and we're one of those -- one of six banks that provide banking services to them to have a percentage of their allocation of cash.
I believe if you recall, there were liquidity requirements 30% of every dollar that they need to invest -- needs to be invested in cash. And I believe the other 70% is in short-term treasury. So USDC happens to be obviously one of the more stable, stablecoins.
So, we're very comfortable with that relationship, and we're working on a number of initiatives in respect to potential partners in the future. But clearly, when it comes to our positioning, it's really just the corporate cash account that we have with our partnership there.
Got it. Great. Okay. The last one for me is just to get a temperature check on obtaining regulatory approval for the deal. From a corporate structure standpoint, the Flagstar deal has a few moving pieces, one of which is Flagstar seeking a national bank charter within the OCC versus an FSA. I'm curious if any critical milestones at this point have been reached and approved and if you can speak to any of them, including that national bank charter switch?
I'm going to defer to Sandro. Obviously, we believe -- let me just start it by saying, we feel very confident where we are. As indicated, we filed our application in mid-May. We're coming to the end of July and things are progressing, but I'll help push that over to Sandro. Sandro?
Yes. Yes. Thank you, Tom. I don't have anything to add relative to the regulatory status. We're working through the process. And as Tom said, we remain confident that we'll get the approvals we need. As it relates to the National Bank piece of it, Flagstar, we've been considering moving to a national charter since that option became available to us a couple of years ago when Congress passed the bill that included that provision. And it's just sensible to do it in parallel with this application.
So, there's -- don't read anything into the National Bank piece of it. It's just an easy way to get there. And we would have gone there, if we were independent, we would have gone there because we're not as thrift-like as we used to be in as you think about that going forward, the National Bank target just makes a lot more sense for our organization and for the combined organization as well. So again, don't read anything into that. There's no complication associated with the application because of the National Bank piece of it.
Your next question is coming from Chris McGratty from KBW. Your line is now live.
Maybe, John, a couple of clarifying questions to make sure I heard you right. The spot deposit cost was 53 basis points for the entire quarter, is that also -- you said it was also the June 30 cost?
No, that was the average, right, not the spot. Sorry about that. Correct.
No, do you have the spot.
No, I don't have that with me.
Follow-up, you don’t get John follow-up with that.
That's great. Yes. And then did you provide, like you typically do the expectation for expenses for the quarter, sorry, I may have missed that?
Yes. No, 135, very consistent where we were in the second quarter and the first quarter, we're comfortable with our original guidance in that 540 range. We beat it by a little bit in the first two quarters, we think we'll be there.
Okay. And then last one. Given the market's expectations that were in some sort of a slowdown in the economy, can you just speak to what you think is normalized losses for that spec fin book given some of the cyclicality there?
So just in general, I mean, we haven't had a 30-day delinquency in nine years. So, we're pretty confident in our underwriting and then we're a credit buy-up shop there. We do a great job on sourcing through what makes sense for the bank going forward. It is a unique business model for us.
It doesn't come with funding, but we are focused on the credit side. We have not had a 30-day delinquency in nine years. And so, we don't envision any real losses there, but maybe John can specifically talk about on a CECL perspective, how that would kick in?
Yes. Even from a CECL perspective, where the modeling comes out, very low losses historically, and currently, given what we've seen. I mean, it's just so -- the collateral on it is just so strong. The performance has been so strong as well. So, the risk ratings on that portfolio are extremely low. So, it's just -- it's a very, very high credit portfolio that we've built over the last almost 10 years.
Yes, super senior secured. Looking forward to the repricing level, obviously, we manage it for the past decade in a low interest rate environment. And this elevated interest rate environment on the short end of the curve, we should see some good benefits on the yield side there.
Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing 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 October when we will discuss our performance for the third quarter of 2022.
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.