Flagstar Bank, National Association Q3 FY2022 Earnings Call

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.

Thank you, Sal. Good morning to everyone, and thank you for joining us today to discuss our third quarter 2022 performance. Before diving into the quarterly results and in anticipation of questions, I just want to say that neither New York Community nor Flagstar is going to comment 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, we still produced solid loan and deposit growth, lower operating expenses and continued strong levels of asset quality, which remains our hallmark. In terms of the net interest margin, given our liability-sensitive balance sheet, not surprisingly, we witnessed margin compression during the quarter. However, we still reported diluted earnings per share of $0.31, excluding merger-related expenses. This was unchanged compared to the third quarter of last year and in line with consensus. Turning now to the main drivers of our quarterly performance. After three consecutive quarters of double-digit loan growth, loan growth moderated as expected. Total loans held for investment rose nearly $450 million during the quarter to $49 billion compared to the previous quarter. Year-to-date, total loans held for investment 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 lender 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 a weighted average coupon of 3.74% totaling $5.7 billion and $1.7 billion of CRE loans with a weighted average coupon of 3.2%. Going forward, our loan yields should benefit from moving low coupon legacy 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 had 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 are 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-as-a-Service, which caters to states and municipalities as well as the U.S. Treasury's preloaded debit card program totaling $579 million. Mortgage-as-a-Service and Government-as-a-Service are two verticals expected to drive current growth within the overall Banking-as-a-Service segment. Recently, the company won two new BaaS mandates. Both of these should result in fee income and deposit growth opportunities for the company. Moving on to one of the company's hallmarks: credit. Our asset quality and credit trends remain superb and continue to rank the company 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 flight-to-quality trend, particularly in Midtown. Also, the Manhattan availability rate decreased to 18.4%, with positive absorption for the first time in 12 quarters. New York City office occupancy increased in September likely due to many large companies urging their employees to return to office. Similarly, there was a significant increase in MTA ridership and seated diners in New York City, evidence of 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 to 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 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.

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

I guess first, maybe let's start with the margin outlook in terms of what you expect to happen in the fourth quarter. And give us some color around, if you could, your views around one, where you see the margin moving 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.

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

Yes. On the margin front, when we look at the fourth quarter, we expect, and we'll talk about it in really two different ways. 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 prepay to be around 1.95%, 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 deposit relationships. That's where the benefit, hopefully, we're going to see when those deposits start to come in because those are noninterest-bearing deposits.

Ebrahim, it's Tom. I'd just add that 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 2023. So we're excited about the impact of that because that is a zero-cost deposit.

And John, just going back to your 1.95% margin outlook ex prepay, do you expect the cost of deposit increases that we saw this quarter to accelerate next quarter or, because of some of these deposit dynamics, do you expect that to be a little more tempered versus the third quarter increase?

Yes. 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 that third quarter level.

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 Flagstar is 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?

Let me be clear that my opening comments were relatively clear. We're not going to speak specifically about the pending merger on this call. However, as far as going back to our discussion of the transaction itself, we're very comfortable that the business combination offers powerful opportunities for the companies to come together and build a new company that has good diversity, a tremendous unique opportunity on the deposit side and funding, and gives us an opportunity to transition from a thrift to a 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?

Did you reference me, Tom? 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%, with the far majority of it coming from banking. We've got a high-quality loan portfolio. We've got efficient funding. And while, due to market conditions, our mortgage volume is much smaller, we're still profitable in our mortgage business. The 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. On top of all that, we have a very formidable servicing business. When you look at our expenses, we've been able to manage them relative to revenues. Our efficiency ratios have declined pretty significantly. If given the opportunity to combine this company with NYCB, taking what they do well and running a similar playbook that we've run in rebuilding Flagstar, I'm excited about our ability to produce something very, very special going forward.

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?

Well, Ebrahim, how we try to structure our balance sheet, viewing ourselves as an independent organization, is we feel very comfortable with the 4% margin with our business model. Given what we believe we can get out of mortgage in this environment, what we believe we can get out of servicing — and the servicing piece of it is pretty certain — a 4% margin on top of a clean loan book makes the bottom line number feel really good. 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. We only give you outlook for the next quarter but we're confident about that, at least for the next quarter. Overall, given our business model, that's a margin that works very well for us.

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

So my first question is, you still had good growth in the multi-family portfolio, but as you noted, it moderated, and 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?

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; on a year-over-year comparison basis, we're going from a low-3% market to a 6% market, which is powerful for repricing this book of business. So we anticipate moderate growth in the second half of 2022. We probably grew a little better than we expected as we go into the pipeline. So our overall net loan growth for the year is still going to come in around 8% to 9.5%. Even if we're at the consistent level of the third quarter, which is unlikely given fourth quarter activity typically is robust, coming off of a seasonal quarter of Q3, we see an interesting opportunity here given where the agencies are today and the shape of the curve. In general, most portfolio lenders are getting good economics. The opportunity here is moving that coupon from the low 3s to current market, which is significantly higher. We're excited about what's coming due. We've offered some unique options for our customers that are entering maturities and repricing periods and we're trying to move our balance sheet to more asset sensitivity and offering SOFR options has been a well-received option for our customers. It seems like a high percentage of those customers are opting for a SOFR option, and we'll then work on moving our balance sheet to more asset sensitivity. I think that sets us well to look at this large book of business toward more of a SOFR option in a rising rate environment. As far as the agencies are concerned, 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'll be able to offer options from a derivative perspective to do long-term financing and swap fixed-rate loans to floating rate. I think that's going to be another competitive opportunity and one of the benefits of the merger. We're looking forward to the capital markets benefit and fee income opportunities as well. We're still 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 roughly 3% to 6% in the market. So we should benefit on repricing the portfolio, which could bode well for future margin benefits.

And obviously I understand about the commentary on the pending deal, but I was wondering, recently you filed some S-4s 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. Could you provide any updates on your tangible book value or earnings accretion estimates? Or anything you can comment on that?

When we announced the deal, on the tangible book value side we estimated 3.5% accretion. When we looked at it and discussed it in June, that tangible book accretion jumped pretty dramatically, almost to 8% or 9%. Our estimate now as of 9/30 is that it's come back down around the 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 interest rates are at the day of closing. So our estimate right now is roughly that 4% level, a little better than what we originally anticipated.

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

Yes.

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

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

So we had a handful of putable borrowings put back to us in the third quarter, and we expect a large portion of them to get put back given where rates are today in the fourth quarter. 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 also consider swap funding depending on levels. The putable market is still out there, so we can look at some putables as we go forward as well. It's really a mix of different liability structures that we'll look to refinance those putables into as they come back to us. From an interest rate risk perspective, you're taking off short-duration money and by putting it out a little longer you're going to gain some interest rate risk benefits in both the third and fourth quarters.

Dave, I would just add to that commentary that given the government project that we started to book in October, that's going to be significant for the quarter — it could be in the billions. Between $2 billion to $3 billion on average for the quarter, that would be at a zero percent cost of funds. That's the prepaid card program that we're involved in, and it's a very good piece of business for the bank, and we'll be able to leverage that opportunity as we look at the repricing mechanism. In the big picture, if you think about the balance 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. That's going to be a unique opportunity when it comes to having significant optionality on funding. We're focused on this daily; it's the 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 significant choices as we embark upon a transformational opportunity here.

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

Yes. I think that would also assume a 75 basis point increase next week and 50 basis points in December under the consensus expectations.

Correct. Yes.

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

Yes.

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, I may have missed the earnings accretion piece.

We haven't given an updated, specific guidance on earnings accretion because it was originally based on IBES estimates. Those estimates now have consolidated deals in them. The deal is still accretive and we don't see any need to change that guidance. We're comfortable with what's out there, so we haven't specifically updated that from the deal announcement.

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

If we closed the deal on October 1, right now we're estimating we'd be slightly asset sensitive, but pretty close to neutral.

And then maybe one last one on expenses. How are you thinking about the fourth quarter or just the year overall? I know you had annual guidance; any updated thoughts there?

The annual guidance of $540 million, I think we'll 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 to $135 million range — that's kind of where we've been. So I think we'll do a little better from a year perspective than our original estimate at $540 million, but the fourth quarter I see coming in around that $135 million level.

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

John and Tom, I wanted to ask about the liquidity figures. From the last quarterly call and report, it seemed that you had a very low level of pledgeable securities and a lot of potential collateral. Stand-alone, has anything changed at the end of September? And do you see any ability to add more debt if you wanted to on the balance sheet?

I'll start and then I'll pass it on to John. Bottom line, in the quarter we were in a heavy liquidity position and moved some cash into short-term U.S. Treasuries inside of six months. With that being said, there was an opportunity to take cash and move it into a category that's almost consistent with cash, specifically six-month Treasuries, as a strategic move when we saw rates rise. John, do you want to add anything?

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

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

We indicated in our prepared remarks that Government-as-a-Service will ramp up. It takes a while to get these contracts nailed down and put in place and they are long-term contracts, so we have a durable book of business going forward. We indicated that we have a significant ramp up in Q4. It could be about $400 million to $500 million a week in cash stops and could go up to about $6 billion for one transaction — that's a significant piece of business. At the same time, we are the bank provider for U.S. Treasury programs and as any programs come out of the Treasury Department, we are onboarding them. It's a long-term contract. We're pleased about our partnership with First Data and Fiserv, so it's been a good opportunity for the bank to use that type of funding. Mortgage-as-a-Service is another area where we think there's great opportunity, especially in a planned merger with Flagstar; that Mortgage-as-a-Service business could be very powerful as we work with correspondent customers. Traditional BaaS is where we're out working to get new business and it's been a good journey. Ultimately, as we look at digitization, there's tremendous opportunity to digitize the mortgage space, and that's where a lot of growth potential exists. Mortgage-as-a-Service will be a focus as well.

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

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?

We're going to be very mindful of our requirements here. We've been adding staff and have built out the Chief Digital Office directly reporting to the CEO, which I think is a priority. This is an interesting opportunity. As indicated, mortgage, in our opinion given the history of NYCB and Flagstar, there is a lot of long-term experience on how to service escrow accounts and P&I payments. That expertise is embedded within the franchise and our operating people, but we're going to move people around and make sure we have the right support for these lines of business. There are challenges onboarding some unique opportunities because it takes time and involves API interfacing within the core. We're working on projects that can make it more efficient and are staffing in that area. When you put two big companies together, there are opportunities to reallocate resources to support growth of different verticals. Our funding strategy will transition from wholesale to more traditional deposit mechanisms, and part of that will be BaaS, particularly Government-as-a-Service which has been a long trajectory. We had success during the pandemic and that led us into other opportunities. We have a number of transactions we've won and plan to onboard. I think 2023 could be a nice pickup for core stable accounts, although they are not permanent because they can move on, but there is opportunity for ongoing funding benefits in the planned merger.

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?

Initially, fee income varies just on card fees. It's not significant at the very beginning, but it does add up when you have millions of cards at a couple of pennies per card per month. It adds up; it's not significant to the total P&L yet, but we are seeing some nice fee income opportunities and it's consistent. As we onboard more municipals and more states across the country, we'll have more consistency of that income. So it's another avenue that helps justify the investment in the business.

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?

On the specialty side, it's mostly plus spread and has been consistent. About 80% of that book is floating rate. We do predominantly floating-rate structures in specialty. There were credit buy-up opportunities at very high quality, senior-secured positions. We've been in this business for a while and our team has done an excellent job; we've had no late pays and very low losses historically. It's a good growth business with sizable commitments. On multi-family, borrowers experienced a significant increase in total interest rate cost, moving from roughly 3% to the mid-6% area. Right now you're seeing pricing of about 175 to 185 basis points over the 5-year treasury for our traditional short-term multi-family product; we don't quote much on long-term 10- or 7-year money, but if we do, it's at higher spreads. We'll synthetically structure those if we want to put them on balance sheet to have a better interest rate risk profile going forward. On the CRE side, tack on roughly 50 basis points of spread, so you're seeing mid-6% market yields. That's a sizable change from coupons in the low 3s to the 6s, and a lot of loans need to be repriced. We offered a SOFR option, which many customers prefer versus locking in a 6% fixed rate. Many customers may take a one-year approach or similar and hope rates come down later. We're giving that option and we've seen roughly 50% receptivity where the loans are repricing. We think this will help our future interest rate risk management, particularly when thinking about a combined balance sheet going forward.

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

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

As of 9/30, our current spot rate on total interest-bearing deposits was 1.59%.

And then if the Fed stops hiking in early 2023, do you have any idea on where and perhaps when after the Fed stops hiking you could see the core NIM stabilize for New York Community stand-alone?

We're not going to provide explicit forward guidance, but if the Fed pivots sooner, that's positive for a liability-sensitive balance sheet on a stand-alone basis. Excluding consolidation with Flagstar, if the Fed stops hiking, it would generally be beneficial for our business model. On a combined basis with Flagstar, we have an opportunity to set the balance sheet up differently and think strategically about our funding and asset sensitivities. We're planning for the dot-plot path of continued hikes and are prepared for that, but if there is a pivot or stop in hikes, that's favorable for our stand-alone position. Ultimately, we're focused on deposit gathering and building out funding mechanisms. Culturally, we've shifted to making loans with deposits — we don't make loans to customers who won't bring deposits — and that focus will continue.

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?

The bargain purchase gain is highly dependent on two things: the final purchase accounting marks and the stock price at the day of closing. As of 9/30, given where we think markets will be and assuming a current stock price, our estimate is just under a $200 million bargain purchase gain. That estimate can move significantly depending on stock price and final purchase accounting marks, particularly due to interest rate moves. On earnings accretion, we haven't materially updated guidance; we remain at the roughly 16% accretion level that we announced originally. We believe the deal is highly accretive, especially in this marketplace.

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

As I indicated earlier, we are not going to discuss the pending merger transaction or specific timing in this forum.

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

I want to go back to a comment Sandro made earlier about optimism around the deal, 'given the opportunity.' That to me reads as regulators just slow to grant approvals. You both are on the call today, so it feels like the commitment from both parties is there. Is that the right read?

I think you're addressing that to Sandro. I'll let him respond.

If it's directed at me, Chris, my comment was just consistent with prior earnings calls. We've always talked about what we think the opportunity is. You shouldn't read anything special into it. The regulatory process is what it is, and we'll continue to work through it. We're still focused on the opportunity and hopeful because we see the power of the combined organization as something special.

Just on the dividend — you're comfortably earning it now — maybe thoughts pro forma on the dividend, with or without Flagstar?

We've had a long history of a strong dividend and a very focused capital management process. We are comfortable with asset quality and our capital deployment philosophy. Going forward, we feel strongly that we'll continue to pay a strong dividend. This has been a culture of the company for decades. While we've seen some margin pressure recently due to Fed actions, over time this company will navigate through it and we'll have strong asset quality and focused expense management to generate good returns to shareholders and a strong dividend. On a projected combined basis, we expect to earn more and have more flexibility.

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

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

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