New York Community Bancorp Inc
NYSE:NYCB
Earnings Call Analysis
Q3-2023 Analysis
New York Community Bancorp Inc
The company is in the midst of a transformative phase, integrating its Flagstar transaction to pivot towards a commercial banking model that emphasizes relationship banking. There's a specific goal to reduce the level of commercial real estate (CRE) and multifamily loans and increase commercial & industrial (C&I) lending, especially where it can foster deposit relationships. The transition will be instrumental in reshaping the institution's approach to lending, aiming to maintain loans only where there's a connected deposit relationship. This shift is seen as a positive strategy to stabilize and grow the bank's operations.
The bank has made significant talent acquisitions, hiring 59 group directors and 105 support staff primarily from First Republic. These hires are seen as filling a service gap in the market and are a testament to the company's focus on growth and service optimization. Moreover, the legacy signature teams at the bank have exhibited stability even amid the transition, indicating a robust workforce and internal strength.
Digital marketing initiatives and the introduction of new technology tools have had a positive impact on client acquisition within the bank's New York Community Bank (NYCB) footprint. The use of targeted digital marketing strategies and a simplified but potent AI-powered client relationship tool have led to substantial effects, suggesting the bank's ability to adapt and leverage technology for growth.
The bank successfully retained 81% of its Certificate of Deposit (CD) book during renewals, with the average rate going from 1.7% at maturity to less than 5%, signaling effective deposit cost management. This positions the bank competitively in the market in terms of rates offered to customers.
Despite the success of the recent Flagstar transaction, the bank's management is currently focused on integration and internal growth, rather than seeking additional acquisitions. The priority is to solidify the bank's operations and systems post the rapid growth from $60 billion to about $120 billion in assets, ensuring a stable foundation for future growth.
Two specific office real estate loans underwent reappraisal and charging down, indicating focus on risk management. The bank is addressing these credits proactively, adjusting valuations, and working closely with borrowers. This illustrates an attentive and hands-on approach to credit risk in the commercial real estate sector.
The bank is striving to become less sensitive to interest rate fluctuations and more focused on operational stability. Efforts are being made to transition from liability-sensitive positioning towards a neutral or asset-sensitive stance, which could benefit the bank's margins in the current rising interest rate environment.
The bank has a strategy to diversify its loan portfolio, including moving away from a heavy focus on CRE and multifamily lending due to slow market activity in these areas. The mortgage banking business has been right-sized and is now profitable despite market challenges, indicating a resilient and adaptable lending strategy.
Management expects the average earning assets balance to continue trending down but at a slower rate compared to previous quarters. They anticipate stabilizing and potentially increasing average balances moving into the first quarter of 2024, contingent upon loan growth and other factors.
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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. [Operator Instructions] 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 Cangemi, 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 of New York Community may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. Now I would like to turn the call over to Mr. Cangemi.
Thank you, Sal. Good morning, 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 arising from the combination of 3 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 brokerage CDs declined. While noninterest-bearing deposits remain approximately 1/3 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 $0.36 per diluted share, as adjusted for merger-related expenses. Our EPS this quarter was $0.02 better than consensus. One of the drivers this quarter was a much higher net interest margin. The NIM came in at 3.27%, up 6 basis points compared to the prior quarter and well ahead of our guidance range of $295 million to $305 million. The increase was driven by higher asset yields as we continue 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 the C&I portfolio, led by our specialty finance businesses and in homebuilder finance, offset declines in other businesses.
Overall, the loan portfolio ended the quarter at $84 billion, up over $700 million or 1% compared to the prior quarter. At September 30, total commercial loans represented 45% of total loans, reflecting a significant diversification compared to where we stood a year ago.
Turning now to deposits. Our deposit trends during the third quarter were relatively stable. Total deposits were $82.7 billion, $5.8 billion lower compared to the $88.5 billion at June 30. The majority of the decline was due to a $4 billion decrease in custodial deposits related to the Signature transaction, which totaled $2 billion at the end of the quarter compared to $6 million last quarter. In addition, brokered deposits declined $1.2 billion to $8.1 billion compared to the previous quarter. Excluding these 2 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 have approximately $3.1 billion of wholesale borrowings at a weighted average rate of 4.02% that either are maturing or can be called by FHLB.
Turning now to asset quality. While early stage delinquencies declined significantly, total nonperforming loans increased $159 million or 68% to $392 million compared to the prior quarter due to the increase in the CRE portfolio. More specifically, the increase was related to 2 office-related loans, 1 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 NPLs to total loans were 47 basis points compared to 28 basis points last quarter, while our net charge-offs were also up or a mere 3 basis points of average loans.
Also, as you can see on Slides 9 to 12 in our investor presentation material, our asset quality metrics remain solid and continue 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 3.00% to 3.10%, 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 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 3 legacy banks. Our teammates are excited about this new branding, and I'm excited as well. Even though it will be a new logo and a brand, the meaning behind it does not change. We remain committed to helping our customers and teammates thrive as we move to 1 bank 1 brand, 1 culture as the new flag stock.
Finally, I would like to say a special thank you to all our teammates. Our results would not be possible without their dedication and commitment to our clients and our customers. With 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. Operator, please open the line for questions.
[Operator Instructions] Our first question will come from the line of David Rochester with Compass Point.
[indiscernible] margin guide. 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 fund 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 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 1, because the rest of the custodial deposits will be related to the multifamily and the CRE loans, and there's paydowns you're significantly less than on the fund banking side. So the average balance is around $4 billion for the quarter, $2 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. .
Your next question will come from the line of Ebrahim Poonawala with Bank of America. .
So Tom, maybe just start on asset quality. I mean, 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 reserved your community is for that book? And then secondly, also talk about the health of the multifamily landlords in New York. Like 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 multifamily landlords, yes.
I'll start with the latter first. 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 significant success with our client book. Given the fact that we have a long history, these are in-place, families that have been doing this for multiple decades, very confident in their long-term business strategies. But they do a very strong job of managing a book of business, 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 consistencies of payment. We're seeing the reaction to higher interest rates on the reset, either [indiscernible] option or a fixed rate option, then having the capacity and the ability to continue to pay. And that's what we're seeing. So we're not seeing 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 has been very slow. We haven't seen much activity at all. I would say since I've been here in my 26th, 27th year, going to my 27th year now at the bank, this is the slowest activity I've ever seen when it comes to property transactions, the interest as far as buying and selling. So it really is a relatively static or no activity whatsoever. And we monitor it 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 they're managing through an inflationary environment. So we're very positive with respect to our portfolio, but there's no question that the rental law changes had an impact and the activity of taking the units to a free market unit, it's a different business model. And our team is monitoring the statistics as far as how that impacts valuation, how it impacts overall cap rate, and it's been relatively stable even despite the significant rise in interest rates.
In respect to the overall CRE portfolio, we have about $3.4 billion in total CRE, about $3.5 billion. Is that right? That's in Manhattan?
$1.8 billion.
$1.8 billion in Manhattan. This is 1 specific loan in the Manhattan [Audio Gap]
[Audio Gap] savings side to both the acquisitions, how much more to go? And do you still feel good about expenses staying flat? It seems like you're making a lot of investments. There's a lot going on at the bank. So I would appreciate an update there.
I'll start and then I'll pass the baton to John. The big picture is I don't -- our guide is pretty much the same that was last quarter for 2023. We haven't given our 2024 guidance. And clearly, we are investing, as you indicated, into the infrastructure, the build out past the $100 billion now. We understand our obligations there. So we clearly are focusing on making this company at the point of a $100 billion process, making sure that we have all of the requisite infrastructure, and we spent a lot of money over the years to get there. So we would understand the path there.
At the same time, we're also investing in into the market regarding new partner with the Signature transaction. So we are adding talent through 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 we're also being cognizant of our obligations as a $100 billion plus institution. With that, I'll pass it to John. .
Yes. 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 compare it to '23. As Tom mentioned, we definitely have summation adds both back office and through our PTG groups that are going to put pressure on the expense base going up along with just the additional expenses for being over $100 billion. And then the tailwinds of the systems conversions, which we have the Flagstar systems conversion scheduled in the first quarter, so we'll 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. So that's kind of how we think about 2024 right now, but we'll give our guidance at the next quarter. .
One thing I would add to John's comments is we are still unwinding the legacy signature portfolio that we don't own. So we do have costs associated with that, but that will be impacted favorably as we -- assuming that those assets do part the institution to elsewhere. So that's also -- that will also be impacted to next year as well, assuming the advent there.
Yes, that's right. 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. .
Your next question comes from the line of Chris McGratty with KBW. .
John, maybe just a question on the balance sheet, just a lot of movements with the deposits that you telegraph, but can you help us with just overall size of earning assets near term targeted cash levels, you're building the bond book? Just help on the moving pieces for the next couple of quarters? .
Yes. No, no problem. We have slowly started to build the securities portfolio. Really, it's just a liquidity shift between cash and securities, government securities, very liquid, just 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.
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'll be within $1 billion or so from a cash and securities perspective. So you may see cash drop a little bit, but that will be offset by incremental purchases on the security side. So I'd say that the large drops are behind us on the cash and the liquidity front, right?
We've paid down a lot of debt on the wholesale side, the brokerage side. That will be more limited going forward. And then we'll look to grow certain areas of the loan portfolio where it makes sense strategically for the company, where we have the best opportunity to bring in deposits related to those loans. So I would say, very limited change from the -- if you look at cash and securities combined going forward and then some -- hopefully, some small growth on the loan side where it makes sense strategically.
Okay. Just if I could follow up. The -- you had $107 million of earning assets in the quarter. Obviously, timing of everything is related when you move assets during the quarter. But like just zeroing in on the 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 million. We expect it to be right around that number because I really don't see us driving much more on the securities in total on the cash side. So I expect that will 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 the last 1 on the loan to deposit. You retooled it a bit. 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 flag store. We're focusing on getting ourselves to our commercial banking standard. We recognize that historically, you've had a very high loan-to-deposit ratio as a traditional thrift model. That's history. The goal here is rightsized institution to be more in line to a commercial banking model. We had a flatter transaction and we had the opportunity to be participating in the receive transaction really change the model in respect to the funding mix. So the goal here is to bring that level inside of 100.
That's the goal here and continue to focus on best practices in the industry and it's a more commercial bank model. So we're proud of the opportunity to diversify our lines and focus on deposit relationship lending. If there's no deposit 1 relationship, we're probably not going to make to own. It's just that said, that's coming from the top of the house at the Board level. It's very focused there that this is a great opportunity to take these 3 institutions under the new umbrella and focus on relationship banking.
We see it transforming actively on the multifamily crease side. throughout the past 3 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 forward.
Your next question comes from the line of Steven Alexopoulos with JPMorgan.
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? .
Over to Eric. Eric? .
So we've hired in total now 59 Group directors and 105 support staff. So there was tremendous opportunity over the last couple of quarters to hire. 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, and we're really happy with the talent that we brought on board in order to do that. .
I would just add a point to that. The stability of the legacy Signature teams are solid. We had tremendous strength 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. .
Okay. Great. And as you're 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 we kind of thought through the pros. I'll let Eric go through some of the mechanics on history. You've done this for quite some time as far as how it goes into the run rate. But want you to build upon that.
Well yes, it usually takes about 12 to 24 months, right? Each team is different, has a different book of business and underlying client base, but we'll usually achieve positive leverage, if you look 12 to 24 months out. .
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 the portfolio that's managing close to $30 billion of deposits that has tremendous operating leverage for the franchise, of which I think it's probably close to 40% of the deposit base is at 0.
That's right.
Got it. And can you give us an update on the progress of bringing back signature noninterest-bearing deposits that have left during the third quarter and maybe 4Q to date? Has it accelerated versus the $285 million that you brought in during the second quarter?
Yes, 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. 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. .
I'll just add some comments here. I spent most of the summer meeting both PCGs as well as our new client base. And for close to 1,000 hand I have shaken over the summer, 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 Flagstar, and we're very pleased with the success on the stability of the base. . Accounts are still there. They may be cleaned out as far as some of the excess liquidity to the market, but they're not leaving the institution when it comes to the actual relationship, but they did move some significant deposits. So when we did the transaction in March, that institution was at a much higher base when we step in, 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 there would be further runoff just because the unknown factor as we came into a very tumultuous time.
Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank. .
So just on purchase accounting accretion, if you could just remind us on 3Q for the NIM, how much there was what the split was between Flex and Signature. And based on your 4Q guide of NIM, what are you expecting? .
Sure, Bernard. 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 because we know we're 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 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 transaction, given how we're seeing some pay downs. We will see the Flagstar piece start to slow down here as we get to the 1-year mark in December. But right now, that's where we kind of expect it to be pretty close to that level 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. I was 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? .
I'll start and then defer to Reggie, but I will tell you that the reality is that we have a lot of interesting opportunities in front of us. We did mention about a year ago that we did successfully compete and actually win the opportunity within the California unemployment fund. That should be coming on sometime early in 2024. That will be a nice pickup for the institution. With that being said, there's so many different lines of businesses as well as opportunities. I'd love to have Reggie Davis just share some thoughts on the project strategy because we're really excited what we can do in the future. So Reggie, if you don't mind? .
Yes. Sure, Tom. So we have a lot more to add around banking as a service in addition to what Tom said. As you know, that business 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 book is going to be. I think where we've had a lot of success this year is in our consumable, which -- that tends to be a little bit more steady, a little bit more printable. And I feel really good about where that retail business is positioned, 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, a tremendous amount of stability in that book. We actually brought both the branch teams together this year. Combined back office, we're now operating under the same leadership structure, same sales and service model. That model change went really well, no disruptions. We're in the process of introducing a more skilled and consistent sales culture across the entire network of 30 branches. It's designed to create a great client experience, and it will be uniquely Flagstar positioned with the brand that Tom talked about. And if you kind of think about where we are, there's a lot of upside in that business, the legacy Flagstar branches are still only able to open accounts 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, we began using targeted digital marketing in our ICV footprint to drive new client acquisition. That's going well. We've introduced a new skinny down version of our AI-powered client relationship tool, which is called NextGen sales in our NYCB branches. That has had tremendous impact. We see increases in new account balances, all those validated. And then next year, we'll be fully operational across the entire footprint with additional enhancements for that tool. We feel really good that the portfolio performed well this year. Quarter-over-quarter, we're only down $500 million, which is less than 1.5%. Most of the year, we've had success with this high touch model. You can get our weighted average cost -- it's only up 177 basis points since January against the Fed funds increase of 5.25%. So we're really pleased with the retention in that portfolio.
And I think another 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 renewed between August and September. We had 81% retention rate on that average rate went from at 1.7 at maturity to less than 5%. So positioned well below the kind of market leaders in terms of rates. So we continue to be really optimistic around deposits. It's 1 of the success stories we've got this year. .
Like you can see we have a lot under Mr. Davis. So thank you, Reggie. I will tell you that the energy and driving this institution is the new focus for the institution. So clearly, Reggie has a lot of interesting opportunities in front of us. So we're excited as this whole team. So thank you for that, Reggie. .
our next question will come from the line of Mark Fitzgibbon with Piper Sandler.
I was wondering, was any of the $62 million provision this quarter? Did it have any specific reserves in there for those 2 credits you singled out? And have you reappraised those 2 properties? .
Yes. So both of those 2 properties as they go through the process of nonperforming, were both recently reappraised. So the charge-off 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 as well as some small modest growth that we had some CRE modeling changes through the Moody's macroeconomic factor and then another 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 appraisals on them. and again, we're holding them now where we believe, especially on that Syracuse loan, the write-down we've taken -- we're very 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 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, do you think it's conceivable that you could do another transaction? .
Mark, it's Tom. I will tell you that we are laser-focused on building new flag starts we have a lot of flat as you can imagine, launch came along on expecting from pretty much everybody, and we were able to be accommodative and work with the government to facilitate which we believe is a very good transaction. We're busy, right? We want to get our conversions on. We don't want to 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 with flags unlikely that we'll be participating in growth opportunities and the company is going from $60 billion to $120-ish 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 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 getting us to be that $100 billion institution where we feel very proud of the back office, the system conversion, a lot of work ahead of us, Mark. And that's a priority.
Your next question comes from the line of Brody Preston with UBS.
I just wanted to follow up on those 2 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 them down? .
Well, let me defer to John. He's actually in my office. So John, do you want to just address those 2 credits? .
Both those credits at the time of origination were 65% -- 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%.
Syracuse had a significant kind of this was a unique iconic building that elicits a major tenant. And we'll deal with as we go along here. We were very active to get the appraisal updated. We took the much lower valuation, and we'll work through the workout process. feel good about the fact that this is at a level that we can move this will be happy, but we'll work with the existing law to see if he wants to try to work it through the bank. If not, we will have people that were willing to step in here.
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 a tenant leaving that kind of caused the issue with the Syracuse portfolio? Just wanted to get a sense for what those lease rules look like.
So this is Tom again. I would say big picture, we're going through that process. We talked about Manhattan, we had about $1 billion -- $1.8 billion in Manhattan, very cognizant of what's coming due when it comes to refinancing in respect to coupons as well as the tenancy, we evaluate that. Feel pretty good about the portfolio. But this is an environment where you have to have an enhanced monitoring. The company is doing a lot of work to ensure that we're getting updated financial statements. This is that time of 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 the credit environment, in particular CRE. But clearly, this is a unique portfolio typically on historical basis, it is a sponsor-driven opportunity for the bank. Historically, we've had a very strong mix of very strong family that actually buy into the multifamily and CRE market opportunistically tied to the 1031 exchange opportunity when it comes to tax deferrals. And we have a very strong overall leverage -- overall average LTV and a strong debt service coverage ratio. You're going to have one-offs from time to time. We'll call this particular one a one-off. We don't see a trend yet, but we're monitoring very carefully.
Okay. And I'll just ask 1 more and then hop out, just a clarifying 1 on the average earning asset guide. Was that stable at $107 million for the fourth quarter? And if so, could you kind of clarify the moving parts there for me, John, just given the period end was quite a bit lower than that. .
Yes. So what we're looking at is from an average perspective, we expect that cash and securities will be pretty flat. We don't expect significant declines in those 2 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 nothing substantial, but just a little bit of loan 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. There'll still 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. .
I would just add to that point, it's Tom again. Strategically, we put out a plan when we announced the receivers of the transaction and how we see the balance sheet coming at year-end. Now we're focusing on the businesses. And the businesses that will have some businesses actually seeing declines in particular, multifamily CRE. The business is very slow. You'll see the offset of growth in the C&I portfolio. We're very, very optimistic about the opportunity on overall interest rates when it comes to residential lending. We have Lee Smith on the line, who can expand upon the opportunity there.
It's a much different market when it comes to resi lending. So our mortgage bank has been light sized back in January. So we're actually making money in the line 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. You'll see more of a shift away from CRE multifamily just because of the market. There's not a lot of activity and our spread is about 300 basis points spread off the 5-year treasury and probably wider than where the government is and the government will be proactive, but their balance sheet will be less proactive and we'll be focusing on relationships at 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 we're seeing some good pickup on the homebuilder finance business, a good pickup 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 the corporate bank sponsorship side. With that, I'm going to just pass the baton over to Lee, you can give 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 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 gain 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 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've rightsized 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 outstandings from a warehouse point of view were up $600 million or 14%. And again, as we've seen dislocation and people exiting that space, we've been able to benefit from that. as well. And then I think, finally, and Thomas 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, 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 billion 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 $4.25 billion to $6.5 billion, $7 billion from that team that came over from signature. Some of those are escrow deposits. And so those balances typically move between $4.25 billion and 6.75 billion. 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. .
The other I want to add in this business is clearly the opportunity that we look at the hybrid ARM market right now. We do have a tremendous opportunity as customers are looking away from the 30 a 15-year market and focusing on the shorter duration opportunity, which really is underwriting very low LTVs and opportunity for this bank to look at balance sheet opportunities. and we'll get 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 some of our new team members that have joined us and focus on that business. .
Your next question comes from the line of Manan Gosalia with Morgan Stanley.
So you spoke about NIM stepping down from 3.7% to about 3.00% to 3.10%, and the majority of the custodial deposits going away and earning assets being relatively flat. 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 a, do I have that right? And b, 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 a good starting point from which you can grow through 2024? .
I'll start and I'll pass this time to John, our CFO. I will tell you, big picture, it seems like we've got the 3% [indiscernible] than I expected from the transaction and the overall margin. So obviously, we're still asset sensitive. We're pleased on the results thus far regarding future guidance. We don't have future guidance out there in the marketplace. But we are very optimistic with the diversification of our asset mix. We're not that same bank that we were a year ago when it comes to a legacy thrift model. We have diversification that has a lot of floating rate coupons tied to higher spreads. We have unique businesses tied to the C&I marketplace.
We have, as we indicated, Lee Smith's businesses has an opportunity on the hybrid on book of business as well. So when you look at future asset growth, it's going to be the diversification within the portfolio and rates have significantly increased. Just to give you some data points on the CRE multifamily portfolio, we have $18 billion coming due over the next 36 months. Next year alone, it's about $4.5 billion multifamily coupons of 382 coming due and CRE of 575. You bring that to the market. That's a powerful benefit for the asset yield.
That goes consistently between $4 billion to $7 billion each year that we know is coming due. And we'll deal with as it comes to all those loans are not going to stay with the bank what's 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 who 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's no relationship. We're really not interested 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. The other lines of businesses can grow very favorably here given the current spreads that we're seeing in all lines of business and banking. Spreads have changed dramatically across the financial services spectrum since March. As I indicated, we're 300 basis points spread. We're not moving on that. We're going to be very proactive to have strong economic spreads on the multifamily CRE side, but it all spreads that are line business have clearly up quite a bit given the interest rate environment. So with that being said, I'll pass the baton to John to add more color on that. .
Yes. Just quickly on the fourth quarter, we're not going to see declines in the spot balances that we've seen, right, on interest earning assets or on total assets. The 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 in the last couple of quarters due to the paydown 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 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 9/30. So that's the only piece I want to make sure that I clarify. .
The 1 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. We really want to get away from being so significantly asset sensitive and/or liability sensitive 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 indicated, neutrality, we're still asset sensitive, and it's rising rate -- in the current rate environment that will 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 through changes of interest rates. That's the focus to build this institution going forward under the new Flagstar.
That's helpful. And just a clarification there. The loans that are coming due over the next year, the yield pickup on those loans would be 300 to 400 basis points or so? .
I mean right now, they're multifamily books for next year, so 382 coming due, and there is CRE 575. So market is what, right now, 300 with the 500, it's probably close to 800. That's a pretty big difference. We have different product mix, which we're 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 government market, which is a new product to the bank.
We have the sulfur option on repricing, which has been very positive 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 will be lower rates. 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.
Got it. Okay. And then just another question on expenses. It looks like there is high expenses associated with the flag store conversion and signature launch of your servicing that will come out at some point in the next year. Can you size the expense benefits that come from that? .
Yes, we're going to provide a full 2024 guide at our next -- at our conference call in January. But as we mentioned, we see both headwinds and tailwinds 424 when you compare to '23. 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 the CRE loans, if those do end up transferring to a purchaser in this fourth quarter, then we'll have some benefits also on the cost side from that excess servicing that we no longer have. .
Your next question comes from the line of Casey Haire with Jefferies.
So sorry to beat a dead horse, but I do want -- another follow-up on the NIM. So if I'm understanding this directly, you expect cash to be flat, but you still have $2 billion of custody deposits 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 ex the custody was still down $1 billion? So is that [indiscernible] deposits? Sorry, go ahead. .
Yes, correct. We expect cash and securities when you 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 and Eric on both the consumer and the private banking side. So any shortfall we can make up with either in the brokered CD market or in the wholesale borrowing market, just to ensure that we have the appropriate liquidity on the balance sheet for each quarter that we go through this process. So we just -- we don't expect significant changes in significant drops from the period end balance. But we'll take a look and see what market conditions provide and how our deposit growth comes in, in the fourth quarter.
Just to add one point. When you think about where we came out of March, 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, weren't chasing rates the industry has. So we've been very proactive on paying down broker deposits. cost brokerage, also high-cost borrowings that came due as a strategy to get to 12/31. That's the public strategy from the receivers of transaction going forward. It's trying to go back to an organic strategy and focusing on deposit initiatives out all of our lines of businesses. .
Okay. Understood. And then just 1 more on expenses. The guide for '23 is a pretty wide range of anywhere from $510 to 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 another $20 million or so? .
Yes. I would think that given where we came out in the third quarter I wouldn't expect the run rate to be above that. So that would fall us right, really close to the middle of the guide. [Audio Gap] 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 1 quarter left, I understand it's pretty wide, but I would focus on the midpoint of the guidance. .
Your next question comes from the line of Matthew Breese with Stephens. .
Tom, I was hoping you could touch on the wholesale borrowings coming due in the fourth quarter. I think they had a near [Audio Gap] assuming we get calls.
I'll pass it to John. John? .
Yes, including the puts that we have, it's $3 billion at 4% for the rest of this quarter. given where the puttable are of that amount, it's about $1.5 billion in footholds. We expect they will be put. So that $3 billion we would expect to refi unless we have deposit growth to pay them off. We'd expect to refi them in the market as we go forward here. Or like I said, if we have deposit growth, we'll 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 3Q to 4Q. It feels like the $6 billion lens where you want to keep cash for now. .
Yes. When you look at -- I would look at the cash and the securities together, but I think that's right. Around $6 billion makes 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. .
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? .
That's right. The spot balances are not going to move dramatically from the 110, but the average will still trend down. It's just the rate of change is starting to slow, right? .
And when do you expect to start to see average earning asset growth again? .
I think once we get through the fourth quarter and the custodial deposits are the biggest driver of this, right? I mean, we went from $6 billion at the end of June to $2 billion now. And then we have after that, once we get to December, we're going to be 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 9/30 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 .
Okay. Just going back to credit beyond the office loans within the release, it showed that multifamily loans I think NPAs there are up to $60 million, just been steadily increasing. 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 for buildings or 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 from the 2019 rent laws.
Now let me start off, and I'm going to pass the time to John Adams, who runs that portfolio -- the reality is that it's 1 of families to have maybe 1 or 2 families that 1 is going through a marital dispute that's going through the court system and a handful of those credits ties to the relationship. It's a handful of relationships it's not systemic. It's not something we're seeing yet. We're clearly monitoring.
Rates are dramatically higher, and our customers will have the capacity to deal with the sulfur option and or the fixed rate options 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 is 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. We're not seeing trends. With that, I'll pass over to John to get some color. John?
Thanks, Tom. Yes, exactly what Tom said, some of those instances are really more family-related issues and 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 is because the tenants aren't paying. And those are typically in the more working class neighborhoods in the rent-regulated properties that they know the system. They know how to drag on and eviction process.
So it's not really rapid. And for the rest of the portfolio outside of those isolated instances, the market rents, like Tom mentioned earlier, are up, I think, 4% month-over-month and 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 right at this time. .
Okay. The follow-up question here is signatures, commercial real estate, multifamily and then rent-regulated multi-family portfolio is being bid out -- and some of the news articles out there are setting this is a more difficult portfolio to 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 does it impact the Level 3 asset pricing and your estimated fair value of your own loan portfolio? .
So let me give you my big picture thoughts on that, right? We're a cash flow lender, for deeply discounted rent laws. We've been doing this a long time. We're not mark 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'll be a little bit more complicated given the rent-regulated nuanced portion of that portfolio. In my view, that's something that's got interesting views in respect to the ongoing landlords and the tenants and have the relationship going forward to ever buy that portfolio. . That's something that's the nuance that we haven't seen these well 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 mark-to-market in respect to an institution that's been putting on the portfolio 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. 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 primarily probably some small 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 side and the nuances between landlord and tenant relationship. We've done a tremendous job on really managing that process as a community institution, focusing on working with the landlords, working with tenant community groups and being part of that ambassador between that.
A new player coming in that doesn't have that culture, that history 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 move on from that. I don't call it a mark-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 has traditionally significantly below traditional market rent laws .
Got it. Okay. Just last 1 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, do you want to hit that? Or if not, you can probably get back to that on that one. Reggie, do you have any color there? .
Yes. I don't have that exact number at my fingertips, but we can get it. We'll probably be there.
Just 1 point on that. We are building a corporate bank 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 flat to that using the derivative marketplaces. So really moving towards that commercial bank mentality, not just making the loan or holding loan but making a loan and holding a piece of the loan, but selling a large amount of the exposure off to the secondary market. So that's going to be the strategy as we build out the commercial bank model. .
Yes. Tom, let me just -- I think that's an important point. When you asked about the size of syndicated book. we use syndications primarily the sell-down position. We're not out buying participations 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. .
Your next question will come from the line of David Smith with Autonomous Research.
Appreciate the clarification on the earning asset outlook. I think a lot of us were confused that getting to flattish on an average mark when the spot balance was more around 102. But it sounds like you're just saying that the decline will be smaller than the $4.2 billion that we saw in average assets from 2Q to 3Q. So something above $1 billion or $3 billion, presumably for the fourth quarter? .
Yes. 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, as I mentioned at the last question, cash around $6 billion, give or take, where securities in. So 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 to decline just as it catches up to the spot balance. And then once we're -- 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.
[Audio Gap] in a week or so, as you said. I appreciate that you're expecting [Audio Gap] my side. Reggie, anything you could think of from a seasonality perspective?
[Audio Gap] So no.
Our next question will come from the line of [Audio Gap]
[Audio Gap] commercial real estate. Just given where pricing is these days, curious where debt service coverage ratios are shaping [Audio Gap]
[indiscernible] John Adams, but I will tell you that it's been relatively strong given many of the customers are able to look at their options and their option is a [indiscernible] option or a fixed rate option, and we work with them and have the capacity to continue to pay the ones that are looking to get more dollars, then I think it's falling through between. That's fair, John. And the reality is that when they do have significant equity and they're looking for locking in long, which a lot of them are not, they're not looking to lock longer. They really believe rates will be lower in the future. They're 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 opportunity. And like I indicated, we're focusing on relationship deposit banking. 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 is probably slightly tighter than us, and that's an option to go along.
But a lot of customers are thinking that in '24, '25 is when they're going to make that longer-term decision. So maybe, John, do you want to add something there.
And I'll just add to that. But yes, of course, if they're just repricing and the we're leaving a 3 handle, 4-handle coupon. And today, it's 7-plus sure the debt 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 debt service. And obviously, we track that on an annual basis. And if they are less than what we would expect to get risk rated accordingly, and they get reserve 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's not enough to reasonably finance debt, the debt service coverages have come down, but not to the point where they can't meet their obligations .
I would say we haven't seen many customers that had to write a check to do a refinancing? Yes. But rates are 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-3s now, let's say, mid 7, almost 8 on a fixed rate. You can probably do something floating somewhere in like 50, 60 basis points below that. And government is 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 in interest rates. .
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 mix of [indiscernible]? .
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. 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 SCRs and the LTVs in the portfolio as well. as well as the deep dive we've 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. .
Your next question comes from the line of Peter Winter with D.A. Davidson.
Will you guys have to go through the formal DFAST exam next year. And I'm just wondering if you can quantify the expense component that needs to be realized as part of a DFAST bank? .
Let me just start off, and I'm going to pass that to John. We are going to go through a -- always work through a capital paying process. And we've been doing the DFAS process prior to the change in a limit when $50 billion became much higher. 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 add .
Yes, that's right, Tom. 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, setting a capital plan, going through the process. We have a significant stress testing group that we've been place a long time ago and have added 2 to be ready for 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 we'll probably be part of the next cycle when it comes to the public process that Tom was mentioning. .
Got it. Okay. And then -- can you just talk about maybe the outlook for provision expense. When I look at the ACL ratio, it increased a little bit to 74%. But do you need to keep adding to reserves just given the change to the composition of the loan portfolio? .
Well, there's no doubt that the loan portfolio composition has changed and we're a much more diversified lender now than we have been. And that ratio has Signature. But what it really comes down to under CECL is the macroeconomic factors and the performance of the portfolio. So depending on what the trend is here in those macroeconomic factors. We have seen them decline but relatively a stable decline in those types of factors. . But look, if -- depending on how that comes out and depending on the growth in the portfolios, 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.
Your next question comes from the line of Christopher Marinac with Janney Montgomery Scott.
Tom, just a quick 1 about the enforcement of kind of 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? .
What we have on our agreements, we do have requirements to have operating accounts and no questions 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 our docs that we have an expectation of an operating account regarding the cash flows of the -- in particular, the properties that we have to make sure that the cash flow is coming in.
But I think the reality is that we have long-standing relationships -- we are going to prioritize the capital allocation towards relationship banking in all businesses. And I think the tale going to be successful. There was a significant shift about 3 years ago, and it's been very proactive on CAGR growth of significance when it comes to the multifamily CRE portfolio. And I would say as far as what we sort running out of the bank is maybe 5%, the 95% will understand and we want to ensure that we have a strong depository relationship. And as we move forward, it will be more towards this expectation of compensating balances.
And in certain many intact also applies to lines of credit. I mean, we're really working with the client to really ensure that we are a bank partnership. We expect replication when it comes to the business opportunity. 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.
Our final question will come from the line of Chris McGratty with KBW.
Just a clarification, 2 quick modeling questions. The expenses, I think last quarter, you said included in your guide was a potential for an FDIC assessment. I just wanted to verify that. And then secondarily, do you happen to have the spot deposit cost in beta assumptions there? .
Yes. In that $2 billion to $2.1 billion, the FDIC assessment is in that guide. And then when you're looking at betas 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 interest-bearing deposit cost for the quarter was 3.37% and then really towards the end of September was 3.50%.
Well, thank you again for taking the time to join us this morning and for your interest in NYCB. We'll see you -- we'll be speaking to you in January. Thank you all. .
That will conclude today's call. Thank you all for joining. You may now disconnect.