Q4 2020 New York Community Bancorp Inc Earnings Call
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Okay.
Good morning, everyone. This is Sal Dimartino director of Investor Relations. Thank you for joining the management team of New York Community Bancorp for today's conference call.
Today's discussion of the company's fourth quarter and full year 'twenty and 'twenty performance will be led by President and Chief Executive Officer, Thomas Kim Xiaomi, and Chief Financial Officer, John Pinto, together with Chief operating Officer, Robert Wann.
Yeah.
Today's release includes a reconciliation of certain GAAP and non-GAAP financial measures that may be discussed during this call.
These non-GAAP financial measures should be viewed and addition to and not as a substitute for results prepared in accordance with GAAP.
Also certain comments made on today's conference call will contain forward looking statements that are intended to be covered by the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to risks uncertainties and assumptions that could cause actual results to differ materially from expectations.
We undertake no obligation to and would not expect to update any such forward looking statements after todays call.
You will find more information about the risk factors that may impact the company's forward looking statements and financial performance and today's earnings release and in its SEC filings, including.
For 2019 annual report on form 10-K, and its third quarter 2020.
Quarterly report on form 10-Q.
Now to start the discussion and it's my pleasure to turn this call over to Mr. Ken Jimmy who will provide an overview of the company's performance before opening the line for Q&A Mr. Ken Jimmy. Please go ahead. Thank you Sal and good morning to everyone on the phone and on the webcast and thank you for joining us today before turning to <unk>.
The financial details and I'd like to take the opportunity and introduced our new CFO, John Pinto to everyone on the call as you know John Panther was named CFO at the end of last year.
Feeding me and that that position as I transition to them for all the president and CEO.
John and I have worked together for 22 years going back to the time with Richmond County, Bancorp and we have worked very closely since the adult joined New York community and 2001.
Moving forward, John will be spending more time with the analysts and investment community.
Please join me and wishing him well as I know and he will do a terrific job as the Companys new CFO.
Now turning over to the results.
Early this morning, we reported diluted earnings per common share of 39 on a go.
GAAP basis for the three months ended December 31, 2020 up 70% compared to the year ago quarter, and up 95% compared to the previous quarter for the <unk>.
Yeah, and we reported $1 two per share on a GAAP basis.
32% compared to last year.
These numbers included an income tax and benefit of $55 $3 million for the quarter and $68 $4 million for the year related to certain tax provisions of the cares Act.
On a non-GAAP basis, our fourth quarter earnings were <unk> 27 per share a penny better than consensus estimates and our full year earnings were <unk> 87 per share up 13% compared to 2019.
We are pleased with the company's financial performance over the course of 2020.
As everyone knows last year was a challenging year due to the lingering effects of the COVID-19, pandemic and its impact on the local and national economy, and our customers and our employees.
Spite these challenges return and strong operating results highlighted by double digit EPS growth continued net interest margin expansion and strong 23% increase and pre provision net revenue and strong growth and origination volumes.
Additionally, our asset quality metrics continue to improve as nonperforming assets fell and to date our loan deferral program has proven to be very successful as virtually all of them are eligible to come off deferral have returned to payment status.
As we've previously disclosed on the forward program is somewhat unique and that it is for an initial six month period as opposed to a three month period. Accordingly, the vast majority of our loans on deferral of eligible to come off their initial deferral period during the fourth quarter, primarily during the months of October and November.
As of December 31, total multifamily and CRE loans differed dropped 99% to.
For $80 million or 0.2% of total outstanding loan balances compared to $5 9 billion or 15, 5% at June 32020.
Multifamily deferrals was $74 million compared to $2 3 billion at June 30th while CRE deferrals declines of 6 million compared to $2 3 billion at June 30th office deferrals at the end of the year was zero.
Retail and mixed use deferrals were each about $1 million.
Most of the remaining for the eligible to come off deferral during the first two months of the year.
Despite all the economic challenges during the fourth quarter on a segment of the New York City real estate market. The non luxury rent regulated portion of the multifamily market continues to hold up extraordinarily well.
Our borrowers continue to pay offs and rent collections have remained above pre pandemic levels.
Moreover, the vaccine rollout and additional fiscal stimulus by the New administration should help the local economy and that should support and multifamily and CRE properties in our region.
We patiently look forward to the eventual reopening of the five boroughs, putting New York City on par with the rest of the state.
These trends and not only evident and our deferral numbers, but I'll also evident and our overall asset quality metrics and <unk>.
Performing assets declined $9 million or 16% to $46 million compared to the third quarter, representing eight basis points of total assets. The majority of our MTA taxi medallion related excluding taxi medallion related loans Mta's would have been $21 million at the end of the year or four basis points of total assets.
Another highlight was the net interest margin, excluding the impact from prepayment income and net.
Margin improved 40 basis points to 230% during the fourth quarter as compared to the fourth quarter of last year.
The margin improvement continues to reflect lower funding costs. Our overall cost of funds dropped 88 basis points to 1.06% during the quarter compared to the fourth quarter of last year.
The decline on funding costs was primarily driven by repricing of our CD portfolio.
Cost of Cds declined 129 basis points to 1.04% driving our overall cost of deposits down 115 basis points to 0.61%.
This was partially offset by 37 basis points year over year decline and average yields to 347%.
Some of this decline is attributed to lower yields on loans and securities given the low market rate environment.
We also added liquidity during the fourth quarter as you will see by the year over year increase and our cash balances and the quarter over quarter increase and securities.
With interest rates at historically low levels over the past year, and a flat yield curve environment. We intentionally kept these balances low but now we are rebalancing, our cash and securities position to more appropriate levels as we prepare for potentially steeper yield curve and environment.
Moving on to the other major highlights for the quarter.
Pre provision net revenue PPA and offer the for fourth quarter increased 42% to $189 million on a year over year basis, and it was up 13%.
For the third quarter.
For the full year, PPA and our increased 23% to $650 million. This was driven by a combination of revenue growth as net interest income rose based on higher margin loan growth and lower funding costs, along with flat operating expenses.
Turning now what was on the lending side.
Total multifamily loans increased $1 1 billion or 3% to $32 3 billion compared to last year. During the current fourth quarter multifamily loans growth was impacted by market conditions, which favorite GSE financing as opposed to portfolio lending.
This resulted in a higher than normal level of loans, which refinanced away from US. However, this was offset by higher prepayment income during the quarter, which at $20 9 million was the highest quarterly level of the year.
Our specialty finance portfolio continued to grow over the course of 2020 as specialty finance loans and leases increased $439 million or 17%.
Year end 2020 outstanding specialty finance loans and leases totaled $3 $1 billion, while total commitments were $4 8 billion.
Origination volumes continued to be strong total originations for 2020 was $12 9 billion up 21% compared to the 2019 and origination volumes as for our loan pipeline our comp pipeline going into the first quarter of 2021 is $1 5 billion, including $1 1 billion of multifamily.
Of which 61% is new money.
On the funding side total deposits year, and with $32 4 billion up $780 million or 2% compared to the previous year throughout 2020 as market rates decline and we lowered our CD rates and not surprisingly CD balances decline. However, this decline was largely offset by growth in each of our other deposit categories, which carry lower rates, including.
Savings accounts, increasing $1 6 billion and $6 4 billion noninterest bearing accounts up 648 million for $3 1 billion interest bearing checking and money market accounts growing to four day into $12 6 billion.
Before going into Q&A I'd like to make a few comments since I was named as the new President and CEO of New York community.
Many of you have a pine on what this move means for the strategic direction of this company.
Let me frame it for you this way.
We have a business model and unprecedented track record of strong asset quality, which goes back over 50 years and spans multiple business cycles.
And not deviate from that business model that has proven successful over five decades going forward and we'll take that same level of energy and commitment and apply to the funding side.
Historically, we have funded ourselves as a traditional thrift however, with our recent partnership with Pfizer and new competitive cash management solution, we will be better able to change our funding mix by improving our processes geared towards attracting more core deposit relationships.
Focusing on our liability side of the balance sheet does not mean that they will be less of a focus on our loan book.
On the lending side, we see continued growth within the multifamily business, which demonstrated will demonstrate its resilience and during the pandemic both from within our current borrowing base and from new customers and.
And we'll also look at both new and complementary lines of businesses as opportunities present themselves similar to what we did with our specialty finance business.
Another opportunity for US lies within our branch network. This is a blank canvas for us and we will be and we will be another area of extreme focus for under my responsibility.
All of this will be done through a combination of organic growth and or lift outs from other financial institutions or two like minded M&A partners. We will consider all opportunities that makes sense for shareholders. All options are on the table.
Lastly, I'd like to and my formal comments by thanking all of our employees who worked so diligently throughout 2020, whether it was remotely on person on our results would not have been achieved without their commitment for the company and to our customers I cannot be more proud of how our entire organization for form last year, given all the change the challenges from the pandemic.
On that note I would now ask the operator to open the line for your questions. 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 on the week off.
Later.
Yes.
Thank you we will now be conducting a question and answer session. You would like to ask a question. Please press star one on your telephone keypad.
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For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Our first questions come from the line of Abraham Qunar wallet of Banc of America Securities. Please proceed with your question.
Good morning, Tom.
Morning, Hey, Brian and how are you good so.
So first of all and congrats on all on the CEO appointment.
And.
So talk to us about the expense outlook I know on expenses ticked up high and in the fourth quarter.
Could you talk about some potential for branch savings, but.
And that you may not be ready too.
Have all the details on that but just give us a sense of net expenses should trend as we look forward into the next quarter over the next year and if you can talk to 2021.
Okay, Yes, sure so I would say that.
Yes, we had some movement on the expense and the fourth quarter again, driven from my previous commentary the movements from classified assets for US obviously it has a cost of that we're very comfortable with managing through this difficult time on the on the classification side. However that does come at a cost so after IC expenses on accrual basis as elevated.
And really over the past for call. It six months that had a significant contribution to the fourth quarter as well as some taxi medallion related expenses about a million eight on the taxi medallion the differential let's say off for my Guy was driven on the FDIC costs. Those costs will continue so I would say for the well just give the Q1 Guy and $1 34 is my estimate so it's pretty much flat.
While for the fourth quarter and typically Q ones. This quarter high for the bank. So I would say Q1 is around 134, and you can kind of think about annualized <unk> somewhere between five and 30, John $5 and $35 530, and 535, and I think thats, a reasonable run rate again, but again I'm not yet prepared to get to give that as a full guide for 2021.
But on the on a quarterly perspective, I think we're going to be pretty much close to Q4, and obviously that typically is a quarter high in Q1 versus previous years, when we compare and.
And how how soon should we expect you to have an update just on branch rationalization and what you want to do like whats a reasonable timeframe and we should expect and update.
So look we look at the branches all the time as part of our business model and our real estate, we're very focused on the real estate side, we had a handful of branches that we evaluated last year I think it was a total of 14 branches that we put on the table for potential reshuffling and that continues and we're going to go through all our operations. Obviously the world is changing and regarding banking and we're going to look at our <unk>.
Branch structure, and if we see the efficiencies and that will move opportunistically. So I would say stay tuned and I don't expect to see a major restructuring on the branches unless we have a major deal to announce for us.
But we will from time to time, we do go through our leases that come due and we look at the run rate for our trial as the economics of exiting one and we will be opportunistic depending on market conditions.
Got it and I guess, just moving to the margin. So I think you still have you flagged a fair amount of high cost Cds coming up and that coming up for maturity just tell us in terms of the refi cost for these and just your expectation on the core margin going forward.
Yeah. So look we as everyone knows we had a lot of opportunities in 2020, given where we were and where we are today.
I believe that we're going to see historical lows in our cost of funds and particularly on the retail side. So I would say with certainty and Q1, we will be at our historical low I believe that was about 50 basis points as a historical low we'll probably break break that in Q1, and that's gonna be and ongoing phenomenon throughout the year assuming rates stay close to zero. So I think it is.
Fair to say that given the the level of excess liquidity you put on given the balance sheet and where we expect to redeploy some of that excess excess cash would probably cost us about two basis points and Q4, and probably two basis points and Q1 I can safely guide between three to five basis points improvement in the first quarter, obviously, its albeit at a slower pace and the previous year, but <unk>.
And the magnitude of the drop of the CD book and the CD portfolio as well as overall cost of deposits should decline I guess is by the third quarter somewhere below 40 basis points. It could be 35% to 38 basis points, depending how many of these customers go into a much lower liability instruments. So I think we're going to see margin expansion throughout 2021 throughout the year.
And we guide up for the quarter three to five basis points and Q1 and I think what's what's on the table now is what happens with the shape of the yield curve. We have some nice gyrations in the fourth quarter that continues and the back and starts to improve here our customers will probably come to the table and then look to accelerate refinancing and we'll be there to serve a nice spread in this environment and a and a health.
<unk> multifamily market the multifamily and market has been extremely healthy despite the pandemic. So if you look at all the asset classes and people are paying their rents were predominantly a niche player and the rent regulated space and as refinancing happening on a daily basis. So we hope that we see a better yield curve that could also drive the margin higher.
Got it and then just squeeze in one more on the multifamily market you mentioned and GSE.
Competitive.
Got more competitive towards the end of the year.
Just give us the outlook do you see this portfolio multifamily portfolio growing and what's kind of the feedback youre getting from your borrower base and tell me what they are looking for deals.
For 2020 was a very interesting yes, the GSE is a very competitive before the pandemic.
And they put us to compete on a very significant level and January February March pandemic hit they disappeared and literally they and we went and business in Q2 and spreads gapped out we were doing some really solid business. We had good growth for Q1 of 2020 was competitive.
And I'd say for Q2 and Q3, they were kind of trying to fill their roles of the quota versus tightening up their underwriting standards thinking through the pandemic and social distancing and figuring out remote origination and then by Q3 Q4, they kind of figure that out and a very strong way and had to fill their coffers and fourth quarter. It was very noticeable as many customers evaluated.
On the rate environment, a lot of those commitments are probably done in Q3. They close in Q4, we did a really strong job on protecting the loan book. So we've actually executed with some of our larger customers to protect these great relationships and we competed against the Gse's. However, there was some loans that went away given the.
The market conditions, the yields were low and the dollars for heavy and again, we protect the credit for the portfolio. It's all about the long term credit metrics of this of this bank and clearly.
Looking at some of the deals that were on the table and we let them go and you can see the elevation of prepayment activity as we stand today and January it appears that there's less storybook loans going away for the Gse's as of today, they fill their coffers last year and we'll see what happens as we go forward here, but if theres, a sloping yield curve and the back and start to spike up higher typically what happens is customers go.
Back to the portfolio lenders five and seven year money becomes more of the the profit as you are and we tend to be very competitive there so right.
Right now it seems like we are setting ourselves up for growth as we go into 2021, 3% to 5% heightened net multifamily loan growth is reasonable I would like to be around 5% I think it's achievable. However.
The shape of the yield curve will really depend on on the level of activity. If there's a spike and the yield curve. We think a lot of these customers that are coming due we'll accelerate refinance and we'll be ready to lend.
Well, thanks for taking my questions.
Okay.
Thank you. Our next question is coming from the line of Mark Fitzgibbon Piper Sandler. Please proceed with your questions.
Hey, guys. Good morning, Tom Congrats to you and John on your new roles.
Thank you Mark.
First question I had Tom just to clarify on that three to five basis point guide on the NIM that you gave that I assume that excludes prepayment penalty income.
That's correct, Marc we don't guide prepayment penalty income Thats correct.
And then secondly, it sounded like from your comments that we'll see some changes on the liability side of the balance sheet, but there were also some new lending niches that you would consider and I guess I'm curious what those might be.
Tomorrow, there's a level of excitement here culturally we've always been all about the credit and it served us extremely well, but there is an opportunity here as I've been saying this for many years the low lying fruit of the full relationship lending is out there I'd say complementary lines of business. For example, if you have a very wealthy families who is looking for a line of credit and we tend not to service line.
The credit assets, that's an easy exercise for us we know that we know the customer and we know the opportunity we're very comfortable with the history. No reason, we should not have a line of credit with a strong borrower that relates into more relationship lending more deposit flows and we're getting better deposit flows historically, but we have so much work to do.
And that is my emphasis I believe that our loan book has not yet been fully tapped and respect through relationship lending and the fiserv conversion that we and block last year was a major core system conversion and more importantly, our cash flow management system is right on par with the largest commercial banks. So theres no excuses that our system does not.
That does not compare to a capital one or two or a local commercial banks that we compete against and so we feel very comfortable there, but we may have to tweak a little bit on the service side tweak on the relationship lending side that will happen over time, but I think there is tremendous low lying opportunity that we will aggressively.
Aggressively go after so I do hope that our customers are on the line here because we have a commitment we want to bank you full service and it comes down to the lease the least amount that comes on to the lease agreements, we should be getting that as a matter of cause the operating accounts and the full relationship. So there's going to be a push I say for funding on a daily basis, Yes, I think my staff is getting sick of hearing it but that's we're on.
That I think this is the opportunity to change the thrift model on the funding side and look at the pure commercial banking opportunity within our customer base as far as new lines of businesses I would say, it's going to be complementary to our customer base, we do and commercial and multifamily for these these families, but and our lines of credit opportunities that arise, we're gonna bank down, but more importantly, and I <unk>.
And with clarity we are looking at all unique things in the marketplace and we're very comfortable like we did with specialty finance, bringing in a team of people from and out from the outside management lift outs. These are things that we're looking at today, we have no problem, bringing on lines of business that we're comfortable on managing as the credit risk. So we are clearly looking for a diversification.
<unk> and over time, it's not going to be a build out from scratch I can assure you that I'm not going to make an announcement that we're investing and the residential market and we're setting up a new residential portfolio will go on with two partner partnerships, we'll get it done a lot quicker and it will make rational sense.
Great and then I guess does your expense guide of $5 30 to $5 35 implied much hiring or will that be incremental as you sort of overtime and flow through and Omar.
And I'd say, the big expenses will come when we do something strategic.
So it's going to be blended and an accretive opportunity I'd say and we're going to reshuffle. The deck. We're looking at lines of business I'm going to the entire bank right now we'll go into all aspects of how we land the processes will do some reshuffling and look and maybe service service People's price relationship people by the end of the day I think it's not going to be a material adjustment to those that guy and I gave you I think it could be more.
Indicative towards revenue generation. So I would say that that guide has some reshuffling and time will be no real restructuring of the employee base, we're going to we have a huge opportunity on the on this on the systems side and we have a lot of people that can be utilized and other departments to work with the customer side. So we're going to try to find it catch a balanced and hopefully.
Keep the expenses tight and he is in these difficult banking environment, but also focus on revenue opportunities within the within the franchise. So I think maybe we'll get a few hires here and there down the road on the service line, but ultimately I want to reemphasize as low lying fruit here that needs to be picked and we will take it.
Thank you.
Sure.
Thank you. Our next question comes from the line of Chris Mcgratty with <unk>. Please proceed with your questions.
Good morning, Craig Good morning, Good morning, Thanks for the question.
Tom maybe you could start with just the change and the balance sheet and the securities portfolio and the cash position.
Given the build in the quarter, how should we think about.
And the progression of that the non alone and outgoing Chris I'm on.
I wanted the farthest calls John Johns discussion and John <unk>, John sure. Thanks.
Thanks, Chris So we did as Tom mentioned in his opening statements. We did add some cash and started to increase our securities portfolio and the fourth quarter over the last couple of quarters and years that securities portfolio has drifted down pretty significantly to drop below 10% of securities to assets. So we wanted to take advantage of the rate environment at the time put on some term.
Borrowings at the end of the fourth quarter to enhance our liquidity position and overtime and put that into securities and partially into loans depending of course on loan growth.
And we expect to do that and.
In the first quarter and into the first half of the year.
Great and then.
And.
On the strategic on the surety.
And excited I mean, historically acquisitions have been primarily funding funding related.
And with the change and the leadership are there opportunities for notable funding to drop on to the balance sheet and improve or is it more.
More of an asset availability today.
And I would say a combination of both I would tell you that we're looking at everything that's available.
Deposit opportunities are real.
There are a day exist, we're going to be very carefully evaluating those opportunities as well as businesses that focus on deposit gathering efforts as an interesting amount of uniques.
Opportunities out there that have the ability to gather liabilities either these are non FDIC insured institutions or they have a business that has a bank and they own this.
This type of business that is shredding that type of business, So clearly and looking at everything we bid on and stuff in the past we've lost we will.
And we're not a we'll call it and aggressive buyer or anything, but we do look at a lot of stuff and clearly like I indicated the deposit side of the balance sheet here. If we refocused the energy I believe we can get two to three multiple turn on the stock if we change our funding mix.
And so dependent on wholesale finance as a thrift without doing a large transaction for over a decade impacts on multiple I believe we'll return that multiple into more of a core deposit opportunity you can see a 2% to three multiple turn and get that valuation back. So we're razor focused there doesn't mean, we're going to be successful on winning opportunity, but we are.
Very much looking at deposit averages as well as whole bank M&A and there's no question that we're in a in an environment that mergers and acquisitions and makes a lot of sense of scale is important. We believe we have a very unique system upgrades, where other banks in our own backyard had not done it yet and are going to have to deal with the next two to three years. So it is very interesting.
To join the family and and with and the systems here and we can prosper together over time, I think there's that opportunity exists.
And what we're excited about that and I go back to the cash flow management solutions, that's really exciting because historically that was some of the that the pet piece, we've had where there was criticism on not being able to have the same technology as some of the larger commercial banks and now we have that technology and no reason to not have the full deposit relationships. So we have a lot of enthusiasm on the on the on the <unk>.
And side our people worked very hard this was a three year project and they're making so one thinking about making this conversion is a three and project and we did it and the middle of Covid, We actually cozy conversion and August of 2020, even though was postponed year. After years doing right. This was a major upgrade for the company. So we're excited about that and this will help us on consol.
<unk> as well.
Great and then if I could just given the newness of your seat and the internal.
Focus and.
And I've seen a deal or a strategic transaction and you'd be comfortable doing that kind of and the first first part of the year given.
Given everything that's going on.
And doing it for long time, I'm very comfortable on strategic business combination.
This is not about Eagle and this is about shareholder value and we will be very shareholder oriented and that's that's my history. That's my background and doing this for quite for multiple decades alongside with Pacific Laura.
You said, there's new leadership here and clearly.
And the Eagles of size is all about doing the right thing for shareholders great.
Great. Thanks for the question.
Sure.
And.
Thank you. Our next question is come from the line of Brock Vandervliet with UBS. Please proceed with your questions.
And on block.
Yeah.
Okay.
Okay.
And I guess, we lost Brock.
Rock is your phone on mute.
Sorry about that.
And that always helps.
So good morning, I wondered if we could go to go to expenses I guess on I'm struggling a little bit with the with the guide here, which was very clear and I just wanted to understand kind of what's changed versus.
And it basically flat expenses or very little growth on the expense side.
Oh look I think rocket and there's no question and this is by the way, it's slightly higher than the previous year. We had some one time as last year, but the change and the in the run rate is that we have FDIC cost affiliated with banks that are now loans on our criticized we have a bucket of loans that went through Covid and went through the cares Act and we reevaluate those credits and they go into special <unk>.
And substandard and we have to apply and FDIC assessments against that risk very comfortable by the way of managing that risk very comfortable as far as dealing with the loan book, However, theres a cost to that so I would say the elevation and FDIC alone is going to be between 10 and $12 million minimum and we hope that that starts to stabilize by first and second quarter and then from there.
And as these loans get back to filling their leases getting tenants back into these and into these units and of our storefronts you start to get them back into and out of a watch classed assets. So I think that's really what's driving year over year at the same time, we've always been monitoring our expenses, we're very efficient as a company and I think we're going to see the benefit on and efficient.
The ratio perspective, because the margin stronger better efficiency ratio numbers, but clearly going back to and I'll I'll reiterate back to when we were trying to become a citibank on expenses were $660 million run rate, we knocked it down to the low fives are still operating at a low fives and but that that investment that we made and systems and and risk management.
Tremendous.
Back office function that we built to be a much bigger bank, we have not yet and grown the bank through acquisition. So we're very confident that when the opportunity arises we have the back office and platform to leverage the expense base, but the guide is what it is I think it's reasonable.
And don't expect to see a major reinvestments on because of the systems conversions done monies.
Monies and put into the system, there's opportunities, but theyre going to be from time to time may be some smallest out from here to there local banks that we can shake out some deposit gatherers that will probably go after aggressively and I don't think it's going to be a meaningful enough to change my guide because I'll be shuffle that within the organization.
Got it and.
Could you just revisit the GSE.
Dynamic.
And we can see the depending on your no I look at two turns for example that steepened pretty materially.
So in Q4.
And what is what's driving that competitiveness and as some of it the fact that.
Landlords are looking for any way too.
No materially control costs, including interest costs, given you know the aftermath of the rent act like is that driving it or is it just the GSE and his or her back and big.
And number of factors right I mean, obviously, let's start with rate right is right. If you can get a coupon sub 3% and take it over Io for 10 years for competitive rate right. So if you think about how this process works you're going to have size of the deal. Let's say it was Q2 end of Q2 and closed and in Q4. So you really need to look at the rate environment throughout the Covid scenario right. So I'll go back to.
And what happened and the first quarter of 'twenty or 2020 day were competitive and out of the gate. We still grew our portfolio Q1 of 'twenty and then Q2, we were in business with higher spreads we fine tuned our underwriting and we did some great business for the <unk> I think we are distracted because he was COVID-19 was figuring out how to remote.
<unk>, our guys have the ability to do paperless remote origination that was a major upgrade for the company that was back in the end of 2019, we have and the new Gen system. So it's all remote so our people on open for business on a daily basis doing great originations, but we capitalize on Q2, and then rates were generally low and generals and Q3 and that's why at the end of Q2.
And the Q3, I think a lot of the larger customers looked at the market and set our rates are low and theres not a real there's no real purchase and sale activity. So let's lock in long on and put the money on the shelf for the GSA is and it's a competitive rate and by the way. We've competed with some of those great customers to ensure we don't lose that business. So we've had some large transactions and we would have a fierce competition and <unk>.
For because we size it up in the middle of the year give it anywhere from three to six months for clothes and.
And my guys talking to shareholders out for through the end of the year was flat to down and we squeaked out some growth in Q4. So we're very pleased but that was a fierce quarter and Q4 and the good news today is that when I speak for my lending people on a daily basis. It seems that we have not.
Not sizeable deals going away, we have a nice pipeline, we have a nice new money pipeline. So we should be back and the position of growth and the gse's filled a lot of their their coffers last year and they had to fill at the end of the year and they start from fresh again, so let's hope that will be competitive, but nothing new here. We've always competed with the government and if rates start to tick up I think the product and <unk>.
Five and seven year money and the spreads are healthy I can get 300 basis points or $2 75 to $305 seven year money.
On a risk adjusted basis, we can do good business there.
Because the credit losses are de Minimis, it's not zero.
Alright, okay. Thanks sure.
Yeah.
Thank you. Our next question comes from the line of Steven Alexopoulos of J P. Morgan. Please proceed with your questions Hey, good morning.
And my wife.
Morning morning, Thanks, Tom I wanted to start Tom regarding your vision to improve the funding base for the company. It sounds like you might need and M&A deal to move the needle with that said you no longer have a premium currency are you still committed to a deal needing to be tangible book value accretive out of the gate.
Holistically, we looked at that as value creation. So I would say to you there is going to be two two prong approach will go into work within the franchise as we discussed.
Within our own operations, we think there's a tremendous low lying fruit opportunity. That's priority number one we are open for opportunities to change the diversity of the lending book and try to take on new products that are new to the bank and really try to drive this into a commercial enterprise it'll be an M&A transaction and it does so and depending on market conditions I look at the <unk>.
Historically is that we like to do transactions with no premium type transactions, where tangible book value is preserved, but we can be.
Flexible I mean at the end of the day, if we can put a highly accretive transaction on the table and the earn back is de Minimis, new would consider that but I would still say fundamentally taking tangible book value down is not the best idea of creating value. So we will be open to interesting ideas. It depends on the opportunity and it depends on the earnings power of the <unk>.
The partner and I don't call them targets on Conan partners, we don't do targets because at the end of the day, we have to bring the people over from the other side to become partners. The best transactions are done when you have partners at the table, we build and rebuild the table everyone's sits around who is our partner and we have good partnerships you can create real value I think that's the approach and nothing's changed other than we had some <unk>.
Leadership change and and as I've said before the reality is that we run this company for our shareholders and we look at the opportunities and the marketplace. It's a shareholder driven op opportunity. There has been some large M&A transactions were low to no premium deals make a lot of sense, especially with the technology build that's going on out there. So we're very focused on doing the right thing for our share.
Holders Okay. That's helpful.
And then on the deferrals, if I looked at the $6 billion of deferrals that are now current or paid off or any of those rolled into the 6% of loans I guess around two and a $1 billion that are now.
And what types of loans are and that $2 5 billion bucket of items.
Yeah, absolutely so again I'm going to go back to the point about the GSE has a lot of and as long as that went into Io also could go to the GSC is on a 10 year Io structure. So no question that was the market and when we looked at the.
On the loans that came off the cares act and literally as we went back to payments and that was fabulous at the same time, we're acknowledging that you have this unique phenomenon alcohol and Manhattan phenomena as the city's plus to reopen.
I have all the boroughs of Manhattan as having the most difficult time on on this we'll call it getting back to somewhat of a normal if you look at Queens, Brooklyn, Bronx, and particular is doing extremely well for us I'd say that's the type of these assets are the ones that have more of a concentration of less rent regulation. So they happen to have some more market type apartments you have.
For funds that are retail slash office that will have more difficulties and Manhattan, and they would and in Brooklyn, and the Bronx, and long island and for sure. So the five boroughs I'd say the area that we see impact is Manhattan, and I'd say of that portfolio.
And just the specific $2 5 billion and you have approximately $1 6 billion multifamily and about $800 million of commercial and CRE and on the office side about $400 million and the retail is about $200 million and the LTV on the office, 51% blended for all of the CRE is 54, and if you look at multi.
It's about 53% and when you look at these on a cash flow basis as you apply a desktop coverage ratio on a cash flow basis, it's still north of a one for one and so they can pay they need and the service on it and they also can leave the bank and go to the Gse's if they choose to do so so there is some of those types. There's others that have to lease up again and we're working through that are utilizing the cares act and get.
And paid on a monthly basis as I said, we have 99% of all our loans are out of the non pay status, which is pretty impressive given the pandemic, but more importantly, I think what ive finding him when I dive into the portfolio and.
And we mine the data you look at the fact that the higher percentage of loans that have less rent regulation of the ones that are the io potential right because the ones that have for 100% rent regulation, they pay and they're collecting and Theres no issue, which is it's a resilient market for that niche business and we're going to continue being a dominant force for portfolio and that niche.
Mhm.
Great and maybe if I could squeeze one more in and your opening comments you said everything was on the table.
And as we think about banking and the digital age what's your view on preserving this local brand model you've had for years versus maybe consolidating everything under and <unk>. Thanks, Steve.
Steve and you're getting really deep dish. Okay. I'll tell you that look at the end of the day given our franchise. We have two new 46 branches were on our Arizona, Ohio and were down in Florida, and sat down and South area.
South, Florida, New York, New Jersey, we have a very unique brand and we also have a multiple brand and concept right. So it all depends on the partner it depends on the size of the transaction and the market. So the Florida transaction well, that's easy to New York transaction. It sounds a little more complicated, but again it comes out and what's right for shareholders, What's best for the shareholder what makes the law.
<unk> sense, and we're going to be very logical and we're gonna be disciplined. However, we have multiple brands and multiple markets and if you go into if you go to Ohio right now we have Ohio savings bank that used to be Amtrust, we rebranded back to Ohio data and South Beach, Florida. It's Amtrust Amtrust is very well down there doesn't mean, we're wedded to anything and the reality is that if we're going to <unk>.
That's something that's a regional platform, we have to do what's right for shareholders makes the most value creation. So we're open to all opportunities.
Okay, great. Thanks for all the color and congrats on the line.
And I will tell you won't be for you. So we're not going to make an investment on the rebranding we will do it through a transaction.
Got it thank you.
Thank you. Our next question is come from the line of Steve Moss with B Riley Securities. Please proceed with your questions.
Good morning, Steve Good morning.
And maybe on tight cost share for the quarter wondering how much is driven by the credit downgrades versus perhaps a little bit of an extension and the loan portfolio here.
Your savings you repeat the credit cost you said.
The provision for the drivers of the drivers.
So the actual charge as we have as all I believe 100% medallion driven as we grind them and diverse primarily primarily medallion driven on the on the charge offs on the provision, we booked which was lower than the third quarter and has been the trend each quarter and.
2020 with lower provisions.
The macro environment did get a little bit better.
<unk> price has got a little bit better, but we did have the increases and the classified and criticized assets that Tom mentioned, so from a qualitative perspective, we wanted to ensure that we cover those potential increases we don't see a huge risk of loss there as Tom mentioned earlier, but from from the seasonal perspective, we wanted to make sure we recovered.
Alright, Okay. It's interesting what John said I'll, just follow up on that commentary and.
And usually every quarter I kind of isolate the risk that we're seeing and few quarters back. It was retail and I said, we will see and we'll watch the office portfolio, but we're paying attention very closely to Manhattan. It is what it is.
It's the last borrow that really is having a difficult time and and if you look at where we are on substandard and special mention it's 80% and Manhattan, right and isolate down to a handful of loans, all and it's about $449 million of multifamily and about $300 million of CRA broken out.
And we're literally and 80% splits and Manhattan. So I think that we have a good hands on this day.
Historically is that when we do and Manhattan transaction and typically has the lowest leverage we have on our portfolio historically has been hadn't and Queens and when you look at what the ones that migrated into what's called a classified situation. The LTV on the multi is about I believe that number is around 56% and the theory the overall CRE portfolio on.
LTV I believe is about 58% as well so and they asked for US that's slightly higher than the 40, something but for obvious reason and it needs a little bit more help and when you when you apply and Io structures for these loans. They continued on cash flow out and north of one for one for the most part some don't but for the vast majority do and we're working through it but no one is knocking on the door and returning the keys there.
Real embedded value as well as very strong sponsors that are willing to work. It out. These are not see MBS pool. This is a unique way, we land and when and if there's any risk at all we tend to get a lot more hooks into the into the opportunity where we will have real strength upon the eventual liquidation and believe me there's plenty of people moving to bodies.
Assets, but they're not for sale and they're working through a difficult environment and are paying interest only and we're getting and theyre all on payment status and they're paying their taxes for the city. So it's an encouraging outlook for us kind of ring fencing, Nats and Manhattan, and we're razor focused on it and we believe that as the reopening starts to take place hopefully sooner rather than later this should be.
Hopefully the area that we'll talk about hopefully by the end of the year that stabilizing but theres no guarantee that can happen right.
Right and just on those Io mods, and just kind of curious what the interest only period is and if you asked for any additional collateral.
And typically what we do and so the ones that came through the cares Act and pay they just continue to go back to P&I and the ones that need a little bit help they've requested and we offered six months. So we'll take another hard look at them. What's on April and May again, the April and May comes around and I think that if the reopening starts to take place a lot of these guys are on the cost of going to the agency to so we want to protect.
And our business and.
And I said before and my opening comments. The agency is a fierce competitive. So these some of these loans could go there even though they are considered on the cost of what we'll call. It a special mention type assets because of the lease up of the ground for in particular, but I think a lot of these loans are and a very good spot where they actually can make these payments and protect their assets from going too.
Well asset purchases and Theres, a tremendous amount of of money out there that would love to buy these assets and the events things go sideways six months from now and so right now we're working through it.
Okay. That's helpful and if I could just squeeze one last question and just on the securities purchases here for the quarter just kind of curious what are the yields.
And what kind of stuff and yields you're purchasing these days, it's dismal yields and these guys. John what you guys are expanding and if youre looking at agency type paper, which is what we look at your and the mid ones and the $1 50 range for good quality structured paper, yes.
And if you think about we have obviously tremendous amount of liquidity of over $2 billion cash on the balance yet zero. So that's gonna be deployed hopefully into into our loan book as well as security. So in my margin guide and very conservative on the deployment of that excess cash, but we do have excess liquidity that we put out some money long as a matter and taking advantage of the the structure of the <unk>.
Curve, we still have a lot of wholesale finance and it had to be restructured over time and going forward. Even in this quarter. We have about two one and $325 million out of 236 market and 50 basis points. So that's something that we've looked at probably lock in long day on instead of going overnight and then I think the next big slug of money comes in 2022, which is about a $1.
And 40, so we have time on that so that we're not going to restructure that look too far out of the money and I think what's really interesting and 2020. The beginning of 'twenty. Two is that we have $2 billion on a macro hedge against fixed versus float on the multifamily side if rates stay lower for longer than we would just remove it and that's another 10 to 12 basis points on our margin for 2022, So we're hedged there and.
And as we grind through 2021 that will also be upside for the margin depending on interest rates and we may keep it on if rates are rising for some reason and I remember it and went out and a strong economy and and everything is behind us but.
My view is that that's probably not going to happen and in 12 months and that hedge could be something that's also beneficial to the margin.
Great. Thank you very much for all the color.
Sure.
Okay.
Thank you. Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.
Good morning, Ken Greg Good morning.
And just in terms of taxes, given the change of administration, if we do get a tax increase.
What does that imply for your overall tax rate and have you or can you do anything to kind of minimize that got hit versus you are in terms of tax strategy.
That's a pretty simple question, obviously, if the rates go up we pay more taxes.
And that's possible I think it's more of a 'twenty two phenomenon and that and help us on the 'twenty one phenomenon, but they.
They took it down to 21 and from 28 or does it is and talk about 2008 from a much higher level and that would impact our bank such as ours.
A point where is it going be dollar for dollar I would say that we're going to be very proactive on managing our tax structure, which we are very focused on but no question that higher taxes. It means less profitability right.
And if you wanted to.
Sure I actually should have been more clear on my question.
And if it goes it goes from 'twenty, one to 'twenty eight.
A 7% increase what is the.
Percentage of increasing your and your effective tax rate.
Yes, it would be just it would be just below the 7% and right. So it would probably be in the mid sixes. It would go up and that's excluding any other tax planning items that we would do right right.
Got it and just to be clear is there any other tax planning items and so you can do and help me.
And with those those strategies.
Yeah, we haven't played much in the on the federal side and the past them and you can see that on our rate currently right. So that's not something we normally we would normally look at.
But.
And as we've looked at and the past, we'll we'll do it and the future.
Alright, and Thats helped us.
And let's hope it gets through 'twenty, one where they don't raise taxes due and is what it is in 'twenty and 'twenty two is probably more probable as that happens and we'll deal with it.
What we're hearing right now right is that not in the middle of the pandemic, but it could be and 2022.
Alright, Thank you sure.
Okay.
Thank you. Our next question comes from the line of Dave Rochester with Compass point. Please proceed with your question Hey, good.
Good morning, and good morning, and gift wrap rolls.
And you.
Tom You had mentioned the NIM expansion beyond <unk> as well for the rest of this year and I was wondering if you think that three to five bps for <unk>, we're good pace per quarter.
And what Youre looking at now and your expectations on rates and Navy.
Navy and only for a long time, I don't give yearly guidance on them and so.
Hi.
I know you try but I will tell you that to Watson and depend on the shape of the yield curve, we had some excitement and the fourth quarter was the bump up and interest rates I think that will get the attention of many of the customers.
And if it's spiked significantly this margin expansion could be outperform what we expect but meanwhile, when we run models are running and conservatively its pretty much a flat curve environment and we're showing the Q1 up a little bit here I'd tell you, we probably lost about two bps on the excess liquidity, if we put it out fast and we'll get it back.
As you know we've kept our securities portfolio below 10%, which is if you look at the median and peer group, that's probably the lowest and the peer group and it had to have a little bit of a bump here as we position ourselves to go longer out on the funding side and anticipate.
Opportunities as we start to redeploy the balance sheet and I don't think we're going to take it significantly from there. So let's say it goes from maybe a 10% to 11%, but the cash position is very high right now we'd like to put some of that money to work and.
And thats going to impact the margin hopefully favorably coming off of a zero return on cash.
Yep, Okay, and then maybe just on the loan side, where you're seeing new money yields now on multifamily and closed.
And then.
Yeah. So the pipeline yield I believe it was that Jon and that 350, new money pipeline <unk> pipeline.
With me here.
Great there and 350, yes, so again low threes competing tight on the low threes durations and somewhat shorter, but we've been hovering around three percentage of you apply that to on.
And the spread and it's a little bit tighter than we had liked but I think it's coming off of the agencies desire to be more prolific on the lending side that again the spread has been healthy between 275 to $3 15, depending on the size of deal that we look at and I think we're getting that 3% net and and that's important but the payoff was high.
The last quarterly payoff was a $3 75 and originated 300 for so holdings right.
The interesting modeling question, we'd have what happened in 2021, and if the yield curve Steepens is that should we go back to $3 50, if we see a nice spike in the back and so that.
That could happen and there's no guarantee we're modeling and more of a conservative scenario and we're still seeing margin expansion.
Yes.
And how much do you think you need to be long and to move up.
But for the GSE competitiveness does start to decline.
I think when you and I really would spend time looking at the 10 year move with the 10 year debt spreads between <unk> and 10 start to move significantly here I think customers will realize that economically it may make sense to go to the portfolio lenders.
And then and when.
We're evaluating opportunities as far as synthetically getting them to stay with the bank on swap opportunities. We have do we do not have a specific swap program internally something that we are considering as a as a.
Preventative edge to keep some customers from going to the Gse's synthetically do that and get some fees upfront and that's something that's on the table.
No question the spread between I think brockett setup between twos and tangible way you spend time and evaluating that has been a nice move and the fourth quarter. If that continues given the expectation of substantial deficit spending and his view that rates are going higher and the back and that will move customers back to the five and seven year portfolio lenders space.
Okay, Okay, and where are you guys, adding borrowings for the quarter and then what are you seeing for right now.
And I say that.
Two two and a half to three and a half years anywhere from 48 to 58 that spread right. So if it's cheap overall funding and if we can't bring it on the funding side, we will look to to rebalance interest rate risk by taking on and opportunity, which is three and money around 50 basis points, which is pretty cheap.
Yeah.
And just switching to expenses that extra $10 million to $12 million and additional FDIC expense. This year that you mentioned that should be dropping out of the run rate and 22 right.
I would have.
Yeah, and all the banks all depends on how bad the pandemic, Inc extend itself and <unk>.
And there is new York City, reopen and the foot traffic thought and people go back to work and and Youll see some pent up demand for release and I think that's the key and I think that we're being at an abundance of caution moving assets into our classified bucket as we should be doing and wind and the biggest consequence today on that is that it cost us money on the on the FDIC insurance.
Yeah that makes sense and then on the loan growth outlook. Appreciate your thoughts there on the multifamily side I think you said, 3% to 5% there what are your thoughts on the rest of the portfolio.
No I think we had a substantial reduction last year on CRA, just a matter of the market that may be stabilizing a little bit assuming that when you look at other areas on the CRE side, but let's just say CRE is flat to down 1% and 2%.
We're going to see a nice uptick on specialty finance given the the amount that's outstanding and whats committed this close to $5 billion committed $3 8 billion outstanding and a $3 wondering 3 billion our strength as a nice spread there of takedowns and haven't seen it take downs and Q4, we hope to see more take downs as we go into the year. So they've had the carriers had been off the charts and so we built that business.
Last year was a 7% 17% CAGR. So I expect nice growth, probably hopefully is consistent for the previous year that was probably one of our worst years was the pandemic and we grew 17% and we want to take a conservative look at that 17% and 15 to 18, there and then you think about multifamily if there is a change and the yield curve, we are going to retain a lot more business.
And I think our guys have done an amazing job on retaining the business with data mining the portfolio, we're working with the brokers and we're ensuring that we have a good fast shot at these customers before they leave to go to the agency and we will be competitive.
Do we have to do a little bit more io absolutely. That's the market that we're going to be selective there we try to be viewed as a hybrid io lender, we're not big on long term Io, but time to time, we make those decisions depending on the customer relationship and a deposit relationship. We did a very large relationship and Q4 that was because of a substantial deposits were in relation.
You said one of our very strong customers, where was pricing us against the agency and we competed and we lose a little bit on the risk weighting side, because it becomes a different risk weighting category. However, it's a great loans, great relationship and tons of deposits with it so each day.
We have to be competitive in this environment.
Yeah.
Okay, and then im assuming that you guys continue to grow deposits.
Thinking that the securities growth should continue as well.
I guess that unsecured side and John May want to expand on it and you might say hey, John Yeah, We would expect it would grow but not dramatically from here given what the cash position is and the securities. We expect maybe a little bit of growth and the first quarter and then hopefully keep it pretty flat from there depending on deposit growth.
Great and then maybe just one last one David David on the deposit side, it's not going to be a traditional retail purchase is going to be the business plus wishes close to zero cost of deposits.
Yes.
Yep Yep that sounds good and then maybe just one last one on fees you had a good step up there and the fourth quarter, what's your outlook for fee growth and the first half or maybe just for 'twenty one.
Yeah.
And we're assuming right now it's pretty flat for the fourth quarter, we're not we're not assuming a weighted increase in fees and the.
Third quarter had a lot more of the fees waived during the pandemic than the fourth but we.
And so we're being conservative what we're forecasting there we don't expect a big increase will probably be right around that fourth quarter number and so Dave that goes back to the point of a blank canvas. We don't have a lot of fee income ratio. All eventually if we saw bringing brought us that's where the opportunity rise we have a very large branch structure, where we don't sell a lot of price of the branches. So when you think about M&A and business partnerships.
And that's where a tremendous opportunities that blank canvas that we can paint with new products going through the system as a legacy branches going back and in some cases for the eight hundreds that we really have a lot of goodwill within the community that could have these lines of businesses that are normal commercial bank lines of businesses that we don't have.
Yes.
Good alright, thanks, guys Congrats again.
Thank you.
Thank you. Our next question comes from the line and if Peter Winter with Wedbush Securities. Please proceed with your questions.
Good morning, Good morning, how are you.
This focus on deposit growth.
And what do you think youre going to generate in terms of deposit growth this year and where do you see.
And the loan to deposit ratio could go to.
And not having to go there so it's going to be a passionate push to look at processes, a passionate push to look at the low lying fruit and we're going to update you guys on a quarterly basis, because it really is not going to be a public plan, it's going to be and emphasis towards culture right and culture here has been uniquely different when it comes to the lending side versus the deposit.
Syed I want to reiterate the content that we have so much low lying opportunity for these relationships that needs to be nurtured and mine and obviously shown on the technology that we have and we should win more business with the existing customer base at the same time as we bring on new business. We did $12 9 billion originations last year, we should be able to get on every single loan and deposit.
And ship as well as the potential full service deposit relationship if we get 50% of it we won so I'm a guy about 100 and I like 100, but if we get 50% there we win so we do a lot of volume as you know and the portfolio is relatively short, but we found when we when we evaluated the book, there's a lot of customers that stay with us at all with another port.
Folios, because it's difficult to move all your accounts and and if you have a good relationship with a good relationship manager they tend to if that is portable it and if he can win over that business. So I think we.
And about the volume, we do and thinking about the duration of the portfolio.
Julie opportunistic here and it's more cultural and the culture has been clear on this is the liability. The term comes out on my math at least seven or eight times, a day and Thats why we are so I'm not going to give you.
Numbers at that are a fantasy and they give you numbers at a reality and youll see their growth over time, and if we don't do that we will fine tune and until we get there and we're going to get it right.
Okay.
Fair and then if I could just ask on the M&A front.
The thoughts on maybe a bolt on fee income acquisition to add some diversification and take them.
Market share that way.
Yes.
Like I said, we're looking at all opportunities I mean, obviously, we'll do accretive transactions. We don't want to do a transaction is going to take down the earnings profile of the company, but we'd like to change the funding mix, we'd like to we'd like to change the augment that fee income opportunity, we'd like to start driving products through the branches and we also like to look at the Big picture that if we do this with a solid partnership.
That has all these array of products.
And we can accelerate that something can happen and five to seven years and can do it overnight. So like I said on my opening comments all options are on the table, we're very shareholder focused.
We have a very unique franchise, we have a diverse franchise and when it comes to geographic and we can do a lot of things on it. So we're excited about opportunities we're seeing a lot of great opportunities both on the deposit side as well as on strategic M&A.
Got it alright, congrats to Tom and John and for the promotions and thank you Peter Thank you. Thank you.
Thank you. Our next question comes from the line of Steven Duong with RBC capital markets. Please proceed with your questions.
Good morning, Steve Hi, Good morning, guys. Good morning.
Just on the.
And the funding side here recognizing that you were now focused on growing core deposits in the meantime.
As your Cds and borrowings roll off is there a preference between.
One or the other.
A combination on both the short and we have $10 5 billion rolling off and 12 months of 79 basis points. This quarter. We have 4 billion at one point on 7% markets between 40, and 50 basis points on the retail platform. Some of the customers are not going to go into a C. D instrument. They may just hide and the money market account at two basis points or two to 10 basis points. So we'd rather have.
And go to the lowest cost of funds and assuming that we're not in a rising rate environment on the short and Ohio, How high there for a while and they may be opportunistic if they want to take and 18 months CD or one year CD, but the the cost versus the wholesale market is pretty much on top of each other so either on either what we rather bring and obviously.
Customer accounts for sure, but you know if you saw the transition of the deposit base that were Cds went into money market and and other hybrid funds that are viewed more as an operating type account for lower cost right.
Yeah and.
How much and borrowings is rolling off this quarter.
We have 325 million rolling off at a $2 36 coupon and then next quarter. I believe you have 393 basis points, very small and Q3 about $25 million and the fourth quarter of the year, it's a decent size and amount of my $3 73 at 257%, but on average for the year, it's about $1 billion at two three.
Got it got it appreciate that.
And then just.
Your strategy on the core deposit growth and the long term I guess, how are you thinking about doing that.
With the brokers on the.
On the origination side.
We've already had conversations.
And I'm not going to and we're not going to announce the secret sauce and I believe we have great relationships with our brokers and.
And historically was about process and then we're going to change the process internally.
<unk> getting ahead of the closings and how we took because a lot of volume and our loans require new require the operating accounts and on tax. So you wave a lot less than you do and you get them to the table and you get the relationship guys and front of the customers at the closing table when they want the $50 million to $100 million and they have to open up the account and get the relationship going instead of waiving. It so it's.
About repositioning and and dealing with process and people and that's the goal here and there that that fine tuning alone will probably move the needle at the same time, we need to get this technology build out that we've invested in and out to the customers and see what we have.
And that definitely helps.
And was it the case the for that you weren't able to do that because you didn't have the capabilities and now they now do.
Absolutely not I would say, it's twofold right. We just did the biggest conversion of the bank and August in the middle of the pandemic under the five star DNA.
Our core processing system, we've had partnered with fiserv throughout the entire platform for all our major systems that plug into <unk>. So we have a let's call ourselves a very strong partnership with Pfizer and the co collaborated on the commercial side as well so the commercial cash flow management solutions program that we have is a fiserv product. It's a fireside price that's you.
Throughout the entire country and that was not the same product that was there in July. So this is a fairly new opportunity that we believe is not an excuse that our systems and is not compatible. So I think we have a very good solution and we know there is a push.
And by the way. This has been this is the only since August right. So we're just starting the year its not even a year old, but we have a solution and Alex and matter of getting the customers onboard on boarding them training them and focusing on the push out that at the top level. This is at the board level all the way down to the staff. This is where we should be going with the franchise.
Getting away from the traditional thrift funding.
Got it I appreciate the color thanks, and congratulations on thank you. Thank you.
Thank you. Our next question comes from the line of Matthew Breese with Stephens Inc. Please proceed with your questions. Good morning.
Hey, Matt.
And I don't think I saw on and they're really just curious what were the criticized and classified loan balances this quarter versus last.
And I think it was I think we disclosed that John.
Well I'll just give you I'll go to the sub standard we had I think I went through that and detail. We had a total of 449 million sub standard and multifamily and we had a total of CRE at 314.
Which I believe identifies and 80% being the Manhattan market and I think I went through the Ltvs and I'll go through them again, the Ltvs on that book is about 56% for a multi and 58% for CRE.
And as I discussed looking at that portfolio a lot of these most of these customers still when we when we put some of these customers and a and Io structure for six months and north of a one for one capacity to continue making these payments we will reevaluate them as we get into the April may appear and that when that six month roll comes due and see where they're at and we're working with them.
And clearly like I said Manhattan is the area of focus because we see more of these loans coming out of the Manhattan market not so much the other boroughs.
Got it okay. So it's a six month structure as well and Colombia six months items and.
And also asked all day.
Texas as well.
And we're all paying us all payments.
Right.
One thing you had mentioned I just wanted a little bit more color on the explanation you mentioned the 2020 to hedge the potential for that to roll off can you just remind me what that was why it was put on the size and how does it benefit the NIM by 12 bps.
Yes. It was a it was a $2 billion total notional hedge that we did that swapped from fixed to floating on our against our loan portfolio and Alaska layer hedge.
So it was a three year swap that we did so that matures in February of 2022. So if we do not re up or get into another transaction like that.
We will see those loans, which are right now and.
In essence pricing off of three month LIBOR go back to their fixed rate on our books. So youll see a big pickup on that $2 billion back to the normal fixed rate of those loans and I would categorize that as our interest rate risk hedged right.
Alright. Thank you and then the last one for me and just in regards to expenses I hear you loud and clear I just I just wanted to make sure. The message was that in terms of new hires are going into new verticals.
And you feel like you know what you have and place the 500 and.
35 million and annual expenses, that's that's a good that's a good run rate and that you feel like the NIH to asset ratio sub one percentage of place that you can and that's something I think it's a fair asked and the way we are today and I feel comfortable with those numbers I mean, obviously were elevated and on FDIC, we strive for a very strong.
<unk> ratio I think we met our goals last year and efficiency ratio, despite the slight upticks and <unk> and we've identified and what they were I mean, you had the FDIC costs. We had some medallion related expenses as we took and some oreo pieces on the medallion side, but going forward.
Bringing and some customer service people is not going to move the needle.
Reallocating resources internally towards the concept of the push towards full relationship lending I don't we're not going to change. The game Tomorrow. This is not going to happen, we're going to change the product mix the product mix will change as we fig partners right, but the low lying fruit will be harvested here and we're going to work very hard on harvesting with the relationship with the brokers.
The lenders as well as our deposit gathering together as a team and we're going to work as a team to try to harvest at low lying fruit that we've always talked about but now we're going to put into action.
And I think the system really helps us did and systems conversion was extremely key for us and I'm going to reemphasize a lot of our competitors that I want to walk on and theory assistant with the same vendor are going to re up down the road. So doing it through will joining the family makes it a lot more sense.
Understood. Okay. That's all I had thank you.
Sure. Thanks.
Thank you. Our final question comes from the line of Christopher <unk> with Janney Montgomery Scott. Please proceed with your question.
Thanks for taking my question, Tom and John and I, just wanted to ask about the deposit specialists that you alluded to with these be possible hires and other markets. Besides New York and is that a strategy to kind of and set them well and just individually common stack up a team and.
Absolutely.
Ohio, Florida Jersey, New York, Rhode Island, and we're going to be very proactive to try to create value here by looking at these opportunities and no question that there's people are portable and we've seen it happened and all backyard and most of our competitive very successful at it.
We're going to give it a shot as well, but it's not going to be a major restructuring expense build is going to be done and and methodical way and I think we have to just utilize the platform and the system and ultimately the true change will come when we paint the canvas for new products and that will be full service commercial banking type products over time typically through a partnership and.
Like I indicated I think we spend the effort on on the conversion the fendt and spent the effort on getting our cash flow management systems and solutions correct now it's a matter of looking at what we have with the current existing relationships.
Working with the brokers working with the customer base and perhaps changing some of the type of price within typical.
And the opportunities within that when a customer's book of business, we've always on multifamily and CRE No reason why they can't do lines of credits for these wealthy customers that want that and Thats why they are banking with another bank and we don't have all their deposits. So we have to be mindful of that it's opportunistic.
It's not a difficult change for our system to run those types of products and like I said, we're not they'll do a residential loan book from scratch right, we're not going to open up the credit card business from scratch, but if we have a unique opportunity within the M&A marketplace, where people can bring partnerships for the table, we would evaluate that and then hopefully have a full serve.
This branch platform that right now, it's a very thrift like which over time and I think.
And I'm going to make a statement and people may not want to hear this but when you think about the traditional thrift model I've never seen a thrift convert themselves organically doing and successful it has to be done through traditional Emma.
M&A transactions that makes sense on a partnership perspective, and I will never call. It acquisitions, because acquisitions are difficult partnerships work acquisitions could be challenging when you partner with the right partner, that's willing to put their expertise on the table and their and their wealth on the table everyone has common goals.
Great and these specialists are out there it's not just a it's a focus issue which is now happening.
That's right that's right.
Alright, great.
Thanks for all the assets won't guys appreciate it.
I think that's the last question. So thank you again for taking the time to join US This morning and for your interest and <unk>. We look forward to chatting with you again and at the end of April and we will discuss our performance for the three months ended March 31 2021. Thank you all.
Okay.
Thank you that does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have.
Have a great day.