Signature Bridge Bank, National Association (FLG) Earnings Call Transcript & Summary

Good morning, everyone. This is Sal DiMartino, in the Investor Relations Department at New York Community Bancorp. Last night, the company 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. And now I would like to turn the call over to our President and CEO, Mr. Cangemi.

Thank you, Sal. Good morning to everyone, and 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 and buying to 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 employees 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 process Signature that will enhance our future growth. And 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 bid to 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 multi-family 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 noninterest-bearing deposits. In adding these deposits, our loan-to-deposit ratio declined to 88% compared to 118% in line with other commercial banks. 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 has a significant number of highly productive client-to-client banking teams based in New York and California that have generated the majority of these deposits. We are still with favorable growth opportunities as the combined institution comes together. And 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 jump starts 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 both our earnings per share and tangible book value per share. Expected EPS accretion is greater than 20%, while expected tangible book value accretion 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 through Signature. The Flagstar conversion is on track for the first quarter of next year. Even in a different phase of the 2 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. With that, we'll be happy to answer any questions you may have. We'll do our very best to get to all of you within the time remaining. But if we don't, please feel free to call us later today or during the week. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Dave Rochester with Compass Point.

Congrats on the deal. It's great to see. I know I've got a lot of questions on this morning already, but I just wanted to ask you guys about the culture side of things, right? Signature had a very unique incentive structure and culture there. You guys have a unique culture. How are you guys going to manage that? What gives you the confidence that you can blend these cultures here?

Dave, this is Tom, and I have Reggie Davis here as well, who is going to be working very actively on the culture going is on with Lee and John. Now this is a remarkable opportunity. 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 of long history where Signature has done an amazing job as deposit gatherers. These unique businesses, these teams have been built for many, 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. Now it's very different than most commercial banks, but we're in our infancy of the transition for the new Flagstar. So this really jump start 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. And 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 hit a few words is that too well, if you don't mind.

Yes. 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. And I think there and 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. And I think that's not inconsistent with what Signature has. And so we see an opportunity to blend those 2 and actually create something that is better for both companies.

Yes. Look, this is Lee. I think the Signature employees are going to really appreciate the Flagstar values, the energy we bring to the table, our overall team approach and as transparent and communicative style.

Our next question comes from the line of Manan Gosalia with Morgan Stanley.

On the deposits you're acquiring from Signature, we know that they have a skewed to some higher balance accounts, some non-insured accounts as well. 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? And can you just clarify that the FDIC insurance is going to be up to $250,000 for these deposits?

So let me just take a big picture here. This bank was approximately an $89 billion deposit base, and we're assuming what's left the deposits somewhere in the mid-$30 billion range here. So if you can imagine the amount of outflows that have taken place and 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, and we feel like things are stable across the banking system. As no guarantee that's going to stay stable, but it seems like things have really stabilized over the past week, and we'll talk a little bit about our stabilization as the Pinto, he can address that. But the reality is that you have a team that has a white glove boots on the ground strategy and they know their customers. And with confidence of having the -- 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 we'll add a lot of confidence to the customers. It's important to understand, we share a lot of these relationships in the marketplace. 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. So 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. But given this opportunity here, we felt that our customers know us and they know Signature, we have shared customers. So we'll be very active to ensure that the leadership team is talking to the customers, we're out there talking about the strain 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. And maybe I'll pick you up on your comment that you addressed the stabilization efforts in the legacy and NYCB deposit base and then 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?

Sure. So let me start off by saying the last few weeks is very interesting given the market conditions and the team performed much better than I can ever possibly expect is coming together as a new Flag. So 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 stand-alone company has performed much better than we expected. And so I'm going to pass it to John specifically to go through a few weeks as we've been relatively quiet because we had to manage the bank and we were very comfortable that it was a strong institution where deposits are relatively stable. So John, if you want to address to lead path and then we could talk about where we're going.

Sure. Thanks, Tom. So starting on March 10, 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. But if we look at -- if we go back to Thursday, March 9, 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 happened on a monthly basis, those deposits build up during the month, and then they pay down, just happened to pay down last week. So 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 1 relationship and the normal custodial outflows, we were down about 2% in deposits since March 9. So an extremely stable base. And then 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. And maybe you can just comment on the pace of which you would pay down the wholesale funding.

Yes. Well, we are cognizant. We're still in uncertain times. So we are going to keep enough funds at the Fed to ensure for potential outflows unexpected but we will be looking at paying down, of course, all of our short-term debt that we have outstanding. And then 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 going to look at some of the higher cost floating rate deposits first or wholesale funding first and then we'll look at some of our fixed rate funding will be measured given that we want to keep excess funds as we have been, but we'll be able to generate an awful lot of flexibility to really rightsize the liability base of the company. And ensure that our loan-to-deposit ratio gets more in line with peers, and we have a funding base that's much more diversified.

Our next question comes from the line of Mark Fitzgibbon with Piper Sandler.

Congratulations. Sort of a 2-part question. First, do you envision the need to raise capital even now or in the near term, maybe to support opportunistic growth for the combined company? And secondly, John, what do you expect the pro forma NIM to look like in the second quarter?

So Mark, we're going to -- we'll split this question. Let me just say in advance, but how we looked at this transaction is very unique. We went into it with open mind that we know there's a property very well. We have a long history here. We also understood where our valuation was. We kind of called the transaction valuation as a -- as we'll call it as a credible player to be in this process by color on capital. So 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 that's $2.725 billion became an adjustment to the balance sheet because we were willing to raise capital down at these prices. So 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 to Flagstar, what's now Signature on top of that is a significant amount of capital build. Obviously, we're going to always be opportunistic, but we called the transaction to ensure that we didn't have to have a standby level of capital. I will tell you though, we had many [indiscernible] that would want to help us at the table, if that was the case. But I think we were conservative, I felt strongly about knowing the property, and we also looked at the risk profile. So we wanted to make sure our capital levels are very strong. So John, do you want to add to that?

Yes. On the Q2 NIM, it will be moving around, just given -- depending on where we are in the market with market conditions, but this transaction is accretive to the NIM going forward, but it really will depend on how much cash we keep on the balance sheet. So we're still going through that piece. So 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 expansion in the NIM when you look at Q2.

Yes. Without going on a [ line ] here Mark, I mean, if you think this simple math, you're taking a NIM that was in the mid- to upper 2s and you're probably looking at projected at somewhere north of 3 in this environment.

Our next question comes from the line of Ebrahim Poonawala with Bank of America.

I guess 2 questions. One, just from a transaction standpoint, Tom, you mentioned about trying to keep the capital at 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 2 tangible common equity right away 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 and then incrementally beyond earnings. Is there anything on capital that we should be mindful of?

I'll lead, and I'll have John go through the details, but the reality is that this is immediately at close, which in closed its tangible capital accretive. We estimate based on various assumptions, that's about 15% today. But going forward, John, if you want to talk about the capital as far as it move on account of earnings and whatnot.

Yes. I mean, so if you're looking at tangible equity, right, the tangible book value per share, that will grow, as Tom said, at approximately 15% is our current estimate. And then given the earnings power of the combined company, we will see continued growth in tangible book value per share.

Got it. And anything, John, in terms of expenses, what we should think about where the expenses as we said, coming out of this?

Yes. This is -- So the expense side, I mean, we go back -- going back to history with the AmTrust days and working through transition services agreements, there's going to be a lot of just movement back and forth between the Bridge Bank and us. So we believe that there are absolutely cost saves off the run rate just given the assets that the NYCB is acquiring. But we're going to 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. So we're still looking forward to that.

And is there a run rate that you can disclose, John?

No, we're still working through that right now. We've been conservative in some estimates here, but we'll have a lot more detail for you as we go forward.

Ebrahim. I would just add to John's discussion that the conservative investments, we're still projecting 20% plus earnings accretion.

Correct.

On the transaction, I assume certain assumptions on the total cost structure of Signature. A lot of that is going to get taken out pretty quickly because we have the Bridge Bank and then you have the new company coming in through an asset purchase and a liability assumption. So very different than your traditional deal because this has closed already. So the TSA 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.

And Tom, just 1 in terms of New York CRE, you didn't pick up any CRE loans. You obviously know these customers very well. Talk to us, one, about what's happening in the market and the risk to in wise of your CRE book that you see? And do you see opportunities to move some of those loans to NYCB's balance sheet, maybe not now but in the future?

So let me just say a high level here. We were very focused on the fact that we're rolling out the new Flagstar, which has an emphasis for C&I and new verticals as we diversify this bank. We have a major presence in multi-family. 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. So we know this product very well. So a lot of these customers are shared customers. So 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 [ next ] about the credit, but the deposit relationship, the full opportunity to bank the customer. And I feel highly confident that we've been in this business competing for decades. We -- Signature and NYCB were the go-to players in the multi-family CRE space in Manhattan in the 5 boroughs. So we know the book. We're going to service the book as long as we have to do that and will be helpful for the FDIC and the government. But 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. So we're not looking to just do transactions of loans in the fixed rate market to put on assets. We're going to be very focused on diversification of who we are on the new Flagstar and bank customers that want relationship transactions with the bank. I think that give us a great opportunity to really not double down in the same credit and be helpful for what the customers need in uncertain times. Now obviously, there's a lot of rumbling about office. So we just felt that it wasn't the appropriate time to be significantly higher there. So we're comfortable with our portfolio. Let me be very clear about our portfolio. We're getting close 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 conservative vendor. And it goes back to decades. This company has into many crisis, many changes in market rates, interest rates and the portfolio is resilient, and we're seeing very strong asset quality coming into the quarter.

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

Tom, I want to 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 prepay 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. But I mean, the bottom line is we want to fully lower that accretion number because we assume that we are very confident that the stock depreciation warrant was, in our view, consideration. I think it was a very unique way to be a viable player 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 of that into the capital structure. So that's in there. And as far as overall going forward, our view of capital here is that 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 play to call capital. So John, do you want to...

I think -- 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. And then 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 ratios to be consistent with where they were at 12/31. That number was the $2.725 billion. So when you add that $2.725 billion in the 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. So 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 we have forecasted some charges but if you look at our liability base, it's really not a huge mark-to-market right now. Now of course, interest rates move around. But given where we are on Friday, we have a handful of liabilities that are out of the money, and we have a handful of liabilities that are in the money. So 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, we looked at a charge that was around $100 million to get out of the FHLB borrowings and that's what we -- and our wholesale borrowings in order to manage that capital, those capital levels that we mentioned, flat to 12/31.

Okay. I may need to follow up offline. But just a follow-up, interested in 2 things. Number one, how we should think about any potential legal or put back risk given the P&A assumption? And also the pro forma asset liability, what's the message on the pro forma company?

I will -- these very specific restructures 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 liability, I mean, this is significantly a different company today, given the changing of the funding mix, right? So 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, probably in this valuation close to either above the money, that was all marked in December. So we have lots of opportunity there to be nimble as far as getting closer to the neutral, but with this infusion, I think we have -- we can go either way. It's doing right now, we're probably asset sensitive, right? John, with this you...

Yes, depending -- yes, I think that's right. And that will depend on how we do some of these restructurings, right? We do have some wholesale borrowings that are floating rate that we can take out. So we have a lot of flexibility to the top of the balance sheet anyway we want right now.

Yes. I think when you think about the view here, and this is a high level, we want to look at the new Flagstar towards commercial bank model. And we had -- and I said it 3 years ago, publicly, deposits, deposits, deposits, funding, funding, funding. This is a significant infusion of a change in how we look at the business, right? At the same time, what Reggie Davis's teams has been doing all along, positioning ourselves to really capitalize on that jolt of additional boots on the ground, and that's in place. And that's -- we're going to see results as we go into '23 and '24 now that we have flat under our belt with technology initiatives and working with the teams that we're building. But 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. So this is where we're moving towards rounding out the commercial bank strategy. And to say that this is a significant infusion of that change. So 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 is right. I mean we're converting the model. We've got some great businesses, and we had a great book of clients where we have opportunity is to broaden the relationship and our relevance with each of those clients, both on the deposit side, treasury and then also there's some fee income opportunities. And so for us, it's just taking an existing high-quality book and quite frankly, maximizing the profit potential within that book. And then we're also converting a lot of our business to be more outwardly focused. So 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, but we have an opportunity to actually continue to drive more new client acquisitions. And so that's where our focus is over the next few years.

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

So you guided to the 20% in earnings accretion and you did provide some assumptions behind this. I was just wondering, so what basis is off of? Is it off the full year '22 EPS number? Are the earnings accretion expected to be realized in 2023? I'm just curious, you kind of noted some opportunities to gain fees in the subservicing portfolios in fund banking, multi-family CRE and it looks like venture banking. Is that included in those numbers?

No. The fees aren't included, but we do have some cost saves in those numbers. So the -- if we keep some of the expenses, we'll have -- we may have a little more expenses if we have a lot more fees. So it's not going to be entirely an incremental benefit, but there definitely will be a benefit. And then when you look at EPS accretion numbers, those are for full year '24 EPS accretion numbers. Like we talked about earlier, the second quarter of this year is going to have some noise in it just by all the additional liquidity that will be on the books, depending on market conditions when we get there but there will definitely be accretion, but that's a full year accretion number in 2024.

Got it. And if I could just have 1 follow-up. I noticed in the 8-K, I think you mentioned immediately overseeing all of Signature's operations, including like product pricing, underwriting, risk management, I'm sure there's a lot of overlap between the 2 cultures. But 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 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. So we're 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. And as you know, we're the largest service with the largest multi-family portfolio lender in the country on balance sheet. So this we have the experience. So 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. So it was -- it's really clearly about we have experience as commercial real estate service providers. We've done a tremendous amount of third-party transaction as being the lead on a multi-family space. So this is not something not common to us. We've done this in the past. But ultimately, we have tremendous bandwidth here and we work together with the TSA agreement, and it's going to be a short period of time. This is not going to be years unless they want to go into a long-term contract. But the goal here is to convert the system in short order and then roll it and can go into next year with the Fiserv conversion. So that's kind of the strategy. I know Lee has a lot of experience in the servicing side, do you want to add something?

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 were all aligned here and making sure this is seamless, and we provide the best possible experience for the customers, and that's what we intend to do.

Yes. And that's right. The bottom line is that they have a very unique model. It's this boots in 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 to the entire company and be a better company. This is something where we're in our intimacy of our rollout. They've been doing it for decades successfully. So that's going to be key when we build the culture of the bank.

Our next question comes from the line of David Chiaverini with Wedbush Securities.

So first, a housekeeping. On the equity appreciation rights, what is the strike price? Or at what price is the $300 million issued?

As the strike fixed -- the closing price on Friday, 6.654. And they made there $300 million already.

Got it. And why not acquire the multi-family loans, too? Was it a concentration issue?

I'd say the share customer you know the business very well. I mean we want to have diversification we can't be and you have to acknowledge how much concentrated we are. 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. So I think it's clearly being prudent given the marketplace. We want to look at the businesses to go transform to the new Flagstar. So the C&I focus is what we're doing nationwide. They saw a nice opportunity there. Their business banking business of this client service business is clearly right in our wheelhouse. This is what we want to do as a company, and we looked at the marketplace and having long-dated assets at fixed rate right now 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. But at the end of the day, we have a substantial presence. We're #1 in the country for portfolio. This is 1 of our core businesses. So we can be very flexible here. So clearly, it's balance sheet diversification and transforming the new Flagstar, which is the C&I mentality of going after relationship deposits. And that's where the strength of the legacy Signature was. That was the hallmark of growth in deposits, and that's going to be a great complement to our mission.

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

Tom, just wanted to ask about deposit retention and in the past with AmTrust and other transactions. Is there any retention that we should be expecting? It's not 100%?

Yes. Look, great question. I mean, this is something very interesting because a different environment, right? When we did AmTrust, they had a run and they failed. And when we closed a deal on Monday, deposits came back pretty quickly. But this environment is different, right? We have the concept of uninsured. Our history, given on a stand-alone basis, we were 80% that was insured when you take out some of the escrow businesses that we had. So 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. So I think that's something that comes down to the people, the boots on the ground in the relationship. So 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 we are here coming off with a very large transaction in December that we've spent a lot of time getting to close and we're willing to come in and get this thing done. So it doesn't mean there's not going to 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 a long history with the account customer, the white glove service will come back to be part of the team. And a lot of that money, you assume coming from $89 billion down to $34-ish billion is probably wasn't a [ fight ]. So the question is, how can we get those great relationship back to rightsize that? We can't guarantee that. We're going to work real hard with the people, the retention, the team, that's the 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. So no guarantee on that, but we're very mindful of that. And also the marketplace is somewhat uncertain. So we -- that's how we looked at our transaction. We assume when we value this with this type of evaluation that was really part and parcel of how we looked at the model right now. So you would imagine that there's certain assumptions that we have to have and let's hope that it goes the other way. No guarantee.

I think the other thing is we were seen as a safe haven before this transaction by our existing clients. So this only strengthens us as an organization. So I would think that we would benefit quite frankly, in the current environment.

Great. Reggie, thank you and thank you, Tom. Anything to the kind of priority of the Banking as a Service platform now that all of this has happened in the last 10 days. Does this take a back seat or would it stay continue to grow together?

We have great verticals. We have deposit vertical. We have funding verticals, we have alternative funding verticals, and that's a focus of us, right? We want to be very active in opportunity. And we've done a pretty good job on strategically looking at opportunity as alternative funding solutions. Now 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. So we've made some great inroads. We've picked up some great partners along the way, and we have some good opportunities that we're going to onboard. This just makes it even more tighter now because we can price it differently because the market has 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 is this another vertical that we're taking to transform for the new Flagstar.

Sounds great Tom. Thank you again and congratulations.

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

I hate to belabor the point, but still getting questions, and frankly, I still don't fully understand the tangible book value accretion. So maybe can you walk me through so there's $2.7 billion, that's the net asset discount. But if I go through my model and I try to get to the 15% tangible value accretion, to Ebrahim's point, it's about $800 million. So what is the $1.9 billion delta that we're all missing here? Is there -- is it tax affected? Are there onetime charges that we're just not considering? Because I frankly, don't fully understand what I'm missing on that?

Are you tax affecting the $2.7 billion? Is that what you...

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. And I'm just curious what are some of the moving parts underneath the hood.

Okay. Let me pull that together, and I'll break it out and make sure I have all the details and we'll get that out to everybody.

I'm assuming it's a bargain purchase grain basis...

There's a $2.7 billion bargain purchase gain that's capital. Go straight to capital. right? So I'll just try to walk through with the rest of the items.

Okay. Understood. Okay. Are you going to do it now or at a later point in time?

No, I think it will be easier if I just lay it all out and we'll get it out to everybody.

I 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 noninterest-bearing?

So the noninterest-bearing piece -- just give me a second I got it right here. Yes, it's approximately 40% of the total deposits. And on the -- when we look at -- we looked at our total uninsured deposits on a combined basis, and we're around 40% uninsured right now.

Okay. 40% combined.

Combined Correct.

Okay. And then understanding Signature's model, they have the single point of contact, a lot of it was based on teams and team leaders in your initial discussions, how have you handled kind of locking down those key team leaders? And have you been able to do that at this point? Is it still too soon?

So Matt, it's not too soon. There's been a tremendous amount of enthusiasm between the teams and what we're going to plan to do. We're going to continue to mandate that their structure continues. We have retention pools upfront and we're going to continue doing the business model, which we call the secret sauce that works. So we're not going to impact their economics as a team. If anything, we'll enhance it with a bigger bank with more products on a combined basis. 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. So no question that this is a different type of commercial bank mentality. But 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. So 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. And if you look at the New York and the West Coast team, that's where most of these deposits are coming from. And a lot of it is left, right? So what we're left 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. But there's no question that this is a unique model, and we've been always envious of the model and it's something to put in place takes years to build, right? years to build and its culture. It's a very unique style of how you pay for these relationships, and we're comfortable on continuing that way.

Yes. Understood. Okay. And then on the $60 billion of loans remaining in receivership, and it sounds like there's potential for a subservicing agreement. What is the potential benefit to fee income if you decide to take on that responsibility?

So I would just say that I wouldn't -- again, I wouldn't model it too long. It all depends on the appetite for the FDIC through receivers should holding the asset. I mean, obviously, they want an orderly disposition. That's the right way to do it, and they'll look at some real value that's on the table, they'll go through their process. We're here to help. We have a lot of experience in that space, and we've done this before. So in the event that it's a year or 2 months, it could be 1 month, but we're going to be there as the bank was just in the transaction, and we will get a fair market value for servicing, which we normally did in the past.

Our next question comes from the line of Brody Preston with UBS.

So I just wanted to maybe follow up. I understand that you're not acquiring any of the crypto-related deposits or the Signet related deposits. But I wanted to ask on the Signet front, are you acquiring the technology that kind of 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, our asset [indiscernible] it was clear. This is -- we're cognizant of the risks out there, so we're structured that way by design.

Got it. And maybe just following up on -- I understand that you didn't bring over the multi-family portfolio. But just given the overlapping business lines, and the fact that you competed with Signature on a day-to-day basis, following their failure, were you I guess, were you already kind of a net beneficiary of maybe some of the 1031 escrow. I'm thinking about some of the chunkier commercial relationships that you might have been able to bring over even prior to this acquisition?

So I'd say, in general, given the circumstance, you assume that the largest portfolio aggregator would be getting a lot of interest on bringing some of those funds over. So we were participating in a lot of conversations with like customers, we have shared customers that have significant wealth. So those conversations happen. But in general, I think it was probably with many banks in the New York area. So some of the larger New York regional banks, I'm sure who are fielding a lot of customers regarding the opportunity. But now that this transaction is closed and we are the portfolio lender, and we have shared customers, I think there's a great, long-standing relationship and Obviously, we have a better shot at getting more of those liabilities. And I think that's always been the case. And now that we have the teams that were the secret sauce had Signature that did a very good job doing it, they're part of our team. So I think it only enhance the opportunity. I think a lot of the larger -- the larger deposit money probably left during the midst of [ rate risk ] lack of confidence in the system, let's hope they come back. And they know us and if they want to get service their loans and relationship lending. That's how we're going to 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 want to have solutions for the client. We want to 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. So we're going to be very active on a full relationship banking model.

Got it. And then, Tom, obviously, you all being positioned to execute on this transaction and the regulators 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 the back-end systems that you have in place. So if you could maybe help me think about pinpointing a couple of items, if there's any that you can think of as to -- what are the things that kind of you think enables you to execute on this transaction? Or maybe said another way, what do you think some of the -- I guess, the things that could trip up another institution 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 -- that's -- there's no question that my priority as CEO, I'm very confident that we built a very strong risk management team, and we strengthened 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. So knowing that opportunity arises, 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, we had a very short process that would normally take a long time to roll out a bank into a process. As you know, it took us quite some time to close the Flagstar transaction. This was done given a midst of a bridge bank that was created, and there was confidence there. So we're pleased and proud about the investment made on the risk management, regulatory oversight. But that's my priority. This is important. We're now a $100 billion bank. We're going to ensure that we have all of the appropriate risk management tools to be $100 billion bank. We've made sizable investments, now we get some of the operating leverage now because we have more scale, that ultimately goes back to probably 2012, 2013 when we were making the investment we're crossing over to [indiscernible]. How does the [ ex-factor ] is now [ 100 ]. So we're very active on the liquidity side, on the capital risk side. We know what our obligations are as a large institution, and we convey it with confidence and professionalism with our regulatory constituents.

Got it. And then John, if I could ask if you could maybe in the e-mail 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 identification assets and all that stuff, to be frank with you, I was 17 when the great financial crisis kicked off last time. So I don't have much experience with the...

There's no indemnification asset. So that means we don't have -- we'll just have the normal purchase accounting mark-to-market process on the loans and the deposits.

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

I wanted to the start -- so in terms of the $34 billion of deposits acquired based on the pro forma, it seems most of those are uninsured, and I know this is a very fluid situation, right? But 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. How do you -- 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, to the private client groups. And of that, 40% of it is DDAs, it's there businesses, it's there operating accounts, payroll accounts, it's there ongoing relationship depository issue that they have with Signature. They are in place. We are backing their model. But 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 banks will have an opportunity to continue to have confidence in the system. I can't say yes or no, if that happens, Steve, but I can tell you right now that this brings strength, the fact that we're able to do this in a time of a lot of stress. But there's no guarantee, like I said, we're going to work real hard. We're going to make sure the clients understand that we are backing the model. We're there for them, and we're there for the relationship managers and they have an opportunity here because there's an opportunity to bring some of that money back. A lot of the money left fast, right? That's why -- that is why they were step into receivership. That bank, I believe, was about $89 billion in deposits, we took down the deposits around in the mid-$30 billion range. That's a significant amount of outflow. Now crypto aside as well as other businesses aside that had much more volatile liabilities, core deposits to core deposits, they have real DDA here and it's real relationship deposits probably through a long history with these -- with the managers that do a phenomenal job in managing their book. And 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 as relationship deposit management.

That's helpful, Tom. Did you take -- go ahead.

Yes. No. I mean, look, I think 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. So 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. So all options are on the table. But it all starts with the people and the team and we believe in the 2.

That's right.

Got it. And 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?

The 2 teams, obviously, digital assets, we did not take, and I believe the venture business as far as lending in that type of space you just felt that it wasn't a vertical that would fit our needs. Other than that, the deposit teams that focus on relationship deposit gathering will join the company.

Okay. And then finally, on these equity appreciation units, it 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 they get to the MAX divided by the strike price, and that would be the number of shares that we would just share.

And I believe that's in John's calculation of tangible accretion. We assume that it's price and they got full value.

Right? So it's like full value.

So that's in the guidance. Got it. But that's in the tangible book value accretion, you assume that's max value.

Yes. Share -- the shares would be included. Correct.

Ladies and gentlemen, our final question this morning comes from the line of Jon Arfstrom with RBC Capital Markets.

Just a couple here. John, you talked about on March 10, you've 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 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?

So maybe Reggie will handle that, Reggie?

Yes. No, there actually hasn't -- there hasn't been -- that really hasn't been an issue. We managed our deposit book based at a client level, quite frankly. And so 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, but over the last week or so, the rate hadn't been the issue. The issue has been strength and confidence and so you can't fix that with rate. And so we haven't had to resort to increasing rates.

I would just add 1 point to that. So given the amount of liquidity flushing in and out of the system, I think overall rate to be very interesting because larger chunky we'll 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. So I know that we fusing with excess liquidity, we're not going to be chasing rates. But I think that could be a function of just the marketplace.

Okay. Perfect. And then 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, but your stock went to under [ 650 ] on fears that deposits were running out of the company, right? So -- and everybody that preceded me, I'm sure had the same question, what's going on at New York Community. But can you talk about the differences between all of this outside noise that we're barraged with an almost panic on deposit trends and what you guys actually are seeing internally? To put a finer point on it 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?

So look, I can't address the stock market though I want to address the stock market. And 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 a -- we'll call it the lack of content continues that our risk managers are in place to have excess liquidity. But at the end of the day, we have a very stable source of funding being a legacy thrift model of a lot of retail stability in the system. I will tell you that we feel highly confident that we had very good stability given on balance sheet. If you think about 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 1/3 of it was marked the Flagstar deal back in December. So in the money when it comes to valuation in this interest rate environment, so in the event if we had to pull a liquidity situation, we would literally take down the securities without any real consequence of the capital and be in a very unique position with significant lines available because our portfolio is pledgeable on the multifamily side. So we have a very good risk management plan in place. We were specifically not putting on health to maturity assets for that reason. And 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 and our team got together. And like I said previously, extremely impressive to see the -- one of the best cultural expansions you can have when you put it together a merger with banks coming together and go through a tough time and watching the teams work together. As a CEO to me, that's what it's all about. That as a cultural experience. So we're very proud of being able to be there. At the same time, dealing with some uncertainties in the market when you have a bunch of banks that need solutions, and we were proactive to try to create value for shareholders. That's what this deal has devalued over the long term. It's about building a new Flagstar. We want to have a better balance sheet. We want to have diversity amongst our verticals. We want to be in a position where we're not subject to rates going up or down, but well balanced. So 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. But 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 that well. And we went through this fire drill before and you need to be focusing on opportunity, and we felt there was an opportunity here.

And then yes, just if I can just walk through the tangible book value per share question. I have the math in front of me now, sorry, I didn't have it before. But the handful of items that you got to look at to take out are CECL. You have all of the day 1 CECL that we have to set up, purchase accounting marks, CDI and of course, the bargain purchase gain. So when you walk through those items, including transaction expenses, merger-related charges and the cost, the repayment of the NYC borrowing you get to that $800 million change. So you get to that $6.9 billion in tangible book value. Then you look on the side of the shares, you have the additional increase from the potential exercise of the equity appreciation unit. So it starts with the $2.7 billion, CDI mark-to-market, merger-related charges, repayment of potential borrowings penalties and our day 2 CECL impact would be the walk on how to get to tangible book value accretion of 15%.

Well, in closing, I wish I have another question.

No. I'm sorry. I was going to turn it back to you, Mr. Cangemi.

Right. Great. I'd like to thank our executive leadership team and employees who really came together over the past 10 days, first then 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 that 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.