New York Community Bancorp Inc (NYCB) Q4 2020 Earnings Call Transcript

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New York Community Bancorp Inc (NYCB -3.77%)
Q4 2020 Earnings Call
Jan 27, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Salvatore J. DiMartino -- Director of Investor Relations

Good morning, everyone. This is Sal DiMartino, Director of Investor Relations. Thank you for joining the Management Team of New York Community Bancorp for today's conference call.

Today's discussion of the company's Fourth Quarter and Full Year 2020 Performance will be led by President and Chief Executive Officer, Thomas Cangemi; and Chief Financial Officer, John Pinto; together with Chief Operating Officer, Robert Wann.

Today's release includes a reconciliation of certain GAAP and non-GAAP financial measures that maybe discussed during this call. These non-GAAP financial measures should be viewed in addition to and not as a substitute for our results prepared in accordance with GAAP. Also, certain comments made on today's conference call will contain forward-looking statements that are intended to be covered by the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from expectations. We undertake no obligation to and would not expect to update any such forward-looking statements after today's call. You will find more information about the risk factors that may impact the company's forward-looking statements and financial performance in today's earnings release and in its SEC filings, including the 2019 Annual Report on Form 10-K and its third quarter 2020 quarterly report on Form 10-Q.

Now, to start the discussion, it is my pleasure to turn this call over to Mr. Cangemi, who will provide an overview of the company's performance before opening the line for Q&A. Mr. Cangemi, please go ahead.

Thomas R. Cangemi -- President & Chief Executive Officer

Thank you, Sal. Good morning to everyone on the phone and on the webcast and thank you for joining us today. Before turning to the financial details, I would like to take the opportunity to introduce our new CFO, John Pinto, to everyone on the call. As you know, John Pinto was named CFO at the end of last year, succeeding me in that position as I transitioned to the role of President and CEO.

John and I have worked together for 22 years, going back to the time with Richmond County Bancorp and we have worked very closely since we have both joined New York Community in 2001. Going forward, John will be spending more time with the analysts and investment community.

Please join me in wishing him well as I know that he will do a terrific job as the company's new CFO.

Now, turning over to the results. Early this morning, we reported diluted earnings per common share of $0.39 on a GAAP basis for the three months ended December 31, 2020 up 70% compared to the year ago quarter and up 95% compared to the previous quarter. For the full year, we reported a $1.02 per share on a GAAP basis, up 32% compared to last year.

These numbers include an income tax benefit of $55.3 million for the quarter and $68.4 million for the year related to certain tax provisions of the CARES Act.

On a non-GAAP basis, our fourth quarter earnings were $0.27 per share, a $0.01 better than consensus estimates, and our full year earnings were 0.87 per share up 13% compared to 2019.

We are pleased with the company's financial performance over the course of 2020.

As everyone knows, last year was a challenging year due to the lingering effects of the COVID-19 pandemic and its impact on the local and national economy, our customers and our employees.

Despite these challenges, we turned in strong operating results highlighted by double digit EPS growth, continued net interest margin expansion, a strong 23% increase of pre-provision net revenue and strong growth in origination volumes.

Additionally, our asset quality metrics continued to improve as non-performing assets fell. And today, our loan deferral program has proven to be very successful as virtually all our loans eligible to come off the deferral have returned to payment status.

As we've previously disclosed, our deferral program is somewhat unique in that it is for an initial six-month period as opposed to a three-month period. Accordingly, the vast majority of our loans on deferral are eligible to come off their initial deferral period during the fourth quarter, primarily during the month of October and November.

As of December 31, total multi-family and CRE loans deferred dropped 99% to $80 million or 0.2% of total outstanding loan balances, compared to $5.9 billion or 15.5% at June 30, 2020.

Multi-family deferrals were $74 million compared to $2.3 billion at June 30, while CRE deferrals declined to $6 million compared to $2.3 billion at June 30.

Office deferrals at the end of the year was zero while retail and mixed-use deferrals were each about $1 million.

Most of the remaining deferrals are eligible to come off deferral during the first two months of the year. Despite all the economic challenges during the fourth quarter, our seven of the New York City real estate markets, the non-luxury rent regulated portion of the multi-family market continues to hold up extraordinarily well. Our borrowers continue to pay us and rent collections have remained above pre-pandemic levels.

Moreover, the vaccine rollout, an additional fiscal stimulus by the new administration should help the local economy and that should support multi-family and CRE properties in our region.

We patiently look forward to the eventual reopening of the five borrowers, putting New York City on par with the rest of the state.

These trends are not only evident in our deferral numbers, but are also evident in our overall asset quality metrics. Non-performing assets declined $9 million or 16% to $46 million compared to the third quarter, representing 8 basis point to total assets. The majority of our NPA is a taxi medallion related. Excluding taxi medallion related loans, NPAs would have been $21 million at the end of the year or 4 basis points of total assets.

Another highlight was the net interest margin. Excluding the impact on prepayment income, the net interest margin improved 40 basis points to 2.30% during the fourth quarter as compared to the fourth quarter of last year. The margin improvement continues to reflect lower funding costs as the overall cost of funds dropped 88 basis points to 1.06% during the quarter compared to the fourth quarter of last year. The decline of funding costs was primarily driven by repricing of our CD portfolio. The average cost of CDs declined 129 basis points to 1.04%, driving our overall cost of deposits down 115 basis points to 0.61%. This was partially offset by 37 basis points year-over-year decline and average yields to 3.47%.

Some of this decline is attributable to lower yields on loans and securities given the low market rate environment.

We also added liquidity during the fourth quarter as you will see by the year-over-year increase in our cash balances and the quarter-over-quarter increase in securities.

With interest rates at historically low levels over the past year and a flat yield curve environment, we intentionally kept these balances low. But now we are rebalancing our cash and securities position to more appropriate levels as we prepare for a potentially steeper yield curve environment.

Moving onto the other major highlights of the quarter. Pre-provision net revenue, PPNR for the fourth quarter increased 42% to $189 million on a year-over-year basis and it was up 13% compared to the third quarter. For the full year, PPNR increased 23% to $650 million. This was driven by a combination of revenue growth as net interest income rose based on higher margin, loan growth and lower funding costs along with flat operating expenses.

Turning now over to the lending side. Total multi-family loans increased $1.1 billion or 3% to $32.3 billion compared to last year. During the current fourth quarter, multi-family loan growth was impacted by market conditions which favored GSE financing as opposed to portfolio lending. This resulted in a higher than normal level of loans which we financed away from us. However, this was offset by higher prepayment income during the quarter which at $20.9 million was the highest quarterly level of the year.

Our specialty finance portfolio continued to grow over the course of 2020 as specialty finance loans and leases increased $439 million or 17%.

Our year-end 2020 outstanding specialty finance loans and leases totaled $3.1 billion while total commitments were $4.8 billion. Origination volumes continue to be strong. Total originations in 2020 were $12.9 billion, up 21% compared to the 2019 origination volumes. As for our loan pipeline, our current pipeline going into the first quarter 2021 is $1.5 billion, including $1.1 billion of multi-family loans of which 61% is new money.

On the funding side, total deposit at year-end was $32.4 billion, up $780 million or 2% compared to the previous year. Throughout 2020, as market rates declined, we lowered our CD rates and not surprisingly CD balances declined. However, this decline was largely offset by growth in each of our other deposit categories which carry lower rates, including saving accounts increasing $1.6 billion to $6.4 billion; non-interest bearing accounts up $648 million to $3.1 billion; interest bearing checking and money market accounts growing $2.4 billion to $12.6 billion.

Before going into Q&A, I'd I like to make a few comments since I was named as the new President and CEO of New York Community. Many of you have opined on what this move means for the strategic direction of this company. Let me frame it for you this way. We had a business model and unprecedented track record of strong asset quality, which goes back over 50 years and spans multiple business cycles. We will not deviate from that business model that has proven successful over five decades. Going forward, we will take that same level of energy and commitment and apply to the funding side.

Historically, we have funded ourselves as a traditional thrift. However, with our recent partnership with Fiserv and new competitive cash management solution, we will be better able to change our funding mix by improving our processes geared toward attracting more core deposit relationships.

Focusing on liability side of the balance sheet does not mean that there will be less of a focus on our loan book. On the lending side, we see continued growth within the multi-family business, which demonstrated its resilience during the pandemic both from within our conv borrower base and from new customers. We will also look at both new and complementary lines of businesses as opportunities present themselves, similar to what we did with our specialty finance business.

Another opportunity for us lies within our branch network. This is a blank canvas for us and we will be -- it will be another area of extreme focus under my responsibility. All of this will be done through a combination of organic growth and/or lift outs from other financial institutions or through likeminded M&A partners. We will consider all opportunities that make sense to shareholders. All options are on the table.

Lastly, I'd like to end my formal comments by thanking all of our employees who worked so diligently throughout 2020, whether it was remotely or in-person. Our results would not have been achieved without their commitment to the company and to our customers. I cannot be more proud of how our entire organization performed last year given all the challenges from the pandemic.

On that note, I would now ask the operator to open the line for your questions. We will do our very best to get to all of you within the time remaining. If we don't, please feel free to call us later today or the week. Operator?

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session question. [Operator Instructions] Our first question is coming from the line of Ebrahim Poonawala of Bank of America Securities. Please proceed with your question.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Good morning, Tom.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning, Ebrahim. How are you?

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Good. So, first of all congrats on the CEO appointment. And just talk to us about expense outlook, I know expense has ticked up higher in the fourth quarter, but I heard you talk about some potential for branch savings. But -- and I understand that you may not be ready to have all the details on that. But just give us a sense of where expenses should trend as we look forward into the next quarter, over the next year, if you can talk to 2021?

Thomas R. Cangemi -- President & Chief Executive Officer

Okay. Yes. Sure, Ebrahim. So, I would say that, yes, we had some movement on the expense in the fourth quarter, again driven from my previous commentary. The movement from classified assets for us, obviously there's a cost of that. We're very comfortable with managing through this difficult time on the classification side. However, that does come at a cost. So, FDIC, expenses on accrual basis has elevated significantly over the past, call it, six months. That had a significant contribution to the fourth quarter as well as some taxi medallion related expenses of about $1.08 million on taxi medallion. The differential -- well, I'll stay off of my guide -- was driven off the FDIC costs. Those costs will continue.

So, I'd say for the -- we'll just give the Q1 guide, $134 million is my estimate, so it's pretty much flat off of the fourth quarter; and typically, Q1 is the quarter high for the bank. So, I'd say Q1 is around $134 million. You can kind of think about annualization somewhere between $530 million, John, $535-ish million.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes.

Thomas R. Cangemi -- President & Chief Executive Officer

$530 million to $535 million. And I think that's a reasonable run rate. Again, but -- again, I'm not yet prepared to give that as a full guide for 2021. But on a quarterly perspective, I think we're going to be pretty much close to Q4 and obviously that typically is our quarter high in Q1 versus our previous years when we compare.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

And how soon should we expect you to have an update just around branch rationalization and what you want to do? Like, what's the reasonably timeframe when we should expect an update?

Thomas R. Cangemi -- President & Chief Executive Officer

So, look, we look at the branches all the time as part of our business model. We're very focused on the real estate side. We had a handful of branches that we evaluated last year. I think it was a total of 14 branches that we put on the table for potential reshuffling and that continues, and we're going to go through all our operations. Obviously, the world is changing regarding banking and we're going to look at our branch structure. And if we see deficiencies in that, we'll move opportunistically.

So, I would say stay tuned. Don't expect to see a major restructuring on the branches unless we have a major deal to announce. But we will -- well, from time-to-time, we do go through our leases that come due. We look at the run rate that's outside the economics of exiting one, and we will be opportunistic depending on market conditions.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. And I guess just moving to the margins, so I think you still have -- you flagged a fair amount of high-cost CDs coming up and debt coming up from maturity. Just tell us in terms of the refi costs for these and just your expectation on the core margin going forward?

Thomas R. Cangemi -- President & Chief Executive Officer

Yes, so, look, we are -- as everyone knows, we had a lot of opportunities in 2020 given where we were and where we are today. You know, I still believe that we're going to see historical lows in our cost of fund, in particular on the retail side. So, I would say with certainty in Q1 we will be at our historical low.

I believe that was around 50 basis points as a historical low. We'll probably break that in Q1. And that's really an ongoing phenomena throughout the year, assuming rates stay close to zero.

So, I think it's fair to say that given the level of excess liquidity put on given the balance sheet and what we expect to need to push some of that excess cash will probably cost us about 2 basis points in Q4 and probably 2 basis points in Q1. I can safely guide between 3 to 5 basis points improvement in the first quarter, obviously albeit at a slower pace than the previous year, but given the magnitude of the drop of the CD book.

And the CD portfolio as well as overall cost of deposit should decline, I guess, by the third quarter somewhere below 40 basis point. It could be 35 to 38 basis points depending how many of these customers go into a much lower liability instrument.

So, I think we're going to see margin expansion throughout 2021 throughout the year to guide up for the quarter 3 to 5 basis points in Q1. And I think what's on the table now is what happens with the shape of the yield curve.

We had some nice gyrations in the fourth quarter that continues in the back and starts to improve here. Our customers will probably come to the table and look to accelerate refinancing. And we'll be there to serve a nice spread in this environment in a healthy multi-family market.

The multi-family market has been extremely healthy despite the pandemic. So, if you look at all the asset classes, people are paying their rents. We're predominantly a niche play in a rent-regulated space and there's refinancing happening on a daily basis.

So, we hope that we see a better yield curve that could also drive the margin higher.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. And if I may just squeeze in one more on the multi-family market. You mentioned GSE got more competitive toward the end of the year. Just give us the outlook, do you see this portfolio, multi-family portfolio, growing and what's kind of the feedback you're getting from your borrower base in terms of what they're looking to do?

Thomas R. Cangemi -- President & Chief Executive Officer

Well, 2020 was a very interesting year. The GSEs were very competitive before the pandemic. They put us to compete with a very significant level in January, February, March. Pandemic hit, they disappeared. Literally, they could be -- we were in business in Q2 and spreads gapped out. We were doing some really solid business, we had good growth. But Q1 of 2020 was competitive. And I'd say for Q2 and Q3, they were kind of trying to fill their role of their quota versus tightening up their underwriting standards taking it through the pandemic and social distancing and figuring out remote origination. And then by Q3, Q4, they kind of figured that out in a very strong way and had to fill their coffers. And fourth quarter was very noticeable as many customers evaluated the rate environment. Lot of those commitments are probably done in Q3. They close in Q4.

We did a really strong job on protecting the loan book, so we've actually executed with some of our larger customers to protect these great relationships than we competed against the GSEs. However, there was some loans that went away given the market conditions, the yields were low and the dollars were heavy. And again, we protect the credit of the portfolio. It's all about the long-term credit metrics of this bank. And clearly, looking at some of the deals that were on the table, we let them go. And you can see the elevation of prepayment activity.

As we stand today in January, it appears that there's less storybook loans going away to the GSEs as of today. They filled their coffers last year and we'll see what happens as we go forward here. But if there's a sloping yield curve and the back end starts to spike up higher, typically what happens is customers go back to the portfolio lenders, five and seven year money becomes more the product issue, and we tend to be very competitive there.

So right now, it seems like we're setting ourselves up for growth as we go into 2021. 3% to 5% high net multi-family loan growth is reasonable. I like to be around 5%, I think it's achievable. However, the shape of the yield curve will really depend on the level of activity.

If there's a spike in the yield curve, we think a lot of these customers that are coming due will accelerate refinance and we'll be ready to lend.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. Thanks for taking my questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure.

Operator

Thank you. Our next question is come from the line of Mark Fitzgibbon of Piper Sandler. Please proceed with your questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hey, guys. Good morning. Tom, congrats to you and John on your new roles.

Thomas R. Cangemi -- President & Chief Executive Officer

Thank you.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Thank you, Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

First question I had Tom, just to clarify on that 3 to 5 basis point guide on the NIM that you gave. I assume that excludes prepayment penalty income?

Thomas R. Cangemi -- President & Chief Executive Officer

That's correct, Mark. We don't guide prepayment penalty income. That's correct.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. Okay. And then secondly, it sounded like from your comments that we'll see some changes on the liability side of the balance sheet. There were also some new lending niches that you'd consider, and I guess I'm curious what those might be.

Thomas R. Cangemi -- President & Chief Executive Officer

Mark, there's a level of excitement here. Culturally, we've always been all about the credit and service extremely well. But there is an opportunity here. I've been saying this for, what, many years. The low-lying fruit of the full relationship lending is out there.

I'd say complimentary lines of business, for example, if you have a very wealthy family who is looking for a line of credit, and we tend not to service lines of credit, that's an easy exercise for us. We know the customer. We know the opportunity. We're very comfortable with the history. No reason we should not have a line of credit with a strong borrower. That relates into more relationship lending, more deposit flows.

Now, we're getting better deposits both historically, but we have so much work to do. That is my emphasis. I believe that our loan book has not yet been fully tapped in respect to relationship lending, and the Fiserv conversion that we bought last year was a major difference conversion, and more importantly our cash flow management system is right on par with the largest commercial banks.

So, there's no excuses that our system does not compare to a capital one or a local commercial bank that we compete against. And so, we feel very comfortable there. But we may have to tweak a little bit on the service side, tweak in the relationship lending side. That will happen over time. But I think there's tremendous low-lying opportunity that we will aggressively go after.

So, I do hope that our customers are on the line here because we have a commitment. We want to bank you full service, coming down to the lease amount that comes onto -- the lease agreements we should be getting, as a matter of course the operating accounts and the full relationships. So, there's going to be a push, I say, funding on a daily basis. I think my staff is getting sick of hearing it, but that's where I'm at. I think this is the opportunity to change the thrift model on the funding side and look at the pure commercial banking opportunity within our customer base.

As far as new lines of businesses, I'd say it's going to be complementary to our customer base. We do lend commercial and multi-family for these families. But lines of credit opportunities that arise, we're going to bank them. But more importantly, and I said this with clarity, we are looking at all unique things in the marketplace and we're very comfortable like we did with specialty finance, bringing in a team of people from the outside, management list out. These are things that we're looking at today. We have no problem bringing on lines of business that we're comfortable on managing as the credit risk.

So, we are clearly looking to a diversification over time. It's not going to be a build out from scratch. I can assure you that. I'm not going to make an announcement that we're investing in the residential market and we're setting up a new residential portfolio. We're going to partner. Partnerships will get it done a lot quicker and will make rational sense.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Great. And then I guess, is your expense guide of $530 million or $535 million imply much hiring or will that be incremental as you sort of over time you go through --?

Thomas R. Cangemi -- President & Chief Executive Officer

You know, Mark, I'd say the big expense will come when we do something strategic. So, it's going to be blended and an accretive opportunity. I'd say we're going to reshuffle the deck. We're looking at lines of business. I'm going through the entire bank right now. We're going through all aspects of how we land the processes. We'll do some reshuffling, and look, maybe service -- service people, fresh relationship people. By the end of the day, I think it's not going to be a material adjustment to the guide I gave you.

I think it will be more indicative toward revenue generation. So, I would say that guide has some reshuffling internally. There'll be no real restructuring of the employee base. We're going to -- we have a huge opportunity on the system side. And we have a lot of people that can be utilized in other departments to work with the customer side.

So, we're going to try to find -- catch a balance and hopefully keep the expenses tight in this difficult banking environment, but also focus on revenue opportunities within the franchise.

So, I think maybe we'll get a few hires here and there down the road on the service, but ultimately I want to reemphasize this low lying fruit here that needs to be picked and we will pick it.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Thank you.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from the line of Chris McGratty with KBW. Please proceed with your questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Morning, Chris.

Chris McGratty -- KBW -- Analyst

Good morning. Thanks for the question. Tom, maybe you could start with just the change in the balance sheet and the securities portfolio and the cash position. Given the build in the quarter, how should we think about the progression of that non-loans going --?

Thomas R. Cangemi -- President & Chief Executive Officer

Chris, I'm going to defer this close to John. John, if you don't -- this question to John. Go ahead, John.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Sure. Thanks, Chris. So, we did -- as Tom mentioned in his opening statements, we did add some cash and started to increase our securities portfolio in the fourth quarter. Over the last couple of quarters and years, that securities portfolio has drifted down pretty significantly to drop below 10% of securities assets.

So, we wanted to take advantage of the rate environment at the time, put on some term borrowings at the end of the fourth quarter to enhance our liquidity position; and over time, put that into securities and partially into loans depending, of course, on loan growth. And we expect to do that in the first quarter and into the first half of the year.

Chris McGratty -- KBW -- Analyst

Okay. Great. And then on the strategic side, I mean historically acquisitions have been primarily funding-related. I'm interested in with the change in the leadership, are there opportunities for notable funding to drop under the balance sheet and improve, or is it more of an asset availability today?

Thomas R. Cangemi -- President & Chief Executive Officer

I would say a combination of both. I would tell you that we're looking at everything that's available. Deposit opportunities are real. There, they exist. We're going to be very carefully evaluating those opportunities as well as businesses that focus on deposit gathering. But there's an interesting amount of unique opportunities out there that have the ability to gather liabilities. Either these are non-FDIC insured institutions or they have a business that has a bank. They may own this type of business that is shredding that type of business. So, we're clearly looking at everything.

We've bid on stuff in the past, we've lost. We're not a, recall, an aggressive buyer of anything, but we do look at a lot of stuff. And clearly, like I indicated, the deposit side of the balance sheet here, if we refocus the energy, I believe we can get two to three multiple turn on the stock if we change our funding mix.

Being so dependent on wholesale finance as a thrift without doing a large transaction for over a decade impacts on multiple. I believe we return that multiple into more of a core deposit opportunity, you can see two to three multiple turn and get that valuation back.

So, we're razor focused there. Doesn't mean we're going to be successful on winning opportunities, but we are very much looking at deposit opportunity as well as whole bank M&A. I mean, there's no question that we're in an environment that mergers and acquisitions makes a lot of sense. The scale is important.

We believe we have a very unique system upgrade where other banks in our backyard have not done again. They're going to have to do it in the next two or three years. So, it's very interesting to join the family and within the systems here we can prosper together over time. I think that opportunity exists, so we're excited about that.

And I go back to the cash flow management solution. That's really exciting, because historically that was some of the pep piece we've had where there was criticism on not being able to have the same technology as some of the larger commercial banks. Well, now we have that technology, no reason to not have the full deposit relationship.

So, we have a lot of enthusiasm on the systems side. Our people work very hard. This was a three-year project in the making. So, if one is thinking about making this conversion, it's a three year project. And we did it in the middle of COVID. We actually closed the conversion in August of 2020, even though was postponed year-after-year to do it right, this was a major upgrade for the company, so we're excited about that, and this will help us on consolidation as well.

Chris McGratty -- KBW -- Analyst

Great. And then if I could, just given the newness of your season in the internal focus announcing a deal or a strategic transaction, you'd be comfortable doing that kind of in the first part of the year given everything that's going on?

Thomas R. Cangemi -- President & Chief Executive Officer

We're doing this a long time. I'm very comfortable on strategic business combination. This is not about ego, this is about shareholder value and we will be very shareholder-orientated. That's my history. That's my background. I've been doing this quite for multiple decades alongside with Mr. Ficalora. And as you said, there's no leadership here; and clearly, we put the egos aside. This is all about doing the right thing for shareholders.

Chris McGratty -- KBW -- Analyst

Great. Thanks for the question.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure.

Operator

Thank you. Our next question is coming from the line of Brock Vandervliet with UBS. Please proceed with your questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Morning, Brock. I guess we lost Brock.

Operator

Brock, is your phone on mute?

Brock Vandervliet -- UBS -- Analyst

Sorry about that. That always helps. So, good morning. I wondered if we could go to expenses. I guess I'm struggling a little bit with the guide here which is very clear, and I just want to understand kind of what's changed versus basically flat expenses or very little growth on the expense side.

Thomas R. Cangemi -- President & Chief Executive Officer

Look, I think, Brock, there's is no question that -- this is by the way slightly higher than the previous year. We had some one timers last year. But the change in the run rate is that we have FDIC costs associated with banks that are now -- loans that are now criticized.

We have a bucket of loans that went through COVID, went through the CARES Act and we reevaluate those credits and they go into special mention substandard and we have to apply an FDIC assessment against that risk. Very comfortable by the way managing that risk, very comfortable as far as dealing with the loan books. However, there's a cost to that.

So, I'd say the elevation and FDIC alone got to be between $10 million and $12 million, minimum. And we hope that that starts to stabilize by first and second quarter. And then from there as these loans get back to filling their leases, getting tenants back into these units and/or storefronts, you start to get them back into a lot -- out of a watch class asset.

So, I think that's really what's driving year-over-year. At the same time, we've always been monitoring our expenses. We're very efficient as a company. And I think we're going to see the benefit on an efficiency ratio perspective, because the margin is stronger, better efficiency ratio numbers.

But clearly, going back to -- I'll reiterate, back to when we were trying to become a SIFI bank, our expenses were $660 million run rate. We knocked it down to the low 5s, we're still operating at low 5s. And with that investment that we made in systems and in risk management, we have tremendous back office function that we built to be a much bigger bank.

We have not yet grown the bank through acquisition. So, we were very confident that when the opportunity arises, we have the back office and platform to leverage the expense base

But the guide is what it is. I think it's reasonable. Don't expect to see a major reinvestment because of the system conversions is done. Money has been put into this system. There's opportunities, but they're going to be from time to time maybe some small list outs from here, there, local banks that we can shake out some deposit gatherers that we'll probably go after aggressively. And I don't think it's going to be meaningful enough to change my guide, because we shuffle within the organization.

Brock Vandervliet -- UBS -- Analyst

Got it. And could you just revisit the GSE dynamic. We can see the -- depending on your -- I look at two 10s for example, that's steep and pretty materially. It did so in Q4. What is -- what's driving that competitiveness and is some of it the fact that landlords are looking for any way to materially control costs, including interest costs given the aftermath of the Rent Act? Like, is that driving it or is it just the GSE's are back and big?

Thomas R. Cangemi -- President & Chief Executive Officer

Number of factors, right? I mean, obviously, that's probably rate. Rate is rate. If you can get a coupon of sub 3% and take it over IO for 10 years, that's competitive rate, right? So, if you think about how this process works, you're going to size up a deal, let's say, with Q2, end of Q2 and closing in Q4.

So, you really need to look at the rate environment throughout the COVID scenario, right? So, I go back to what happened in the first quarter of 2020. They were competitive and out of the gate. We still grew our portfolio Q1 of 2020. And then Q2, we were in business with higher spreads. We fine-tuned our underwriting and we did some great business with the GSEs, I think were distracted.

Plus, due to COVID, it was figuring out how to remote originate. Our guys have the ability to do paperless remote origination, that was a major upgrade for the company that was back in the end of 2019. We have the new gen system, so it's all remote. So, our people are open for business on a daily basis doing great originations, but we capitalized on Q2 and then rates were generally low in generals in Q3 -- and that's what -- at the end of Q2 into Q3, I think a lot of the larger customers looked at the market and said our rates are low, there's not a real -- there's no real purchase and sale activity. So, let's lock it along and put the money on the shelf for the GSE. Then it's a competitive rate. And by the way, we've competed with some of those great customers to ensure we don't lose that business.

So, we've had some large transactions and we had a fierce competition in Q4 because we sized it up and in middle of year, give it, anywhere from three to six months to close and my guys talking to shareholders out pulled through the end of the year was flat to down and we squeaked out some growth in Q4. So, we're very pleased. But that was a fierce quarter in Q4.

And the good news today is that when I speak to our lending people on a daily basis, it seems that we have not sizable deals going away. We have a nice pipeline. We have a nice new money pipeline. So, we should be back in the position of growth and the GSEs sold a lot of their coffers last year and they had to fill at the end of the year and they started fresh again.

So, let's hope that we'll be competitive. But nothing new here. We've always competed with the government. And if rates start to tick up, I think the product this year will be five and seven year money, and the spreads are healthy.

If I can get 300 basis points or 275 or 300 or 570 of money on a risk adjusted basis, we can do good business there. Because the credit losses are de minimis, it's not zero.

Brock Vandervliet -- UBS -- Analyst

Right. Okay. Thanks, Tom.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure.

Operator

Thank you. Our next question is coming from the line of Steven Alexopoulos of JPMorgan. Please proceed with your questions.

Steven Alexopoulos -- JPMorgan -- Analyst

Hey, good morning, everybody.

Thomas R. Cangemi -- President & Chief Executive Officer

Hey, Steve. How are you? Good morning.

Steven Alexopoulos -- JPMorgan -- Analyst

Thanks Tom. I wanted to start, Tom, regarding your vision to improve the funding base of the company. It sounds like you might need an M&A deal to move the needle. With that said, you no longer have a premium currency. Are you still committed to a deal needing to be tangible book value accretive out of the gate?

Thomas R. Cangemi -- President & Chief Executive Officer

Look, holistically, we looked at that as value creation, so I would say to you there's going to be two prong approach. We're going to work within the franchise as we discussed, within our own operations. We think there's a tremendous low lying fruit opportunity. That's priority number one.

We're open for opportunities. I mean, to change the diversity of the lending book and try to take on new products that are new to the bank and really try to drive this into a commercial enterprise, it'll be an M&A transaction that does so.

And depending on marketing conditions, I look at the environment historically that we like to do transactions with no premium type transactions where tangible book size preserves a little bit. We can be flexible. I mean at the end of the day, if we can put a highly accretive transaction on the table and we earn back is de minimis, we would consider that.

But I would still say fundamentally, taking tangible book value down is not the best idea of creating value. So, we'll be open to interesting idea. It depends on the opportunity, right. It depends on the earnings power of the partner. And I don't call them targets. I call them partners. We don't do targets, because at the end of the day we have to bring the people over from the other side to become partners.

The best transactions are done when you have partners at the table. We build a table. Everyone sits around who is our partner and we have good partnerships. You can create real value. I think that's the approach.

Nothing's changed here other than we had some leadership change. And as I said before, the reality is that we run this company for shareholders and we look at the opportunities in the marketplace. It's a shareholder driven opportunity. There's been some large M&A transactions where low to no premium deals make a lot of sense, especially with the technology build that's going on out there. So, we're very focused on doing the right thing for shareholders.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay. That's helpful. And then on the deferrals, if I look at this $6 billion of deferrals that are now current or paid off, were any of those rolled into the 6% of loans, I guess around $2.5 billion that are now IO? And what types of loans are in that $2.5 billion bucket of IO?

Thomas R. Cangemi -- President & Chief Executive Officer

And so, absolutely -- so, again, I'm going to go back to the point about the GSEs. A lot of these loans that went into IO also could go to the GSEs on a 10-year IO structure. So, no question that was the market. And when we looked at the loans that came off the CARES Act and literally went back to payment side, that was fabulous.

At the same time, we're acknowledging that you have this unique phenomena, I'll call it Manhattan phenomena as the city starts to reopen. As all the borrowers in Manhattan is having the most difficult time on this record, getting back to somewhat of a normal.

If you look at Queens, Brooklyn and the Bronx are particularly doing extremely well. For us, I'd say that the type of these assets are the ones that have more of a concentration of less rent regulation. So, they happen to have some more market type apartments, you have store fronts that are retail/office that will have more difficulties in Manhattan than they would in Brooklyn, in Bronx with allowance for sure.

So, the five borrowers I'd say the area that we see impact is Manhattan. And I'd say of that portfolio, I'll just be specific, $2.5 billion you have approximately $1.6 billion multi-family and about $800 million of commercial CRE and on the office side is about $400 million and the retail is about $200 million. And the LTV on the office is 51% blended for all of the CRE 54. And if you look at multi, it's about 53%. And when you look at these on a cash flow basis, as you apply a debt service coverage ratio on a casual basis, there's still north of a one for one, so they could pay service on and they also can leave the bank and go to the GSEs as they choose to do so.

So, there's some of those types. There's others that have to lease up again and we're working through that, utilizing the CARES Act and getting paid on a monthly basis.

As I said, we have 99% of overall loans out of the non-pay status, which is pretty impressive given the pandemic. But more importantly, what I find when I dive into the portfolio and we mine the data, you look at the fact that the higher percentage of loans that have less rent regulation are the ones that are the IO potential, right? Because the ones that have 100% rent regulation, they're paying, they're collecting and there's no issue, which is -- it's a resilient market for that niche business and we're going to continue being a dominant force for portfolio in that niche.

Steven Alexopoulos -- JPMorgan -- Analyst

Great. And maybe if I could squeeze one more in. In your opening comments, you said everything was on the table. And as we think about banking in the digital age, what's your view on preserving this local brand model you've had for years versus maybe consolidating everything under NYCB? Thanks.

Thomas R. Cangemi -- President & Chief Executive Officer

I see that you're getting really deep there. Okay. I'll tell you that, look, at the end of the day, given our franchise, we have 24 branches, we're in Arizona, Ohio. We're down in Florida, down south -- down in south areas of South Florida, New York and New Jersey. We have a very unique brand. But we also have a multiple brand concept, right? So, it all depends on the partner. It depends on the size of the transaction and the markets.

So, if it's a Florida transaction, well, that's easy. If it's a New York transaction, it's not going to be more complicated. But again, it comes down to what's right for shareholders, right, what's best for the shareholder, what makes the logical sense. And we're going to be very logical and we're going to be disciplined.

However, we have multiple brands in multiple markets. If you go into -- if you go to Ohio right now, we have Ohio Savings Bank that used to be AmTrust. We rebranded back to Ohio. Down in South Beach Florida, it's AmTrust. Amtrust is very well down there. Doesn't mean we're wedded to anything. The reality is that if we are going to create something that's a regional platform, we have to do what's right for shareholders, makes the most value creation. So, we're open to all opportunities.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay. Great. Thanks for all the color and congrats, Tom.

Thomas R. Cangemi -- President & Chief Executive Officer

And I will tell you one before you go, we're not going to make an investment on the rebranding. We will do it through a transaction.

Steven Alexopoulos -- JPMorgan -- Analyst

Yes. Got it. Thank you.

Operator

Thank you. Our next question is coming from the line of Steve Moss with B. Riley Securities. Please proceed with your questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning, Steve.

Steve Moss -- B. Riley Securities -- Analyst

Hi, good morning. Just to start maybe credit cost here for the quarter. Wondering how much is driven by the credit downgrades versus perhaps, you know, a little bit of an extension in the loan portfolio here?

Thomas R. Cangemi -- President & Chief Executive Officer

You saying, to repeat, the credit costs you said?

Steve Moss -- B. Riley Securities -- Analyst

Yes. The drivers of provision, yes.

Thomas R. Cangemi -- President & Chief Executive Officer

So, the actual charges we have is all I believe 100% medallion driven. As we go in the medallion, yes.

Robert Wann -- Senior Executive Vice President & Chief Operating Officer

Primarily -- yes, primarily medallion driven on the charge-offs. On the provision we booked, which was lower than the third quarter and has been the trend each quarter in 2020 with lower provisions. The macro environment did get a little bit better. Housing prices got a little bit better. But we did have the increases in the classified and criticized assets that Tom mentioned.

So, from a qualitative perspective, we want to ensure that we cover those potential increases. We don't see a huge risk of loss there, as John mentioned earlier. But from -- from the CECL perspective, we wanted to make sure we were covered.

Thomas R. Cangemi -- President & Chief Executive Officer

That's right. You know, it's interesting what John said. I'll just follow up on that commentary. Usually, every quarter I kind of isolate the risk that we're seeing. And few quarters back, it was retail. Then I said, let's see, we'll watch the office portfolio. But we're paying attention very closely to Manhattan. It is what it is. You know, it's the last borrower that really is having a difficult time. And if you look at where we are on sub-standard, special mention, it's 80% Manhattan, right? I mean, isolate down to a handful of loans, all in is about $449 million of multi-family and about $300 million CRE broken out.

We have literally an 80% split to Manhattan. So, I think that we have a good hands on this. Historically is that when we do a Manhattan transaction, it typically is the lowest leverage we have on the portfolio, historically as we had in Queens.

And when you look at ones that migrate into what's called a classified situation, the LTV on the multi is about -- I believe that number is around 56% and the overall CRE portfolio on LTV I believe is about 58% as well.

So yes, for us that's slightly higher than the 40% something. But for obvious reason, it needs a little more help. And when you apply an IO structure to these loans, they continue cash flow out and also one for one for the most part, some don't but for the vast majority do. And we're working through it. But no one's knocking on the door and returning the keys. They have real embedded value as well as very strong sponsors that are willing to work it out. These are not CMBS pools. This is a unique way we lend. And if there's any risk at all we tend to get a lot more folks into the opportunity where we will have real strength upon the eventual liquidation.

Believe me, there's plenty people loving to buy these assets, but they're not for sale. They're working through a difficult environment and they're paying interest only and they're all on payment status and they're paying taxes to the city.

So, it's an encouraging outlook for us. I kind of ring fencing now to Manhattan and we're razor focused on it. And we believe that as the reopening starts to take place, hopefully sooner rather than later, this should be hopefully the area that we'll talk about hopefully by the end of the year that's stabilizing. But there's no guarantee that can happen, right?

Steve Moss -- B. Riley Securities -- Analyst

Right. And just on those IO mods. Just kind of curious what the interest-only period is and if you asked for any additional collateral?

Thomas R. Cangemi -- President & Chief Executive Officer

Typically, what we do is that the ones that came through the CARES Act and paid, they just continue. They go back to P&I. And the ones that need a little bit help, they requested that we offered six months. So, we'll take another hard look at them, which on April and May again. The April and May comes around and I think that if the reopening starts to take place, a lot of these guys are on the cost of going to the agency too. So, we want to protect our business. And like I said before in my opening comments, the agency is a fierce competitor. So, these -- some of these loans could go there. Even though they are considered on a cost of what we'll call a special mentioned type asset because of the lease up of the ground floor in particular, but I think a lot of these loans are in a very good spot where they actually can make these payments and protect the -- their assets from going to -- or asset purchases.

There's a tremendous amount of money out there that would love to buy these assets in the events things go sideways six months now. So, right now we're working through it.

Steve Moss -- B. Riley Securities -- Analyst

Okay. That's helpful. And if I could squeeze one last question in. Just on the securities purchases here for the quarter, just kind of curious what are the yields -- what kind of stuff in the yields you're purchasing these days?

Thomas R. Cangemi -- President & Chief Executive Officer

It's dismal. I'll yield this -- go ahead, John, why don't you go ahead and expand upon?

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes, I mean, if you're looking at agency type paper which is what we look at, you're in the mid ones in the 150 range for good quality structured paper.

Thomas R. Cangemi -- President & Chief Executive Officer

Yeah. And if you think about, we have obviously tremendous amount of liquidity, we have $2 billion cash in the balance sheet at zero. So that's going to be deployed hopefully into our loan book as well as security. So, in my margin guide, I'm very conservative on the deployment of that excess cash. But we do have excess liquidity. We put out some money long as a matter of taking advantage of the structure of the curve. We still have a lot of wholesale finances that had to be restructured over time and going forward even in this quarter we have about $325 million at 236 marked at 50 basis point. So, that's something that we look to probably lock in long and instead of going overnight.

And then I think the next big slug of money comes in 2022, which is about a $140 million, so we have time on that. So, we're not going to be structure that. It's too far out of the money.

And I think what's really interesting in 2020 is the beginning of 2022 is that we have $2 million on a macro hedge against fixed versus the float on the multi-family side. If rates stay low for longer, we'll just remove it and that's another 10 basis points to 12 basis points on our margin for 2022.

So, we're hedged there and as we grind to 2021, that will also be upside for us and depending on interest rate. We may keep it on as rates are rising for some reason and we're in a strong economy and everything is behind us. But my view is that that's probably not going to happen in 12 months and that hedge could be something that's also beneficial to the margin.

Steve Moss -- B. Riley Securities -- Analyst

Great. Thank you very much for all that color.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure.

Operator

Thank you. Our next question is coming from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Good morning. Just in terms of the taxes, if given the change of the administration if we do get a tax increase, what does that imply for your overall tax rate and have you or can you do anything to kind of minimize that hit versus in terms of tax strategies?

Thomas R. Cangemi -- President & Chief Executive Officer

So, that's a pretty simple question. Obviously, if the rates go up, we pay more taxes. If that's possible I think it's more of a 2022 phenomena, hope it's not a 2021 phenomena. But they took it to down to 21% and from 28%. There's talk about 28% from a much higher level and that would impact a bank such as ours to a point where is it going to be dollar for dollar, I would say that we're going to be very proactive in managing our tax structure which we're very focused on. But no question that higher taxes means less profitability, right, John? You want to add something to add?

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes.

Ken Zerbe -- Morgan Stanley -- Analyst

Sure. Actually, I should have been more clear on my question.

Thomas R. Cangemi -- President & Chief Executive Officer

Yes, I guess.

Ken Zerbe -- Morgan Stanley -- Analyst

If it goes at all from 21% to 28%, that's a 7% increase. What is the percentage increase in your effective tax rate? Thanks.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes, it would be just -- it would be just below the 7%, right? So, we would -- it would probably be in the mid-6s it would go up. That's excluding any other tax planning items that we would do.

Thomas R. Cangemi -- President & Chief Executive Officer

Right. Right.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. And but just to be clear, is there any other tax planning items that you can do and how meaningful would those strategies be?

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes, we haven't played much on the federal side in the past. I mean, you can see that in our rate currently, right? So, that's not something we would normally look at. But as we've looked at in the past, we'll do it in the future.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Thank you.

Thomas R. Cangemi -- President & Chief Executive Officer

Let's hope we get to 2021 where they don't raise taxes. They do it is what it is and 2022 is probably more probable as that happens and then we'll deal with it.

John J. Pinto -- Executive Vice President & Chief Financial Officer

That's what we're hearing right now, right. It's that not in the middle of pandemic, but it could be in 2022.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Thanks for that.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure.

Operator

Thank you. Our next question is coming from the line of Dave Rochester with Compass Point. Please proceed with your questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning, Dave.

Dave Rochester -- Compass Point -- Analyst

Good morning, guys. Congrats for roles.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Thank you.

Dave Rochester -- Compass Point -- Analyst

Hey, Tom, you had mentioned the NIM expansion beyond 1Q as well for the rest of this year. Just wondering if you think that 3 bps to 5 bps for 1Q were a good pace per quarter given what you're looking at now and your expectations on rates?

Thomas R. Cangemi -- President & Chief Executive Officer

Dave you know me for a long time. I don't give yearly guidance on the margin, so.

Dave Rochester -- Compass Point -- Analyst

I tried.

Thomas R. Cangemi -- President & Chief Executive Officer

I know you tried. But I will tell you that a lot's going to depend on the shape of the yield curve. We had some excitement in the fourth quarter with a bump-up in interest rates. I think that'll get the attention of many of the customers.

If it spikes significantly, this margin expansion could be outperform to what we expect. But meanwhile, when we run models or running it conservatively, it's pretty much a flat curve environment and we're showing that Q1 up a little bit here.

I think we probably lost about 2 bps on the excess liquidity. If we put it out fast, we'll get it back. As you know, we've kept our securities portfolio below 10% which is -- if you look at the median peer group, that's probably the lowest in the peer group, and it had to have a little bit of a bumpier as we positioned ourselves to go longer out in the funding side and anticipate opportunities as we start to redeploy the balance sheet and I don't think we're going to take it significantly from there. So, let's say it goes from maybe 10% to 11%, but the cash position is very high right now, we'd like to put some of that money to work. And that's going to impact the margin hopefully favorably coming off of a zero return on cash.

Dave Rochester -- Compass Point -- Analyst

Yes. Okay. And then maybe just on the loan side, where are you seeing new money yields now on multi-family and --

Thomas R. Cangemi -- President & Chief Executive Officer

Yes. So, the pipeline yield I believe -- what is that John, about 3.50% new money pipeline?

John J. Pinto -- Executive Vice President & Chief Financial Officer

New money pipeline, right, 3.50%.

Thomas R. Cangemi -- President & Chief Executive Officer

Yes. So again, low 3s competing tight on both 3s durations is somewhat shorter, but we've been hovering around 3%. You apply that to the spread. It's a little bit tighter than we had like, but it's coming off of the agencies desire to be more prolific on the lending side. That again the spread has been healthy between 2.75% to 3.15% depending on the size of the order that we look at and I think we're getting that 3% net and that's important, but the payoff was high.

So, the last quarterly pay off was a 3.75% originated 3.04%. We're still holding 3%. The interesting modeling question we'd have what happens in 2021 is the yield curve steepens as that 3% go back to 3.50% if we see a nice spike in the back end.

So, that could happen. There's no guarantee, we're modeling more of a conservative scenario and we're still seeing margin expansion.

Dave Rochester -- Compass Point -- Analyst

Yes. Okay. How much do you think you need the long end to move up before the GSE competitiveness does start to decline?

Thomas R. Cangemi -- President & Chief Executive Officer

I think when you -- I really would spend time looking at the 10 year move with the 10 year [Indecipherable] start to move significantly here. I think customers will realize that economically it may make sense to go to the portfolio lenders and we're evaluating opportunities as far as synthetically getting them to stay with the bank and swap opportunities. We do not have a specific swap program internally, something that we are considering as a preventative edge to keep some customers from going to the GSEs to synthetically do that, and get some fees up front that's something that's on the table.

But no question that spread between -- I think Brock had said it between 2s and 10s where you spend time evaluating that has been a nice move in the fourth quarter. If that continues given the expectation of substantial deficit spending and there's view that rates are going higher in the back end, that will move customers back to the five and seven year portfolio lenders space.

Dave Rochester -- Compass Point -- Analyst

Yes. Okay. Where were you guys adding borrowings for the quarter and then where you -- what do you think for rate now?

Thomas R. Cangemi -- President & Chief Executive Officer

I'd say it's 2, 2.5 years to 3.5 years anywhere from 48 to 58, that spread.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Right.

Thomas R. Cangemi -- President & Chief Executive Officer

So, it's cheap overall funding. And if we can't bring it on the funding side, we will look to rebalance interest rate risk by taking on an opportunity, which is three-year money around 50 basis points, which is pretty cheap.

Dave Rochester -- Compass Point -- Analyst

Yes. Okay. And just switching to expenses, that extra $10 million to $12 million in additional FPIC expense this year that you mentioned. That should be dropping out of the run rate in 2022, right? [Speech Overlap]

Thomas R. Cangemi -- President & Chief Executive Officer

It all depends on how bad the pandemic extend itself and does New York City reopens and does foot traffic start and people go back to work? And you'll see some pent-up demand to release. I think that's the key. And I think that we're being at an abundance of caution moving assets into a classified bucket as we should be doing. And then the biggest consequence today on that is that it costs us money on the FPIC insurance.

Dave Rochester -- Compass Point -- Analyst

Yes, yes. That makes sense. And then, on the loan growth outlook, I appreciate your thoughts there on the multi-family side. I think it's a 3% to 5% there. What are your thoughts on the rest of the portfolio?

Thomas R. Cangemi -- President & Chief Executive Officer

I think, look, we had a substantial reduction last year on CRE, just a matter of the market. That may be stabilizing a little bit assuming that we look at other areas on CRE side. But as I say, CRE is flat to down 1% or 2%. I think we're going to see a nice uptake on specialty finance given the amount that's outstanding and what's committed this close to $5 billion, committed at $3.8 billion outstanding, is it $3.1 billion?

John J. Pinto -- Executive Vice President & Chief Financial Officer

Three.

Thomas R. Cangemi -- President & Chief Executive Officer

$3 billion outstanding, it is a nice spread there of takedowns. We haven't seen the takedowns in Q4. We hope to see more takedowns as we go into the year. So, they've had -- their CAGRs have been off the charts and we built that business last year with a 17% CAGR.

So, I expect nice growth, probably what hopefully is consistent to the previous year. That was probably one of our worst years with the pandemic. We grew 17%, so you want to take a conservative look at that 17%, 15% to 18% there.

And then you think about multifamily, if there is a change in the yield curve, we are going to retain a lot more business. And I think our guys have done an amazing job on retaining the business with data mining the portfolio. We're working with the brokers. We're ensuring that we have a good fair shot at these customers before they leave to go to the agency. And we'll be competitive.

We have to do a little bit more IO absolutely. That's the market but we're going to be selective there. We try to be viewed as a hybrid IO, and we're not big on long term IO. But time to time we make those decisions depending on the customer relationship and it's a positive relationship.

We did a very large relationship in Q4 that was IO because of a substantial depositary relationship. One of our very strong customers were -- was pricing us against the agency and we competed, and we lose a little bit on the risk weighting side because it becomes a different risk weighting category. However, it's a great loan, great relationship in terms of deposits with it. So, we have to be a fierce competitor in this environment.

Dave Rochester -- Compass Point -- Analyst

Okay. And then assuming that you guys continue to grow deposits, are you thinking that the securities growth should continue as well?

Thomas R. Cangemi -- President & Chief Executive Officer

I guess on the security side, and John may want to expand on it, go ahead John.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes. We would expect it would grow but not dramatically from here. Given what the cash position is and the securities, we expect maybe a little bit of growth in the first quarter and then hopefully keep it pretty flat from there depending on deposit growth.

Dave Rochester -- Compass Point -- Analyst

Right. And maybe just one last one --

Thomas R. Cangemi -- President & Chief Executive Officer

Dave, on the deposit side, it's not going to be a traditional retail push. It's going to be the business push, which is close to zero cost of deposit. That's the difference.

Dave Rochester -- Compass Point -- Analyst

Yes. No, that sounds good. And then maybe just one last one on fees. You had a good step-up there in the fourth quarter. What's your outlook for fee growth in the first half or maybe just for 2021?

John J. Pinto -- Executive Vice President & Chief Financial Officer

Yes, we're assuming right now it's pretty flat to the fourth quarter. We're not -- we're not assuming a big increase to see as we have -- the third had a lot more of the fees waive during the pandemic than the fourth. But we're -- we're being conservative what we're forecasting there. We don't expect a big increase. It'd probably right around that fourth quarter number.

Thomas R. Cangemi -- President & Chief Executive Officer

So, Dave that goes back to the point of the blank canvas. We don't have a lot of fee income. So eventually, if you saw bringing products, that's where the opportunity arise. We have a very large branch structure where we don't sell a lot of price to the branches, so when you think about M&A and business partnerships, that's where a tremendous opportunity is. That blank canvas that we can paint with new products going through the system, these are legacy branches going back, so some in some cases to the 1,800s that we really have a lot of goodwill within the community that could have these lines of businesses that a normal commercial bank lines of businesses that we don't have.

Dave Rochester -- Compass Point -- Analyst

Yes. Sounds good. All right. Thanks, guys. Congrats again.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your questions.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning. How are you?

Peter Winter -- Wedbush Securities -- Analyst

Tom, with this focus on the target growth, what do you think you're going to generate in terms of deposit growth this year and what do you think the loan-to-deposit ratio could go to?

Thomas R. Cangemi -- President & Chief Executive Officer

Yeah. I would not even go there. It's just going to be a passionate push to look at processes, a passionate push to look at the low lying fruit, and we're going to update you guys on a quarterly basis because it really is not going to be a public plan. It's going to be an emphasis toward culture, right? And culture here has been uniquely different when it come to the lending side versus the deposit side.

I want to reiterate the concept that we have so much low lying opportunity for these relationships that needs to be nurtured in line and obviously showing the technology that we have and we should win more business with the existing customer base.

At the same time, as you bring in new business, we did $12.9 billion originations last year. We should be able to get on every single loan a deposit relationship as well as the potential full service deposit relationship. If we get 50% of it, we won. So, I'm a guy about a 100%. I like a 100%. But if we get 50% there, we win.

So, we do a lot of volume feed as you know, and the portfolio is relatively short. But we found when we evaluate the book, there's a lot of customers that stay with us that are within -- within other portfolios. It was -- it's difficult to move all your accounts. And if you have a good relationship with a good relationship manager, they tend to -- it's not as portable if you can win over that business.

So, I think -- we think about the volume we do, think about the duration of the portfolio, truly opportunistic here and it's more cultural. And the culture has been clear. This is -- the liability term comes out of my mouth at least seven, eight times a day. And that's where we are.

So, I'm not going to give you numbers that are a fantasy. I'm going to give you numbers that are reality and you'll see their growth over time. And if we don't do that, we'll fine tune it until we get there. And we're going to get it right.

Peter Winter -- Wedbush Securities -- Analyst

Okay. That's fair. And then if I could just ask on the M&A front, the thoughts on maybe a bolt-on fee income acquisition to add to diversification and then take market share that way?

Thomas R. Cangemi -- President & Chief Executive Officer

Yes. Like I said, we're looking at all opportunities. I mean, obviously we will do accretive transactions. We don't want to do a transaction kind of take down the earnings profile of the company. But we'd like to change the funding mix. We'd like to -- we'd like to change the -- augment the fee income opportunity. We'd like to start driving partners to the branches. And we also like to look at the big picture that if we do this with a solid partnership that has all these array of products, then we can accelerate that something can happen in five to seven years, we can do it overnight.

So, like I said on my opening comments, all options are on the table. We're very shareholder focused. We have a very unique franchise. We have a diverse franchise when it comes to geographic and we can do a lot of things with it.

So, we're excited about opportunities. We're seeing a lot of great opportunities both on the deposit side as well as on strategic M&A.

Peter Winter -- Wedbush Securities -- Analyst

Got it. All right. Congrats Tom and John for the promotions.

Thomas R. Cangemi -- President & Chief Executive Officer

Thank you, Peter.

John J. Pinto -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is coming from the line of Steven Duong with RBC Capital Markets. Please proceed with your questions.

Thomas R. Cangemi -- President & Chief Executive Officer

Good morning, Steve.

Steven Duong -- RBC Capital Markets -- Analyst

Hi. Good morning, guys. Just on the funding side here, recognizing that you are now focused on growing core deposits. In the meantime, as your CDs and borrowings roll-off, is there a preference between one or the other?

Thomas R. Cangemi -- President & Chief Executive Officer

A combination of both. Sure. I mean, we have $10.5 billion rolling off in 12 months at 79 basis points, this quarter we have $4 billion at 1.07%, markets between 40 and 50 basis points in the retail platform. Some of the costs are not going to go into the CD instrument. They may just hide the money market account at 2 basis points or 2 to 10 basis points. So, we've either haven't go to the lowest cost of funds. And assuming that we're not in a rising rate environment on the short end, they'll hide there for a while and they may be opportunistic if they want to take an 18 month CD or 1 year CD. But the costs versus the wholesale market is pretty much on top of each other.

So, either we rather bring in obviously customer accounts for sure, but we saw this transition of the deposit base that where CDs went into money market and other hybrid funds that are viewed more as an operating type account to lower costs, right?

Steven Duong -- RBC Capital Markets -- Analyst

Yes, yes. And how much in borrowings is rolling off this quarter?

Thomas R. Cangemi -- President & Chief Executive Officer

We have $325 million rolling off at 2.36% coupon and then next quarter I believe we have 393 basis points, very small in Q3, about $25 million. And the fourth quarter of the year it's a decent sized amount of $373 million at 2.57%. But on average for the year it's about $1 billion at 2.03%.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. Got it. Appreciate that. And then just your strategy on the core deposit growth in the long-term. I guess how are you thinking about doing that with the brokers on the origination side?

Thomas R. Cangemi -- President & Chief Executive Officer

We're ready to have conversations. I'm not going to -- we're not going to announce a secret sauce of that, but I believe we have great relationship with our brokers and it historically was about process and we're going to change the process internally.

It's a matter of getting ahead of the closings. Now, we close a lot of volume. Our loan docs -- we require the operating accounts and the loan docs. So, you waive a lot less than you do and you get into to the table and you get the relationship guys in front of the customers at the closing table. When they want the $50 million to $100 million, they have to open up the account and get the relationship going instead of waving it. So, it's about repositioning and dealing with process and people and that's the goal here. And that fine tuning alone will probably move the needle. At the same time, we need to get this this technology build out that we've invested in out to the cust to see what we have. And that's indeed helpful.

Steven Duong -- RBC Capital Markets -- Analyst

And was it the case before that you weren't able to do that because you didn't have the capabilities, and now they do?

Thomas R. Cangemi -- President & Chief Executive Officer

No, absolutely not. I would say it's twofold, right? We just did the biggest conversion of the bank in August in the middle of the pandemic under the Fiserv DNA core processing system. We've had partnered with Fiserv throughout the entire platform for all our major systems that plug-in through Fiserv.

So, we have a -- let's call ourselves a very strong partnership with Fiserv. We co-collaborated on the commercial side as well. So, the Commercial Cash Flow Management Solutions program that we have is a Fiserv product. It's a Fiserv product that's used throughout the entire country. And that was not the same file that was there in July.

So, this is a fairly new opportunity that we believe is not an excuse that our systems are not compatible. So, I think we have a good solution and now there's a push. And by the way, this has been -- this is only since August, right? So, we're just starting the year. It's not even a year old, but we have a solution and now it's a matter of getting the customers onboard, onboarding them, training them and focusing on the push at the top level.

This is at the board level, all the way down to the staff, this is where we should be going with the franchise, getting away from the traditional thrift funding.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. I appreciate the color. Thanks and congratulations, Tom.

Thomas R. Cangemi -- President & Chief Executive Officer

Thank you. Thank you.

Operator

Thank you. Our next question comes from the line of Matthew Breese with Stephens, Inc. Please proceed with your questions.

Matthew Breese -- Stephens, Inc. -- Analyst

Good morning.

Thomas R. Cangemi -- President & Chief Executive Officer

Hey, Matt. How are you?

Matthew Breese -- Stephens, Inc. -- Analyst

Yes. I don't think I saw in the release, just curious what was the criticized and classified loan balances this quarter versus last?

Thomas R. Cangemi -- President & Chief Executive Officer

I think we've disclosed that, John? I'll just give -- I'll go to the sub-standard. We had -- I think I went through that in detail. We had a total of $449 million sub-standard in multi-family and we had a total of [indecipherable] of 14, which I believe identifies 80% being the Manhattan market. I think I went through the LTVs but I'll go through them again.

The LTV is in that book is about 56% for a multi and 58% for CRE. And as I discussed, looking at that portfolio, a lot of these -- most of these customers still, when we put some of these customers in IO structure for six months, they are north of a one-for-one capacity to continue making these payments. We will reevaluate them as we get into the April-May period when that six-month roll comes due and see where they're at. And we're working with them. And clearly, like I said, Manhattan is the area of focus because we see more of these loans coming out of the Manhattan market not so much the other borrowers.

Matthew Breese -- Stephens, Inc. -- Analyst

Got it. Okay. So, it's a six month structure as well?

Thomas R. Cangemi -- President & Chief Executive Officer

Yes. Six months. Yes, six months, IO, yes. And also that's of the taxes as well.

Matthew Breese -- Stephens, Inc. -- Analyst

They're all paying?

Thomas R. Cangemi -- President & Chief Executive Officer

Yes. All paying us, that's right.

Matthew Breese -- Stephens, Inc. -- Analyst

One thing you had mentioned, I just wanted a little bit more color on explanation. You mentioned the 2022 hedge, the potential for that to roll off. Can you just remind me what that was -- why it was put on the size and how does it benefit the NIM by 12 bps?

Thomas R. Cangemi -- President & Chief Executive Officer

Yes, it was a $2 billion total notional hedge that we did that swapped from fixed to floating on our -- against our loan portfolio in the last layer hedge. So, it was a three year swap that we did, so that matures in February of 2022. So, if we do not reup or get into another transaction like that, we will see those loans which are right now in essence pricing off a three month LIBOR go back to their fixed rate on our books. So, you'll see a big pickup on that $2 billion back to the normal fixed rate of those loans.

Matthew Breese -- Stephens, Inc. -- Analyst

Yes. I would categorize as a entry risk hedge?

Thomas R. Cangemi -- President & Chief Executive Officer

Right.

Matthew Breese -- Stephens, Inc. -- Analyst

Okay. All right. Thank you. And then the last one for me it just in regards to expenses. I hear you loud and clear. I just wanted to make sure the message was that in terms of new hires or going into new verticals, you feel like what you have in place, the $535 million in annual expenses, that's a good run rate and you feel like the NII to asset ratio sub 1% is a place that you can -- that's something you can maintain.

Thomas R. Cangemi -- President & Chief Executive Officer

I think it's a fair estimate of where we are today, and I feel comfortable with those numbers. I mean, obviously, we're elevated on FDIC. We strive for a very strong efficiency ratio. I think we met our goals last year on efficiency ratio despite uptakes and we've identified it what they were. And we had the FDIC cost, we had some medallion related expenses as we took in some OREO pieces on the medallion side.

But going forward, bringing in some customer service people is not going to move the needle, reallocating resources internally toward the concept of the push toward full relationship lending is I don't -- we're not going to change the game somehow. This is not going to happen where we're going to change the product mix. The product mix will change as we seek partners, right. But the low lying fruit will be harvested here and we're going to work very hard in harvesting with the relationship with the brokers. There is the lenders as well as our deposit gatherers together as a team and we're going to work as a team to try to harvest the low lying fruit that we've always talked about, but now we're going to put into action.

And I think the system really helps us too. The systems conversion was extremely key for us. And I'm going to reemphasize a lot of our competitors that I want to -- we'll call it a serious system with the same vendor are going to reup down the road. So, doing it through while joining the family makes a lot more sense.

Matthew Breese -- Stephens, Inc. -- Analyst

Understood. Okay. That's all I had. Thank you.

Thomas R. Cangemi -- President & Chief Executive Officer

Sure. Thanks.

Operator

Thank you. Our final question comes from the line of Christopher Marinac with Janney Montgomery Scott. Please proceed with your question.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Hey, thank you for taking my question, Tom and John. I just wanted to ask about the deposits specialist that Tom you alluded to. Would these be possible hires in other markets besides New York and is that a strategy to kind of set them well in this individually kind of stack up a team?

Thomas R. Cangemi -- President & Chief Executive Officer

Absolutely. Ohio, Florida, Jersey, New York, Rhode Island [Phonetic]. We're going to be very proactive to try to create value here by looking at these opportunities and no question that these people are portable. And we've seen it happen in our backyard and most of our competitors are very successful at it.

We're going to give it a shot as well, but it's not going to be a major restructuring expense still. It's going to be done in a methodical way and I think we have to just utilize the platform and the system. And ultimately, the true change will come when we paint the canvas on new products and that will be full service commercial banking type products over time, typically through a partnership. And like I indicated, I think we've spent the effort on the conversion, we spent the effort on getting our cash flow management systems solutions correct. Now, it's a matter of looking at what we have with the current existing relationships, working with the brokers, working with the customer base and perhaps changing some of the type of price within typical opportunity, within a customer's book of business.

We've always done multi-family ancillary. No reason why they can't do lines of credit for these wealthy customers that want that and that's why they're banking with another bank. And we don't have all their deposits. So, we have to be mindful of that. It's opportunistic.

That's not a difficult change for our system to won those types of products. Like I said, we're not going to do a residential loan book from scratch, right? We're not going to open up a credit card business from scratch. But if we have a unique opportunity within the M&A marketplace where people can bring partnerships to the table, we would evaluate that. And then hopefully have a full service branch platform there.

Right now it's a very thrift like which over time -- and I'm going to make a statement people may not hear this, but when you think about the traditional thrift model, I've never seen a thrift convert themselves organically doing it successful. It has to be done through traditional M&A transactions that makes sense on a partnership perspective. And I will never call it acquisitions, because acquisitions are difficult.

Partnerships work. Acquisitions could be challenging. When you partner with the right partner that's willing to put their expertise on the table and their wealth on the table, everyone has common goals.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great. And these are -- these specialists are out there. It's not -- it's a focus issue is now having. So, thanks.

Thomas R. Cangemi -- President & Chief Executive Officer

That's right. That's right, Chris.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Thanks for all the time this morning, guys. Appreciate it.

Thomas R. Cangemi -- President & Chief Executive Officer

I think that's the last question. So, thank you again for taking the time to join us this morning and for your interest in NYCB. We look forward to chatting with you again at the end of April, when we'll discuss our performance for the three months ended March 31, 2021. Thank you all.

Operator

[Operator Closing Remarks]

Duration: 73 minutes

Call participants:

Salvatore J. DiMartino -- Director of Investor Relations

Thomas R. Cangemi -- President & Chief Executive Officer

John J. Pinto -- Executive Vice President & Chief Financial Officer

Robert Wann -- Senior Executive Vice President & Chief Operating Officer

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Mark Fitzgibbon -- Piper Sandler -- Analyst

Chris McGratty -- KBW -- Analyst

Brock Vandervliet -- UBS -- Analyst

Steven Alexopoulos -- JPMorgan -- Analyst

Steve Moss -- B. Riley Securities -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Dave Rochester -- Compass Point -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

Matthew Breese -- Stephens, Inc. -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

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