Q3 2023 New York Community Bancorp Inc Earnings Call

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the New York Community Bancorp, Inc. Third quarter 2023 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a quad.

<unk> and answer session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question Press Star One again I would now like to turn the conference over to Sal Dimartino Executive Vice President Chief of staff and director of Investor Relations. Please go ahead.

Thank you Regina good morning, everyone and thank you for joining the management team of New York Community Bancorp for today's conference call.

Today's discussion of the company's third quarter 2023 results will be led by President and CEO Thomas Kim Xiaomi joined by the company's Chief Financial Officer, John Pinto, along with several members of the company's executive leadership team.

Before the discussion begins I'd like to remind you that certain comments made today by the management team with New York Community May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Such forward looking statements, we may make are subject to the safe Harbor rules. Please.

Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more information about risks and uncertainties, which may affect us.

Now I would like to turn the call over to Mr. Ken Jimmy.

Thank you Phil Good morning, everyone and thank you for joining us today.

Early this morning, we announced solid operating results for the third quarter of the year.

Our performance reflects our ongoing diversification efforts on both sides of the balance sheet arising from the combination of three legacy banks.

Among this quarter's highlights was good linked quarter loan growth.

Stable deposit trends and a significantly higher net interest margin.

We also made further progress in improving our funding mix as both wholesale borrowings and brokered Cds declined while noninterest bearing deposits remain approximately one third of total deposits virtually unchanged from the previous quarter.

From a net income and earnings perspective, we reported net income available to common stockholders of $266 million or 36 cents per diluted share as adjusted for merger related expenses. Our EPS. This quarter was <unk> <unk> better than consensus.

One of the drivers this quarter was a much higher net interest margin. The NIM came in at three 7% up six basis points compared to the prior quarter and well ahead of our guidance range of $2 95 to 305.

The increase was driven by higher asset yields as it continued to benefit from the higher interest rate environment, and a higher average balance of noninterest bearing deposits compared to last quarter.

We remain constructive on the net interest margin going forward due to the continuing positive shift in our funding mix and the impact of higher asset yields.

Another driver was our loan growth total loans during the third quarter were up modestly as growth in our C&I portfolio led by our specialty finance businesses and in Homebuilder finance offset declines in other businesses.

So all the loan portfolio ended the quarter at 84 billion up over $700 million or 1% compared to the prior quarter.

At September 30, the total commercial loans represented 45% of total loans, reflecting a significant diversification compared to where we stood a year ago.

Turning now to deposits.

<unk> trends during the third quarter were relatively stable total deposits were $82 7 billion.

520 billion lower compared to the $88 5 billion at June 30, the majority of the decline was due a $4 billion decrease and custodial deposits related to the signature transaction.

Which totaled $2 billion at the end of the quarter compared to 6 billion last quarter.

In addition, broken deposits declined $1 $2 billion to $8 1 billion compared to the previous quarter.

Excluding these two items deposits were down less than 1% on a linked quarter basis.

Additionally, our funding mix continues to improve as wholesale borrowings declined 12% compared to the previous quarter overall, they are down 33% or nearly $7 billion since year end 2022.

In the fourth quarter, we had a point we have approximately $3 1 billion of wholesale borrowings at a weighted average rate of 4.0% to 2% at either a maturing or can be called by the FX hlv.

Turning now to asset quality, while early stage delinquencies declined significantly total nonperforming loans increased $159 million or 68% at $319 million compared to the prior quarter due to the increase in the CRE portfolio more specifically the increase was related to two office related loans one.

Of which was in Syracuse, New York totaling $28 million and the other in Manhattan totaling $112 million.

Despite the increase in Npls, our asset quality metrics remained strong as NPL to total loans were 47 basis points compared to 28 basis points last quarter, while our net charge offs, while also up or EMEA three basis points of average loans.

Also as you can see on slides nine to 12 of our investment investor presentation material, our asset quality metrics remains solid and continues to rank among the best relative to the industry and our peers. These strong metrics reflect our conservative underwriting standards, which have served us well over multiple business cycles.

Turning now to our guidance for the fourth quarter.

We expect the NIM in the range of 3% to 310.

Mortgage gain on sale of 16 million to $20 million.

The net return on MSR assets of 8% to 10%.

Loan admin income of $15 million.

Annualized operating expense range of $2 billion to $2 1 billion and.

On a full year tax rate of 23%.

Also during the quarter, we unveiled a modern new brand and logo combining the best elements of all three legacy banks. Our teammates are excited about this new branding and I am excited as well.

Even though it will be a new logo and a brand that means behind it does not change we remain committed to helping our customers and teammates thrive as you move to one bank one brand one culture as the new Flagstar finally, I would like to say a special thank you to all of our teammates our results would not be possible without the dedication and commitment to our clients and our customers.

With that we would be happy to answer any questions. You may have and we'll do our very best to get to all of you within the time remaining but if we don't please feel free to call US later today or during the week operator. Please open the line for questions.

At this time, if you'd like to ask a question Press Star then the number one on your telephone keypad. We ask that you. Please limit. Your initial question to one and return to the queue for any additional questions that you may have our first question will come from the line of David Rochester with Compass point. Please go ahead.

Good morning, Dave Hey, good morning, guys.

Margin guide, what's your assumption for custodial deposits baked into that and what was the average balance for those in the quarter.

Alright, so the big move as we talked about last quarter on the custodial deposits is really coming from the fund banking loans. They are the ones that are paying down pretty quickly so that as the deposits that we're holding as you may know the FDIC has announced the sale of that portfolio.

So that will transfer at the end of this month. So in the next couple of days. So we're going to see that number dropped dramatically. When we hit November 1st because the rest of the custodial deposits will be related to the multifamily and CRE loans and Theres paydowns are significantly less than on the fund banking side. So the average balances around $4 billion.

For the quarter $2 billion at the end of the quarter and then drops dramatically once we get into November.

So this margin guide really doesn't include much in the way you can store youll deposits remaining.

That's correct.

Great.

I will step back in the queue. Thanks, guys.

Okay.

Your next question will come from the line of Ebrahim <unk> with Bank of America. Please go ahead, hey, good.

Good morning, Brian.

Yes.

So Don maybe just start on asset quality it means again.

You had 15 track record on asset quality, when we think about.

One just address like the office portfolio.

Our expectation around the loss content for your book relative to what we hear from the industry, how well reserved.

And Neil community is a floor that book and then secondly, also talk about the health of the multifamily landlords in New York you are adding a lot more concerned around the rent regulations limiting the ability to re events and thats going to squeeze. These the landlords. So if he can address the office and the health of the multifamily landlords here.

Regina: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the New York Community Bank or Inc.

I'll start with the latter first so obviously the marketplace has changed significantly since the rent was back in 2018 had changed and.

Regina: 3rd quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again.

And we've been monitoring that very carefully and we've seen significant success with our client book given the fact that we have a long history.

In place families that have been doing this for multiple decades very confident in their long term business strategies, but they do have a very strong job in managing that book of business.

The generational business for the most part with that being said, we have a very strong portfolio with low ltvs and we monitor it carefully and we're seeing consistency of payment we can see and we're seeing the reaction to higher interest rates on the on the reset either sulfur option or fixed rate option than having the capacity and the ability to continue to pay and that's what we're seeing so when I see.

Sal Dimartino: I would no like to turn the conference over to Sal DiMartino, Executive Vice President, Chief of Staff and Director of Investory Relations. Please go ahead. Thank you Regina. Good morning everyone and thank you for joining the management team of New York Community Bank Corp for today's conference call.

Sal Dimartino: Today's discussion of the company's third quarter 2023 results will be led by President and CEO Thomas Cangemi joined by the company's chief financial advisor Sir John Pinto along with several members of the company's executive leadership team. 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 meaning of the private securities litigation reform act of 1995.

Any delinquency trends with any material at all in the multifamily space, which is a positive again rates have significantly risen over the past year or so and it does have an impact to the cash flow, but these are well in tune operators have been able to manage through that but the reality of the activity's been very slow we haven't seen much activity at all I would say.

Sal Dimartino: Such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor line which in today's press release and presentation for more information about risks and uncertainties which may affect us.

Since I've been here through May 26, 2017 year go into my 27th year now at the Bank. This is the slowest activity that we're seeing when it comes to property transactions.

The interest as far as buying and selling so it really is.

Relatively static.

No activity whatsoever.

We will monitor that very carefully at the same time rents are up to the highest point in the city of New York. So we're getting very strong rentals and then managing to an inflationary environment. So we're very positive is with respect to our portfolio, but there is no question that the Rambler changes had.

Thomas Cangemi: Now I would like to turn the call over to Mr. Cangemi. Thank you Sal. Good morning everyone and thank you for joining us today. Earlier this morning, we announced solid operating results for the third quarter of the year. Our performance reflects our ongoing diversification efforts on both sides of the balance sheet arriving from the combination of three legacy banks. Among this quarter's highlights was good linked quarter-long growth, stable deposit trends and a significantly higher net interest margin.

<unk> had an impact and the activity of taking the units to a free market unit.

<unk> business model.

Team is monitoring the statistics as far as how that impacts <unk>.

<unk>, how it impacts overall cap rates and it's been relatively stable even despite the significant rise in interest rates.

In respect to the overall pre portfolio.

We have about $3 $4 billion in total creative that $1 billion five John is that right Thats in Manhattan.

Thomas Cangemi: We also made further progress in improving our funding mix as both wholesale borrowings and broker CDs declined while monitoring the deposit remain approximately one third of total deposits virtually unchanged from the previous quarter. From a net income and earnings perspective, we reported net income available to common stockholders of $266 million or 36 cents per diluted share as a adjusted-emergerated expenses. Our EPS this quarter was two cents better than consensus. One of the drivers this quarter was a much higher net interest margin.

And by building an $8 billion in Manhattan. This is one specific loan and the Manhattan portfolio I believe it's like an 80 minus type credit.

We are confident that we have valued as so there was no guidance there was it related charge off to that particular credit, but its one loan. So we think we have a very strong portfolio. We have statistics that we put out in our slide presentation material is very clear on the overall strength of the portfolio relatively low ltvs strong debt service coverage ratios are very strong sponsorship.

But it's not a trend and we're monitoring it no question rates are much higher we're still coming out of the pandemic while evaluating.

Thomas Cangemi: The name came in at 3.27% of six basis points compared to the prior quarter and well ahead of our guidance range of 295 to 305. The increase was driven by higher asset yields as it continued to benefit from the higher interest rate environment and higher average balance of non-interest bearing deposits compared to last quarter. We made constructive on the net interest margin going forward due to the continuing positive shift in our funding mix and the impact of higher asset yields.

Overall square footage and rentals and then as far as leases.

Leases coming due and exits of certain large clientele, but it's been a relatively stable scenario and despite the negativity of reading about our portfolio is performing extremely well with relevant to the marketplace.

That's helpful and maybe just one other one on expenses I think.

I think in the past you've said you expect expenses to stay flat next year versus this year one.

Thomas Cangemi: Another driver was our long growth. Floatal loans during this third quarter were up modestly as growth in the C and I portfolio led by our specialty finance businesses and in home-builder finance all stead the clients and other businesses. Overall, the loan portfolio ended this quarter at $84 billion up over $700 million or 1% compared to the prior quarter.

Remind us in terms of where we are in realizing savings tied to the <unk>.

The acquisition, how much more to go and do you still feel good about expenses staying flat seems like youre, making a lot of investments there is a lot going on at the bank. So would appreciate the update there.

So I'll start and then I'll pass the baton to John the Big Pictures.

Thomas Cangemi: As September 30, total commercial loans represented 45% of total loans affecting its significant diversification compared to where we spent a year ago.

It's pretty much the same that was last quarter for 2023, Alright, we haven't given our 2020 for guidance and clearly we are investing as you indicated into into the infrastructure that build out and test the 101 billion now.

Antonio: Antonio. Turning now to deposits, are the potted trends on the third quarter are relatively stable. Total deposits were $82.7 billion, $5.28 billion lower compared to the $88.5 billion at June 30th. The majority of the decline was due a $4 billion decrease in custodial deposits related to the signature transaction, which total $2 billion at the end of the quarter compared to $6 billion last quarter. In addition, broken deposits declined $1.2 billion to $8.1 billion. According to the previous quarter, excluding these two items, the deposit is down less than 1% on a length quarter basis. Additionally, a funding discontinued and true that wholesale bonds declined 12% compared to the previous quarter.

He understands our obligations there. So we clearly are focusing on making this company at the point at a $100 billion process to ensure that we have all of the requisite infrastructure and we spent a lot of money over the years to get there. So we understand the path here at the same time, we're also investing into the into the market regarding our new partner with the signature transact.

So we are adding talent to the tools of additional <unk> team that also add to the expense base. That's why you saw the ramp up in investment in the second and third quarter, but the reality is that we have a very strong focus here to make sure that we have a history and this is just a history of managing a very strong efficiency ratio, but also being cognizant of our obligation does one.

Antonio: Overall, they are down 33% or nearly $7 billion since year end 2022. In the fourth quarter, we have approximately $3.1 billion, a wholesale bond at a weighted average rate of 4.02% that either are maturing or can be called by the FHLD.

$100 million plus institution with that I'll pass it to John Yes, we havent given specific guidance yet for 'twenty four but how we've talked about it is that there are both headwinds and tailwind into 2004, when you compare it to <unk> 23, as Tom mentioned, we definitely have some additional adds both back office and drew RPG groups that again put pressure on the on the expense.

Antonio: Turning now to asset quality, while early stage delinquencies declined significantly, total non-performance increased $159 million or a 68% of $319 million compared to the prior quarter due to the increase in the COE portfolio.

<unk> going up along with just the additional expenses for being over 100 billion and then the tailwind of the systems conversions, which we have the flagstar systems conversion scheduled in the first quarter. So we will start to see some benefits from that and then we have the signature conversion after that so those benefits will be later towards the later end of the year.

Antonio: More specifically, the increase was related to two office-related loans, one of which was in Syracuse, New York, totaling $28 million and the other in Manhattan, totaling $112 million. Despite the increase in NPLs, our asset quality metrics remained strong. At NPLs, the total loans were 47 basis points compared to 28 basis points last quarter, while our net charge was also up or a mere three basis points of average loans.

So that's kind of how we think about 2024 right now, but we will give our guidance at the next quarter and we are building.

I'd add to John's comments are you'll still unwinding the legacy <unk> portfolio that we don't own. So we do have cost associated with that that will be impacted favorably as we assuming that those assets do caught the institution go elsewhere. So thats also.

Antonio: Also, as you can see on 5-9-12, our investor presentation material are asset quality metrics remained solid and continue to rank among the best relative to the industry in our peers, the strong metrics we fight our conservative underwriting standards, which has served as well over multiple business cycles.

<unk> will also be impact into next year as well assuming that the FDIC has put out the MF and CRE portfolios for sale, we expect bids to be this quarter and we'll see what happens when that comes to pass.

Thank you.

Thomas Cangemi: Turning now to our guidance for the fourth quarter, we expect a minimum in a range of 3% to 310, mortgage gain on sale of $16 million to $20 million, the net return MSR assets of 8% to 10%, loan admin income of $15 million, annualized operating spent range of $2.1 million, and a fully-attached rate of 23%.

Your next question comes from the line of Chris Mcgratty with <unk>. Please go ahead good morning.

Chris.

Hey, good morning.

John maybe just a question on the balance sheet to start.

Bottom movements with the deposits that you telegraphed, but can you help us with just overall size of earning assets near term.

Targeted cash levels Youre building the bond book just help on the moving pieces for the next couple of quarters sure. Yes, No no no problem, we have slowly started to build the securities portfolio.

Thomas Cangemi: Also during the quarter, we unveiled a modern new brand and logo combining the best elements of all three legacy banks. Our teammates are excited about this new branding and I'm excited as well. Even though we'll be a new logo and a brand, the means behind it does not change.

Really just a.

Liquidity shift between cash and securities.

Government Securities.

Liquid.

Thomas Cangemi: We remain committed to helping our customers and teammates thrive as we move to one bank, one brand, one culture as the new flag star.

Just to try to try to monetize some asset sensitivity here and get closer to neutral that's been our plan.

Since March 31 to get closer to neutral and we have each quarter, we're slightly asset sensitive right now and that will continue to trend towards neutrality here in the next quarter or so.

Thomas Cangemi: Finally, I would like to say a special thank you to all of our teammates. Our results will not be possible without their dedication and commitment to our clients and our customers.

Thomas Cangemi: For that, we would be happy to answer any questions you may have. We'll do our very best to get to all of you within the time remaining, but if we don't, please feel free to call us later today or during the week.

So I think when you look at where we are in interest earning assets. The declines have basically stopped from the cash side. This is about where we will be within a $1 billion or so from a cash and securities perspective, you may see cash drop a little bit, but that would be offset by incremental purchases on the security side. So I would say that the large drops are.

Regina: Operator, please open the line for questions. At the time, if you'd like to ask a question, press star then the number one on your telephone key pass. We ask that you please limit your initial question to one and return to the queue for any additional questions that you may have.

Find us on the cash and the liquidity front right. We've paid down we paid down a lot of debt on the wholesale side and some brokerage side that'll be more limited going forward and then we will look to grow certain areas of the loan portfolio, where it makes sense strategically for the company.

David Rochester: Our first question will come from the line of David Rochester with Compass Point. Please go ahead. Good morning, guys. What's your assumption for custodial deposits baked into that? And what was the average balance for those in the quarter? Right, so the big move as we talked about last quarter on the custodial deposits is really coming from the fun banking loans. They're the ones that are paying down pretty quickly. So those are the deposits that we're holding. As you may know, the FBIC has announced the sale of that portfolio. So that will transfer at the end of this month.

David Rochester: So in the next couple of days, so we're going to see that number dropped dramatically when we hit November first because the rest of the custodial deposits will be related to the multi-family in the CRE loans. And there's pay downs are significantly less than on the fun banking side. So the average balance is around four billion for the quarter, two billion at the end of the quarter and then dropped dramatically once we get into November. So this margin guide really doesn't include much in the way custodial deposits remaining. That's correct. Great. All right, I'll step back in the queue. Thanks, guys.

Our best opportunity to bring in deposits related to those loans. So I would say very very limited change if you look at cash and securities combined going forward.

Then some hopefully some small growth on the loan side, where it makes sense strategically.

Okay.

The follow up I had one.

Third seven of earning assets in the quarter.

Timing of everything is related.

When you move separate during the quarter, but just.

Zeroing in on that fourth quarter, earning assets it feels like it's going to be lower than those 107, but just any kind of fine tuning.

Yes, not significantly lower than the 107, we expect it to be right around that number because I really don't see us dropping much more on the securities in total in the cash side. So I expect that it'll be pretty stable here and hopefully we'll be able to build that as our success on the deposit side starts to come through.

Okay, and then maybe just a last one on the loan to deposit retool that a bit.

Abraham Poonawala: Your next question will come from the line of Abraham Poonwala with Bank of America. Please go ahead. Good morning, Abraham. Good. So Tom, maybe just start on asset quality means again, you had pristine track record on asset quality. When we think about one just address like the office portfolio, your expectation around the loss content for your book relative to what we hear from the industry, how well deserved in your community is for that book.

How are you thinking about that entering 2024 is a little high.

So Chris So it's Tom I would say that the strategy going forward here is relationship deposit story in all lines of the businesses right.

We're a different company, we're focusing on new flagstone are focusing on getting ourselves to a commercial banking standard we recognize that historically, we've had a very high loan to deposit ratio is a traditional thrift model. That's history. The goal here is to is lifesize institution to be more in line to a commercial banking model. We had the Franklin transaction then.

Abraham Poonawala: And then secondly, also talk about the health of the multi-family landlords in New York. I like you're hearing a lot more concern around the rent regulation, limiting the ability to raise rents and that's going to squeeze these the landlords. So if we can address the office and the health of the multi-family landlords here. I followed a lot of first.

We had the opportunity to be participating in the receive as a transaction, what's really changed the model in respect to the funding mix. So the goal here is to bring that level.

Inside of 100, and Thats the goal here and continuing to focus on best practices in the industry and that's at the more commercial bank model. So we're proud of the opportunity to diversify our lines and focus on deposit relationship lending if theres no deposit on the relationship will probably not going to make the loan assistance that said that is coming from the top of the house at the board level is very focused.

Thomas Cangemi: So obviously the marketplace has changed significantly since the rent laws back in 18 had changed. And we've been monitoring that very carefully. We've seen some significant success with our client book given the fact that we have a long history. These are, you know, in place families that have been doing this for multiple decades. They're very confident in their long-term business strategies, but they do a very strong job of managing a book of business and the generational business with the most part.

That this is a great opportunity to take these three institutions under the new flex on Bella and focus on relationship banking, we see it transforming actively on a home on the multifamily decreased side.

Thomas Cangemi: With that being said, we have a very strong portfolio with low LTVs and we monitor it carefully and we're seeing, you know, consistencies of payment we can see and seeing the reaction to higher interest rates on the on the reset. [inaudible] DeShrate, and respect to the overall pre-portfolio. We have about 3.4 billion dollars in total, create about a billion and a half times that rises to Manhattan. Billion, yeah, Billion eight. Billion eight, Billion eight, Billion eight, Manhattan, this is one specific loan in the Manhattan portfolio.

The past two years, we've had tremendous success with that model and that's going to be filled into all of our lines of businesses that want to be the strategy going forward.

Great. Thanks, Thanks, guys.

Your next question comes from the line of Steven Alexopoulos with Jpmorgan. Please go ahead.

Good morning, David.

Good morning, This is Janet Lee for Steve Alexopoulos.

My first question is on your new hires as it relates to private banking team hires out of first Republic are you seeing any more opportunities to hire new teams here over the near term.

I'll pass that over to Eric Eric.

Good morning, So we've hired a total of 59 group directors on the 105 support staff. So.

There was tremendous opportunity over the last couple of quarters to higher we're very excited about the team members that we've brought on board and this is truly a tremendous opportunity to fill a massive void in the marketplace for service oriented institutions.

We're really happy with the talent that we brought onboard in order to do that now.

Alexander pointed out the stability of the legacy signature teams are solid we had tremendous.

Strength throughout the summer on stabilizing the team that was the business risks when we announced the transaction so theres been stability and as Eric indicated on an opportunity as well.

Okay great.

And as Youre, obviously growing and investing into the franchise do you expect to be able to achieve positive operating leverage next year is that a target that you have in mind.

That's the plan.

I mean, as we kind of thought through the process and I'll, let <unk> go through some of the mechanics on on the history that you've done this for quite some time as far as how it is.

Thomas Cangemi: I believe it's like an eight-minus type of credit. You know, we're confident that we have value there, so there was no, I don't think there was a related charge to that particular credit, but it's one loan. So we have a very strong portfolio. We have statistics that we put out in our fire presentation material. It was very clear on the overall strength of the portfolio, you know, relatively low LTVs, strong, that service coverage ratios, very strong sponsorships, but it's not a trend, and we're monitoring it.

It goes into the into the into the run rate, but once you tender garner that usually takes about 12 to 24 months for HCM is different.

Has a different book of business and underlying client base, but.

We'll usually achieve positive leverage.

Look 12 months to 24 months out.

Great and my last one.

Thomas Cangemi: No question rates are much higher. We're still coming out of the pandemic. We're evaluating overall square footage and rentals, and as far as leases coming due and exits of certain large clientele, but it's been a relatively stable scenario, and despite the negativity you're reading about, our portfolio is performing extremely well, relevant to the marketplace.

So from that point, that's on their new team that came on board, but obviously, we have embedded within the franchise close to 1200 team members from the legacy Cigna tiered portfolio Thats managing of close to $30 billion of deposits. There has tremendous operating leverage for the for the franchise of which I think is probably close to 40% of that deposit base is at zero.

Unknown Executive: Let's helpful.

Got it.

And can you give us an update on the progress of bringing back signature in noninterest bearing deposits that have left during the third quarter and maybe for Q to date has it accelerated versus the $2 $85 million that you brought in during the second quarter, yes.

Unknown Executive: And maybe just one other one on expenses, I think in the past you said you expect expenses to stay flat next year versus this year. Remind us in terms of where we are in realizing savings, right, to both the acquisition, how much more to go, and do you still feel good about expensive things? That seems like you're making a lot of investments.

Yes were really stable I mean, we brought in.

Nearly $300 million again in deposits. So they continue to flow back and that's in the face of obviously, the most difficult deposit environment that we've seen in our careers for sure. So we're very pleased with the traction that we're getting we had growth in both the west coast banking teams and the east coast banking teams as well as the new <unk>.

John Pinto: There's a lot going on at the bank, so I would appreciate an update there. Well, I'll start, and I'll test with the time to John. The big pictures, I don't, our guide's pretty much the same. There was last quarter for 2023. We haven't given out 2024 guidance, and clearly we are investing, as you indicated, into the infrastructure that builds our past 100 billion now. We understand our obligations there, so we clearly are focusing on making this company at the point of the $100 billion process, and ensure that we have all of the requisite infrastructure, and we spent a lot of money over the years to get there, so we understand the path there.

Barbara teams that we brought onboard so we're seeing growth from all areas of our traditional banking teams.

I'll just add some comments are spent.

Most of the summer meeting, both <unk> as well as our new client base and for close to a 1000 hands I've shaken out for over the summer and it was amazing to see the connectivity between the PCT teams and the client and the loyalty factor behind that so we're very proud of the team. We're proud that theyre able to go through a significant adverse time and launch and see an opportunity here on the fly.

John Pinto: At the same time, we're also investing into the market, regarding our new partner with the signature transaction, so we are adding talent to the pools of additional PCG teams that also add to the expense base. That's why you saw the ramp up in the second and third quarter. The reality is that we have a very strong focus here to make sure that we have a history, and this is just a history of managing a very strong efficiency ratio, but also being cognizant of our obligation does a $100 billion plus institution.

And we're very pleased with the success on the stability of the base accounts.

Accounts are still there they may be cleaned out that as far as some of the excess liquidity to the market, but they are not leaving the institution when it comes to the actual relationship but they did move some significant deposits and when we did the transaction in March.

John Pinto: With that, I'll pass it to John. Yeah, and we haven't given specific guidance yet for 24, but how we've talked about it is that there are both headwinds and tailwinds into 24 when you compare it to 23. As Tom mentioned, we definitely have some additional ads, both back office and through our PCG groups that are going to put pressure on the expense base going up along with just the additional expenses for being over $100 billion.

<unk> was at a much highest based on when we can when we stepped in and it's been stable, which is a very positive signal for what we expected and as you can recall from the original deal mechanics, we felt that it would be further run off just because of the unknown factor as we came into a very tumultuous time.

Alright, thanks for taking my questions.

Thank you.

Your next question comes from the line of Bernard von <unk> with Deutsche Bank. Please go ahead.

John Pinto: Then the tailwinds of the systems conversions, which we have the flag star systems conversions scheduled in the first quarter, so we'll start to see some benefits from that. Then we have the signature conversion after that. Those benefits will be later towards the later end of the year.

Good morning.

Hey, good morning, So just on purchase accounting accretion.

Just remind us on <unk> for the NIM how much there was what the split was between flagstone signature and based on your <unk> guide of NIM, what you're expecting.

John Pinto: That's kind of how we think about 2024 right now, but we'll give our guidance at the next quarter. I have no idea what I'm going to add to John's comment. Are you still unwinding the legacy signature portfolio that we don't own, so we do have cost associated with that, that will be impacted favorably as we, assuming that those assets do plot the institution to elsewhere, so that will also be impacted, and the next year as well. Yeah, that's right. The FBIC has put out the MF and CRE portfolios for sale. We expect it to be this quarter. And we'll see what happens when that comes to pass.

Sure.

Unknown Executive: Thank you.

If you look we did add a slide I don't know if you saw it in the earnings presentation.

Around the purchase accounting accretion.

We knew we were going to get some questions on that so it was about 100 million that came in in September the split is about 70% signature.

And about 30% from the from the Flagstar transaction.

From a forecasting perspective, we're expecting it to be.

A little bit lower than that in the fourth quarter.

Not substantially we believe that we have another quarter or so at a pretty high run rate from the signature transactions given how we're seeing some pay downs.

Chris McGrady: Your next question comes from the line of Chris McGrady with KBW.

Chris McGrady: Please go ahead. Want to Chris? Hey, good morning.

We'll see the flagstar piece start to start to slow down here.

John Pinto: Jon, maybe just a question on the balance. You just are a lot of movements with the deposit as you telegraph. But can you help us with just overall size of very massive near term, you know, targeted cash levels. You're building the bond book just just help on the moving pieces for the next couple quarter. Sure. Yeah, no, no problem. We have slowly started to build the securities portfolio. Really just a, you know, liquidity shift between cash and securities, government securities, you know, very liquid.

We get to the one year Mark in December, but right now, that's where we kind of expect it to be pretty close to that level of around $100 million.

Okay, Great and then just on deposits I know in the past you guys have talked about.

The banking as a service initiatives that you had.

Just wondering if you could kind of remind us what you might have in the pipeline as you kind of think of how noninterest.

Bearing deposits could trend maybe going into next year.

Well I'll start off on a different strategy, but I will tell you that the reality is that we have a lot of interesting opportunities in front of US. We did mentioned about a year ago that we did.

John Pinto: Just to try to try to monetize the massive sensitivity here and get closer to neutral. That's been our blank. Then back since March 31 to get closer to neutral. And we have each quarter where slightly asset sensitive right now and that'll continue to trend towards neutrality here in the next quarter or so. So I think when you look at where we are and interest earning assets, the declines have basically stopped from the cash side.

<unk> successfully.

And then actually win the opportunity within the California unemployment fund that should be coming on sometime early in 2024 that will be a nice pick up for the for the institution without being said in so many different lines of businesses as well as opportunities I'd love to have Reggie Davis just share some thoughts on this deposit strategies, we're really excited.

John Pinto: This is about where we'll be within a billion dollars or so from a cash and securities perspective. You may see cash drop a little bit, but that would be offset by incremental purchases on the security. So I'd say that the large drops are behind us on the cash and the liquidity front, right? We've paid down. We've paid down a lot of debt on the wholesale side and some broker side. That'll be more limited going forward.

What we can do in the future the veggie if you don't mind.

Yes, sure Tom So so not a lot more to add around banking as a service. In addition to what Tom said that as you know that business kind of comes in from an opportunistic standpoint. So we've done a lot in the pipeline and we feel really good about our prospects for winning additional business, but we don't try to project out exactly where that that book is going to be.

John Pinto: And then we'll look to grow certain areas of the loan portfolio where it makes sense strategically for the company. You were the best opportunity to bring in deposits related to those loans. So I would say, you know, very, very limited change from the if you look at cash and securities combined going forward and then some, you know, hopefully some small growth on the on the long side where it makes sense strategically.

I think we've had a lot of success. This year is in our consumer book, which.

That tends to be a little bit more steady a little bit more predictable and I feel really good about where that retail businesses position, particularly given the tough environment.

The team has done a lot of really good work our relationship banking model. This year really proved its value tremendous amount of stability in that book.

John Pinto: Okay, just if I could the follow the you know you had a hundred and seven of earning assets in the quarter actually timing of everything is related, you know, when you move stuff during the quarter, but just zeroing in on that fourth quarter earning assets. It feels like it's going to be lower than those 107, but just any kind of fine tune. Yeah, but yeah, not significantly lower than the 107. And we expect it to be right around that number because I really don't think it's dropping much more on the securities in total and the cash side. So I expect that'll be pretty stable here. And hopefully we'll be able to build that as our success on the deposit side, you know, starts to come through.

We actually brought both to Brent the branch and branch teams together this year combine the back office. We are now operating under the same leadership structure same sales and service model.

That model change, where it went really well no disruptions.

In the process of introducing a more skilled and consistent sales culture across the entire network of.

380 branches, it's designed to create a great client experience and it will be uniquely flags.

Flagstar positioned with the brand that Tom talked about Tom and if you kind of think about where we are is a lot of upside in that business. The legacy flagstar branches are still only able to open accounts and branch that's 40% of our franchise were 100 157 branches next year, we'll be able to have online capabilities. So we know that will actually increase.

Thomas Cangemi: Okay, then maybe just the last one on the loan deposit retooled a bit. How are you thinking about that entering 2024 a little high? So Chris, so it's time I would say that the strategy going forward here is relationship deposit story in all lines of the businesses, right?

Net acquisition.

Thomas Cangemi: We're a different company where we're focusing on a new flag, so we're focusing on getting ourselves to a commercial banking standard. We recognize that, you know, historically we've had a very high low deposit ratio, have a traditional trip model that history. The goal here is to his right prize institution to be more online to a commercial banking model. We had the flag for transaction and we had the opportunity to be participating and it received a transaction really changed the model in respect to the funding mix.

This year for the first year, we began using targeted digital marketing and our <unk> footprint to drive new client acquisition. That's gone well, we've introduced a new skinny down version of our AI powered client relationship tool, which is called Nextgen sales and our <unk> branches.

Thomas Cangemi: So the goal here is to bring that level, you know, inside of a hundred, you know, that's the goal here and continue to focus on best practices in the industry. And that's a more commercial bank model. So we're proud of the opportunity to diversify our lines and focus on the positive relationship lending. If there's no deposit on the relationship, we're probably not going to make no own. That's coming from the top of the house at the board level. It's very focused there.

<unk> had tremendous impact we see increases in new account balances all those validated in the next year will be fully operational across the entire footprint with additional enhancements for that that we feel really good.

The portfolio has performed well this year quarter over quarter were only down $500 million, which is less than one 5%.

Most of the year, we've had success with this high touch model. If you look at our weighted average cost. It's only up 177 basis points since January against a fed funds increase of 525. So we're really pleased with the retention in that portfolio and.

Thomas Cangemi: That this is a great opportunity to take these re-institution under the new flag, so umbrella, and focus on a relationship banking. If we see it transforming actively on the multi-family's crease side throughout the past three years, we've had tremendous success with that model. And that's going to be filtered to all of the lines of businesses. That's going to be the strategy going folks. Great, thanks. Thanks, guys.

I think that's a good news story is from a CD renewal perspective, we've been above the 80%.

Retention rate all year, which is kind of top of class from an industry perspective, we had 20% of our CD book renew between August and September we had 81% retention rate on that average rate.

Stephen Alexopoulos: Your next question comes from the line of Stephen Alexopoulos with JP Morgan. Please go ahead. Good morning.

At $1 seven at maturity term less than 5%, so positioned well below the kind of market leaders in terms of rate. So we continue to be really optimistic around deposits. It's one of the success stories, we've got this year.

Janet Lee: This is Janet Lee for Steve Alexopoulos.

Eric Howell: My first question is on your new hires as it relates to private baking team hires out of first republic. Are you seeing any more opportunities to hire new teams here over the near term? I'll pass that over to Eric, Eric. Yeah, hi, good morning. So we fired in total now 59 group directors and 105 support staff. So, you know, there, there was tremendous opportunity over the last couple quarters to hire. We're very excited about the team members that we brought on board.

So as you can see we have a lot of.

Mr. David So thank you Rajeev I will tell you that the energy in driving in this institution is the new focus for the institution, So clearly <unk>.

Has a lot of interesting opportunities in front of us. So we're excited as this whole team. So thank you for that region.

Your next question will come from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead, hey, guys. Good morning.

Was wondering was there any of the $62 million provision. This quarter did have any specific reserves in there for those two credits you singled out and have you reappraise those two properties.

Eric Howell: This is truly a tremendous opportunity to fill a massive void in the marketplace for service oriented institutions and we're really happy with the talent that we brought on board in order to do that. That would point to that the disability of the legacy signature teams are solid. We had tremendous strain throughout the summer on stabilizing the team. That was the business risk when we announced the transaction. So there's been stability and as Eric indicated as an opportunity as well.

Yes, so both of those two properties as they go through the process of nonperforming were both recently reappraised. So the charge off on the on the Syracuse loan was based of course on that most recent appraisal.

And then if you look at the $62 million the bulk of the provision was one to really restore the allowance for the charge offs that we took.

Eric Howell: Okay, great. And as you're obviously growing and investing into a franchise, do you expect to be able to achieve positive operating leverage next year? Is that a target that you have in mind? That's the plan. Absolutely. I mean, we kind of thought through the prize, I'll let Eric go through some of the mechanics on history. It's done us for quite some time as far as how it goes into the into the run rate.

As well as some some small modest growth that we had some CRE modeling changes through the Moody's macroeconomic factor and then and then another quality more qualitative like factor related to the office portfolio Thats kind of how it was broken apart to get to that 62, but yes. It's both of those loans have recent appraisal.

Ron.

And we're holding them now.

Eric Howell: But why do you stand upon that? Well, yeah, it's usually takes about 12 to 24 months right each team is different. Has a different book of business and underlying client base, but you know, we'll usually achieve positive leverage. If you look 12 to 24 months out. Great. That's on the new team that came on board, but obviously we have embedded within the franchise, close to 1200 team members from the legacy signature report for managing close to 30 billion dollars of the positive has tremendous operating leverage for the franchise, I wish it's probably close to 40% of that the positive base is at zero.

Where we believe especially on that Cherokee as well on the write down we've taken well.

Comfortable with where that is in the same process, we use for decades, when we take charge offs.

Okay, and then just a follow up unrelated.

And this may seem like a a.

Hard thing to imagine right now, but could you consider doing additional sort of troubled bank acquisitions as they came along and hopefully they don't but.

If there were some failed institutions in 2024 do you think it's conceivable that you could do another transaction.

Tom I will tell you that we are laser focused on building new flagstar, we have a lot on our plate as you can imagine.

Eric Howell: That's right. Got it. And can you give us an update on the progress of bringing back signature and non-intersparing deposits that have left during the third quarter and maybe for cute to date has it accelerated versus the 285 million that you brought in during the second quarter? Yeah, we're really stable. I mean, we brought in nearly 300 million again in deposits so they continue to flow back. And that's in the face of obviously the most difficult deposit environment that we've seen in our careers for sure.

<unk> came along unexpectedly from pretty much everybody and we were able to be accommodated and work with the government to facilitate a which we believe a very good transaction.

Busy right, we want to get on conversions on the language it systems and what do we have a lot of integration that we want to make sure. We prioritize so I will tell you that we're very pleased where we are and we are building new flagstone, it's unlikely that we will be participating in growth opportunities and the company has gone from $60 billion to $128 billion and Thats a lot of growth and we have a lot of work to do in front of us and the team.

Eric Howell: So we're very pleased with the traction that we're gaining. We had growth in both the West Coast banking teams and the East Coast banking teams as well as the new FRB teams that we brought on board. So we're seeing growth from all areas of our traditional banking teams. You know, I'll just add some comments or I spent most of the summer meeting both PCG's as well as our new client base and close to a thousand hands I shake, you know, for the over the summer.

As Angie as you can hear with Reggie Davis generic in all of our great team members, we have with Lindsay that we have the priority of getting at getting us to be that that at 100, Binney institution, where we feel very proud of the back office. The system conversion a lot of work ahead of us Mark.

That's the priority.

And that's the priority.

Your next question comes from the line of Brody Preston with UBS. Please go ahead.

Eric Howell: And it was amazing to see the connectivity between the PCG teams and the client and the loyalty factor behind that. So we're very proud of the team. We're proud that they're able to go through a significant adverse time in March and see an opportunity here on the new flagship. And we're very pleased of the success on the stability of the base, you know, accounts are still there. They may be cleaned out as far as some of the excess liquidity to the market.

Good morning, Brian Good morning.

Hey.

Just wanted to follow up on those two office credits.

I wanted to ask.

What was the LTV.

On those loans.

Fire to the reappraisal.

John and where did the LTV go on reappraisal prior to charging.

Eric Howell: But they don't leave an institution when it comes to the actual relationship, but they did move some significant to progress. So when we did the transaction in March, you know, that institution was at a much higher base when we stepped in. It's been stable, which is a very positive signal for what we expected. And as you recall from the original field of accounts, we felt there would be further run out just because of the unknown factor as we came into a very tumultuous time.

Charge them down.

Well, let me defer to John as he is actually in my office of John do you want to just address those two credits. Good morning, both both both of those credits at time of origination where 65% or less.

They were originated quite some time before the pandemic.

The impact of the pandemic, and obviously leasing activity and vacancies both of those credits at the time that we reappraised RSV Syracuse was more than 100%, but the larger asset in the city.

Unknown Executive: All right, thanks for taking my questions.

Bernard Gizycki: Your next question comes from the line of a Bernard Von Gizycki with Deutsche Bank. Please go ahead. Good morning. Thanks, good morning. So, just on the purchase of the county and creation, if you could just remind us on 3Q for the NIMM, how much there was, what the split was between Flex and signature, and based on your 4Q guide of NIMM what you're expecting. Sure, Bernard, if you look, we did add a slide on if you saw it in the earnings presentation around the purchase of county, you know, we knew we were going to get some questions on that.

90%.

Got it thank you.

Eric He has had a significant tenant.

A unique iconic building that Melissa its major tenant and we'll deal with as we go along here we were very active to get the appraisal updated which we took the.

Much lower valuation and we will walk through the workout process. So good about the fact that this is at a level that we can move this will be happy, but we will work with you.

The existing bar to see if he wants to try to walk you through the bag. If not we will have people that are willing to step in here.

Bernard Gizycki: So it was about 100 million that came in in September. The split is about 70% signature and about 30% from the Flagstaff transaction. From a forecasting perspective, we're expecting it to be a little bit lower than that in the fourth quarter. Not substantially. We believe that we have another quarter or so at a pretty high run rate from the signature transaction giving how we're seeing some paydowns. We will see the flag start to start to slow down here as we get to the one year mark in December. But right now that's where we kind of expected to be pretty close to that level around 100 million.

Bernard Gizycki: Okay, great.

Got it okay and.

I just wanted to get a sense for.

Do you have an idea for what the lease rolls look like for the rest of the office portfolio. If it was that was it.

If it was a tenant leaving that kind of caused the issue with the <unk> portfolio just wanted to get a sense for what those lease rolls looked like.

This is Tom again, I would say big picture, we know we're going through that process.

We've talked about Manhattan, we have about 1 billion eight of the charter 1 billion eight Manhattan very cognizant of what's coming due when it comes to refinancing and respect coupons as well as the tendency we evaluate that feel pretty good about the portfolio, but this is an environment, where you have to have an enhanced monitoring.

Reginald Davis: And then just on the positive, I know in the past, you guys have talked about the banking as a service initiatives that you've had. I just want to be kind of remind us what you might have in the pipeline as we kind of think of how not interest bearing deposits could tread maybe going to next year. I'll spot off on her to Reggie, but I will tell you that the reality is that we have a lot of interesting opportunities in front of us.

The company is doing a lot of work to ensure that we're getting updated financial statements. This at that time a year from now until the end of the year, we got a lot of new financial statements as John indicated.

We updated the macroeconomic backdrop towards a credit.

Environment in particular, Cree, but clearly this is a unique portfolio typically and historical basis. It was a is a sponsor driven opportunity for the bank. Historically, we've had a very strong mix of very strong families that actually buy into the multifamily anchory market Opportunistically tied to the 10 31 exchange opportunity when it comes to tax deferral.

Reginald Davis: We did mention about a year ago that we did successfully compete and actually win the opportunity within the California unemployment fund. And that's actually becoming on some time early in 2024. That'll be a nice pick up for the institution without being said is so many different minds of businesses as well as opportunities. I love to have Reggie Davis just share some thoughts on the part of strategy. So we're really excited what we can do in the future.

And we have a very strong overall leverage overall average LTV and a strong debt service coverage ratio youre going to have one offs from time to time.

We'll call. This particular, one a one off we don't see trends, yet but were monitoring it very carefully.

Reginald Davis: Reggie, if you don't mind. Yeah, sure Tom. So, so a lot more to add around banking as a service in addition to what Tom said that yes, you know that business. This kind of comes in from an opportunistic standpoint. So we've got a lot in the pipeline and we feel really good about our prospects of winning additional business. But we don't try to project out exactly where that that book is going to be.

Okay and on the SaaS, one more and then hop out Mr. Clarifying on the average earning asset got it.

Is that stable at 107 billion for the fourth quarter.

And if so could you kind of clarify the moving parts. There for me John just given the period end.

Reginald Davis: I think we've got had a lot of success this year is in our consumer book, which you know that tends to be a little bit more steady, a little bit more predictable and I feel really good about where that retail business is positioned particularly given the tough environment. The teams and a lot of really good work, you know, our relationship banking model this year really proved its value tremendous amount of stability in that book.

<unk> quite a bit lower than that.

Yes, so what we're looking at is from an from an average perspective, we expect that cash and securities will be pretty flat.

We don't expect significant declines in those two items now once again that depends of course on our success in bringing in deposits in the quarter and we do expect to have some loan growth.

Reginald Davis: We actually brought both the branching branch teams together this year, combined the back office. We're now operating under the same leadership structure, same sales and service model. That model change really went really well, no disruptions. We're in the process of introducing a more skilled and consistent sales culture across the entire network of, you know, 380 branches. It's designed to create a great client experience and it will be uniquely flag star position with the brand that Tom talked about.

Nothing substantial.

Just a little bit of loan growth here, which is why we think we can be pretty close to that.

Don't think like I mentioned, we're not going to see the big declines we've seen in the past.

There'll be a little bit of a mix shift between cash securities and loans. We just don't expect it to be as big a drop as it was quarter over quarter, it's going to be relatively consistent. So I would just add to that point as Tom again strategically we put out a plan when we announced the receiver to the transaction and how we see the balance sheet coming in at year end now we're focusing on the businesses.

Reginald Davis: And if you kind of think about where we are, it's a lot of upside in that business, the legacy flag star branches are still only able to open account in branch. That's 40% of our franchise about 157 branches next year. We'll be able to have online capability so we know that will actually increase our net acquisition this year for the first year. So we began using targeted digital marketing in our NYCB footprint to drive new client acquisition.

And the businesses that will have some businesses actually seen declines in particular multifamily Cree and business is very slow youll see the offset of growth and our C&I portfolios. We're very very optimistic about the opportunity in overall interest rates and when it comes to residential lending we have leased with underlying you can expand upon the opportunity there isn't much different market when it comes to resi lending so or more.

<unk> Bank has been light size back in January so, we actually making money in the lines of business, which is not common in financial services in today's environment, but clearly have other levers to pull and probably the augmentation of the balance sheet will continue youll see more of a shift away from Cree multifamily just because of the market theres not a lot of activity and our spreads are about 300.

Reginald Davis: That's gone well. We've introduced a new skinny down version of our AI powered client relationship tool, which is called next gen sales in our NYCB branches. That had tremendous impact. We see increases in new account balances, all those validated in the next year will be fully operational across the entire footprint with additional enhancements for that. That too, but we feel really good. The, you know, the portfolio is performed well this year quarter quarter, we're only down 500 million, which is less than 1.5%.

Third basis point spread off the five year treasury and probably wider than where the government is in the government will be proactive with their balance sheet will be less proactive and we'll be focusing on relationships of deposit gathering so like I indicated going back to the strategy, it's going to be about relationship banking and all the lines of businesses and were seeing some good pick up on the homebuilder finance business.

Reginald Davis: You know, most of the year we've had success with this high touch model. If you look at our weighted average cost, it's only up 177 basis points since January against the Fed funds increase of 525. So we're really pleased with the retention in that portfolio. And, you know, I think another good news story is, you know, from a city with no perspective, we've been above the 80% retention rate all year, which is kind of top of class from an industry perspective.

Can pick up on on the C&I business as far as really getting a seat at the table and getting deposit flows tied to the businesses that we're banking on a corporate bank sponsorship side with that I'm going to pass the baton over to lead and get some update on mortgage and what we see the opportunity in respect to the mortgage market. So Lee Smith.

Yes sure. Thanks, Tom I think it was a number of opportunities I think first of all just from an origination point of view. If you look at Q3 versus Q2, the market was down 6% quarter over quarter.

Reginald Davis: We had 20% of our CD book renewed between August and September. We had 81% retention rate on that average rate, but from at 1.7 at maturity to less than 5%. So position well below the kind of market leaders in terms of rate. So, you know, we continue to be really optimistic around the positive. It's one of the success stories we've got.

Mortgage locks were down only one 7% and we actually saw gain on sale margin expansion of about eight basis points or 15% quarter over quarter.

And I think we've benefited from dislocation in the market certainly in the CPO channels.

Thomas Cangemi: Thank you, Reggie. I will tell you that the energy and driving and the institution is the new focus for the institution so clearly. Reggie has a lot of interesting opportunities in front of us who are excited at this whole team, so thank you for that, Reggie.

We've seen a major player exit we've seen others we've.

We've been able to bring in some very strong account executives with.

We've brought in some new clients and we're getting a greater share of wallet from existing customers as well. So we benefited on the origination side to Tom's point, we brought <unk> to our operation.

Mark Fitzgibbon: Your next question will come from the line of Mark Fitzgibbon with Piper Sandler, please go ahead. Hey guys, good morning.

From an infrastructure point of view we've.

Mark Fitzgibbon: I was wondering, was any of the 62 million dollars provision this quarter did have any specific reserves in there for those two credits you singled out, and have you reappraised those two properties? Yeah, so both of those two properties as they go through the process of non performing were both recently reappraised. So, you know, the charge off on the on the Syracuse loan was based, of course, on that most recent appraisal.

And about 65% of our infrastructure cost out from the high of 2021 on the mortgage origination business, which includes the return on MSR is profitable and we're very pleased about that in this environment.

Dislocation is also spreading to the warehouse lending business.

Mark Fitzgibbon: And then if you look at the 62 million, the bulk of the provision was one to really restore the allowance for the charge off that we took as well as some small modest growth that we had, some CRE modeling changes through the Moody's macroeconomic factor, and then another more qualitative like factor related to the office portfolio. That's kind of how it was broken apart to get to that 62, but yes, both of those loans have recent appraisal on them, and we're holding them now.

So as I mentioned, the market was down 6%, but average outstandings from a warehouse point of view, we're up $600 million of 14% and again as we've seen dislocation.

People exiting that space.

Been able to benefit from that.

And then I think finally, Thomas talked about the policy.

When you look at the mortgage vertical.

When you look at all the various ways that we're plugged in.

Mortgage ecosystem from an origination or servicing our lending point of view and then you've got the cash and Treasury management team that we acquired as part of the signature acquisition, we've got somewhere between 10 and $12 billion of deposits that are coming from that mortgage.

Mark Fitzgibbon: But, you know, where we believe, especially on that Syracuse loan the right down, we've taken, you know, we're very comfortable with where that is in the same process we use for decades when we take charge off.

Mark Fitzgibbon: Okay, and then just to follow up unrelated, in this may seem like a hard thing to imagine right now, but could you consider doing additional sort of troubled bank acquisitions if they came along and hopefully they don't, but if there were some failed institutions in 2024, or do you think it's conceivable that you could do another transaction? Hey, Mark, it's time. I will tell you that we are razor focused on building new flags thought.

Vertical does about five and a half billion coming from the servicing or sub servicing business and all the loans on a servicing platform.

And then there's another four and a quarter to 657 billion from that team.

Came out from signature some of those are escrow deposits and so those balances typically move between for the quarter and six in three quarters.

Mark Fitzgibbon: We have a lot on a plate, you just can imagine. You know, watch came along unexpectedly from pretty much everybody. We were able to be accommodated and work with the government to facilitate a, we, which we believe a very good transaction. We're busy, right? We want to get on some versions only when we get systems in order. We have a lot of integration that we want to make sure we prioritize, so I will tell you that we're very pleased where we are and we're building new flags so it's unlikely that we'll be participating in growth opportunities.

But the $10 billion to $12 billion of deposits on the balance sheet that are coming from that mortgage vertical and the ecosystem that we're working with day in day out and we think we can attract more deposits over time from that ecosystem.

Now the other.

Ireland and lease business is clearly the opportunity that we look at the hybrid arm market right now we do have a tremendous opportunity.

Mark Fitzgibbon: And the company has gone from 60 billion to 120 billion, and that's a lot of growth. And we have a lot of work to do in front of us. And the team is, as you can hear, with Reggie Davis and Eric and all the great team members we have here, we're busy. So we have the priority of getting it, you know, getting us to be that, you know, that, that hundred being the institution where we feel very proud of the back office, the system conversion, a lot of work ahead of us, Mark. Thank you. That's a, that's a, that's a priority.

Customers are looking away from the <unk> market and focusing on shorter duration opportunity, which he really is.

Underwriting with very low Ltvs and opportunity for this bank to look at balance sheet opportunities and look at an asset class, we're very comfortable with I am putting on given the changes in interest rates, which will also be a potential for organic growth for the company, especially tied to the opportunity with some of our new team members have joined us and focus on that business.

Got it. Thank you very much for the thorough answer I appreciate it.

Broderick Preston: Your next question comes from the line of Brody Preston with UBS. Please go ahead. Good morning, bro. Good morning. Hey, I just wanted to follow up on those two office credits. I wanted to ask, what was the LTV on those loans prior to the reappraisal? John, and where did the LTV go on reappraisal prior to you charging? Charging? Men Down.

Sure.

Your next question comes from the line of Manan <unk> with Morgan Stanley. Please go ahead.

Good morning.

Hey, good morning.

So you spoke about Dave is stepping down from $3 27 to about <unk> 10, and the majority of the custodial deposits going away and owning assets being relatively flat. So it sounds like an NII of roughly a little bit over $800 million or so next quarter is what youre guiding to.

John Arfstrom: Well, let me defer to Jon Arfstrom, he's actually in my office, and Jon, he wanted to address with two credits. Good morning, both, both those credits at the time of origination were 65% or less. They were originated quite some time before the pandemic, but the impact of the pandemic and obviously leasing activity and vacancies, both of those credits at the time that we reappraised, obviously Syracuse was more than 100%, but the larger asset in the city, 90%.

So do I have that right and B I.

I think more broadly how are you thinking about the run rate for net interest income for next year.

That $800 million plus number a good starting point from which you can grow through 2024.

So I'll start and I'll pass the Baton to China, CFO I will tell you the big picture. It seems like we got to 3% a lot faster than I expected from the transaction and the overall margin. So obviously, we're still asset sensitive we're pleased on our results thus far.

John Arfstrom: Jon Arfstrom, thank you for that. Eric, he's had a significant tenant. This was a unique iconic building that lost its major tenant, and we'll deal with it as we go along here. We were very active to get the appraised a lot later. We took the much lower valuation and we'll work through the workup process so good about the fact that this is at a level that we can move this would be happy, but we'll work with the existing bar to see if he wants to try to work through the bank if not we'll have people that we're willing to step in here. Got it.

Got it and future guidance future guidance out there in the marketplace, but we are very optimistic with the diversification in our asset mix. We're not that same bank that we were a year ago. It comes to our legacy Thrift models. We have diversification that has a lot of floating rate coupons tied to higher spreads. We have a unique business is tied to the C&I marketplace.

As we indicated the sniff business and that has an opportunity on the hybrid arm book of business as well. So when you look at future asset growth is going to be diversity diversification within the portfolio and rates have significantly increase just to give you some data points on the <unk> multifamily portfolio we have.

Thomas Cangemi: Okay, and I just wanted to get a sense for, you know, do you have an idea for what the lease roles look like for the rest of the office portfolio, if it was a tenant leaving that kind of caused the issue with the Syracuse portfolio, just wanted to get a sense for what those lease roles look like. Oh, so this is Tom again, I would say a big picture. We know we're going through that process.

$8 billion coming due over the next 36 months next year alone. It's about $4 5 billion multifamily coupons of 282 coming due in <unk> 575, you bring that to the market. That's a powerful benefit to the asset yields that goes consistently between $4 billion to $7 billion in each year that we know is coming due and we will deal with as it comes due.

Thomas Cangemi: You know, we talked about Manhattan, we have about a billion, eight of the Trump, a billion, eight Manhattan. Very cognizant of what's coming to do when it comes to refinancing and we expect a coupon as well as the tenant to evaluate that. I feel pretty good about the portfolio, but you know, this is an environment where you have to have an enhanced monitoring. The company's doing a lot of work to ensure that we're getting updated financial statements.

All of those loans are not going to stay with the bank was going back to our focus is going to be relationship banking and if the government steps in the government can gladly step in for customers don't want to have deposits, but the reality is we're going to focus on making sure that customers get to the other side and we're going to work with our customers very carefully on the relationship banking side and there is no relationship with <unk>.

Thomas Cangemi: You know, this is that timing here from now until the end of the year, we got a lot of new financial statements. As John indicated, we updated the macroeconomic backdrop towards the credit of the environment in particular Cree. But clearly, you know, this is a unique portfolio typically and historical basis. It was a, it's a sponsored driven opportunity for the bank. Historically, we've had a very strong mix of very strong families that actually buy into the multi-film and cream market opportunistically tied to the 1031 exchange opportunity when it comes to tack the furls.

Noninterest in partnering with just loan activity that are coming off coupons that are well below the market. So we have an opportunity to really price up that portfolio and growth is not going to drive profitability in that book and on the other lines of businesses can grow very very favorably here given the current spreads that we're seeing in all lines of business and banking spreads have changed dramatically.

Across the across the financial services spectrum since March as I indicated, we're 300 basis points spread went up we're not moving on that we're going to be very proactive to have strong economic spreads on the multifamily side, but it was spread throughout all lines of business have clearly up quite.

Thomas Cangemi: And we have a very strong overall average LTV and a strong debt service flow ratio. You're going to have one up from time to time. We'll call this particular one a one up. We don't see trends yet, but we're monitoring it very carefully.

Quite a bit given the interest rate environment, so with that being said I'll pass the baton to Jonathan when I add more color on just on just quickly on the on the fourth quarter, we're not going to see declines in the spot balances that we've seen right on interest earning assets are on total assets and total assets about $111 million I'm, sorry, 111 billion that we're not going to see the continued drop.

John Pinto: Okay, and I'm obsessed one more in the NAPO. It's a clarifying one on the average joining asset guide. Was that stable at $107 billion for the fourth quarter? And if so, could you kind of clarify the moving parts there for me, John, just given the period? And it was quite a bit lower than that. Yeah, so what we're looking at is from an average perspective, we expect that cash and securities will be pretty flat.

And that that we've seen quarter in the last couple of quarters due to the pay down on the cash the average will still be down just not down as much as it was when you look at Q2 to Q3 is our expectation. So it's not going to be at exactly. The 107, we just believe that the rate of change on the average is starting to decline as we are hitting our spot balances here, we don't think it will drop much lower than that.

John Pinto: You know, we don't expect significant declines in those two items. Now, once again, that depends, of course, on our success and bringing in deposits in the quarter. And we do expect to have some long growth, nothing substantial, but just a little bit of long growth here, which is why we think we can be pretty close to that. I don't think, like I mentioned, we're not going to see the big declines we've seen in the past.

$111 billion that we were as of 930 so.

The only piece I want to make sure that I clarify one other point I would say, we're really focusing on creating this institution that we're going to be agnostic to changes of interest rates you really wanted to get away from being so significantly asset sensitive <unk> liability sensitive where on the on the legacy Thrift model that was our Chili's Hill, we had a significant history of liability census.

John Pinto: There'll still be a little bit of a mixed shift between cash securities and loans. We just don't expect it to be as big a drop as it was, you know, quarter of a quarter. It's going to be relatively consistent.

<unk>, we're moving towards as John indicated neutrality, we're still asset sensitive and it's rising rate environment current rate environment that'll add to continued margin benefits, but ultimately rates go up or down we want to have a very strong margin as we run these businesses. Some changes of interest rates. That's the focus to build this institution going forward under the new flagstar.

Thomas Cangemi: So, I would just add to that point, Tom, again, that strategically we put out a plan when we announced the receivers of transaction and how we see the balance you're coming in at year-end. Now we're focusing on the businesses. And the businesses will have some businesses actually seen decline to particular multi-family create. The business is very small. You'll see the offset of growth in the CNI portfolios. We're very, very optimistic about the opportunity on overall interest rates, and it comes to residential lending.

Okay.

That's helpful.

Clarification.

Loans that are coming due over the next year.

Pick up on those large would be three.

Three to 400 basis points or so.

Lee Smith: We have Lee Smith on the line.

I mean right now the multifamily books for next year to 382 coming due increased 575 markets is right now for $300 to five years, probably close to close to 88 770 <unk>.

Lee Smith: He can expand upon the opportunity there. It's a much different market than it comes to residential lending. So our mortgage bank has been wide-size back in January. So we actually are making money in the line of business, which is not common in financial services in today's environment. We clearly have other levers to pull, and probably the augmentation of the balance you will continue. You'll see more of a shift away from cream all the time just because of the market.

The difference.

Have different <unk>.

Mix, which we're proud that we've offered to our customers to work with them we have.

Structure that synthetic that kind of mimics what's being done in the in the in the government market, which is a new product to the bank and you have the sulfur option on repricing, which has been very positive for the for their refinancing opportunities and they'll choose when they want to lock in long most of our customers feel that in the years ahead there'll be lower rates. So they are waiting on the side.

Lee Smith: There's treasury and probably wider than where the government is and the government will be proactive with their balance. She will be less proactive and will be focusing on relationships with deposit gathering. So I indicated going back to the strategy, it's going to be about relationship banking and all the lines of businesses. I'm seeing some good pickup on the home building of the finance business, good pickup on the CNI business as far as merely getting a seated table and getting deposit flows tied to the businesses that were banking on the corporate bank sponsorship side.

Paying a much higher interest rate today, the ones that are staying with us and the ones that are going away that typically go into the government.

Got it Okay and then.

Just another question on expenses.

Looks like there is high expenses associated with the flagstar conversion and signature largely yourself, saying that well come out at some point in the next tier can you size the expense benefits that come from that.

Lee Smith: With that, I'm going to just pass the baton over to Lee to get some update on mortgage and what we see the opportunity and respect to the mortgage market.

Lee Smith: So Lee Smith. Yeah, sure, thanks, Tom. I think there's a number of opportunities. I think, first of all, just from an origination point of view, if you look at Q3 versus Q2, the market was down 6% quarter over quarter, and our mortgage locks were down only 1.7% and we actually saw, again on sale margin expansion of about 8 basis points or 15% quarter over quarter. And I think we've benefited from dislocation in the market, certainly in the TPO channels, we've seen a major player exit, we've seen others exit, we've been able to bring in some very strong account executives, we've bought in some new clients, and we're getting a greater share of wallet from existing customers as well.

Yes, we're going to we're going to provide our full 2024 guide at all.

Next at our conference call in January but as we mentioned, we see both Edwards didn't tailwind for 24, when compared to 2003 and those systems integrations will provide us.

The benefit and some cost reductions.

As well as depending on what happens with.

The rest of the FDIC receivership loans, the multifamily and CRE loans.

Those do end up transferring to a purchaser in this fourth quarter.

We will have some some benefits also on the cost side.

From that excess servicing that we no longer have.

Lee Smith: So we've benefited on the origination side to Tom's point, we've right sized our operation from an infrastructure point of view, we've taken about 65% of our infrastructure cost out from the high of 2021, and the mortgage origination business, which includes the return on MSR, is profitable, and we're very pleased about that in this environment. That dislocation is also spreading to the warehouse lending business, and so as I mentioned, the market was down 6%, but average outstanding from a warehouse point of view, we're up 600 million or 14%, and again, as we've seen dislocation and people exit in that space, we've been able to benefit from that as well.

Alright, thank you.

Sure.

Your next question comes from the line of Casey Haire with Jefferies. Please go ahead.

Yes, thanks, good morning, everyone.

So I'm sorry to beat a dead horse, but I do want to.

A follow up on the NIM. So if im understanding this correctly you expect cash to be flat, but you still have $2 billion of cost of deposits.

That are going to run out in the near term here. So.

What is that how are you going to fund that given that DDA extra custody was still was still down $1 billion. So is that so yes. So weeks deposits sorry go ahead, yes.

Yes, correct, we expect cash and securities when you look at and look at them combined to be relatively flat depending on the changes in the balance sheet right. We are hoping to bring in deposits from multiple teams is what Reggie was speaking about in Eric on both the consumer and the private banking side. So any any shortfall, we can make up with either in the brokered CD.

Lee Smith: And then I think finally, Tom has talked about deposits, when you look at the mortgage vertical, and you look at all the various ways that were plugged in to the mortgage ecosystem from an origination, a servicing, a lending point of view, and then you've got the cash and treasury management team that we acquired as part of the signature acquisition. We've got somewhere between 10 and 12 billion of deposits that are coming from that mortgage vertical, there's about 5.5 billion coming from the servicing or subservicing business and all the loans on the servicing platform, and then there's another 4.5 billion to 6.5 billion from that team that came over from signature.

Market or in our wholesale borrowing market just to ensure that we have the appropriate liquidity on the balance sheet.

<unk>.

Each quarter that we go through this process. So we just we don't expect significant changes.

Lee Smith: Some of those are escrow deposits, and so those balances typically move between 4.4 and 6.3 quarters, but the 10 to 12 billion of deposits on the balance sheet that are coming from that mortgage vertical and the ecosystem that we're working with day in, day out, and we think we can attract more deposits over time from that ecosystem.

Insignificant drops from the period end balance, but we will we'll take a look and see what market conditions provide and how our deposit growth comes in in the fourth quarter.

Okay.

This time isn't that point now when you're thinking about where we came out of March and that we are in a different position right. We had a lot of liquidity, we have the ability to take a step back we weren't chasing deposits growing chasing rates the.

The industry has that so we've been very proactive on paying down broker deposits iqos brokerage.

So then on high cost borrowings that came due at a strategy to get to 12 31. That's that's the public strategy from the receivership transaction going forward, it's going to go back to an organic strategy and focusing on on deposit initiatives that all of our lines of businesses.

Okay understood.

Thomas Cangemi: You know, I want to add, in these business, it's clearly the opportunity that we look at the hybrid on-walking right now. We do have a tremendous opportunity as customers are looking away from the 30, 15-year walk and focusing on the sort of duration opportunity, which really is underwriting the very low LTVs and opportunity for this bank to look at balance sheet opportunities and look at an asset class that we're very comfortable with on putting on given the changes in interest rates, which will also be a potential for organic growth for the company, especially tied to the opportunity with the some of our new team members have joined us and focused on that business. Thank you very much for the thorough answer. I appreciate it.

And then just just one more on expenses.

The guide.

For 'twenty three implies a pretty wide range anywhere from five to 10.

610 in the fourth quarter.

I mean I think.

Most of US expect kind of a flat number but your guide does allow for some upward expense pressure in the fourth quarter, just wondering what would drive that a bit.

Another $20 million or so.

Yeah, I would think that given where we came out in the third quarter. The third quarter had higher expenses compared to the second quarter I wouldn't expect the run rate to be above that so that would fall right you really close to the middle of the guide.

Manan Gosalia: Your next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead. Hey, good morning. So you spoke about them stepping down from 327 to about 33010, and the majority of the custodial deposits going away and owning assets being relatively sad. So it sounds like an NII of roughly a little bit over 800 million or so next quarter is what you're guiding to. So Ed, do I have that right?

And I think there's opportunities to do slightly better than that in the fourth quarter as well to get to more of the mid to the low end of that guide so yes.

The guide for the year.

When you only have a quarter left I understand why it's pretty wide, but I would focus on the midpoint of the guidance.

Thank you.

Sure.

Your next question comes from the line of Matthew Breese with Stephens. Please go ahead.

Hey, good morning.

Manan Gosalia: And I think more broadly, how are you thinking about the run rate for net interest income for next year is that 800 million plus number are a good starting point from which you can grow through 2024?

Good morning, Tom I was hoping you could touch on the wholesale borrowings coming due in the fourth quarter I think they had a near 4% rate.

What's the anticipated strategy with those that date.

Assuming we get calls.

Ill pass it to John John Yes, including the puts that we have.

Manan Gosalia: I'll start off after the time to join us here. So I will tell you a big picture is like we've got to 3% a lot faster than I expected from the transaction on the overall margin. So obviously we're still active sensitive. We're pleased on the results thus far regarding future guidance. We don't have future guidance out there in the market place, but we are very optimistic with the diversification in our asset mix.

It's $3 billion at 4%.

For the rest of this quarter, given where the portables are of that about it's about $1 billion for in portables, we expect they will be but so that $3 billion, we would expect to see.

Refi, unless we have deposit growth to pay them off.

Manan Gosalia: We're not that same bank that we were a year ago comes to a legacy thrift models. We have diversification that has a lot of floating rate coupons tied to fire spreads. We have unique businesses tied to the C&I marketplace. We have as we indicated these business businesses that has an opportunity on the hybrid on both the business as well. So when you look at future asset growth, it's going to be diversification in the portfolio and rates have significantly increased.

We'd expect to refi them in the market.

As we go forward here.

Or like I said, if we have deposit growth will pay them off.

Okay, and similar to the signature custody deposits running off we should not really anticipate that much movement in cash balances from <unk>. It feels like the $6 billion levels, where you want to keep cash for now yes.

Manan Gosalia: Just to give you some data forings on the Cree multi-family portfolio, we have 18 billion dollars coming due over the next 36 months. Next year alone it's about 4.5 billion multi-family coupons are 382 coming due and Cree is 575. You bring that to the market. That's a powerful benefit to the asset yield. That goes consistently between 4 to 7 billion each year that we know is coming due and we'll deal with as it comes to.

When you look at that.

I would look at the cash and the securities together.

But I think thats right around $6 billion make sense depending on.

The level of deposit growth, what we're seeing the type of deposits that come in we want to make sure that we stay liquid.

From an on balance sheet perspective, with cash and securities. So I think around 6 billion makes sense on the cash side, depending on where our securities end up.

Manan Gosalia: Now all those loans are not going to stay with the bank. It's going back to our focus. It's going to be a relationship banking and if the government steps in, the government can gladly step in for customers. You don't want to have deposits, but the reality is we're going to focus on making sure that customers get through the other side and we're going to work with our customers very carefully on the relationship banking side.

Okay, and then just to clear up the prior discussion around average, earning asset balances for the fourth quarter it sounds like.

Maybe they will trend lower just not at the same pace. We just saw is that an accurate statement.

The spot balances are not going to move dramatically from the from the 110, but the average will still trend down. It's just the rate of change is starting to slow right.

Manan Gosalia: There's no relationship but really not interested in partnering with just loan activity that are coming off Coupons at a well below the market. So we have an opportunity to really price up that portfolio and growth is not going to drive profitability in that book. The other lines of businesses can grow very favorably here given the current spread that was seeing in all lines of business and banking. Spreads have changed dramatically across the financial service spectrum since March.

And when do you expect to start to see.

Average, earning asset growth again.

I think once we get through the fourth quarter.

And these big custodial deposits are the biggest driver of this right I mean, we went from six.

6 billion at the end of June to $2 billion now.

Manan Gosalia: As I indicated with 300 basis point spread, we're not moving on that. We're going to be very proactive to have strong economic spread on the multi-family crease side, but it will spread throughout all our line of business have clearly up to quite a bit given the interest rate environment.

And then we have after that once we get to December we're going to be very very low in that number. So I think once we hit our December period end balances, which will not be too dramatically different we don't believe to the 930 piece then we'll start to see the average start to stabilize and start to grow depending on loan growth once you get into the first quarter.

John Pinto: So with that being said, I'll pass the baton to John from an animal color line. Yeah, just quickly on the fourth quarter, we're not going to see declines in the spot balances that we've seen on interest learning assets or on total assets. So total assets about 111 million, I'm sorry, 111 billion, that we're not going to see the continued drops in that that we've seen quarter in the last couple of quarters due to pay down the cash.

24.

Okay.

Just going back to credit beyond the office the office loans within the release showed that multifamily loans.

I think npa's, there are up to $60 million just been steadily increasing.

John Pinto: The average will still be down just not down as much as it was when you look at Q2 to Q3 as our expectation. So it's not going to be exactly the 107, we just believe that the rate of change on the average is starting to decline as we're hitting our spot balances here. We don't think we'll drop much lower than this 111 billion that we were as of 930. So that's the only piece I want to make sure that I clarify.

I was hoping you could talk about your broader multifamily portfolio. How much is rent regulated I think in the past, it's been 19 billion of which $13 billion offer.

For buildings, where units are rent regulated units are north of 50%.

Starting to see any sort of cracks there. It just feels like there is a pile up of issues from.

2019 right laws.

Let me start off and I'm going to pass for the time, John Adams, who runs that portfolio.

Thomas Cangemi: Yeah, the one of the point I would say, but we're really focusing on creating this institution that we're going to be agnostic to changes of interest rates. We really want to get away from being so significantly asset-centred and reliability-centred where on the legacy-thrift model, that was our Achilles heel. We had a significant history of liability sensitivity. We're moving towards as John indicating neutrality was still asset-centred and it's rising rate and volume.

How it is that it's one of the families.

One or two families that one's going to weigh a marital dispute that's going through the court system and there's a handful of those credits tied to other relationships.

Handful of relationships, it's not systemic it's not something we're seeing yet, but we're clearly monitoring rates are dramatically higher and our customers are have the capacity to deal with the sulfur option and a fixed rate option tied to a derivative option that we offer to them. So it's been.

Thomas Cangemi: The current rate continues margin-benefit, but ultimately, rates go up or down. We want to have a very strong margin as we run these businesses and changes of interest rates. That's the focus to build this institution going forward under the new floor.

Proactive and if they want to go for long term financing and they want to go to the government. The governments open for business and most banks have widened their spreads given the economic backdrop of what we're seeing in credit spreads. So it's been a relatively strong book like I said, a very powerful position regarding the consistency of performance.

Thomas Cangemi: Black Scott. That's helpful and just a clarification that the loans that are coming to you over the next year, the yield pickup on those loans would be a three to four hundred basis points or so. I mean right now, the multi-family books for next year, it's a three eighty two coming due and it's three five seventy five. So market is what's right now five three hundred of the five is probably close to eight seven seven.

We're not seeing trends with that I'll pass over to John to get some color.

Thanks, Tom is exactly what Tom said.

Some of those instances are really more family related issues and that that really the performance of the assets themselves.

Thomas Cangemi: That's a pretty different. We have different product mates, which were proud that we've offered to our customers to work with them. We have a structure that's synthetic that kind of mimics what's being done in the in the government market, which is a new prior to the bank. We have the social option on repricing, which has been very positive for their for their refinancing opportunities and they'll choose when they want to lock in long.

There are some instances where a lot of the issues from them not being able to pay timely because the tenants are in pain.

And those are typically in the more working class neighborhoods.

And the rent regulated properties that.

They know the system. They now had a drag on an eviction process. So it's.

Thomas Cangemi: Most of our customers feel that in the years ahead, there'll be low a rate. So they're waiting on the sideline paying a much higher interest rate today. The ones that are staying with us and the ones that are going away are typically going to the government.

It's not really rapid and for the rest of the portfolio outside of those those dose isolated instances.

The market rents like Tom mentioned earlier are up 4%.

John Pinto: Got it again, and then another just another question on expenses. It looks like there's high expenses associated with the flat stock conversion and signature loans are yourself a thing that will come out at some point in the next year. Can you size the expense benefits that come from that? Yeah, we're going to we're going to provide our you know a full twenty twenty four guide. And you know at our next at our conference call in January, but as we mentioned, we see both Edwards Intel and four twenty four when compared to twenty three and those systems integrations will provide us.

Month over month.

You just can't kill the New York multifamily market. So we're monitoring the rent regulated properties closely but there's not really a lot of cracks in that particular portfolio that is really raising anything for us to.

Have any real concern over right at this time.

Okay.

Follow up question. There is signatures of course real estate multifamily and then rent regulated multi family portfolio is being bid out.

And some of the news articles out there are citing this as a more difficult portfolio to sell.

John Pinto: The benefit and some cost reductions as well as depending on what happens with the the rest of the FDIC receivership loans, the multifamily in the cereal ounce. If those do end up transferring to a purchaser in this fourth quarter, then you then we'll have some benefits also on the on the cost side from you know from that extra servicing that we no longer have.

When itself if it sells and depending on the price does this come into play for your balance sheet in any way shape or form does it impacted level III asset pricing and your estimated fair value of your own loan portfolio.

Unknown Executive: Great. Thank you.

So let me give you my big picture thoughts on that cash flow lender for deeply discounted rent rolls we've been doing this a long time without mark to market.

I can't comment specifically on what's going to happen for the unknown in the portfolio, but ultimately my guess is that the assets will trade.

Casey Haire: Your next question comes from the line of Casey here with Jeffries. Please go ahead. Morning. Thanks. Yeah, good morning everyone.

I think it will be a little bit more complicated given the rent regulated nuance a portion of that portfolio in my view, that's something that Scott.

John Pinto: So I'll start to be a dead horse, but I do want to follow up on the name. So if I'm understanding this correctly, you expect cash to be flat, but you still have two billion dollars of custody deposits. You know that are going to run out in the near term here. So what is that? So how are you going to fund that given that DDA X the custody was still was still down a billion.

Testing.

Views in respect to the ongoing landlords and tenants have the relationship going forward, whether buys a portfolio. That's something that's a nuance that we havent seen before because we haven't seen such a large transaction in the market, but the non rent regulated portfolio will trade at a clearing price depending on interest rates and credit marks and I don't believe in my opinion, it's going to impact.

John Pinto: So is that. Yeah, so we have correct we expect cash and securities when you look at them, look at them combined to be relatively flat, depending on the changes in the balance sheet, right. We are hoping to bring in deposits from multiple teams is what read you was speaking about an Eric on both the consumer and the private banking side. So you know any any shortfall we can make up with you know either in the broken CD market or in the in the wholesale borrowing market, just to ensure that we have the appropriate liquidity on the balance sheet, you know for for you know each quarter that we go through this process.

Mark to market in respect to our institution, that's been putting on the portfolio of loans to maturity and the ability to hold that portfolio as a cash flow lender.

And as far as clearing prices at the end of the day, there's not a lot of trades going on is not a lot of activity buying and selling.

These these assets will go through the market eventually and we will.

We will deal with the outcome of that activity and there'll be probably some smart and individual investors that we'll probably do financially well by pricing it accordingly, and it gets a little bit more complicated on the rent regulated portfolio, just because of the community ties and the nuances between landlord and tenant relationships, we've done a tremendous job on really mad.

John Pinto: So you know we just we don't expect significant changes in significant drops from the period and balance, but you know we will we'll take a look and see what market conditions provide and how our deposit growth comes in in the fourth quarter.

During that process.

As a community institution, focusing on working with our landlords working with the tenant community groups and being part of that an ambassador in between that a new player coming in and it doesn't have that that culture that tissue can become challenging so that seems a little bit complicated, but at the end of the day, but my view is the assets will trade eventually and we will move on from that I don't correlate.

John Pinto: I mean, it's a different point. You know, when you think about where we came out of March, you know, we were in a different position, right? We had a lot of liquidity, we had the ability to take a step back. We weren't chasing deposits, we weren't chasing rates. The industry has, so we've been very proactive on paying down broker deposits, high cost broker, also, you know, high cost barring that came due as a strategy to get to 1231. That's that's the public strategy from the receivers of transaction going forward, trying to go back to an organic strategy and focusing on the positive issues that all of our market businesses. Okay, understood.

Mark to market per se, because if you're if you're a cash flow lender and we are a discounted cash flow I know given that rent regulated portfolio. The trim mentioned traditionally significantly below traditional market rent rolls.

Got it okay just.

Just last one from me more broadly.

As the size of your overall syndicated loan portfolio and maybe just give some color on the credit metrics behind it.

John Pinto: And then just just one more on expenses. The guide for 23 is a pretty wide range of anywhere from 510 to 610 in the fourth quarter. I mean, I think most of us expect kind of a flat number, but your guide does allow for some upward expense pressure in the fourth quarter, just wondering what would drive that if it, you know, another 20, 20 million or so? Yeah, I would think that, you know, given where we came out in the third quarter, you know, the third quarter had higher expenses compared to the second quarter, I wouldn't expect the run rate to be above that.

Rajiv you want to hit that or now that you can probably get back in that in that one Roger do you have any color there.

Yeah, I don't have that exact number at my fingertips, but we can get it.

Greg will tell me about there. Thank you everybody with just one pointed out we are building a corporate.

Think sponsorship division that actually participates on originating and selling to the syndicated market generating the opportunity for fees for the bank going forward with more of a commercial bank for up to that using the derivative market prices. So clearly moving towards a commercial bank mentality, now just making alone and holding loans I'm, making a loan in holding a piece of the loan but selling a large amount of the exposure off to the secondary.

John Pinto: So that would fall us right, really close to the middle of the guide. And I think there's, you know, there's opportunities to do slightly better than that in the fourth quarter as well to get to more the mid to the low end of that guide. So, yes, the guide for the year. When you only have a quarter left, I understand what's pretty wide, but I would focus on the midpoint of the guide. Thank you.

Matthew Breeese: Come on.

So that's going to be the strategy as we build out the commercial bank model.

Yes, Tom Let me just let me I think that's an important point when you ask about the size of the syndicated book, we use syndications, primarily the sell down positions, we're not out buying participations for the most part that is primarily a an offensive play for us and allows us to participate to a larger extent with our most important clients and still keep our relative.

John Pinto: Your next question comes from the line of Matthew Breezy with Stevens, please go ahead. Again, morning. Tom, I was hoping you could touch on the wholesale borrowings coming due in the fourth quarter. I think they had a near 4% rate. What's the anticipated strategy with those as they, as they assume we get calls? I'll pick up the John, John. Yeah, including the puts that we have, it's, it's $3 billion a 4% for the rest of this quarter, even where the, the putables are of that amount.

Suppose are low that's how we use that.

That function.

That's right.

Your next question will come from the line of David Smith with Autonomous Research. Please go ahead.

Good morning.

Good morning, I appreciate the clarification on the.

Earning asset outlook I think a lot of us looking to use that.

Getting to flattish on an average mark when the spot balances more around 102, but it sounds like Youre, just saying that the <unk> will be smaller than the $4 2 billion. What we saw in average assets from <unk>, So something above $1 3 billion, presumably from the fourth quarter.

John Pinto: It's about a billion four and putables. We expect they will be put. So, you know, that $3 billion we would expect to, to reify unless we have deposit growth to pay them off. We'd expect to reify them in the market as we go forward here. Or like I said, if we have deposit growth, we'll pay them off.

But yes, what we're talking about is the actual start with the spot balance we don't anticipate to be dramatically smaller a lot of the paydowns have already occurred and as I mentioned at the last the last question cash around 6 billion give or take where securities and so.

John Pinto: Okay, and similar to the signature cut to deposit running off, we should not really anticipate that much movement in cash balances from 3Q to 4Q. It feels like the $6 billion levels where you want to keep cash right now. Yeah, when you look at, I would look at the cash and the securities together, but I think that's right around 6 billion, you know, makes sense depending on, you know, the, the level of deposit growth.

The drop in cash is the significant drop in cash is basically stopped here. So this is about where we'll be so the average will continue decline is it just as it catches up to the spot balance and then once were once that's been pretty consistent which we believe will start in the fourth quarter. Then hopefully we can see some of the average balances start to grow after that.

John Pinto: What we're seeing the type of deposits that come in, you know, we want to make sure that we're, we stay liquid from an on balance, keep perspective with cash and security. So, I think around 6 billion, you know, makes sense on the cash side, depending on where our securities end up.

Okay got it and then beyond the bulk of the remaining $2 billion of custodial.

Deposits running off.

John Pinto: Okay, and then just to clear up the prior discussion around average running asset balances for the fourth quarter. You know, maybe they will trend lower, just not at the same page we just saw. Is that an act of statement? That's right. The spot balances are not going to move dramatically from the from the 110, but the average will still trend down. It's just the rate of change is starting to slow, right?

Superbly in a week or so as you said I appreciate that you are expecting and planning for some deposit growth across the businesses, but is there anything else we should keep in mind in terms of.

Seasonality of deposits or anything like that that might.

Help influence the.

Average balance in the fourth quarter compared to the 930 spot balance.

No nothing specific.

John Pinto: And when do you expect to start to see average turning asset growth again? I think once we get through the fourth quarter, and you know that these the custodial deposits are the biggest dry part of this, right? And we went from, you know, six billion at the end of June to two billion now. And then, you know, we have after that, once we get to December, we're going to be very, you know, very low in that number.

My side Reggie anything you could think of it from a seasonality perspective.

No there's really not seasonality there is some movement within the month, but basically.

John Pinto: So I think once we hit our December period and balances, which will not be too dramatically different. We don't believe to the 930 piece. Then we'll start to see the average start to stabilize and start to grow, depending on long growth, once you get into the first quarter of 24. Okay.

Any seasonality would relate to production there is a little bit of seasonality in that but that doesn't really affect the overall balances in the book.

So now.

Alright, Thank you I appreciate the color.

Sure.

Our next question will come from the line of Steve Moss with Raymond James. Please go ahead.

Steve.

Good morning.

Following up on the multifamily lending in commercial real estate, just given where pricing is these days.

Curious where debt service coverage ratios are shaken out whether it's on a renewal or reset and if youre seeing any borrowers who are having to put up additional cash to support the property.

Unknown Executive: Just going back to credit beyond the office, the office loans within the release showed that multifamily loans. I think MPAs there are up to 60 million, just been steadily increasing.

I'll start.

In response to the FERC, John Adams, but I will tell you that it's been relatively strong given many of the customers are able to.

Unknown Executive: I was hoping you could talk about your broader multifamily portfolio. How much is rent regulated? I think in the past, it's been 19 billion of which 13 billion are for buildings were units or rent regulated units are north of 50%. Starting to see any sort of cracks there, it just feels like there's a pile up of issues, you know, from the 2019 rent laws.

Look at their option in their option as a sofa or option of our fixed rate option and we work with them and they have the capacity to continue to pay the ones that are looking to get more dollars I think its fallen through between that fair John.

And the reality is that when they do have significant equity and they are looking for locking in law, which a lot of them are they're not looking to lock in more if they really believe rates will be lower in the future. They are choosing to roll to the higher coupon in the market and when they do go to the refinancing market, it's us and or the agency market as being the <unk>.

Thomas Cangemi: Now, let me start off. I'm going to pass the time to John Adams who runs that portfolio. The reality is that the, it's one of families. Maybe one or two families that, you know, one's going to a marital dispute that's going through the court system. And there's a handful of those critical relationship. It's a handful of relationships. It's not systemic. It's not something we're seeing. Yes, we're clearly monitoring, you know, rates are dramatically higher.

Opportunity and like I indicated, we're focusing on relationship deposit banking.

So it's gonna have compensating balances, which is going to be critical for all of our business model going forward and more importantly, if there's equity there and theyre looking at economic spreads and much wider and the government is probably slightly tighter than that and thats an option that go along but a lot of customers are waiting this out thinking that in 'twenty. Four 'twenty five is when theyre going to want to make that longer term decision.

Thomas Cangemi: And our customers are have the capacity to deal with the soft option and with a fixed rate option tied to a derivative option that we offer to them. So it's been proactive. And if they want to go for long term financing and they want to go to the government, the government's open for business. And most banks have widely spread given the economic backdrop of what we're seeing in credits spreads. So it's been a relatively strong book, like I said, very powerful position regarding the consistency of performance. We're not seeing trends with that.

So maybe John when it's competitive and I'll, just add to that but yes of course, if theyre just repricing.

Leaving three handle forehead couponing today, it's seven plus sure the debt service coverage is at where it was typically when the loan was originated but there's still enough coverage for them to meet all of their obligations operating as well as debt service and obviously, we track that on an annual basis and if they are less than what we would.

John Adams: I'll pass over to John to get some color. Sure. Thanks, Tom. Yeah, exactly what Tom said. Some of those instances are really more family related issues and not not really the performance of the assets themselves. There are some instances where a lot of the issues from them not being able to pay timely because the tenants are in pain. And those are typically in the more working class neighborhoods in the regulated properties that, you know, they know the system.

To get risk weighted accordingly.

They get reserves the way that they should be based on our model. So something that we definitely keep an eye on but in answer to your question. If there is not enough to.

John Adams: They know how to, you know, drag on an addiction process. So it's not really rampant. And for the rest of the portfolio outside of those those those isolated instances. The market rents, like Tom mentioned earlier, are up I think 4% or month over month. And you know, you just can't kill the new multi family market. So we're monitoring the rent regulated properties closely. But you know, there's not really a lot of cracks in that particular portfolio that is really raising anything for us to, you know, have any real concern over it, at this time.

To refinance out the.

The debt service coverages have come down, but not to the point, where they can't meet their application I would say, we haven't seen many customers that had to write a check.

To do a refinancing yes.

Right.

Are much higher than they were a year ago and as the customers come to us. Our goal here is to get them to the other side, it's a difficult environment coming from a much lower rate than let's say in the mid threes to now, let's say mid seven almost 8% on a fixed rate you can probably do something floating somewhere in 50 60 basis points below that and governments filing will be 50 basis point.

Inside of that so we're being proactive to get the customer to the other side given the challenges because of the significant changes in interest rates.

Thomas Cangemi: Okay, the follow-up question there is, you know, signatures, of course, real estate multi-family, and then rent-regulated multi-family portfolio is being bit out. And some of the news articles out there are citing this as a more difficult portfolio of a sell. When it sells, if it sells, and depending on the price, does this come into play for your balance sheet in any way, shape or form? You know, does it impact the level three asset price? And you're estimating fair value of your own portfolio?

Yeah.

Okay.

And then on the office portfolio just curious here John you mentioned, a qualitative factor for office curious what's the reserve.

Allocated to that portfolio just given the.

The mix of criticized classified.

Yes, we don't split it out specifically.

But it is something that has been growing, especially given the $62 million provision that we booked this quarter.

Unknown Executive: So, so let me give you my big picture thoughts on that. We're a casual lender for these discounted rent roles, we've been doing this a long time, we're not mocked to market. I can't comment specifically on what's going to happen for the unknown on the portfolio, but ultimately my guess is that the assets will trade. I think it will be a little bit more complicated given the rent-regulated nuance of portion of that portfolio.

But like we talked about before these prior to this quarter.

The performance has been extremely strong. So we continue to look at that we continue to look at the <unk> and the ltvs in the portfolio as well.

As well as the deep dive we have been doing into the underlying leases in the portfolio. So we're comfortable with where we are right now, but we did start to see a bit of a build an allowance build here this quarter.

Unknown Executive: In my view, that's something that's got interesting views and respect to the ongoing landlord and attendance and a happy relationship going forward, whoever buys that portfolio, that's something that's that's what we haven't seen before, so we haven't seen such a large transaction in the market. But the non-regulated portfolio will trade at a clearing price, depending on interest rate and credit marks. And I don't believe, in my opinion, it's going to impact mock-to-market in respect to an institution that's been putting on the portfolio alone to maturity and the ability to hold that portfolio as a cash flow.

Okay, great. Thank you very much.

Thank you Steve.

Your next question comes from the line of Peter Winter with D. A Davidson. Please go ahead.

Good morning, Peter Good morning, Good morning, Tom.

Will you guys have to go through the formal DFAST exam.

<unk> I'm just wondering if you can quantify the expense component.

That needs to be realized.

As part of our DFAST Bank.

Unknown Executive: And as far as clearing prices at the end of the day, there's not a lot of trades going on, there's not a lot of activity buying and selling. These assets will go through the market eventually, and we'll deal with the outcome of that activity, and there'll be very probably some smart individual investors that will probably do financially well by pricing it accordingly. It gets a little bit more complicated on the rent-regulated portfolio, just because of the community ties and the nuances between landlord and tenant relationship.

Well, let me, let me just start off and I'm going to pass that to John we are going to go through a always look to a capital planning process and we've been doing the DFAST process prior to the change in the limit when 50 billion became much higher.

That being said, we will go through that process I believe we'll go through that process in early 'twenty four.

And.

Don't believe it's a public process, but it's going to go through the process and we're preparing for that for John If you want it yes, that's right.

Continue to do what we have been doing since we started building to get ready for the old $50 billion.

Unknown Executive: We've done a tremendous job on really managing that process as a community institution, focusing on working with the landlords, working with the tenant community groups, and being part of that ambassador in between that. A new player coming in doesn't have that culture, that history, if he makes it challenging. So that seems a little bit complicated, but at the end of the day, my view is the assets will trade eventually, and we'll move on from that. I don't call it a mock-to-market per se, because if you're a cash flow lender, and we are a discounted cash flow lender, given that rent-regulated portfolio is traditionally, significantly below traditional market rent roles. Got it.

<unk> threshold back in 2012 with preparing our capital plan and submitting a capital plan.

Going through the process, we have a significant stress testing group that we've put in place a long time ago and have added two to be ready for the.

Unknown Executive: Okay.

The plan to be ready to be over 100 billion. So yes, we will be performing knows well, we'll be performing that process in 'twenty four.

And then we will probably be part of the next cycle when it comes to the public process that Tom was mentioning.

Got it okay. Thanks, and then can.

Unknown Executive: Just last one for me, more broadly. What is the size of your overall syndicated loan portfolio, and maybe just give some color on the credit metrics behind it? Reggie, you want to hit that oath now that you can probably get back to that and that one. Reggie, you have any color there? Yeah, I don't have that exact number of my fingertips, but we can get it. Great. We'll tell you about that.

Can you just talk about maybe the outlook for provision expense.

Look at the ACL ratio has increased a little bit to <unk>, 74%.

Do you need to keep adding to reserves just given the change to the composition of the loan portfolio.

Well there is no doubt that the loan portfolio composition has changed and we're much more diversified lender now than we have been and.

Thomas Cangemi: Thank you, everybody. There's one point in that. We are building a corporate bank sponsorship division that actually participates on originating and selling to this, and again, market generating opportunity for fees for the bank going forward. It was more of a commercial bank flat to that, using the derivative marketplaces. So really moving towards a commercial bank mentality, not just making the loan and holding a loan, but making a loan and holding a piece of the loan, but selling a large amount of the exposure, as opposed to the secondary market. So that's going to be the strategy as we build out the commercial bank model.

That ratio has consistently gone up since the acquisitions of both flagstar and signature.

But what it really comes down to under <unk>. So as the macroeconomic factors in the performance of the portfolio. So depending on what the trend is here in those macroeconomic factors, we have seen them decline but.

Relatively.

Stable decline and those types of factors.

But look if depending on how that comes out and depending on the growth in the portfolio as we could see to the provisions move around a little bit here, but it really depends on those macroeconomic factors and what we're seeing in the individual portfolios.

Unknown Executive: I think that's an important point. When you ask about the size of the syndicated book, we use syndications primarily to sell down positions. We're not out buying participation for the most part. That is primarily an offensive play for us and allows us to participate to a larger extent with our most important clients and still keep our relative exposure low. That's how we use that function. That's right.

Okay.

Okay.

Got it thanks very much.

Okay.

Your next question comes from the line of Christopher <unk> with Janney Montgomery Scott. Please go ahead.

Thanks, Good morning, Hey, Thanks for taking all of our questions. Tom just a quick one about the enforcement of new low new deposits with new loans can you write in your contracts higher interest rates.

David Smith: Your next question will come from the line of David Smith with autonomous research. Please go ahead. Good morning. Appreciate the clarification on the earning asset. I think a lot of us will confuse that, you know, getting to flatish on an average mark when the spot balances more around one or two, but it sounds like you're just saying that the client will be smaller than the 4.2 billion that we found average assets in 2p to 3Q.

Compensating balances go below certain thresholds is that something that you can do in this era.

What we have in our agreements we do have requirements have operating accounts and there's no question during the pandemic it was critical.

And it really gave us some good guidance on where the cash flows are coming in given the unknown of the pandemic, we carried into that into adopt that we have an expectation of an operating account regarding the cash flows of these in particular the properties that we have to make sure. The cash was coming in but I think the reality is that we have longstanding relationships.

David Smith: So, you know, something above 103 billion presumably for the fourth quarter. Yeah, but yeah, what we're talking about is the actual start with the spot balance. We don't anticipate to be dramatically smaller. A lot of the pay downs have already occurred. As I mentioned that the last, you know, the last question cash around 6 billion. Give it take where securities end. So, you know, the drop in cash is the significant drop in cash is basically stopped here.

We're going to prioritize the capital allocation towards relationship banking in all businesses and.

And I think that's how we're going to be successful there was a significant shift about three years ago and it's been very proactive on a CAGR growth of significance. When it comes to the multifamily portfolio and I would say as far as what we saw running out of the bank has made me, 5% to 95% who will understand that we want to ensure that we have a strong depository relationship.

David Smith: So, this is about where we'll be. So, the average will continue to decline as just as it catches up to the spot balance. And then once we're, you know, once that's been pretty consistent, which we believe will start in the fourth quarter, then hopefully we could see some of the average balances start to grow after that. Okay, got it. And then beyond the bulk of the remaining 2 billion of custodial deposits running off, presumably in a week or so, as you said, I appreciate that you're expecting and planning for some deposit growth across the businesses.

And as we move forward it would be more towards this expectation of compensating balances and in certain many in many instances. Its also tied to lines of credit and we are really working with the client to really ensure that we are the bank partnership we expect reciprocation when it comes to the business opportunity and if it doesn't happen, we're very glad to allocate that capital to other lines of businesses and we have other avenues.

David Smith: But there's anything else you should keep in mind in terms of season alley deposits or anything like that that might help influence the average balance in the fourth quarter compared to the 930 spot balance. I don't know, nothing specific on my side, Reggie, anything you could think of from the seasonality perspective. No, there's really not season alley. There's some movement within the month, but but basically any seasonality would relate to production. There's a little bit of seasonality in that, but that doesn't really affect the overall balances in the book. So now. Thank you.

Where historically we did not.

Great Tom Thats, great clarity. Thank you very much again for all the information this morning.

Our final question will come from the line of Chris Mcgratty with K VW. Please go ahead.

And Chris the final.

Yes, thanks for the follow up just a clarification two quick modeling questions.

<unk> expenses I think last quarter, you said included in your guide.

The potential for an FDIC assessment I just wanted to verify that and then secondarily do you happen to have the spot.

The costs in beta assumptions from here. Thanks.

David Smith: Appreciate the color.

Yes in that two to $2 1 billion. The FDIC assessment is in that guide.

Steve Moss: Our next question will come from the line of Steve Moss with Raymond Jane. Please go ahead. Good morning. I've blown up on the multi-family lending and commercial estate, just given where pricing is these days, curious where debt first coverage issues are shaking out, whether it's on a renewal or reset. And, you know, if you're seeing any borrowers who are having to put up additional cash to support the property. I'll start the response and I'll defer to John Adams, but I will tell you that it's been relatively strong given many of the customers are able to look at their option and their option is a sofa option or fixed rate option and rework with them and have the capacity to continue to pay.

And then when you're looking at beta is quarter over quarter. They were relatively consistent in September we're still under 40%.

Just under 40% both in June and in September.

And our spot interest bearing basically our end of September and interest bearing deposit costs for.

For the quarter was $3 37, and then really towards the end of September was $3 50.

Alright, Thanks, Sean perfect.

Great.

Well. Thank you again for taking the time to join US This morning and for your interest in <unk>.

She will be speaking to you in January thank you all.

Steve Moss: The ones that are looking to get more dollars that it gets it's fallen through between that fair John. And the reality is that when they do have significant equity and they're looking for locking in more on which a lot of them are not looking to lock them up. They really believe rates will be lower in the future. They're choosing to roll to the higher coupon in the market and when it do go to the refinancing market, it's us and the agency market as being the opportunity.

That will conclude today's call. Thank you all for joining you may now disconnect.

Okay.

Steve Moss: And like I indicated, we're focusing on relationship deposit banking. Lee. So it's going to have compensating balances, which is going to be critical for our business model going forward. And more importantly, if there's equity there, and they're looking at economic spreads, they're much wider. And the government's probably slightly tighter than us. And that's an option to go along. But a lot of customers are waiting this out, thinking that in 24, 25 is when they're going to make that longer term decision.

Yeah.

Thomas Cangemi: So maybe Jon, you want to get some credit. And I'll just add to that, but yes, of course, if they're just repricing and they're leaving a three-handle, four-handle coupon, and today it's seven plus, sure, the death service coverage isn't where it was typically when the loan was originated. But there's still enough coverage for them to meet all their obligations operating as well as death service. And obviously we track that on an annual basis.

Thomas Cangemi: And if they are less than what we would expect, they get risk-graded accordingly, and they get your serve the way that they should be based on our model. So something that we do definitely keep an eye on, but in answer to your question, if there's not enough to do a two-reasonry finance out, then the death service coverage has come down, but not to the point where they can't meet their obligations. I would say we haven't seen many customers that have to write a check to do a refinancing.

Thomas Cangemi: Yes, but rates are much higher than they were a year ago. And as the customers come to us, our goal here is to get them to the other side. It's a difficult environment coming from a much lower rate. Let's say in the mid-trees than now. Let's say mid-7th, almost 8th, on a fixed rate. You can probably do something floating somewhere in 50-60 basis points below that. And government's probably going to be 50 basis points inside of that. So we're being proactive to get the customer to the other side given the challenges because of the significant changes of interest rates. Okay.

John Pinto: And then on the office portfolio, just curious here, John, you mentioned a qualitative factor for office. Curious, what's the reserve allocated to that portfolio just given the mix of criticizing classified? Yeah, we don't split it out specifically, but it is something that has been growing, especially given the $62 million provision that we booked this quarter.

John Pinto: But like we talked about before, these prior to this quarter, the performance has been extremely strong. So the ESDRs and the LTVs in the portfolio as well, as well as the deep dive we've been doing into underlying leases in the portfolio. So we're comfortable with where we are right now, but we did start to see a bit of a build and allowance build here this quarter. Okay. Great.

Peter Winter: Thank you very much.

Peter Winter: Your next question comes from the line of Peter Winter with DA Davidson. Please go ahead. Good morning. Good morning, Plum.

John Pinto: Will you guys have to go through the formal DFS exam next year? And I'm just wondering if you can quantify the expense component that needs to be realized as part of a DFS bank. Well, let me just start off and I'm going to pass that to John. We are going to go through a, always look at a template process and we've been doing a DFS process prior to the change in the limit when 50 billion became much higher.

John Pinto: With that being said, we will go through that process. I believe we'll go through that process in early 24. And I don't believe it's a public process, but it's going to go through the process and we're preparing for that. John, if you want to. Yeah, that's right. I mean, we'll continue to do what we have been doing. And since we started building to get ready for the old $50 billion threshold back in 2012 with preparing a capital plan, submitting a capital plan, you know, going through the process.

John Pinto: We have a significant stress testing group that we've put in place a long time ago and have added two to be ready for, you know, the plan to be ready to be over 100 billion. So yes, we'll be performing those, we'll be performing that process in 24. And then, you know, we'll probably be part of the next cycle when it comes to the public process that Tom has been.

John Pinto: Gott, okay, thanks. And then can you just talk about maybe the outlook for provision expense when I look at the ACL ratio, you know, an increase a little bit to 0.74%, but do you need to keep adding to reserves just given the change to the composition of the loan portfolio? Well, there's third out that the loan portfolio composition has changed or much more diversified lender than them. We have been in and that that ratio has consistently got up since the acquisitions of both like our and signature.

John Pinto: But, you know, what it really comes down to under sea so the macroeconomic factors in the performance of the portfolio. So, depending on, you know, what the trend is here in those macroeconomic factors, you know, we have seen them decline, but, you know, relatively stable decline in those types of factors, but look, if depending on how that comes out and depending on the growth in the portfolios, you know, we could see the provisions move around a little bit here, but it really depends on those macroeconomic factors and what we're seeing in the individual portfolios. Okay, got it.

John Pinto: Thanks very much.

Christopher Marinac: Your next question comes from the line. That's Christopher Miranak with Janie Montgomery Scott. Please go ahead. Hey, thanks. Good morning. Hey, thanks for taking all of our questions.

Thomas Cangemi: Tom, just a quick one about the enforcement of kind of new low new deposits with new loans. Can you write in your contracts higher interest rates if the compensating balances go below certain thresholds? Is that something that you can do in this era? You know, what we have in our agreements, we do have requirements to have operating accounts and no question during the pandemic, it was critical and really gave us some good guidance on where the cash flows are coming in given the unknown of the pandemic.

Thomas Cangemi: We carried into that into our docs that we have, you know, an expectation of an operating account regarding the cash flows of these, in particular, the properties that we have to make sure that the cash flows coming in. But I think the reality is that we have won't get any relationships. We are going to prioritize the capital allocation towards relationship banking and all businesses, and I think that's how we're going to be successful.

Thomas Cangemi: There was a significant shift about three years ago, and it's been very proactive on our cargo growth of significance when it comes to the multi-family creep portfolio. And I would say as far as what we store running out of the bank is maybe 5%, the 95% will understand that we want to ensure that we have a strong depository relationship. And as we move forward, it would be more towards this expectation of compensating balances.

Thomas Cangemi: And in certain many instances that also ties to lines of credit, we're really working with the clients to really ensure that we are at bank partnership. We expect reciprocation when it comes to the business opportunity. And if it doesn't happen, we're very glad to allocate that capital to other lines of businesses. And we have other avenues where historically we did not.

Thomas Cangemi: Great Tom, that's great clarity. Thank you very much again for all the information this morning.

John Pinto: Our final question will come from the line of Chris McGrady with KBW. Please go ahead. Wanting Chris, you have the file. Oh, thanks. Yeah, thanks for the follow-up. Just a clarification to quick modeling questions. The expenses, I think last quarter you said included in your guide was a potential for an FGIC assessment. I just wanted to verify that. And then secondarily, do you happen to have the spot deposit costs in beta?

John Pinto: Yeah. Yeah, in that two to two point one billion, the FDIC assessment is in that guide. And then when you're looking at as beta is quarter over quarter, they were relatively consistent in September. We're still under 40%. Just under 40% both in June and in September. And our spot interest bearing, you know, are basically our end of September and she's bearing deposit cost for the quarter was 337. And then really towards the end of September was 350.

John Pinto: All right. Thanks, Jon. Perfect. Great.

Unknown Executive: Well, thank you again for taking the time to join us this morning and for your interest in NYCB. We'll see you will be speaking to you in January. Thank you all.

Regina: That will conclude today's call. Thank you all for joining. You may now disconnect.