New York Community Bancorp Inc

NYSE:NYCB

Earnings Call Transcript 2022-Q3

[Sal DiMartino, IR & Strategic Planning]

Good morning, everyone. This is Sal DiMartino, and I'd like to thank you for joining the management team of New York Community for today's Conference Call. Today's discussion of the company's Third Quarter 2022 Results will be led by Chairman, President and CEO, Thomas Cangemi; joined by Chief Operating Officer, Robert Wann; and the company's Chief Financial Officer, John Pinto. Joining them on the call will be Sandro DiNello, President and CEO of Flagstar; and Lee Smith, President of Flagstar Mortgage.

Before we begin, I'd like to remind everyone that certain comments made today by the management team of New York Community may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties, which may affect us.

Now I would like to turn the call over to Mr. Cangemi.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Thank you, Sal. Good morning to everyone, and thank you for joining us today to discuss our third quarter 2022 performance. Before diving into the quarterly results and in anticipation of questions, I just want to say that neither New York Community or Flagstar is going to comment on to address any questions regarding our pending merger on today's conference call.

With that being said, let's turn now to our third quarter results. Overall, the company had a solid third quarter despite aggressive Fed tightening and an inverted yield curve, still we produced solid loan and deposit growth, lower operating expenses and continued strong levels of asset quality, which remains our hallmark. In terms of the net interest margin, given our liability-sensitive balance sheet, not surprisingly, we witnessed margin compression during the quarter. However, we still reported diluted earnings per share of $0.31, excluding merger-related expenses. This was unchanged compared to the third quarter of last year and in line with consensus.

Turning now to the main drivers of our quarterly performance. At the three consecutive quarters of double-digit loan growth, loan growth moderated as expected. Total loans held for investment rose nearly $450 million during the quarter to $49 billion compared to the previous quarter. Year-to-date, total loans held for investments are now up $3.2 billion or 9% annualized.

Loan growth continues to be centered on the multi-family specialty finance portfolios. At September 30, the multi-family portfolio totaled $37.2 billion, representing strong growth both on a year-to-date and a linked quarter basis. Multi-family loans increased $407 million sequentially and $2.6 billion or 10% annualized since the beginning of this year.

We continue to take market share in the multi-family space. A recent survey by S&P Global Market Intelligence ranked NYCB as the second largest multi-family portfolio lending nationally. And we believe we are, by far, the largest multi-family portfolio lender in our nonluxury rent-regulated lending niche in the New York City market.

Specialty finance loans also continued to increase up $117 million to $4.3 billion compared to the previous quarter and up $755 million or 29% annualized so far in 2022. As of the third quarter, Specialty Finance had total commitments of $7.3 billion, up 11% compared to $6.6 billion at the end of the second quarter. Of the current third quarter amount, 78% or approximately $5.7 billion are structured as floating rate obligations either prime or SOFR, which have and will continue to benefit the company in a rising interest rate environment.

I would also point out that as of the end of the third quarter, we had approximately $7.4 billion of multi-family and CRE loans, which come up onto their contractual maturity or option repricing date over the next two years. This includes multi-family loans with an average weighted average coupon of 3.74%, $5.7 billion and $1.7 billion of CRE loans with an average weighted average coupon of 3.2%.

And going forward, our loan yields should benefit from low coupon laundry pricing to higher current market rates. In terms of this pipeline, as we head into the fourth quarter, it stands at a robust $2.3 billion compared to $2.5 billion in the previous quarter. Of this amount, 87% represents new money to the bank. On the liability front, we also grew our deposits during the quarter despite higher interest rates, which led to outflows in certain categories, total deposits increased $461 million compared to the previous quarter and have increased $6.6 billion or 25% annualized so far during 2022 to nearly $42 billion.

As you've heard me discuss many times over the past 18 months, the focus is on and will continue to be on deposit gathering. Last year, we reemphasized bringing in more deposits from our borrowers and we also launched our Banking-as-a-Service initiative. We are pleased with the success we have gone with those two programs and expect they will continue to be primary drivers of our deposit growth going forward.

On a year-to-date basis, loan-related deposits were up just under $800 million or 26% annualized since we started refocusing on this deposit channel during the first quarter of 2021, total loan-related deposits have increased $1.3 billion or about 37%. Additionally, business operating accounts of 32% of total loan-related deposits.

Banking-as-a-Service deposits totaled $7.9 billion at third quarter 2022. Our BaaS deposits fall generally into three verticals: Traditional BaaS, which totals $5.3 billion in deposits; Mortgage-as-a-Service, which caters to mortgage banking and servicing companies totaling $2 billion; and Government Banking-as-a-Service, which caters states and municipalities as well as the U.S. Treasury's preloaded debit card program totaling $579 million.

Mortgage-as-a-Service and Government-as-a-Service are two verticals expected to drive current growth within the overall Banking-as-a-Service segment. Recently, the company won two new BaaS mandates. Both of these should result in fee income and deposit growth opportunities for the company.

Moving on to one of the company's hallmark: credit. Our asset quality and credit trends remain superb and continue to rank the company is among the best in the industry. Nonperforming assets totaled $50 million, down $6 million compared to $56 million in the prior quarter and were 8 basis points of total assets.

Additionally, we recorded zero net charge-offs during the current third quarter compared to $7 million of net recoveries last quarter. The strong asset quality metrics reflect our conservative underwriting practices and historically low level of losses in our core portfolios.

Before moving on to the next topic, I'd like to provide a brief update on the New York City real estate environment. New York City residential real estate remains healthy and commercial real estate continues to gradually improve. Monthly median rents for Manhattan multi-family apartments jumped 21% year-over-year to about $4,000 for the third highest on record. Median rents appear to have stabilized at record high levels as well.

Turning now to the commercial side. Average retail asking rents in Manhattan recorded a quarterly uptick, rising for the first time since the fourth quarter of 2016. Manhattan third quarter 2022 office leasing surged to a post-pandemic high. This was driven by several large relocations in the continuing fight to quality trend, particularly in Midtown. Also, the Manhattan availability rate decreased at 18.4%, with positive absorption for the first time in 12 quarters.

New York City office occupancy increased in September likely due to many large companies urging their employees to return to office. Similarly, there was a significant increase in MTA ridership, seated diners in New York City, evidence in continuing strength in New York City economic activity. Each of these drivers are evidence of continuing strength in the New York City economy.

Moving on now to the income statement. Third quarter net interest income totaled $326 million, up $8 million or 3% on a year-over-year basis. Excluding the impact from prepayment penalty income, net interest income on a non-GAAP basis increased $14 million or 5% to $360 million on a year-over-year basis.

In terms of the net interest margin, excluding the impact from prepayments, third quarter NIM declined 23 basis points on a linked-quarter basis at 2.15%. This was due to a higher cost of funds given aggressive Fed policy tightening.

On the expense front, our noninterest expense remained in check despite continuing to make investments. Noninterest expense totaled $136 million during the third quarter, which includes $4 million of merger-related expenses. Excluding this item, operating expenses were $132 million, down $2 million compared to the previous quarter and up 2% on a year-over-year basis.

At yesterday's meeting, the Board of Directors declared a $0.17 dividend on our common shares. The dividend will be paid on November 17 for common shareholders of record as of November 7. Based on yesterday's closing stock price, this translates into an annualized dividend yield of 7.6%.

With that, we will be happy to answer any questions you may have. We will do our very best to get all of you within the time remaining. But if we don't, please feel free to call us later today or during the week.

Operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question.

[Ebrahim Poonawala, Bank of America]

I guess first, maybe let's start with the margin outlook in terms of what you expect to happen in the third -- in the fourth quarter. And give us some color around if you could -- your views around one, where you see the margin dropping if you assume the forward curve plays out as is over the next few quarters? And then anything in terms of the BaaS deposits that helps you mitigate that margin pressure. So yes.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Sure, Ebrahim. I'm going to pass on the question on the margin to our CFO, Mr. Pinto. John?

[John Pinto, Chief Financial Officer]

Yes. On the margin front, when we look at the fourth quarter, what we expect, and we'll talk about it in really two different ways, right? If we assume the Flagstar deal would have closed on October 1, we'll look at what the impact of that transaction would be. So when you look at where we start from the third quarter ex prepay at 2.15%, we would be up 40 basis points in the fourth quarter. That's our forecast with Flagstar closing on October 1. Exclusive of Flagstar, we expect the margin ex prepaid to be around 195, so down 20 basis points on a stand-alone basis, slightly better than what we did in the third quarter. So the impact of Flagstar for the fourth quarter, we're looking at a 60 basis point benefit when you look at margin ex prepay.

The BaaS deposits, we talk about the BaaS deposits as we talked about on the last couple of calls. They are primarily floating rate, right? And they have high betas, especially the Mortgage-as-a-Service deposits, their beta is very close to 100%. The other deposits are a little less than that when you look at some of the other Banking-as-a-Service deposits that we've brought in. So we're monitoring that. The goal is, of course, to bring other operating accounts tied to those and continue to build out those relationships. And also to build out the government as a deposit relationship. That's where the benefit, hopefully, we're going to see when those deposits start to come in because those are noninterest-bearing deposits.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Ebrahim, it's Tom. I'd just add, that has started. We were awarded a very significant government as a service contract, we kicked in at the end of October, that is going to be significant as we go into the period ahead. In addition to that, we have a number of wins on the government side that start to kick in in addition to that in 2023. So we're excited about the impact of that because that is a 0 cost deposits.

[Ebrahim Poonawala, Bank of America]

And John, just going back to your 195 margin outlook ex prepay do you expect the cost of deposit increase that we saw this quarter to accelerate next quarter or because of some of these deposit dynamics, we expect that to be a little more tempered versus the third quarter increase?

[John Pinto, Chief Financial Officer]

Yes. I mean we saw that the third quarter was difficult from a deposit beta perspective, no doubt. We expect with these government deposits to come in that, that will get a little bit better or hopefully stabilize at those -- at that third quarter level.

[Ebrahim Poonawala, Bank of America]

And I guess just one question. I appreciate what you mentioned about the deal upfront, but clearly, you still think -- you still expect to close the deal based on what John said and what you have in your slide deck. Given the change in the macro, has anything changed from your perspective? And I'm not sure if anyone from flexes on the line that would make you think differently about the strategic merits of the deal today on November 1 versus when the deal was announced?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Let me be clear on my opening comments are relatively clear. We're not going to speak specifically about the pending merger. However, as far as going back to our discussion of the transaction itself, we're very comfortable that business combination of powerful opportunities to companies to come together and build a new co that has good diversity a tremendous unique opportunity on the deposit side on funding and give us an opportunity to transition a fifth commercial to commercial banking enterprise. We're excited about that. I'm not going to be specific about the transaction itself. But clearly, when we came out with this partnership, and I know Sandro and Lee are on the line, we were very, very positive about the concept of putting these balance sheets together.

Sandro?

[Sandro DiNello]

Did you reference me, Tom?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

No, they referenced you. Sandro and Lee on the line. But Sandro, by all means, feel free.

[Sandro DiNello]

Yes, sure. Thanks, Tom, and thanks for the question, Ebrahim. Look, if this was Flagstar's earnings call, I would start out by telling you that it's the best quarter we've ever had. Not the most profitable quarter, but the best quarter because if you look at our margin, nine years ago, it was under 2%, and virtually all of our income came from mortgage. Our margin now is over 4%. And with the far majority of it coming from banking. We've got a high-quality loan portfolio. We've got efficient funding. And while much smaller due to market conditions, we're still profitable in our mortgage business for many originators or not. And that mortgage business will be there to take full advantage of the next refinancing market, which will come. We don't know when, but it will come.

And on top of all that, we have a very formable servicing business. And when you look at our expenses, we've been able to manage them to revenues. Our efficiency ratios have declined pretty significantly. So if given the opportunity, getting back to your question, combining this company with NYCB taking what they do well, running the similar playbook that we've run as we rebuild Flagstar. I'm excited about our ability to produce something very, very special going forward.

[Ebrahim Poonawala, Bank of America]

And just one, Sandro, since you mentioned it was one of the best quarters for Flagstar. Pardon my lack of familiarity, but it sounds like your outlook for margin is relatively flat next quarter versus this quarter. Is that including that peak for the cycle?

[Sandro DiNello]

Well, Ebrahim, what we -- how we try to structure our balance sheet viewing ourselves as an independent organization is we feel very comfortable with the 4% margin with our business model. So given what we believe we can get out of mortgage in this environment, what we believe we can get out of servicing in this environment and the servicing piece of it is pretty certain and 4% margin on top of a clean loan book, I think the bottom line number feels really good. So at this point, I think the challenge is managing the betas on the deposit side in a way that doesn't compromise the margin going forward because there's going to be margin pressure and there's no question about it. But I think that we're very comfortable at Flagstar that we can hang in there in that 4% range going forward. So that's my outlook. And I mean, we only give you outlook for the next quarter but we're confident about that, at least for the next quarter. And I think overall, as I said, given our business model, that's a margin that works very well for us.

[Operator]

Our next question comes from the line of Bernard Von Gizycki with Deutsche Bank. Please proceed with your question.

[Bernard Von Gizycki, Deutsche Bank]

So my first question is, so you still had good growth in the multi-family portfolio. But as you noted, it moderated, but it seems in line with expectations. I'm just wondering with rates continuing to rise, is there a level of rates where that could drive growth to peers who might be pricing maybe a bit more aggressively like the agencies?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

It's interesting. It's been a very interesting pipeline going into Q4. Q3 is typically a seasonality quarter for us. Q4 pipeline is relatively strong. The coupon is extremely strong, given the -- I mean you look on a year-over-year comparison basis, we're going from a 3% market to a 6% market overnight, which is powerful towards repricing this book of business. So we anticipate moderate growth in the second half of 2022. We probably grew a little bit better than we expected as we go into the pipeline. So our overall net loan growth for the year it's still going to come in around 8% to 9.5%. So even if we're at the consistent level of third quarter, which is unlikely, given fourth quarter activity typically is a robust activity in general, coming off of a seasonality quarter of Q3. So it's been an interesting opportunity here, given where the agencies are today, where the shape of the curve is. And I think, in general, most portfolio lenders are getting good economics. And I think the opportunity here is moving that coupon from the low 3s to the market, which is significantly higher than those 3. So we're excited about what's coming due. We've offered some unique options for our customers that are going into the repricing period and we're trying to move our balance sheet to more interest rate risk to initiate risk compatible towards getting away from liability sensitivity to asset sensitivity and offering SOFR options has been a well-received option for our customers. And it seems like a high percentage of those customers are opting for a SOFR option, and we'll then -- we'll work on moving our balance sheet to more asset sensitivity. I think that sets us very well to look at this large book of business towards more of a SOFR option in a rising rate environment. And as far as the agency is concerned, I think in the long run, as we focus on merger plans, we're going to have a capital markets tool that will allow us to be more competitive. We're going to be able to offer an option that could compete a derivative perspective to do long-term financing and take those fixed rate loans and swap them out to floating rate. So I think that's going to be another competitive opportunity on the benefits of the merger. So we're looking forward to the capital markets benefit. And that also comes with some fee income opportunity as well. So we're still very, very bullish about valuations and sponsorships, but we're also cognizant that things have slowed down because of substantial interest rate increases that happened in such a short period of time, going from 3% in the beginning of the year of 6% at the market is a big move. So we should benefit on repricing the portfolio, which could really bode well for future margin benefits.

[Bernard Von Gizycki, Deutsche Bank]

And obviously, I understand about the commentary on the pending deal. But I was just wondering, recently you filed some S4s and you provided a better snapshot of some of the assumptions from the time of the deal announcement to 3/31 and 6/30 of this year. I was just wondering, could you provide us any updates on your tangible book value or earnings accretion estimates? Or anything you can comment on that?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

John?

[John Pinto, Chief Financial Officer]

Yes. So when we announced the deal on the tangible book value side, we're 3.5% accretive. When we looked at it, and we talked about it in June, that tangible book accretion jumped pretty dramatically. It's almost probably 8% or 9%. Our estimate now is the 9/30, it's come back down around that 4% level, and it's really just due to the purchase accounting adjustments given the changes in interest rates. But it's highly dependent on where those -- where interest rates are at the day of closing. So that's where we look at it. We're still probably right around that same level, a little better than what we originally anticipated the deal.

[Bernard Von Gizycki, Deutsche Bank]

That 4% you said is as of 9/30?

[John Pinto, Chief Financial Officer]

Yes.

[Operator]

Our next question comes from the line of Dave Rochester with Compass Point. Please proceed with your question.

[Dave Rochester, Compass Point]

For the NIM guidance, what are you guys assuming for those potable borrowings rolling into new structures? And then what are you rolling those into at this point?

[John Pinto, Chief Financial Officer]

So we had a handful of potable borrowings put back to us in the third quarter, and then we had -- we'll have some that we're forecasting a large portion of them to get put back given where rates are today in the fourth quarter. And we're using -- we're hoping to fund it with deposits, of course. But any shortfall on the deposit side, we'll backfill with FHLB advances. We'll put some swap funding on depending on where those levels are. The potable market is still out there, so we can look at some potables as we go forward as well. So it's really a mix of different liability structures that we'll look to refinance those potables into as they come back to us. From an interest rate risk perspective, you're taking off money under a three-month duration whatever you put it on, you're going to gather a little bit interest rate risk benefits in both the third and the fourth quarter by putting that out a little bit longer.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Dave, I would just add to that commentary that given the government project that we just started to book recently in October, that's going to be significant for the quarter. So it could be in -- on average in the billions. Between $2 billion to $3 billion on average for the quarter, that would be at a 0% cost of funds. That's the middle class fund prepaid card program that we're involved in, that's a very good piece of business for the bank, and we'll be able to leverage that opportunity as we look at the repricing mechanism. And in the big picture, if you think about the balance sheet, and the assumption of coming together with a potential partnership with Flagstar, we have optionality as we choose how we want to move this balance sheet forward in the future. And that's going to be a very unique opportunity at the time as we assume we can put these balance sheets together. That's a really powerful position to be when it comes to having significant optionality on funding. So this is something we're focusing on a daily basis, it's fourth quarter, and we're excited about the new government piece of business that's coming on as well as the potential of balance sheet consolidation, which will give us some significant choices as we embark upon a transformational opportunity here.

[Dave Rochester, Compass Point]

Yes. So does that 20 basis points of pressure, does that include the $2 billion to $3 billion in deposits that you're hoping to get or expecting to get in the fourth quarter?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Yes. I think that would also assume 75 next week on [Indiscernible] in the 50, probably in December.

[John Pinto, Chief Financial Officer]

Correct. Yes.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So it's just following consensus of the [Indiscernible]

[Dave Rochester, Compass Point]

And then that also bakes in Flagstar's expectation that the margin does not go up in the fourth quarter as well, I would guess. Is that right?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Yes.

[Dave Rochester, Compass Point]

And then just going back to the deal accretion. What were you guys saying is your updated math on the earnings accretion that you're expecting to get from that? I heard you on the tangible book part, just -- I may have missed the earnings accretion piece.

[John Pinto, Chief Financial Officer]

Yes. We haven't given -- we haven't really commented on updated guidance on earnings accretion because it was really based originally on [IBIS] estimates. And [IBIS] estimates now we have consolidated deals in them. So the deal is still accretive. We don't see any need to change that guidance. We're pretty comfortable with what's out there. So we haven't specifically updated that from deal announcement.

[Dave Rochester, Compass Point]

And what's your updated interest rate sensitivity if you close the deal on October 1?

[John Pinto, Chief Financial Officer]

Yes. So we'll -- if we close the deal on October 1, right now, we're estimating would be slightly asset sensitive, but pretty close to neutral.

[Dave Rochester, Compass Point]

And then maybe just one last one on expenses. How are you thinking about 4Q or just the year overall? I know you got the annual guidance out there? Any updated thoughts there?

[John Pinto, Chief Financial Officer]

Yes. I mean the annual guidance of $540 million, I think will come in a little better. We did a little better this quarter with managing expenses. I would assume the fourth quarter will be right around that 134, 135 range. That's kind of where we've been. So yes, I think we'll do a little better from a year perspective than we -- from our original estimate at $540 million, but the fourth quarter, I see coming in around that 135 level.

[Operator]

Our next question comes from the line of Christopher Marinac with Janney Montgomery Scott. Please proceed with your question.

[Christopher Marinac, Janney Montgomery Scott]

John and Tom, I wanted to ask just about the liquidity figures. From the last quarterly call report, it seemed that you had a very low level of flood securities, a lot of potential collateral. In fact, some of those measures were better now than it would have been pre-pandemic. So stand-alone, has anything changed at the end of September? And do you see any, I guess, ability to add more debt if you wanted to on the balance sheet?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

I'll start and then I'll pass it on to John. Bottom line in the quarter, we looked at heavy liquidity position and put it into short-term U.S. treasuries inside of 6 months. So with that being said, there was an opportunity to take a lower yield in cash and move it into a we'll call it a category which is almost consistent with cash, which is 6-month treasury built inside of that as a strategic new res we saw rates rise to it.

And John, you want to add anything?

[John Pinto, Chief Financial Officer]

Yes. So that's where you'll see the securities portfolio increased for us, which we haven't seen in a very long time. That is just putting on, as Tom mentioned, U.S. treasury securities, 6 months are under just trying to pick up some yield based on what we could get at the Fed at the time. Collateral wise, it's just as good as cash, liquidity, just as good, of course, is high-quality liquid assets. So that's what that was. We're not looking to put duration on in that portfolio yet. We'll continue to monitor that, but with the strong loan growth that we've had, we haven't had a need for that. So that growth in the securities portfolio is really a liquidity, just a liquidity play from cash to securities.

[Dave Rochester, Compass Point]

And then just a follow-up question on the Banking-as-a-Service deposits. As you look beyond a couple of quarters, I know these are high beta for the moment that -- is there any issue with retaining those funds? Or do you think actually that the retention is going to be high and they'll just -- they'll behave differently as rates move around next year.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So I indicated in my prepared remarks that we're going to anticipate Government-as-a-Service to ramp up here. It takes a while to get these contracts nailed down and put in place and their long-term contracts. So we have a nice book of business or business going forward. We indicated that we have a very significant ramp up in Q4. I think it's about $400 million, $500 million a week in cash stops and it could go up to about $6 billion for one transaction. That's a significant piece of business. At the same time, we are the bank provided for U.S. Treasury and as any programs that come out of the treasury department, we are now onboarding that. It's a long-term contract. We're very pleased about our partnership with First Data and Fiserv, so it's been a very good opportunity for the bank to use that type of funding. At the same time, we're committed to mortgage as a service. I think there's great opportunity on a planned merger with Flagstar, and we think there's a great opportunity there to build that. So that is probably more high beta because it is tied to SOFR index-type funding. But we're committed to that because we're going to be a large player, assuming the transaction closes. And when we come together, that Mortgage-as-a-Service business could be very powerful as we work a lot of the correspondent customers. When it comes to traditional bats, where we're out there working hard on working trying to get new business, and it's been a good journey for us. But I think in general, we're focused on the three verticals. And ultimately, as we look at digitization as a company, there's a tremendous opportunity to digitize the mortgage space. And that's where I think great opportunity will come. And you though it's not try to traditional bats, but our team and digital are focusing on a lot of projects that's going to hopefully lead towards some good deposit growth. We think there's a tremendous deposit opportunity on mortgage. Having the ability to transact loans, service phones and get the deposit activity. I think that's a tremendous benefit of the planned merger with Flagstar. So Mortgage-as-a-Service is going to be a focus as well.

[Operator]

Our next question comes from the line of Steve Alexopoulos with JPMorgan.

[Unidentified Analyst]

This is Alex on for Steve. You mentioned the benefits from the Banking-as-a-Service business. Do you expect any investments needed to scale this business and get those new opportunities?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So we're going to be very mindful of what our requirements are here. So we've been adding staff. We have built out the Chief Digital Office directly reporting to the CEO. I think as a priority. This is an interesting opportunity. As indicated, mortgage, in our opinion, given the history of NYCB and Flagstar, there's a lot of long-term history on how to service the escrow account, the P&I payments. So that is embedded within the franchise within our operating people, but we're going to move people around, and we're going to make sure we have the right support for these lines of businesses I will tell you the challenges is onboarding some of the unique opportunities in traditional bats because obviously, it takes time, and it's API interfacing within the core, and we're working on new opportunities within the core that can make it a lot more efficient but we are staffing in that area. We're moving people around within the organization. I think that's also -- it's great when you put two big companies together and think about opportunities within the organization. They are going to be opportunities in the organization to shuffle people around to support growth of different verticals within the company. And our vertical here on the funding side is going to transition from wholesale to more of a traditional type funding mechanism and part of that will be BaaS.

In particular, Government-as-a-Service, it's been a long trajectory of getting them on to the balance sheet. We had a good run during the pandemic and we were very successful there. That led us into other opportunities. But we have a bunch of transactions that we've won, and we plan on onboarding. So I think 2023 could be a nice pickup there on very core stable accounts, although they're not permanent because they do move on, but we do have the opportunity for an ongoing benefit of good funding sources as we look at the planned merger. As we look at our choices on balance sheet and look at this one vertical has clearly a different funding mechanism of traditional nontraditional funding that NYCB is accustomed to.

Moving from a thrift to a commercial bank is the strategy, as Sandro indicated, he's been through his journey. We hope to do this together. And it's a very powerful change when you look at funding. So like I said in my opening remarks, funding, funding funding. We're focused on that. We raise focus on that. You see a significant shift on our ability to bring in deposits, and we're going to continue.

[Unidentified Analyst]

And you touched on this briefly earlier, but can you talk about the fee opportunities that you're seeing from this Banking-as-a-Service business as well?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

No, I'd say initially, it varies just on car fees. It's not significant, but they do add up when you have 5 million to 10 million cards, at a couple of pennies per card per month. It adds up. It's not significant to the total P&L, but we are seeing some nice fee income opportunities there and it's consistent. As we onboard more municipals and more states about the country, we'll have more consistency of the income. So it's another avenue that we're focusing to justify the investment in the business.

[Unidentified Analyst]

And a follow-up to the comment you mentioned about the multi-family and commercial real estate loans repricing. Can you talk about the market rates for those loans and maybe specialty loans as well?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So on the specialty side, it's mostly plus the spread. It's been consistent. About 80% of our book is floating rate. we're doing predominantly mostly floating rate structure in the specialty. There were credit buy-up opportunities at very high quality, senior secured position. We've been in this business for a while now, and our team that runs it, has done an excellent job. We've never had a late pay. We know he had a charge-off. We never had a delinquency. So we're really positive on the asset quality of that. But it's been a good growth business. We have quite a bit of commitment out there. So in the event that markets do have some volatility. There's a possibility that there'll be some good drawdowns. We'll make some good money on the drawdown. We think that may happen given the uncertainty of markets in the current environment today.

In respect to the decree and multi, it's been a very significant increase in total interest rate cost to the borrowers. So going from 3% to 6% is real. So we're around that level right now. It's about 175 to 185 of the 5-year treasury. That's been a traditional short-term type multi-family product, really not quoting much on the back end on 10 and 7-year money. But if we do, do that, it's at higher spreads. And we're going to hopefully synthetically structure that if you want to put on balance sheet. So we can have a better interest rate risk profile going forward. And on the CRE side, tack them over 50 basis points of that. So you're in the mid-6s right now to the market. So that's a sizable change as indicated with the coupons in the 3s going to the 6s with a lot of money that has to be priced and we offered a SOFR option. I think that's a good option for customers versus locking in 6. They may take a 1-year approach towards touting and hope that rates may come down in the future. But we're giving that option to customers, and it's been a matter close to 50% receptivity with that as long as that are actually repricing in the period. And we think that's going to bode well for our future interest rate risk management opportunity when we think about the combined balance sheet going forward.

[Operator]

Our next question comes from the line of Matthew Breese with Stephens Inc. Please proceed with your question.

[Matthew Breese, Stephens Inc]

The new loan yield question was asked. I was curious, though, on the opposite side, what is the current spot rate of deposits?

[John Pinto, Chief Financial Officer]

So yes, as of 9/30, our current spot rate is 1.59%. -- 1.59. That's total interest-bearing deposits.

[Matthew Breese, Stephens Inc]

And then if the Fed stops hiking in early '23, do you have any idea on where -- and perhaps when after the Fed stops hiking, you could see the core NIM stabilized for New York Community stand-alone?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So we're not going to give forward guidance, but obviously, if that does take place, it's positive for a liability-sensitive balance sheet ex the consolidation of Flagstar. So clearly, on a stand-alone basis, if we're running at the dot plots, we're planning for continuing hikes and we're prepared for that. But in the event as they pivot, I think that's going to be a positive shift on a stand-alone basis for our business model. On a combined basis, we have an opportunity to really think about we want to put our balance sheet, look at the transformational opportunity here and set the balance sheet for what's prepared for the future. And that's -- I think that's the real excitement of the upside. But in the event that we look on a stand-alone basis, we're prepared for the forward to plot and is a period where we have rising interest rates continuing. I think for the first quarter, then eventually going down towards the back end of '23. And with that being said, we're prepared for making sure that we have solid focus on deposit gathering. We're going to continue focusing on building out a funding mechanism here as we go to the institution. And culturally, there's been a drive towards we make loans with deposits. We're not going to make the loans the customers that are not going to bring the deposits. That's been a cultural shift here. That's been successful. As we talked about some of the other initiatives. It's all about deposits, deposits, deposits as we go forward here on our vision as we transition from a thrift to a commercial bank with the acceleration of putting together two balance sheets where in Sandro's perspective, he's been working on this for quite some time, and you can see the results. You're selling a very strong margin because of those assets are all repricing and its funding is very different in our funding.

[Matthew Breese, Stephens Inc]

And then just going back to the deal, what is the estimated first year accretion from the deal? And then at the current price, what is the expected bargain purchase gain?

[John Pinto, Chief Financial Officer]

So start the bargain purchase gain is really highly dependent on two things, right? The final purchase accounting marks and the stock price at the day of closing. So we estimate it as of 9/30, given where we think the markets will come out and assuming a current stock price, we're just under a $200 million bargain purchase gain is our estimate. Like I said, those two items will be the driver really along with, of course, equity growth in the quarter on the Flagstar balance sheet. So that's our estimate right now. It moves around pretty significantly depending on stock price and the final purchase accounting market. Yes, due to interest rates, of course.

On the -- we really haven't updated our guidance. I think I mentioned earlier on earnings accretion from the deal. So we're at that 16% level that we announced originally. So we haven't really updated that as we've gone along. We still believe the deal is highly accretive, especially in this marketplace.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

I will just say one point to that. The energy level and the time spent on analyzing the P&L and how these companies work together, we're pretty confident on our original cost savings estimates. And if anything, having this excess time to really understand how these properties work together, we feel very confident on what our estimates were on cost savings for sure.

[Matthew Breese, Stephens Inc]

And then just the merger termination date is less than a week away. Can you just talk about expectations for the deal if approvals are not obtained by then?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

As indicated, I apologize if you hit reading my opening remarks, we're not going to discuss the pending merger transaction in respect to timing.

[Operator]

Our next question comes from the line of Chris McGratty with KBW. Please proceed with your question.

[Chris McGratty, KBW]

I want to go back to a comment Sandro made earlier about they're excited, the optimism around the deal, if -- I think the quote was given the opportunity. That to me reads regulators just slow plan approvals. You both are on the call today. So it feels like the commitment from both parties is there, I guess, maybe a comment, is that the right kind of read?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So I guess you're addressing that to Sandro, [Indiscernible]

[Sandro DiNello]

Yes. Well, if it's -- yes, my comment, I don't think you should read anything into it. Every earnings call we've had, we've always talked about what we think the opportunity is. And so we're being consistent with what we said previously. The regulatory process is what it is, and we're going to continue to work towards what it would be if we get an approval until such time as we don't get one. So we're still focused on it. But no, I don't think you should read anything into any of our comments today other than we're still hopeful because we see that the -- as we always have, we've seen that the opportunity and power of the combined organization is really something special.

[Chris McGratty, KBW]

Just on the dividend. Obviously, you're comfortably earning it now, but maybe thoughts pro forma on the dividend, I guess, with or without Flagstar?

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

So look, we've had a long history here of a very strong dividend and is very focused capital management process. We are very comfortable with asset quality. We're very comfortable with how we look at our capital deployment. And going forward, we feel very strongly that we'll continue to pay a very strong dividend. And obviously, this has been a history and culture of the company going back for decades. So we're very confident. The company had record earnings going into this -- in the beginning of the first half of this year. We're seeing some margin pressure based on substantial movements on Fed action. However, over time, this company will navigate through it and we'll have strong asset quality and foster on a stand-alone basis, a very focused expense management philosophy to generate good returns to our shareholders and a very strong dividend. So that's always been our culture. On a projected combined basis, we just earn more money.

[Operator]

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. Mr. Cangemi, I'll turn the floor back to you for final comments.

[Thomas Cangemi, Chairman, President and Chief Executive Officer]

Thank you again for taking the time to join us this morning and for the rest -- and your interest in NYCB. We look forward to chatting with you again at the end of January when we'll discuss our performance for the fourth quarter of 2022.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.