The runoff of some of the deposits that New York Community Bancorp acquired last month when it scooped up a significant portion of Signature Bank may not be over yet, executives said Friday.
The Hicksville, New York-based company says it still expects about 20% of the $33.5 billion of Signature deposits it took on last month will leave the balance sheet. At the same time, New York Community is trying to hang on to what remains and lure back some of the deposits that have already fled.
"Don't underestimate the opportunity in front of us here, that when there was a run on the system … these accounts were not closed," Thomas Cangemi, New York Community's president and CEO, said during the company's first-quarter earnings call. The deposits "were just moved out [and] our goal is to get a lot of that money back and be creative with our clients, especially on the Signature side, to really be their white-glove service. That's the secret sauce of Signature."
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Like many of its regional peers, New York Community shared a plethora of details in its quarterly earnings report about how deposits have flowed in and flowed out during the market turmoil.
Between March 20 and March 31, about $2 billion of Signature deposits flowed out of New York Community, the company said. Between April 1 and April 20, another $900 million left.
Overall, deposits for the first quarter were $84.8 billion, up 123% from $38 billion in the year-ago period, as a result of both the Signature deposits and those acquired as part of New York Community's December 2022 purchase of Flagstar Bancorp in Troy, Michigan.
Excluding the Signature deposits, legacy New York Community-Flagstar deposits fell $5.4 billion during the quarter, in part because of a decrease in banking-as-a-service deposits, which dropped 32% compared with the prior quarter. The drop-off in banking-as-a-service deposits is tied to an anticipated spend-down in a prepaid debit card program in California and the withdrawal of reserves from stablecoin issuer Circle.
As of March 31, New York Community no longer has a deposit relationship with Circle and does not have any stablecoin or cryptocurrency-related deposits, New York Community said Friday.
Analysts expressed mixed feelings Friday about New York Community's deposit trends. In a research note, Jefferies analyst Casey Haire called its $26 billion linked-quarter increase "disappointing" in light of the $33.5 billion of deposits from Signature, but noted that the deposit runoff during the quarter was primarily driven by the reduction in legacy deposits.
Analyst Mark Fitzgibbon at Piper Sandler was upbeat, saying in a research note that New York Community's ability to hang on to about 91% of the acquired Signature deposits is "a good initial sign of [New York Community's] ability to keep [Signature Bank's] teams and customers."
Of Signature's 134 different teams, New York Community has so far been able to hang on to about 125, Cangemi said during the call. "So I would call that a huge success," he said.
New York Community said it has retained all of Signature's New York and West Coast private client teams, its wealth management and broker-dealer business and its specialty finance lending team. All of the Signature branches are now branded as Flagstar, which is the name of New York Community's banking subsidiary following the acquisition of Flagstar Bancorp.
Overall, the Signature deal included about $38 billion of assets, namely about $12 billion of commercial loans and $25 billion of cash. The influx of commercial loans was mostly in the form of commercial and industrial loans, which now make up about 38.3% of the loan book.
As for the influx of cash, New York Community used a portion to pay down some of its wholesale borrowings. It will pay down more borrowings as they come due, mostly happening in the second quarter with some due in the third and fourth quarters, Chief Financial Officer John Pinto said.
As far as how much more runoff could occur with legacy Signature deposits, Pinto said the company is "cautiously optimistic" that it might not reach the 20% projection it modeled in March.
"Hopefully, potentially we could see some growth once this … continues to stabilize," he said.
New York Community remains on track to complete a systems conversion of Flagstar Bancorp in the first quarter of 2024, the company said.
It has not yet determined when it will conduct such a conversion for Signature Bank.
"That process will not impact the actual date of the Flagstar integration, but it is something we're working towards now to finalize a date on and just to ensure that we get the systems converted in the most efficient and effective way possible while minimizing customer impact," Pinto said.
