New York Community Bancorp, Inc. (NYSE: NYCB) Q3 2021 earnings call dated Oct. 27, 2021
Corporate Participants:
Salvatore J. DiMartino — Senior Managing Director of Investor Relations and Strategic Planning
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Lee M. Smith — Executive Vice President and President of Mortgage
Alessandro P. DiNello — President, Chief Executive Officer and Director
John J. Pinto — Senior Executive Vice President and Chief Financial Officer
Analysts:
Ebrahim Poonawala — Bank of America — Analyst
Brocker Vandervliet — UBS — Analyst
David Rochester — Compass Point — Analyst
Ken A. Zerbe — Morgan Stanley — Analyst
Christopher McGratty — Keefe, Bruyette & Woods, Inc — Analyst
Steven Alexopoulos — J.P. Morgan — Analyst
Steve Moss — B. Riley Securities — Analyst
Matthew Breese — Stephens Inc. — Analyst
Steven Duong — RBC Capital Markets — Analyst
Christopher Marinac — Janney Montgomery Scott — Analyst
Presentation:
Salvatore J. DiMartino — Senior Managing Director of Investor Relations and Strategic Planning
Good morning, everyone. This is Sal DiMartino. Thank you for joining the management team of New York Community for today’s conference call. Today’s discussion of the Company’s third quarter 2021 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.
Before the discussion begins, 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 investor presentation for more information about risks and uncertainties which may affect us.
With that, now I would like to turn it over to Mr. Cangemi.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Thank you, Sal. Good morning to everyone, and thank you for joining us today to discuss our third quarter 2021 performance. In addition to Robert and John, also joining on the line are Sandro DiNello, President and CEO of Flagstar; and Lee Smith, President of Flagstar Mortgage. As you may have already seen, Flagstar reported third quarter results today as well, which were also very strong.
Before launching into a discussion of our third quarter results, I would like to provide you with a brief update on our pending merger with Flagstar. As you know, both sets of shareholders overwhelmingly approved the plan merger in early August. At this point, it appears that regulatory approval will not be received in time to close the merger during the fourth quarter. We now estimate an anticipated closing assumed in 2022, as we can obtain regulatory approval. In the interim, both banks continue to work closely together and we are making significant progress on the integration and planning fronts. Both sides are looking forward to consummating the merger and creating a top tier regional banking franchise with significant size and scale across multiple business lines, as well as providing a comprehensive line of commercial and retail banking offerings to all customers across our footprint.
Moving now to our results only. Early this morning we announced third quarter 2021 diluted earnings per share of $0.30 a share, up 30% compared to the third quarter of last year. Excluding merger-related expenses totaling $6 million, diluted EPS was $0.31 a share on a non-GAAP basis, up 35% year-over-year. For the first nine months of 2021, we reported diluted EPS of $0.90 a share, up 43% compared to $0.63 a share for the same period last year. On a non-GAAP basis, we reported $0.93 a share, up 47% compared to the first nine months of 2020. Both of these metrics are the best diluted EPS we have reported for the first nine months since 2010. This was another solid quarter for the Company, highlighted by higher year-over-year pre-provision net revenue, continued margin expansion, strong deposit growth, stable operating expenses and solid credit quality. Total loan growth was modest, but the multi-family segment increased 4% on an annualized basis compared to the previous quarter.
Turning now to the details of our performance. Our pre-provision net revenues rose 19% to $198 million compared to the year-ago quarter. Excluding merger related expenses, PPNR rose 22% to $204 million compared to the third quarter of last year. The net interest margin came in at 2.44%, down 6 basis points compared to the second quarter of the year, but up 15 basis points on a year-over-year basis. The linked quarter decline was primarily due to a decline in prepayment income from very strong levels during the previous quarter. Prepayment income for the third quarter totaled $16 million and added 12 basis points to the margin. In contrast, last quarter’s pre-payments totaled $27 million and added 20 basis points of the margin. Excluding the impact from prepayment, the margin on a non-GAAP basis increased 2 basis points sequentially to 2.32% and 12 basis points compared to the prior year.
Moving on now to deposits. We continue to make significant progress on the deposit front, both an increase in the level of core deposits, while decreasing the percentage of higher cost CDs. Total deposits grew $444 million or 5% annualized compared to the previous quarter. This reflects growth in both our banking as a service business, which was launched earlier this year and continued success in gathering deposits from our commercial borrowers. Banking as a service deposits totaled $1.4 billion at the end of the third quarter, all of which are noninterest-bearing accounts. We’ve had several wins since we launched this initiative early in the year. In addition to the previously disclosed relationship with our technology partner, the Company is actively responding to requests for proposals from states for banking services and or reloadable benefit card solutions. To date, we have been awarded the banking service agreement for the New Jersey Department of Labor and will be the bank supporting the reloadable benefit cost for the State of Rhode Island.
These are just the first relationship we have signed and we are encouraged by the early success of our initiatives, and by the number of pending relationships we have in our pipeline. In addition to banking as a service deposit growth, we also was driven by the increase in deposits from our multi-family commercial real estate borrowers. These loan related deposits totaled $4.2 billion at the end of the third quarter, up $652 million since the beginning of the year and $265 million during the quarter.
On the expense front, our operating expenses continue to be well contained. Excluding merger related expenses of $6 million, operating expenses totaled $129 million, unchanged compared to both the previous quarter and the third quarter of last year. Our efficiency ratio of 39% remained strong as well. On the lending side, while total loans held for investment increased to $112 million compared to the previous quarter, total loans increased $858 million on a year-over-year basis. Despite the modest overall loan growth, we had good growth in the multi-family segment. The multi-family portfolio increased nearly $300 million or 4% annualized compared to the previous quarter, partially offset by declines in the other segments. On a year-over-year basis, multi-family loans have risen $738 million. Our pipeline heading into the end of the year is robust. It currently stands at $1.9 billion, the second highest level of the year and as a reminder, we always originate much more than we traditionally have in our pipeline.
As for our credit quality, our credit metrics remain solid and continue to rank among the best in the industry. Nonperforming assets declined compared to the second quarter levels and at $37 million represents 6 basis points of total assets, but we had no charge-offs in the quarter. Additionally, principal deferrals declined 8% to $914 million compared to the previous quarter, while full payment deferrals remain at zero. Compared to the third quarter of last year, total deferrals are down $4.9 billion or 84% compared to $5.8 billion in the third quarter last year.
During the quarter, loans 30 days to 89 days past due increased to $447 million, practically all of which was related to one borrower and consist of several multi-family and mixed-use properties. All of the delinquencies are in the 30-day bucket. We are working with the bar and he is taking advantage of our CARES Act loan modification program. The loans have the original weighted average LTV of 57% and the bank is well secured, therefore we do not expect to incur any losses on this relationship.
Before moving on, I’d like to take a few moments to comment on the New York City economy. Four of the cities five borrowers have been doing very well since early this year, now Manhattan is coming back as the reopening gains momentum. Schools and businesses have reopened, restaurants are open and allowed to operate 100% capacity, Broadway reopened last month and tourism has increased. While not fully back to normal, Manhattan is definitely on the path to normalization. The Manhattan residential real estate market has rebounded strongly, while a segment of the market, the non-luxury rent regulated multi-family market has proven to be very stable.
Lastly, during the quarter, we announced our investment and entered into a partnership with Figure Technologies, one of the leading FinTech companies focused on payment systems and lending via the blockchain technology. We are very excited about this partnership and believe it will support our strategic initiatives a I outlined earlier this year.
With that, we will be happy to answer any questions you may have. We will do have the 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 during the week. Operator, please open the line for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question is coming from Ebrahim Poonawala of Bank of America. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Ebrahim.
Ebrahim Poonawala — Bank of America — Analyst
Good morning, Tom. I guess just first on credit. So obviously, you mentioned you don’t expect any losses tied to the NPA increase, but give us some sense of; one, did you anticipate that this was coming down the pike over the last few months and should we expect more of these [Technical Issues] some of these deferrals roll off and customers take like actual assessment of where things stand cash flow wise?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So, Ebrahim, so obviously we have a long stated history of very rarely having any delinquency, so clearly we don’t anticipate something like this, but obviously we feel very comfortable on the level of LTV that we have on the original LTV of this particular cluster of loans. We’re very confident that we are working closely with the borrower and we feel confident that by the end of the year he will be in a status of current. So again, we feel highly confident that we’re in a good position here. We don’t anticipate because historically we get paid on our loans, so this is not something that we anticipated at all. However, we are working very closely with our customer and we feel highly confident that he will be current by the end of the year.
As far as some overall, if — and I would categorize it just to be specific, this is old Manhattan based properties. So I believe when you think about the boroughs and we talked about my — my comments upfront about the five boroughs, Manhattan is definitely coming back very, very strongly, in particular in the multi-family rent regulated and non-luxury marketplace. So clearly we’re seeing a supply and demand situation where there is not enough supply and there is tremendous demand on the housing side. So, we feel highly confident since these are blended building, some of them are mixed use, some of them is just pure rentals, but feel highly confident as he has to re-up his leases by coming into the market, which is significantly higher when they were during the pandemic.
Ebrahim Poonawala — Bank of America — Analyst
Understood. Okay. And I guess just moving on to the margin. When we think about the core NIM, I think your guidance was 3 bps to 5 bps adjusted for couple of bps last quarter, I think you said in the middle of that. Just talk to us in terms of how much more margin expansion is there to go as you think about funding cost leverage? And also you made some pretty decent banker hirings in the deposit size during the quarter. Please give us if you can a framework around how big that noninterest-bearing bucket can get over the next few quarters, next year? And what mix do you think just organically ex Flagstar that could look like as you think about the next year or so?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So, Ebrahim, obviously ex Flagstar, this division of deposit gathering is significantly changed here at the Company effective January 1. We are focusing on gathering core deposits, focusing on working with our customers, getting our operating accounts in line when we they close these loans and it’s working. It’s a cultural shift that’s working and we’re seeing good success on that. In addition to that, as I indicated, we are very actively pushing banking as a service, as a product line here and we have resources behind that and we are seeing the results of that and in my prepared remarks, you want some nice unique business throughout the quarter. But throughout the year it’s been growing very nice. I think we’re close to $2 billion as of today, so it’s growing very nicely and the pipeline is building.
So I think when you think about that type of money, it’s traditionally zero cost, very stable and noninterest-bearing. So I think that’s a solid book of business. What we want to do, obviously, on a standalone basis is build a better core funding base when we looked at our Company and be less dependent on wholesale funding. So we think these initiatives, both on the commercial side is key as well as building out a line of business such as banking as a service and utilize our balance sheet to gather more liabilities at a more stable than the non-traditional wholesale mechanism to fund the business. So we’re pretty excited about that. I’m not going to give deposit growth as far as for next year, because obviously when you put Flagstar and NYCB together, it’s significant, because they have a tremendous amount of liquidity that they don’t need right now given that they use the funds. We will be very powerful combination in respect to total funding base on a blended basis that we’re excited about that opportunity, but on a standalone basis, that is the strategy right now and we’re seeing very good results throughout the year and we’re continuing to focus on the cultural shift on mandating the operating accounts, lease security deposits when we close our loans and that’s — and that’s a priority for us.
Ebrahim Poonawala — Bank of America — Analyst
And outlook for the margin, Tom.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Again, I think we’re getting to a point now where our CD cost to probably, John, within the 40 basis — 45 basis points, so I think we’re not going to see much on the CD side. I would say that you’re probably going to be in line what we saw last quarter and a couple of basis points per quarter of margin expansion, ex the combination of Flagstar, but with Flagstar combined and with going into next year as we reposition ourselves to interest rate risk, continued margin expansion. So clearly with confident that the cost of funds will continue to go lower or be it’s smaller, however, as the yield curve starts to steepen here, we have an opportunity to deploy a lot of liquidity and we’re sitting on a lot of cash, right. So we’re not buying assets and we believe this quarter should be the highest quarter for growth. We have a very strong pipeline, in addition to the close to $2 billion in the pipeline that we have. We have a significant amount of apps that are in the pipeline. So I would envision the fourth quarter being the highest growth quarter of the year for net loan growth, which should help the margin as well.
Ebrahim Poonawala — Bank of America — Analyst
Got it. Thanks for taking my questions.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Sure.
Operator
Thank you. Our next question is coming from Brock Vandervliet of UBS. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Brock.
Brocker Vandervliet — UBS — Analyst
Hey, good morning. Just a follow-up on that comments of those comments on loan growth. Just talk about the fourth quarter, your comfort level with the mid-single digit guide. I think we all were expecting fourth quarter pick up that if you could just kind of frame that out a little bit more?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So the good news is the pipeline as you can see the numbers are public, the strongest — one of the strongest pipelines we had through the year. We have a lot of loans that were happening up right now that’s in process for approvals, so we feel pretty good about where we are in respect to the momentum going into November here and then we see the growth, which is favorable. So we will have a growth, net loan growth quarter. I think what was somewhat of a disappointment is that when the specialty finance business of the, and it sounds like a cliche, but when you think about the supply chain, it does impact our book of business, right. So we have a — probably an extra $1 billion of commitments that are not being drawed down because the customers that are in that portfolio. And these are all single, double AA type credits are not drawing down on the line. So clearly we’re sitting there with great opportunity. However, the supply chain is having impact on the specialty finance book. So typically the specialty finance book has been growing at around 20% on average, I think our CAG is close to 25% since we put it inception. So this is probably the worst year we had. And since we started the business and that’s a 10% in that growth, which is not terrible given the environment. We think that could pick up assuming there is a — some of the release on the supply chain as we go into the fourth quarter. That’s the unknown. So if you add that plus a very strong commercial borrowing opportunity here both on multi-family and also on the commercial side, we feel pretty optimistic that we will have growth absent changes in the supply chain. If the supply chain starts to ease up a little bit, then the growth will be stronger.
Brocker Vandervliet — UBS — Analyst
Got it, okay. And just a question for Lee. You mentioned he is on the call. Flagstar gain on sale looked very strong this quarter. If you could just break down how much of that was EBO [Phonetic] and any Q4 guide you wish to provide, that would be helpful?
Lee M. Smith — Executive Vice President and President of Mortgage
Yeah, sure, this is Lee. Well, first of all, we’re very pleased with our Q3 mortgage results. We guided to $160 million to $180 million and we’re timing at $169 million. About $18 million of that was EBO. And I think the stronger earnings was in large part due to our diversified mortgage model and we saw 5% more retail locks in Q3 versus Q2 as a percentage of overall originations and retail is a higher margin channel, and we executed on five RMBS deals in the quarter, which made us the second largest RMBS issuer in the quarter behind Chase.
We also kept costs under control. Mortgage costs actually declined $6 million quarter-over-quarter and mortgage expense as a percentage of closed loan volume declined from 1.02% to 1.00%. So we feel good about the flexibility and optionality our model affords us, together with a good cost control and discipline we execute with. Looking for Q4, we’re guiding to $120 million to $140 million gain on sale. The main reasons for the decline in Q4 versus Q3, just normal seasonality and we’re seeing that in the agency and MBA volume forecast. The Fed tapering discussions have increased bond yield to mortgage rates and we have seen a slight compression in primary, secondary spreads. And then the FHFA’s reversal of certain PSPI provisions was a slight negative to us given we’re a bank and an aggregator, we were able to step into the void the GSEs will leave in. And then we’re planning on three RMBS deals in Q4 versus the five that we executed on in Q3, and we’re planning on executing on six in Q1 2022.
As we look further forward into ’22, the agency and MBA forecast sign, it’s going to be $3 trillion market in ’22, $2.5 trillion market in ’23. Anytime the the market is over $2 trillion, that’s healthy. As I mentioned, we’re planning on six RMBS deals in Q1 and we’ll continue to leverage that program, utilize that diversified mortgage model and find pockets of opportunities. We have the balance sheet which gives us the [Indecipherable] and MSR flexibility and that RMBS program gives us execution optionality. Finally, with the bigger balance sheet as a result of the merger, it gives us growth opportunities across all of our sales channels, across the HFI portfolio products, holding more MSRs which benefit us from a deposit point of view, the RMBS program as I’ve mentioned and supporting the 238 NYCB branches and customers. As I’ve said before, we’re trying to generate more consistent and predictable mortgage earnings, using all the levers that I’ve just discussed that we have at our disposal.
Brocker Vandervliet — UBS — Analyst
Got it, okay. More than I bargained for. Thank you.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Thank you, Lee.
Operator
Thank you. Our next question is coming from Dave Rochester of Compass Point. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Dave.
David Rochester — Compass Point — Analyst
Very good morning, guys. You already highlighted a number of positives on the Flagstar quarter that was pretty impressive. I know that the warehouse was also up nicely and that bucked the trend on lot of the banks out there, so just any comments on that front would be great? And if you could just remind us everything done prior to the close of the deal here to really hit the ground running on day one post the close on the warehouse front. I know you’ve reached out to a lot of your top accounts to let them know that larger lines could be available. If you could just talk about that? And then I know on the deposit side, you really haven’t targeted that pool of the deposits, so can you just maybe size what that opportunity is there, that’d be great?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
I think that question is directed towards Lee Smith or Sandro.
Alessandro P. DiNello — President, Chief Executive Officer and Director
Yeah, let me, this is Sandro, let me take it. Yes, so we’ve just been executing in the fashion that we told you that we would and that was; number one, to continue to expand our relationships and take more market share as the mortgage market itself shrinks and we’ve been successful in doing that. One of the ways we’re doing that, ex the anticipated merger, is to do more syndications on the Flagstar side where we’re leading opportunities with bigger organizations, taking bigger positions and then sharing them with other banks. And then as we do think about the upcoming merger, while still staying within our loan concentration limits which we’ve always been very conservative and disciplined around as the market itself shrinks, rather than just lose relationships or levels of outstanding in terms of the amounts drawn on lines, what we’re doing is expanding relationships with our best customers because we’re more comfortable taking larger positions with them.
Again, as I said, still staying within our conservative and disciplined concentration levels both in terms of the overall size of the warehouse portfolio as well as an individual credit basis. So it’s just really what we’ve been doing for a long time here for the last five, seven years as we’ve focused on growing the warehouse business, taking advantage of the opportunistic, doing well from a service perspective and getting paid fairly for what we do. And as a result of that, the business has held very strong and we’re very optimistic about it being able to continue with that kind of strength going forward.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Maybe, Lee, you want to talk about the deposit initiatives tied to the Flagstar portfolio given the potential business combination?
Lee M. Smith — Executive Vice President and President of Mortgage
Yeah, so as it relates to the servicing or sub-servicing business, there’s a lot of custodial deposits tied to that and just given the size of our balance sheet, we have excess custodial deposits that we have put with other institutions. Given the merger, we are able to bring those custodial deposits back given we’re going to have the bigger balance sheet and so that’s going to be an advantage from a funding point of view. I mean, just having a bigger balance sheet I think given the relationships we have with MSR funds, with warehouse boroughs, it gives us the opportunity to go and bring in more deposits than we’ve been able to with the smaller balance sheet. So we think that is going to be another big advantage of this combination and having a $90 billion dollar balance sheet.
Alessandro P. DiNello — President, Chief Executive Officer and Director
Yeah, just to expand on the reference Lee made to warehouse customers. We do not seek escrow deposit deposits from warehouse customers because we just don’t need them. We do have regular deposit relationships with our warehouse customers and that’s relatively significant, but the opportunity to take in escrow deposits is — it’s hard for me to estimate what that is, but I know that it’s significant because it’s never been something that we’ve needed to do. But we are telling our warehouse customers that we will be in a position to show some interest in that post merger. But it’s really difficult for me to tell you how much, but I do think it’s meaningful, if that’s helpful.
David Rochester — Compass Point — Analyst
Yeah, I appreciate that. Thanks for the color there. And then Tom, I got one for you, just on the multi-family side of things. I know historically you’ve seen your borrowers coming back to the banks to refinance when the five-year jumps and there is an expectation that it will keep going higher. We’ve heard that from you guys, we’ve heard from other banks and from the brokers that we talk to in the market as well. Are you seeing any start of that or any sign of that at this point? And if not, what do you expect you would need to see in that five-year moving higher to start seeing that kind of concern amongst your borrowers?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Dave, it’s a great, it’s a great point. This is clearly a change in the shape of the curve. The back-end has moved up considerably and the five-year has also gravitated higher. This is because — this is actually great for our business because the decision to go agency versus portfolio makes it more towards the portfolios, which is favorable. We’re seeing that. So I would say with conviction that we are getting more opportunity to be more competitive there and I think on the rate side you’re at high level. So I think this is going to get people focused in respect to the next financing alternative that usually is relatively short asset. If the tapering does take place and does have an impact in the back end of the curve as well as the belly of the curve, it will be very favorable for our business.
We see some good property transactions occurring in the five boroughs, which is very favorable. We also see various, what we call season players not exiting, but expanding their operations into new demographics that we’re following. So that’s also going to be part of our growth. So we’re very bullish about this pandemic hopefully coming to a better place and seeing Manhattan out and about and the foot traffic is significant. We think this is going to bode into a significant opportunity as the customers that are on the spot line will have to make decisions. These are short-dated assets and not long dated assets and it seems that we see more and more of the traditional five, seven-year type stuff coming out when rate to start to rise. So we’re very optimistic there.
Brocker Vandervliet — UBS — Analyst
Great. All right, thanks guys.
Operator
Thank you. Our next question is coming from Ken Zerbe of Morgan Stanley. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Ken.
Ken A. Zerbe — Morgan Stanley — Analyst
Thanks. Good morning, Tom. In terms of the deal getting pushed out just a little bit towards first quarter, can you just talk about like what are the regulators looking for, asking for, or just any kind of color behind why this seems to be getting pushed just a little bit? Thank you.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
I would just be very clear. I had in my opening remarks as very clear, it’s in a position that is with our regulators. We’re waiting for approval. We’re very optimistic about the merger. However, it’s in the regulatory hands. So we clearly are working towards our common goal of getting this transaction closed as soon as possible. As you know, Ken, we can’t specifically discuss what we do with our regulators. So, obviously, in the hands of regulatory process.
Ken A. Zerbe — Morgan Stanley — Analyst
I understood. I thought I’d ask nonetheless. And I guess my second question.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
We appreciate the question. But as you can imagine, it is what it is.
Ken A. Zerbe — Morgan Stanley — Analyst
I know, I understand, just come back to that large borrower and I guess that you’re very well secured, obviously really low LTVs. But can you just provide a little more color like why is he having problems at this point? [Speech Overlap]
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
I’ll give you very specific. We were very generous from day one with the CARES Act and many customers took it — took at an abundance of caution that relief. He was one of the few customers that did not take relief. He was paying all through the depth of the pandemic, which really could have bolstered his balance sheet. That decision was made and obviously when you look back, he probably leased up at a lower level to realize that the pandemic was worse than he expected and the end result is that he needs relief now. And ultimately, as you know, we don’t typically have loans that go past 30 days. And these are low leverage type properties and we could sell the notes in a very short order and we added this relationship. But we’re very comfortable given the CARES Act relief that we provided to him and the fact that we have an ongoing dialog and we feel highly confident that will be in a current position by the end of the year.
So again, it is what it is, it’s unfortunate that he did not take advantage of what the bank had offered. Many of our customers did by the way and literally during this phase of the first six months of no pay, they came back and saw the bank, they did not want to put the money in the back end. So I think he is one of the few customers who did not take advantage of the CARES Act early on and where we — and the good news is that when you look at where the market is and these leases that are coming — that are coming back for renewal, they’re going to be much higher than when they were leased in the middle of the pandemic. These are not long dated leases. So we’re highly confident that we’ll be in a good position here.
Ken A. Zerbe — Morgan Stanley — Analyst
All right, great. Thank you.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Sure.
Operator
Thank you. Our next question is coming from Chris McGratty of KBW. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Chris.
Christopher McGratty — Keefe, Bruyette & Woods, Inc — Analyst
Hey, good morning. I want to follow-up on the deposit growth that you’ve seen, particularly the noninterest-bearing that you cite with the bank into the service. I guess, maybe I missed this, but expectations for noninterest-bearing deposits to continue to grow, I think there’s a view in the market that most banks will not see as much growth in noninterest-bearing given the move up in rates and constant parked money, but interested in your thoughts specific to that?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Yeah, so Chris, this is the type of deposit we’re focused on. This is — these are pre-loaded card business. It’s very sticky. It’s driven off of some of the stimulus payments that are out there, including the new ones that are coming and who knows what’s coming in the future. So these are interesting programs, they’re technology provided. So the technology out there that does play in the space need to have a bank behind them on a perspective, when you deal with — with tying into your system. So we are providing that. We are also looking at putting our own request of proposals throughout the country for that business and it’s not just in the local areas throughout the country. So we’re very active on expanding that.
But I also want to be very clear. We’ve spent some real effort here and brought in some new people on banking as a service and focusing on technology initiatives, which will result in us probably having some technology wins with companies that are in this space that are challenger banks as well as banks that have access to substantial funding, but they’re not FDIC insurance. We will use our balance sheet to be able to enjoy the opportunity to provide insured deposits that I believe the marketplace will be — will be requiring to have when you deal with some of these challenger bank situations. And a lot of those players are smaller players that are capped out at $10 billion for reasons on the fee side and we can partner with them. So we are really focused on that. We think it’s going to be a significant potential for the bank. I’m not going to give a number on it, but where we started at zero and now we’re $2 billion. It’s only been around 10 months. So that’s a pretty good track record and we have so many opportunities in the pipeline that we’re bullish about and you’re not going to win everyone and you’re not going to win every request or proposal, but we are reaching out to some major challenge of players out there and not — and they need partners in the marketplace to house this liquidity event and we’re willing to work with them.
And in addition to that, we’re also focusing on a planning perspective with Flagstar to use the — this escrow opportunity as a tremendous way to structure term. We’ve done this before. We had — when we had the mortgage business, we had structured term where some of the large players that we’ve done business on the conduit basis were structuring out, very cheap cost, well across deposit in a term perspective and they are comfortable going out more than just a quarter, a short-term position by taking a longer-term position with us as a partnership. So that’s kind of how we’re thinking about it and we kind of classify their ORs banking as a service, as well as how we continue to drive into the technology initiatives that’s out there, we think that will pay dividends for us. And by the way this is a strategy shift in the bank. This is going — focusing on better funding the balance sheet as we change the dynamic of the company.
Christopher McGratty — Keefe, Bruyette & Woods, Inc — Analyst
No, that’s great. Thank you — thank you for the color. Just — I want to follow-up on just overall rate sensitivity given the markets, the move up in rates. Could you help us with kind of a longer-term, it seems like there is a funding advantage when Flagstar comes on. And I know it when the deal was announced, you talked about the balance sheet be in better position. But if we think out the market’s pricing and a couple of hikes by the end of next year into ’23, how should we think about margin development pro forma?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So let me start off and I’ll just say big picture and I’ll hand it over to Mr. Pinto. Big picture is that NYCB combination with Flagstar, their asset sensitive reliability for the most part. They’re mostly in adjustable rate type lender but mostly fixed. When you blend that, we are in a very good position to manage very well. That’s the big picture. So we — and that’s part of the merits of the transaction and we feel highly confident. When these companies come together, the balance sheet has a very different position of interest rate risk. That being said, I’ll hand to Pinto just go dive into some of the details on a standalone basis where we stand.
John J. Pinto — Senior Executive Vice President and Chief Financial Officer
Yeah, I mean, as you know on a standalone basis, we have been and continue to be liability sensitive. But on the NII side, that has begun to change a little bit and moderate. But as Tom mentioned, that’s been moderating because of the potential deposits we can bring in on the noninterest-bearing side and limit our reliance on wholesale funding, right. That’s the goal, to continue to take that $15 billion wholesale borrowings and pay it down when we can with core deposits. So that will be the big generator for us to continue to limit the liability sensitive nature of our standalone balance sheet and until we’re closed the Flagstar where that NII sensitivity turns to more of a positive perspective given the amount of floating rate loans and the asset structure at Flagstar.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So I would just add to John’s point. If you think about the fourth quarter, we have about $370 million coming due from our wholesale position. That’s at a cost of 257 [Phonetic] that’s pretty expensive in this environment. I mean, you go out — let’s say the full-year 2022 is another $2 billion. That’s just about 1.5%. It’s still considered very expensive in this environment. And when you go out to ’23, it’s $3 billion at about 1%. So on blended, we have an opportunity here to take advantage of a much lower rate environment. We believe there will be probably some changes in the year ahead, but not enough to really take away the opportunity to restructure what we value, we position that close to $5.5 billion. We know what’s coming due in the quarter and that will probably get paid off with cash. So we have zero cost money that will — that will to pay off the 257.
When you think about ’22 and ’23 and you think about the business combination with Flagstar, the opportunity to look at the entire liability book on a holistic basis is clearly to our advantage. So we’re excited about that opportunity. We think there’s going to be real value there. We haven’t put a number on it yet until we close the transaction. But clearly we think it’s a great opportunity.
Christopher McGratty — Keefe, Bruyette & Woods, Inc — Analyst
Thank you very much. And then just a follow-up. The one regulator approval. Can you just specify which regulator you’re waiting on?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
The way our structure is, we were FDIC states. So we have not received our FDIC and State approvals. Then after that, it would then go to the Fed. It’s just — it’s the process of our regulatory structure.
Christopher McGratty — Keefe, Bruyette & Woods, Inc — Analyst
Great, thank you.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Sure.
Operator
Thank you. Our next question is coming from Steven Alexopoulos of J.P. Morgan. Please go ahead.
Steven Alexopoulos — J.P. Morgan — Analyst
Hey, good morning, Tom.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Steven. How are you.
Steven Alexopoulos — J.P. Morgan — Analyst
Good. So first, regarding the past dues and the $377 million relationship, how many other relationships do you have in that size range? And what’s the house limit in terms of loan concentrations to a single relationship?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So, we don’t disclose the house limit, but we do have what — we have always had sizable relationships to very wealthy property owners that have significant locations, all collateralized individually. So we do not have a — I’m not going to disclose my house limit it, but we do have large relationships and we’ve been doing that as part of our business model. I think the good news about that as we start building this mandate on the deposit side, we’re seeing the growth in our deposits from these long-term large relationships. But now clearly going back to that one specific customer, I’m going to say it again, we feel very confident that we will be current by the end of the year and more importantly, we have adequate collateral to deal with it for some reason, we’re not in a position at the end of the year to to be current. So we feel pretty good about it. But clearly, and, Steven, you know that the business model. We deal with significant families throughout the five boroughs as well as the expanding outside of the five boroughs now for a number of reasons and we’re very comfortable with our relationship lending.
Steven Alexopoulos — J.P. Morgan — Analyst
Okay, okay, that’s helpful. Tom, on the margin, so regarding the sizable decline in the prepayment penalty fees in the quarter, was that attributable just to rates moving up a bit and do you expect to see refinance activity further slow?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Again, Stephen, rate does make a difference. So if there is a real steepness in the curve, I think many customers will react. They’ve been enjoying a relatively low coupon as they make their decisions and obviously with the pandemic that has slowed things down considerably, it seems like there’s a pick up here. We’re hearing about transactions. There are many, many players on the sidelines with significant liquidity looking to buy assets and the math does — it’s still compelling. The math is a double-digit return in spot rate with cap rates that are holding up between 4.5% to 5.5%. So I think at the end of the day, I think your really looking at a market that’s ripe for a rebound, assuming that Manhattan has a stronger recovery. I will be very clear, the five boroughs, the last frontier is Manhattan, was seeing significant positive movement there. We are seeing our customers. I will tell you with conviction there are deals in the pipeline that are — that are purchased as well as refi, but I think if rates moves here given — given the tapering that’s potentially out there as well as a theory that rates are going to be higher, that will make customers rethink about their opportunities and probably come to the table sooner, which would generate not only prepayment income but also potential loan growth.
Steven Alexopoulos — J.P. Morgan — Analyst
Okay, that’s helpful. And finally, Tom, could you give color on the decline in the security yields in the quarter? Is off quite a bit quarter-over-quarter. And then just from a spot rate view, where our new loans and securities going into today? Thanks.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So we haven’t been buying any securities for a while. John, was that right?
John J. Pinto — Senior Executive Vice President and Chief Financial Officer
Yeah, thank you. And you’ve seen the balance just continue to kind of drop quarter-over-quarter and that’s just some of the higher yielding securities coming off. The Home Loan Bank has lowered its rate slightly over the, when you look quarter-over-quarter as well. And then we’re also in the — if you remember in the second quarter, we had significant prepayment fees on our securities portfolio as well. So that’s what’s generating the actual top line miss. When you look at it ex those prepays, it’s not down anywhere near as much, but we are still seeing some pressure there, right. We’re trying to limit security purchases this year to avoid putting on duration in this interest rate environment and that’s why we’ll be sitting on a little extra cash for the time being until we’re ready to put some of that money to work hopefully in loans and of course in securities as as market conditions dictate.
We have a probably an ample cash position by design. We were not going to put it into duration risk right now. It’s — we believe it’s a waiting game. If there is a significant move in the back end, we can see opportunism, we’ll put some money to work. Right now, we have a lot of zero cost money that we can easily earn and put on in the market, but we don’t think it’s the right decision right now. We’re going to be patient. In addition to that, we’re also looking at the opportunity to put these two business model together with Flagstar and look at the holistic view of the entire portfolio, which would be a reshuffling, so. But we are not going to exhaust the liquidity today until we see truly a significant movement of interest rates and we’ll take advantage of that.
Steven Alexopoulos — J.P. Morgan — Analyst
Okay. And despite yield on new loans.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
It’s north of 3, like 3 in the quarter, 3.5 now, so that’s a good movement. I will tell you, fourth quarter is less of a challenge than it was in Q2 and Q3. So we like the fact that the yield curve has moved very nicely for us, like I indicated. I think the customers are contemplating what they want to do now that as they come closer to their role, which is good for us because it’s at a higher at a higher rate. So it seems that — and that’s also good impact in our decision to go agency versus portfolio. So anytime this curve starts to steepen like this and smokes to our advantage, we will — the customers tend to think about a shorter duration and go to the portfolio lenders.
Steven Alexopoulos — J.P. Morgan — Analyst
Got you, okay. Thanks for the color.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Trust you.
Operator
Thank you. Our next question is coming from Steve Moss of B. Riley Securities, please go ahead.
Steve Moss — B. Riley Securities — Analyst
Hi, good morning.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Steve.
Steve Moss — B. Riley Securities — Analyst
Maybe just following up on credit here, modifications coming down kind of curious, obviously [Indecipherable] but just how we think about the reserve and provision expense going forward here?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
I’ll talk big picture and I will turn the CECL conversation back to Pinto. Big picture, I think you’re going to see in the short order. A lot of the stuff that’s given the roll off the CARES Act. Obviously, assuming Congress is done with providing relief under the CARES Act, we believe this $900 some odd million will come down substantially in the quarters ahead. Probably a substantial adjustment by our next time we report to the marketplace in January you should see a noticable reduction. And I guess by the time March or April comes, that CARES Act will be exhausted and we probably going to be left with some bucket full of loans, but very manageable and highly reserve given our seasonal components when we put that together. And with that, I’ll go to John in respect to the big picture on the reserve side.
John J. Pinto — Senior Executive Vice President and Chief Financial Officer
Yeah, right now as you saw in our — with our CECL results and our small benefit this quarter, we expect to be in that range, of course, depending upon loan growth as well. So if we do have substantial loan growth, of course, on the CECL, you have to provide for that in the quarter. But besides that, we don’t see anything in the economic environment substantially changing. It’s been quarter-over-quarter getting better and improving based on the Moody’s forecast that come out, so we’re not seeing anything that would give us any pause that we see larger provisions coming down the road, if anything, we are in that — there are small recovery depending on loan growth. We just don’t see anything in the portfolio today that would drive anything else.
Steve Moss — B. Riley Securities — Analyst
Okay, that’s helpful. And then just in terms of expenses here, came in a little bit better than expected and kind of thoughts on expense for the fourth quarter for you guys on the quarter.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Yeah, I think expenses for the fourth quarter will be flat to the third quarter. We don’t expect any real pickup in the fourth quarter. We’re very comfortable in this $130 million range right now.
Steve Moss — B. Riley Securities — Analyst
That’s ex-merger related.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Correct, ex-merger related.
Steve Moss — B. Riley Securities — Analyst
Right. Okay, great. Thank you very much. Appreciate that.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
A pleasure.
Operator
Thank you. Our next question is coming from Matthew Breese of Stephens. Please go ahead.
Matthew Breese — Stephens Inc. — Analyst
Hi, good morning.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Matt.
Matthew Breese — Stephens Inc. — Analyst
And just going back to the regulatory approval front. First, I’d assume you need New York State approval, but who is Flagstar regulated by at the bank level and how does that factor in here?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
They’re OCC in the applications with NYCB. So we would need FDIC statement and after that happens, we get the Fed and then we close.
Matthew Breese — Stephens Inc. — Analyst
Got it. So it really is not [Speech Overlap]
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Correct.
Matthew Breese — Stephens Inc. — Analyst
Okay, and then just to hone in the deal closed down the timing a little bit. Do you anticipate this being like a first half of ’22 event? I think someone said first quarter, but I don’t remember reading or hearing that from you or in the release.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
And Matt, I was very clear, obviously this is in the hands of our regulators. It’s going through the application process and we’re anticipating closing as soon as we can in ’22. Other than that, I can’t get specific.
Matthew Breese — Stephens Inc. — Analyst
Okay, understood.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
I apologize for not being able to expand upon that, but it’s in the hands of our regulators.
Matthew Breese — Stephens Inc. — Analyst
Completely understand. I was also hoping you could talk a little bit about the partnership with Figure. There’s a couple of data points out there. Mr. Cagney has suggested that you’re providing Fed settlement for them, credits in sponsorship. You did the private securities transaction this quarter. What are some of the economics for you in these partnerships and transactions? What are the balance sheet and income statement impacts as this progresses?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
It’s a very interesting co-collaboration agreement with Figure. We’ve invested in the company as we publicly disclosed. We’re very excited about working with the engineers over at Figure when combined resources sort of both combining our resources we believe is a tremendous opportunity as we continue to beta test. So we did a small transaction with them that was the beta test and they continue to develop the solution on the blockchain on clearing through the AML KYC process of the banking solutions, at the same time being very cognizant of the regulatory needs out there to deal with the changing banking world. So dealing with someone who is innovative as Mike and working with us and focused on looking at our balance sheet opportunities, we think there is tremendous liquidity opportunism on the deposit side and will be fee income opportunities and ultimately potential lending opportunities.
And if you think about the big picture when you put NYCB and Flagstar together, we believe that a lot of the business opportunities on mortgage banking, mortgage lending will ultimately be on the blockchain. So we think that the blockchain could really create a lots of efficiencies. It’s really probably a more seamless way to do business when it comes to mortgage lending and we’re exploring with that both on the back end and in the front end. So these are exciting times. Right now, Matt, it’s beta testing and beta testing, a lot of beta testing and this is — we’re not going to give out any business metrics because it’s not going to be something we could speak to until we publicly launch an initiative. So we’re still in the beta testing mode, it’s been dynamic, I’ll call it innovative and it’s exciting, and we’re all hands on deck, but clearly with a focus towards trying to find out the solutions. I mean, you are very familiar what’s going on in the banking space and I think Treasury, I think that all regulatory world is trying to figure out how do we get this massive amount of liquidity out there to be AML KYC to the banking system and we’re working with them. I think it’s exciting. And again, to the private close to blockchain solution. So there’s a lot happening, stay tuned and we’re excited to be partnering with them.
Matthew Breese — Stephens Inc. — Analyst
Great, okay. And then last one from me. In the past you discussed the combined entity, New York Community Flagstar being able to generate double-digit type of loan growth and you touched on warehouse already, but I feel like we’re going to have to see more significant multi-family commercial real estate growth to get to that kind of level. I’m just curious what the strategy is there to expand that business? is it – is it more New York City? Is it a nationwide strategy?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Yeah, so great point. We’re expecting that when the transaction closes. Ultimately, we feel highly confident that when we have people in the field, it’s going to be a cultural change, right. NYCB does not lend on the field in any meaningful way. Flagstar has people, they’re direct lenders. So we have an indirect business with NYCB, you have the direct business was Flagstar collectively. We’re bringing out to the table substantial opportunities in markets that are very robust. New York, we don’t direct lend, Florida Ohio, the Midwest, they’re doing a great job on growing. So we think we can have an opportunity to put people on the field, focusing on deposit growth and combination C&I with the right people, and we are going to do this with precision as we hire up collectively as a combined entity to rollout a direct strategy. Direct and indirect will work together, but we think there’s some great growth opportunities.
At the same time, we don’t really see one products to our branches. So we’re taking all of the Flagstar lending products and putting them — we turn them on after legal day one and we have the opportunity to do business in our branches where our customers will have tremendously more products and that’s the beginning. So as we transition to truly a commercial banking enterprises with a wide array of products, that’s the opportunity that we’re all excited about. So we feel highly confident between the fact that there are a mortgage player and a dominant mortgage player number six in origination, number sixth in servicing, number of top two, top three in warehouse lending with a much bigger balance sheet, we could do a lot more there. And these are exciting businesses because obviously it’s consumer related and we’re not a consumer-focused entity on a standalone basis, so we think we’ll have some good growth there, in addition to a very strong C&I presence.
Matthew Breese — Stephens Inc. — Analyst
Great. I’ll leave it there. Thanks for taking my questions.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Always a pleasure, thank you.
Operator
Thank you. Our next question is coming from Steven Duong of RBC Capital Markets. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Good morning, Steven.
Steven Duong — RBC Capital Markets — Analyst
Hey, good morning, guys. Tom, I guess, maybe if we just get back to you to Figure. When you go through their white papers, it looks like they’re achieving cost savings on the mortgage side of around 125 basis points from the origination all the way through the securitization. And when you bring on Flagstar on there, Flagstar is pretty much touching on literally every part of that process and I guess — have you guys started to size up roughly like how much of that 125 basis points you could actually realize, so what I — Flagstar is doing 150 gain on sale. Is it possible for you to add on another 50 basis points from this partnership with Figure.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
So let me just be clear and I might turn it back to Lee Smith. I will tell you that they have done a great job being Flagstar to be relevant in the private label mortgage market, right. So, Mike has done it an over at Figure as they’ve done transactions on the chain. He is a private label transaction and not through the agency, right, and that’s the long-term future. But ultimately as they continue to be significant in the RMBS space, Lee Smith has indicated fixed deal that’s going to happen in Q1. They are going to do, I think three or four deals in Q4. But they’re I think top two or three in the country this year on RMBS. This is a sizable transaction if done through the chain, I think they’ll — we reduce cost materially. So I think there’s opportunity there as we grow the business. And I wouldn’t underestimate that opportunity.
But in the meantime, the front end and the back end, that’s a long-term solution when it comes to an agency player. But the non-agency opportunity where large core portfolio management that buy these types of assets are very comfortable transacting on the chain. Maybe Lee, if you want to maybe give some color as well to the opportunity, obviously without putting numbers but just some big picture theory there.
Lee M. Smith — Executive Vice President and President of Mortgage
Yeah, no, absolutely good question, Steven. Look, you can’t any numbers to it because it’s a new relationship for NYCB. We haven’t closed that deal. AAs soon as we do, we can start working on this more and trying to figure out and quantify the opportunity. As you know with the blockchain, blockchain is an ecosystem, particularly if you are talking end to end mortgage. And so the big numbers that you just quoted, you’re going to need a number of players within that ecosystem to start to realize some of those benefits. As Tom just alluded to, as it relates specifically to RMBS, and we’re the second biggest player in RMBS. If you look at Q3, there’s some very discrete advantages. So if you think that the blockchain is a trust list ledger, you don’t have due diligence every single loan in an RMBS transaction if you’re comfortable with the way the blockchain is working. So there’s obviously immediate savings from a due diligence point of view, transfer and payment is instantaneous. And so I think from an RMBS point of view that would be the more immediate opportunity. But as Tom said, it’s very much in the early stages and the exploratory stages, but it’s an opportunity and that’s how we’ll we’re looking at it.
Steven Duong — RBC Capital Markets — Analyst
Thanks, I appreciate that, Lee. And I guess maybe just from your experience, do you see this blockchain eventually leading to kind of like an overall industry shift on the cost front and do you guys see this as an opportunity to being a first mover?
Lee M. Smith — Executive Vice President and President of Mortgage
Possibly. I mean, look, I think there’s a lot of technology solutions out there and all mortgage companies are looking at ways to get more efficient, do things quicker and improve the customer experience,. And if the blockchain enables that, then that’s a good thing. There is a number of FinTech’s and technologies out there that we are constantly looking at, this is one of them. And I know Tom and his team were doing the same on the New York Community Banking side. So I think it is — it is an opportunity and what [Indecipherable] and one of the front runners should prove to be something that we and ultimately the industry can take advantage of.
Steven Duong — RBC Capital Markets — Analyst
I appreciate that. Thank you. And then just one last one for me, just on the CDs running off. I guess, how — just that the current rate right now on new CDs like how low do you think they can get to? And are the CDs basically moving over into say savings accounts?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Yeah, I think that’s probably the case. I mean, obviously, we’re at a point now where we’ve enjoyed multiple years of expanding margins, right, since the shift of policy by the Fed Reserve and where rates are close to zero. So I think we’re at the point that with the next $10.3 billion coming due is still in the mid 40 basis points. So some are going to savings, but I think let’s call it flat. And that’s I think, that’s the strategy here. But ultimately the shift of culture into noninterest-bearing, a shift in culture to go at the commercial customer accounts which we have, which I believe is our right as the lender and that’s a cultural strategy shift that were enforcing at the top — at the Board level all the way down to the rank and file of the team memberships and it’s working. So I think that culture of the historical view of NYCB Thrift model is moving more towards the traditional commercial model that should drive the margin as well, which I think will be — will be significantly driven by the combination with Flagstar, so that’s what they do.
At the same time, when you think about fixed rate lending versus floating rate, it’s a very unique blended opportunity to bring these businesses together culturally and ultimately as we go out in the field and have direct lenders that go after those C&I opportunities, it’s deposit first, lending second, and I think that’s the cultural shift that we’re going through right now and we’re super excited to do it with [Indecipherable] team because he has done a phenomenal job in growing it. So we’re doing it together once we combine and we’re excited about that opportunity.
Steven Duong — RBC Capital Markets — Analyst
Great. Thank you, Tom. I appreciate you taking my questions.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Sure.
Operator
Thank you. Our next question is coming from Christopher Marinac of Janney Montgomery Scott. Please go ahead.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Chris, how are you.
Christopher Marinac — Janney Montgomery Scott — Analyst
So, Tom. Good, how are you. Could you or Lee or Sandro talk about the non-qualified market. How much more opportunity exists here and is that another source of revenue as the merger closes?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Sandro, do you want to handle that one.
Alessandro P. DiNello — President, Chief Executive Officer and Director
Well, I don’t know the answer to that, but I will tell you this and our history supports what I’m going to say. If there is an opportunity there, we will certainly jump on it. And as Lee mentioned in his comments, the key I think to our mortgage businesses that we’ve got a lot of different delivery channels and levers we can pull to take advantage of whatever the opportunity is out there. So I don’t know the answer. I’m not going to speculate on how much of an opportunity there might be because I don’t know what the market conditions are going to be, but I know with full confidence that if there is an opportunity there we will seize it.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Yeah, so I’ll just add to that point on Sandro’s and then Lee, I’m sure you want to chime in. But now assuming there is a real change in the slope of the curve and rate start to gravitate higher, we will balance sheet residential lending. We will balance sheet prime type loans on the portfolio. We will have other products to utilize the balance sheet, which will also and going back to my other point which I missed, whether this gets back to another contribution to potential growth of our assets by just being able to balance sheet high quality loans for portfolio as well and that tends to be the case when rates are in a different perspective and then customers focus more on an adjustable rate feature. We’re very comfortable putting on ARM type loans on the portfolio. We’ve done it before very successfully. And with Flagstar’s distribution, we could do it at a much more material way. And believe Lee, if you want to add more color to that.
Lee M. Smith — Executive Vice President and President of Mortgage
Yeah, no, I think you covered most of that. I was going to say if the recent opportunity, we can take advantage of it. We have a balance sheet, we have the RMBS program, so we have different ways that we can execute on these loans and different methods of either holding them or dispersing them. And then as Tom mentioned, we have the sales force across multiple channels, whether it’s PPOs, distributed retail, direct lending and so if it is something that is an opportunity, we can ramp up pretty quickly given the number of sales channels and sales teams that we have.
Alessandro P. DiNello — President, Chief Executive Officer and Director
[Indecipherable] just put a finer point on that comment. We have very strong origination teams and channels in the higher cost areas of the country where that product is more likely to exist. So principally, part of what has grown through the Opus Advisors acquisition we did a few years ago, we, and as you can see from the securitizations we’ve done, our access to those markets is very, very, very strong. So to the extent again as I say that the opportunities there, we’ll take advantage of it. Historically, we have at times put those loans on our books as well, but the private securitization opportunity in recent quarters has just been so interesting that we’ve gone that route. But at times that market may not be as strong and in which case there’ll be more consideration. I’m talking about Flagstar independent here what we would portfolio it. You get into post merger, it’s a different dynamic because the balance sheet is going to be much much bigger and much different than it looks like just Flagstar today.
Christopher Marinac — Janney Montgomery Scott — Analyst
Great, thank you all for that background, its really, really helpful. And Tom, just a final question. When you look at the sort of stock repurchase opportunities post regulatory approval and closing, is it still as good as you thought back in April when the merger was announced?
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Look, obviously, we are very pleased with Flagstar/s results. They’ve actually outperformed our internal forecast when we sat down and talked about putting the company together and perform with company. So on a common equity perspective, this is probably going to be more given the earnings profile, which is very attractive for additional tangible book value creation on the transaction. The company is going to earn on a combined basis a lot of money and we’re going to have a substantial reduction in our overall dividend payout ratio because of that. So we’ll have more flexibility on capital management tools.
As I indicated in the previous quarters, we’re not going to be talking about repurchases in the midst of the transaction. But once the company has put its capital together and its earnings power, we invest in people, systems, the business itself and at the same time paying a very strong dividend, we will also consider the capital opportunities on the buybacks and clearly if the market is attractive for that, we will consider all options. But clearly this company is a different profile when it comes to the capital generation and we enjoyed the benefit of their capital. They have significant capital on a standalone basis. We have to pay a very large dividend. Collectively, the blended payout ratio goes down materially and ultimately as I said, their performance has been much better than what we expected in 2021 that we remodeled, and then as we know from the original presentation of the deal we modeled a — I think it was about a half, a 50% reduction in the mortgage business going into 2022, and obviously that’s pretty severe so and it still generates significant earnings accretion with significant capital generation. So we’re very pleased about where they are today and we’re looking forward to enjoying that opportunity in the future.
Christopher Marinac — Janney Montgomery Scott — Analyst
Thanks, Tom. I appreciate all your comments.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
Sure.
Operator
At this time, I’d like to turn the floor back over to management for any additional or closing comments.
Thomas R. Cangemi — Chairman, President, and Chief Executive Officer
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 2022 when we will discuss our performance for the fourth quarter and full year December 31, 2021 period.
Operator
[Operator Closing Remarks]