Q1 2024 New York Community Bancorp Inc Earnings Call

Speaker Change: [music].

Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the New York Community Bancorp Inc. first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

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. First quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Regina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, simply press star one again.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question simply press Star One again I would now like to turn the conference over to Sal Dimartino Director of Investor Relations. Please go ahead.

Salvatore J. DiMartino: I would now like to turn the conference over to Sal DiMartino, Director of Investor Relations. Please go ahead. Thank you, Regina. And good morning, everyone. Thank you for joining the management team of New York Community Bancorp on short notice for today's conference call. Today's discussion of the company's first quarter 2024 results will be led by President and CEO Joseph Otting, joined by the company's Chief Financial Officer, Craig Gifford. Before the discussion begins, I would like to remind everyone that our quarterly earnings press release and investor presentation can be found in the investor relations section of our company website at ir.mynycb.com.

Okay.

Salvatore J. DiMartino: Thank you Regina and good morning, everyone. Thank you for joining the management team of New York Community Bancorp on short notice for today's conference call.

Salvatore J. DiMartino: Today's discussion of the company's first quarter 2024 results will be led by President and CEO Joseph Otting joined by the company's Chief Financial Officer, Craig Gifford.

Before the discussion begins I would like to remind everyone that our quarterly earnings press release and Investor presentation can be found on the Investor Relations section of our company website at IR Dot My N Y C B dot com.

Salvatore J. DiMartino: Additionally, certain comments made today by the management team 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 these 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. Also, when discussing our results, we will reference certain non-GAAP measures which exclude certain items from reported results.

Salvatore J. DiMartino: Additionally, certain comments made today by the management team 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.

Salvatore J. DiMartino: 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.

Salvatore J. DiMartino: Also when discussing our results we will reference certain non-GAAP measures, which excludes certain items from reported results. Please refer to today's earnings release for reconciliations of these non-GAAP measures.

Salvatore J. DiMartino: Please refer to today's earnings release for reconciliation of these non-GAAP measures. Now, I would like to turn the call over to Mr. Otting, Joseph. Thank you, Sal. And good morning, everybody.

Speaker Change: And now I would like to turn the call over to Mr.

Speaker Change: Joseph.

Joseph M. Otting: And thank you for joining us today. Before I go into my prepared remarks, I'd also like to offer my apologies for the late notification of today's earnings call. Clearly, this is not the standard we intend to operate by in the future, and we will notify you in a timely manner in the next quarter. However, I made some big promises for this meeting when we met on March 7, which was a very tall order.

Joseph Otting: Thank you Sally and good morning to everybody and thank you for joining us today.

Joseph Otting: Before I go into my prepared remarks.

Joseph Otting: I'd like to also offer my apologies for the late notification for today's earnings call.

Joseph Otting: Clearly this is the standard we intend to operate operate by in the future.

Joseph Otting: And we will notify you in a timely manner in the future quarters.

Joseph M. Otting: And being a new management team, not only did we have to obtain and analyze information, but we had to ensure we had both controls and processes and completed the credit review that we had indicated that we would conduct. As I indicated when we first got together on March 7th, I really had three overarching items that I wanted to focus on in my first 12 weeks.

Joseph Otting: However, we made some big promises for this meeting one way Matt.

Joseph Otting: March 7th which was which was a very tall order and being a new management team not only did we have to obtain and analyze information we have to ensure we had.

Joseph Otting: Both controls and processes and completed the credit review that we had indicated that we would conduct.

Joseph Otting: As I indicated when we first got together on March seven.

Joseph Otting: I had really three overarching items that I wanted to focus on in my.

Joseph Otting: First 12 weeks the first was to.

Joseph M. Otting: The first was, you know, to reevaluate and get our forecast accurate and formulate strategies around the businesses. We wanted to conduct a review and understand our credit risk in the portfolio. And it was very important for us to engage with our regulators and develop relationships because they're very important to our overall organization and building our risk framework. We think, you know, that these were critical components. We think we've done a tremendous amount of work on that, and we think you'll find through the slide presentation today that we have come a long, really a long way in the last four weeks since the new team has come together. So now, turning to the first quarter.

Joseph Otting: Reevaluate and get our forecast accuracy and formulate strategies around the businesses.

Joseph Otting: We wanted to conduct a review and understand our credit risk in the portfolio.

Joseph Otting: It was very important for us to <unk>.

Joseph Otting: Engaged with our regulators and develop relationships because they are very important to our overall organization and building our risk framework.

Joseph Otting: We think.

Joseph Otting: These were critical components, we think we've done a tremendous amount of work on that and we think youll find through the slide presentation. Today, we came along and really a long ways in the last four weeks.

Joseph Otting: The new team has come together.

Joseph M. Otting: During the quarter, the company took a number of actions designed to lay down the groundwork for our return to long-term sustainable profitability, more in line with our regional bank period. First and foremost, we successfully completed a little over a billion dollar equity raise anchored by Liberty Strategic Capital, a firm led by former Treasury Secretary Stephen Mnuchin, along with Hudson Bay Capital Management, Reverence Capital Partners, and Citadel Global Equities. The completion of this equity raises significant strength and strengthens our capital and liquidity position.

Joseph Otting: So now turning to the first quarter during the quarter. The company took a number of action designed to lay down the groundwork for a return to long term sustainable profitability more in line with our regional bank peers.

Joseph Otting: First in four months, we successfully completed a little over $1 billion equity raise anchored by Liberty strategic capital a firm led by former Secretary Treasury Secretary, Stephen Manoogian, along with Hudson Bay Capital Management reference capital partners and Citadel Global equities.

Joseph Otting: The completion of this equity raise significant strengths.

<unk>, our capital and liquidity position it really demonstrates the confidence that the new investors, having the turnaround currently underway at the company.

Joseph M. Otting: It really demonstrates the confidence that the new investors have in the turnaround currently underway at the company. Second, we bolstered our Board of Directors and Executive Management. In conjunction with the capital raise, we reduced the size of our board to nine members and added five new directors.

Joseph Otting: Second we bolstered our board of directors and executive management team in conjunction with the capital raise we reduced the size of our board to nine members and added five new directors.

Joseph M. Otting: All of whom bring extensive banking and turnaround experience to the bank. In addition, I have known them for a long time and view them as independent thinkers who will challenge management appropriately as very strong board members. More recently, we announced the appointment of four senior leaders to our executive management team, each who have deep industry knowledge and extensive backgrounds in their respective fields.

Joseph Otting: All who bring extensive banking and turnaround experience to the bank.

Joseph Otting: In addition, I have known for a long time and view them as independent thinkers and we'll challenge management appropriately is very strong board members.

Joseph Otting: More recently, we announced the appointment of four senior leaders to our executive management team, each who have deep industry knowledge and extensive backgrounds in their respective fields.

Joseph Otting: Okay.

Joseph M. Otting: I think when you think about the characteristics of the people that have joined us, they all come from very strong organizations with backgrounds in organizations like U.S. Bank and Bank of America, and most of us have worked together either at one of those institutions or at One West Bank. So we understand the kind of culture and the type of risk organization that we want collectively to build, and we all came from those organizations that were viewed in the industry as very high-performing. I'm confident, together with the newly reconstructed board, we'll be able to drive our strategic initiatives forward and solidify our position as a leading regional bank. We've done this before, and we feel we can do it again.

Joseph Otting: I think when you think about the characteristics of the people that have joined US. They all are coming from very strong organizations with backgrounds from organizations like U S Bank Bank of America, and most of US have worked together either one of those institutions are at Onewest bank. So we understand the kind of culture and the type of.

Joseph Otting: Risk organization that we worked collectively to build and we all came from those organizations that were viewed in the industry is very high performing organizations.

Joseph Otting: I am confident together with the newly reconstructed board, we will be able to drive our strategic initiatives forward.

Joseph Otting: Solidify our position as a leading regional banks.

Joseph Otting: We've done this before and we feel we can do it again third we completed an in depth due diligence process of our multifamily and commercial real estate portfolios, including the office portfolio performed both by the bank and separately by an independent third party.

Joseph M. Otting: Third, we completed an in-depth due diligence process of our multifamily and commercial real estate portfolios, including the office portfolio, performed both by the bank and separately by an independent third party. We increased our credit loss reserves as a result of information from this review and other analysis we performed during the quarter. Now I'll take you through the earnings presentation, beginning with slide two. On slide two, it highlights a kind of our strategy.

Joseph Otting: We increased our credit loss reserves as a result of information from this review and other analysis, we performed during the quarter.

Joseph Otting: Now I'll take you through the earnings presentation, beginning with slide two.

Joseph Otting: On slide two it highlights our.

Joseph Otting: Our strategy and as I said, we bolstered the vantage bill and the board.

Joseph M. Otting: And as I said, we bolstered management and the board. We've developed what we think we can share with you today a realistic operating plan to get the organization by the end of 2026 at or above industry standards for performance. We have achievable capital and earnings forecasts. We have implemented a rigorous credit risk management process, and we've strengthened the talent in the credit risk process, and we maintain sufficient liquidity, as we'll walk you through earlier today.

Joseph Otting: We developed what we think we can share with you today, a realistic operating plan to get the organization by the end of 2026 at or above industry standards for performance.

We are achievable achievable capital and earnings forecasts.

Joseph Otting: We have implemented a rigorous credit risk management process and we have strengthened the talent on the credit risk process and we maintain sufficient liquidity as will walk you through earlier today.

Joseph M. Otting: Our future targets are that we will be a strong, diversified regional bank producing a return on average assets of 1%, a return on average total TCE of 11 to 12, and a CET 1 ratio of 11 or 12 percent. We'll walk you through those later today. The goal is to create long-term meaningful shareholder value. 2024 will obviously be a transition year to a more normalized 2025 and 2026. On page three, it gives you a highlight.

Joseph Otting: Our future targets are that we will be a strong diversified regional bank producing a return on average assets of 1%.

Joseph Otting: Our return on average total TCE of 11% to 12, NSC tier one ratio of 11, 12, 11% or 12% who will walk you through those to you later today.

Joseph Otting: The goal is to create long term meaningful shareholder value 2024 will obviously be a transition year to a more normalized 2025 and 2020.

Joseph M. Otting: And on that page, seven of the 10 people are new to the company within the last five months, and that adds three important people that were legacy NYCB and Flagstar employees who have joined the organization. And slide four gives a quick overview of the board members and the depth and knowledge that they bring to the organization.

Joseph Otting: On page three gives you a highlight and on that page seven of the 10 people.

Joseph Otting: <unk> are new to the company within the last five months and that adjunct.

Three important people that were legacy NYSE, CB and flagstar people, who have joined the organization.

Joseph Otting: And slide four gives a quick overview of the board members and the depth of knowledge that they bring to the organization.

Joseph M. Otting: Slide five, this is a key slide outlining our path to profitability. As you can see, we feel that we have multiple levers to get us there. And I'll spend a few minutes kind of walking our way through that. So, number one, obviously, as you know, the industry is confronted with the rapid rise in interest rates; a lot of the loans that were fixed rates that had either three, five, or seven interest rate resets are starting to come forward now, and we'll go through a repricing process.

Joseph Otting: On slide five.

Uh huh.

Joseph Otting: Wifi is a key slide outlining our path to profitability.

Joseph Otting: As you can see we feel that we have multiple levers to get us there and I'll spend a few minutes kind of walking our way through that.

Joseph M. Otting: And so that will benefit, obviously, net interest income and, Number two, focus on workout or problem loans. We recently brought new resources into the company to bolster the talent and deal with the workout side of our organization. And this obviously will have long-term reductions in our MPA.

Joseph Otting: So our number one obviously as you know.

Joseph Otting: The industry is confronted with the rapid rise in interest rates a lot of the loans that were fixed rates that had either three five or seven interest rate resets a number of those are starting to come forward now and will go through a repricing process and so that will benefit obviously net interest income and NIM.

Joseph Otting: Number two.

Joseph Otting: <unk> workout of problem loans, we recently brought new resources into the company to bolster the talent and dealing with the workout side of our organization and this obviously will have long term reductions in our NPA.

Joseph M. Otting: Number three, we will begin to build a more robust middle market relationship banking franchise. Today, we roughly have $20 billion in CNI loan outstandings in the portfolio. That will create a really good basis for us to move forward, and we see that business growing to over $30 billion in the next three to five years. Just as a comment, you know, really, I spent the vast majority of my career in this space.

Joseph Otting: Number three we will begin to build a more robust middle market relationship banking franchise today, we roughly have $20 billion in C&I.

Joseph Otting: Loan outstandings in the portfolio that will create a really good basis for us to move forward and we see that business over $30 billion in the next three to five years.

Just as a comment really I've spent the vast majority of my career in this space.

Joseph M. Otting: We successfully grew this business at US Bank under my leadership. We created that business at One West Bank in a very short order, put billions of dollars in new loans outstanding, and attracted the right kind of talent. And I think that we will be able to do that here. And that'll be one of the more successful areas of our story when we look to have a balanced, profitable, On number five, we'll look to fully integrate all three banks. Currently, today, in 2024, we integrated the FLAGSAR and NYCB into a single platform called Fiveserve.

Joseph Otting: We successfully grew this business at U S Bank under my leadership.

Joseph Otting: We created that business at Onewest bank in a very short order put billions of dollars of new load outstanding attracted the right kind of talent and I think that we will be able to do that here and that will be one of the more successful areas of our story when we look to have a balanced balance sheet.

Joseph Otting: Number five we will look to fully integrate all three banks currently today in 2024, we integrated the <unk> and <unk>.

Joseph Otting: CB onto a single platform called <unk> and we have.

Joseph M. Otting: And we have the signature legacy of FIS. And so we will look to get to one platform in the future. And obviously, it's a very costly proposition when you're operating on two different platforms and consolidating that from an informational perspective. And number six, you know, the efficiency ratio tells the story. We are an organization with an 80% efficiency ratio. Most of us came from US Bank, where Jerry Grunhofer taught us how to squeeze nickels.

Joseph Otting: The signature legacy is on us until we will look to get to one platform in the future and obviously, it's a very costly proposition when you're operating on two different platforms and consolidating that from an informational perspective.

Joseph M. Otting: And so it's in our culture and in our DNA, and we will aggressively look at our call structure and make determinations of how we will be able to bring that back in line with industry standards. As far as meet-up terms, we will, as I indicated, look to diversify our loan portfolio. You know, our commercial real estate portfolio today is around $47 billion. Our strategic target will be to bring that down around the $30 billion range, and will improve funding by growing core deposits, and we think that will be helpful by building more relationship-type strategies.

Joseph Otting: And number six.

Joseph Otting: The efficiency ratio tells the story.

Joseph Otting: We're an organization with an 80% efficiency ratio.

Joseph Otting: Most of this came from U S Bank, where Jerry Grundhofer taught us how to squeeze Nichols.

Joseph Otting: And so it's in our culture and are in our DNA and we will aggressively look at our cost structure and make determinations of how we will be able to bring that back in with industry standards.

Joseph Otting: As far as medium term items.

Joseph Otting: We will as I indicated look to diversify our loan portfolio in our commercial real estate portfolio today is around 47 billion.

Joseph Otting: Our strategic target also bring that bring that down to around the $30 billion range will improve funding by growing core deposits.

Joseph Otting: And we think that will be helpful. By building more relationship type strategies, and then number three we will increase our fee income by cross selling into the businesses today, we have capabilities on cash management derivatives commercial cards and syndication capabilities.

Joseph M. Otting: And then, number three, we'll increase our fee income by cross-selling into the businesses. Today we have capabilities in cash management, derivatives, commercial cards, and syndication capabilities, and we can drive those further and deeper into our relationships.

Joseph Otting: And we can drive those further and deeper into our relationships.

Joseph M. Otting: One comment I would like to make back on top in the short term. I jumped over number four, where it says sale or runoff of non-strategic assets. We continue to look at the portfolio of assets on the balance sheet and have started a process within the organization where we're reviewing that. And we do have, and we've identified an opportunity that could close quickly for $5 billion at par minus a transaction fee that we believe could close within a 60 to 70 day period that we may be announcing here in the next week or so.

Speaker Change: One comment I would like to make back on to the top in the short term I jumped over number for where it's a sale of a runoff of non strategic assets. We continue to look at the portfolio of assets on the balance sheet and have started a process within the organization we're reviewing that.

Speaker Change: We do have and we have identified an opportunity that could close quickly for $5 billion at par minus a transaction fee that we believe could close within a 60% to 70 day period that we may be announcing here in the next week or so so we've already begun that process of looking at which assets fit.

Joseph M. Otting: So we've already begun that process of looking at which assets are strategic going forward. And by doing that, you know, we'll obviously create additional capital for the balance sheet, and we'll obviously create, you know, $5 billion of liquidity. And with that, I'm going to turn it over to Craig Gifford, our newly appointed CFO, who I've really enjoyed the opportunity to partner with on this project. He's a man of tremendous strengths and talents, and so, Craig, I'll turn it over to you.

Speaker Change: <unk> going forward and by doing that we will obviously create additional capital from the balance sheet and will obviously create a $5 billion of liquidity.

Speaker Change: And with that I'm going to turn it over to Craig deferred our newly appointed CFO.

Speaker Change: I've really enjoyed the opportunity to partner with on this project is a man of tremendous strengths and talents and so Craig I'll turn it over to you.

Unknown Executive: Thank you, Joseph, and thanks to all those who were able to join the call today. I look forward to meeting many of you in the near future. Over the next few slides, I'll take you through how we think about our forecast, our loan portfolio, and our credit risk, and our deposit base and liquidity. If you turn to slide six,

Unknown Executive: Thank you Joseph and thanks to all those who were able to join the call today I look forward to meeting many of you in the near future over.

Unknown Executive: Over the next few slides I'll take you through how we think about our forecast our loan portfolio and our credit risk and our deposit base and liquidity if.

Unknown Executive: If you turn to slide six.

Unknown Executive: You can see a summary of the next three years' financial performance expectations. At the very beginning, you can see that we expect our diluted EPS, and this is on a fully converted basis for our outstanding preferreds, growing from our current level through to about 65 to 75 cents at the end of 2026. As Joseph mentioned, you can see that we have expectations to reduce our efficiency.

Unknown Executive: You can see a summary of the for the next three years.

Expectations of our financial performance at the very beginning you can see that we expect our diluted EPS and this is on a fully converted basis for our outstanding preferreds growing from our current level.

Unknown Executive: Through to about 65% to 75.

Unknown Executive: At the end of 2026.

Unknown Executive: As Josef mentioned, you can see that we have expectations to reduce our efficiency.

Unknown Executive: Ratio down from the current level down to peer levels, and we would see that happening through integration of our previous mergers and a close look at our overlapping cost structure. Our capital ratios were certainly bolstered by the recent capital infusion that Joseph mentioned, and we see that moving to peer levels over the next two years through our earnings power and retention of earnings into capital. Our return on assets, we see improving through a rebalancing of our asset mix, as well as loan repricing into current market rates. And my return on equity; I return on tangible equity.

Unknown Executive: Ratio down to from the current levels down to peer levels, and we would see that happening through integration of our previous mergers and a close look at our overlapping cost structures.

Unknown Executive: Our capital ratios were certainly bolstered by the recent capital infusion that Joseph mentioned, and we see that moving to peer levels over the next two years through our earnings power and retention of the earnings into capital.

Unknown Executive: Our return on assets, we see improving through a rebalancing of our asset mix as well as loan repricing into current market rates.

Unknown Executive: Our return on equity or return on tangible equity.

Unknown Executive: We'll benefit as a result of these items and will drive us back to an 11 to 12% return on tangible capital over the outlook period. And finally, we believe that that will result in a tangible book value in the $7 range as we get to the end of 2026. These all reflect the strategies that Joseph outlined on the previous page. If you turn to page 7, this is really where the rubber meets the road. How is this going to happen?

Unknown Executive: We will benefit as a result of these items and will drive us back to an 11% 12% return on tangible return on tangible capital over the outlook period.

Unknown Executive: And finally, we believe that that will result in a tangible book value and the $7 range as we get to the end of 2026.

Unknown Executive: These all reflect the strategies that Joseph outlined on the previous page.

Unknown Executive: If you turn to page seven this is really where the rubber meets the road how is this going to happen.

Unknown Executive: Starting at the top of our income statement, our net interest income will benefit as we see loans repriced over the next couple of years. Our expectations with respect to rates that we've built into these numbers follow the median rate forecast. We have about $4 billion a year over the next three years that we'll reprice, and that's reflected in these numbers. We're actually relatively interest rate risk insensitive right now. We recently exited some payfix swaps that moved us into a relatively flat neutral position. Our Net Interest Margin. Certainly, revenue decreased this quarter. That was the result, really, of two things.

Unknown Executive: Starting at the top of our income statement, our net interest income will benefit as we see loans reprice over the next couple of years.

Our expectations with respect to rates that we built into these numbers follow the median rate forecast.

Unknown Executive: We have about $4 billion a year over the next three years that will reprice.

Unknown Executive: And that's reflected in these numbers were actually relatively interest rate risk insensitive right. Now we recently exited some pay fixed swaps that moved us into a relatively neutral position.

Unknown Executive: Our net interest margin.

Unknown Executive: Certainly decreased this quarter that was a result really of two things.

Unknown Executive: Our need to move into a bit more, a different shift in our funding mix and more wholesale funding, as well as an increase in our borrowing costs. We expect to see that improve over the next two years, principally as a result of the repricing of our loan portfolio. From a provision expense perspective, as Joseph mentioned, after taking a deep dive look at our credit portfolio and looking at current market conditions, we did increase our loan loss reserves in the quarter.

Unknown Executive: Our need to move into a bit more a different shift in our funding mix and more wholesale funding as well as an increase in our.

Unknown Executive: Our borrowing costs.

Unknown Executive: We expect to see that improve over the next two years again, principally a result of repricing of our loan portfolio.

Unknown Executive: From a provision expense as Joseph mentioned after taking a deep dive look at our credit portfolio and looking at current market conditions, We did increase our loan loss reserves in the quarter, we do expect to see an elevated level of provisioning through the rest of the year as market conditions potentially impact more borrowers.

Unknown Executive: We do expect to see an elevated level of provisioning through the rest of the year as market conditions potentially impact more borrowers. But after that, we expect to see a return to a more normalized level through the cycle of losses, and we have shown you our expectations here.

Unknown Executive: But after that we expect to see a return to a more normalized through the cycle level of losses, and we have shown you our expectations here.

Unknown Executive: Our non-interest income expectations are relatively flat in these targets, but we actually see upside as we balance our customer mix towards broader relationships, as Joseph mentioned. Non-interest expense, we do expect that we'll be able to drive efficiencies through our platform as we focus on expected as we focus on. In our merger activity, we have systems, processes, and infrastructure duplication that we do believe that present us opportunities to reduce our costs. Over the forecast period, we've assumed between 10 and 15 percent reduction in our cost structure.

Unknown Executive: Our noninterest income expectations are relatively flat and these targets, but we actually see upside as we balance our customer mix towards broader relationships as Joseph mentioned.

Unknown Executive: Noninterest expense, we do expect that we'll be able to drive efficiencies through our platform as we focus on.

Unknown Executive: Expect to as we focus on.

Unknown Executive: Our merger activity, we have systems processes and infrastructure duplication that we do believe that present us opportunities to reduce our costs over the forecast period, we've assumed between 10 and 15% reduction in our cost structure.

Unknown Executive: If you move to slide 8, you can see where we currently stand. Our equity position, and our equity infusion in March, has us at a 10.1% CET1 ratio on a fully converted basis. You can see that the reserve is large. The increase that we did in the first quarter brings us to a 1.58% allowance for loan loss as a percent of total loans, excluding our warehouse loans. And importantly, and I'll cover this in a few more in a few minutes in more depth, 84% of our deposits are insured deposits. We have a very low level of uninsured deposits compared to our peers at the moment. If you move to slide nine,

Unknown Executive: If you move to slide eight you can see where we currently stand our equity position our equity infusion in March as I said, a 10, 1% CET one ratio on a fully converted basis you can see that the reserve.

Unknown Executive: The increase that we did in the first quarter brings us to a 158% allowance to loan loss allowance for loan loss as a percent of total loans, excluding our warehouse loans.

Unknown Executive: And importantly, and I'll cover this in a few more in a few minutes in more depth, 84% of our deposits are insured deposits.

Unknown Executive: We have a very low level of uninsured deposits compared to our peers at the moment.

Unknown Executive: If you move to slide nine.

Unknown Executive: I'll talk a little bit about our loan portfolio and the level of credit review that we did on a number of our higher risk positions in the first quarter. This slide presents our loan portfolio in total on the left and then covers, on the right-hand side, the number of loans and the percentage of the portfolio that we did what we refer to as a deep dive. That deep dive involved a lot of internal analysis as well as getting third-party information about property valuations.

Unknown Executive: I'll talk a little bit about our loan portfolio and the level of credit review that we did on a number of our higher risk positions in the first quarter.

This slide presents our loan portfolio in total at the left.

Unknown Executive: And then covers on the right hand side, the number of loans and the percentage of the portfolio that we did what we refer to as a deep dive.

Unknown Executive: That deep dive involved a lot of internal analysis as well as getting third party information about property valuations.

Unknown Executive: And we've taken that information and considered the credit exposure in the portfolio, and I would say it confirms the potential for credit loss that was previously disclosed in our materials. You can see, on the bottom right-hand side, the dollars and the percent of the portfolio that we covered. And I'll cover the office and multifamily portfolios in detail on the next two pages. But at a high level, we did a deep dive on roughly 75 percent of our office portfolio and roughly 30 percent of our multifamily portfolio. If you move to slide 10, you can see what I'm saying in the top right-hand corner.

Unknown Executive: And we've taken that information and considered.

Unknown Executive: Credit exposure in the portfolio and I would say it confirms the potential for credit loss that was previously disclosed in our materials.

Unknown Executive: You can see on the bottom right hand side, the dollars and the percent of the portfolio that we covered and I'll cover the office and multifamily portfolios and detail on the next two pages.

Unknown Executive: At a high level, we had a deep dive on roughly 75% of our office portfolio and roughly 30% of our multifamily portfolio.

Unknown Executive: If you move to slide 10.

Unknown Executive: See what im saying in the top right hand corner.

Unknown Executive: We did a deep dive review of $2.5 billion of a $3 billion office portfolio, certainly an office portfolio. The office portfolio is in a market segment that is suffering a high degree of stress. Overall, it doesn't represent a particularly large percentage of our overall loan portfolio at only $3 billion. And you can see that we, on the bottom right-hand side, stand at a 10.3% allowance to total office loans, excluding owner-occupied loans.

Unknown Executive: We did a deep dive review of $2 5 billion of a $3 billion office portfolio certainly office portfolio.

Unknown Executive: Office portfolio.

In a market segment that is suffering a high degree of stress.

Unknown Executive: Our overall it doesn't represent a particularly large percentage of our overall loan portfolio at only $3 billion and you can see that we on the bottom right hand side standard of 10, 3% allowance to total office loans, excluding owner occupied loans.

Unknown Executive: On the bottom left, you can see that in our deep dive review, we covered our top 50 loans, and those had an average principal balance of about $50 million. The remainder of the portfolio is fairly homogeneous, an average loan balance you can see of about $5 million. And we believe these have a differentiated credit risk, largely because they have more refinancing options, just given their loan size. If you move to slide 11, you can see more information about our multifamily portfolio.

Unknown Executive: On the bottom left you can see that in our deep dive review, we covered our top 50 loans.

Unknown Executive: And those had an average principal balance of about $50 million.

Unknown Executive: The remainder of the portfolio is fairly homogenous on an average loan balance you can see of about $5 million.

Unknown Executive: And we believe those have a differentiated credit risk.

Unknown Executive: Largely because they have more refinancing options just given their loan size.

Unknown Executive: If you move to slide 11, you can see more information about our multifamily portfolio is certainly our largest segment of the loan portfolio at $36 9 billion.

Unknown Executive: It's certainly our largest segment of the loan portfolio at $36.9 billion. You can see that we covered 36% of that portfolio in our deep dive credit review. And on the left-hand side, you can see that at the end of the quarter, we have a 1.3% allowance, the Total Loan Coverage Ratio, and the Multifamily Portfolio. Again, on the bottom right, you can see that the loan sizes that we covered in our deep dive were those loans that were largely above $50 million, and the loan sizes that we think of as more of a homogenous basis portfolio are around $5 million.

Unknown Executive: Can see that we covered 36% of that portfolio and our deep dive credit review and.

Unknown Executive: And on the left hand side, you can see that at the end of the quarter, we have a one 3%.

Unknown Executive: Allowance to total loans coverage ratio in the multifamily portfolio again on the bottom right you can see that the loan sizes that we covered in our deep dive where those loans that were largely above $50 million and the loan sizes that we think of as more of a margin of spaces portfolio are around five.

$5 million.

Unknown Executive: In the bullets, you'll note that we expect about $2.6 billion of our multifamily book to reprice in 2024. I mentioned an expectation of about $4 billion in total. We've had very good success with repricing our existing portfolio over the last 15 months. We've had $2.1 billion of loans that have been repriced. About a fourth of those have actually paid off at the repricing dates, and the other three-fourths have repriced up to current market rates, and we've seen almost no delinquencies to date. In other words, the borrowers have been able to cover debt service in spite of the elevated level of interest rates.

Unknown Executive: In the bullets you will note that we expect about $2 6 billion of our multifamily book to reprice in 2024, I mentioned, an expectation of about $4 billion in total.

Unknown Executive: We've had very good success with repricing of our existing portfolio over the last 15 months. We've had $2 1 billion of loans that are repriced about a fourth of those are actually paid off at the repricing date and the other three fourths of repriced up to current market rates and we have seen almost no delinquencies to date in other words, the borrowers have been able to cover debt service and spine.

Unknown Executive: The elevated level of interest rates.

Unknown Executive: If you move to slide 12, we have some information on our non-office portfolio, roughly $7.4 billion. Importantly, you can see on the bottom right that we have a very diverse book. There are no real credit concentrations.

Unknown Executive: If you move to slide 12, we have some information on our non office portfolio roughly $7 4 billion importantly, you can see on the bottom right that we have a very diverse book there is no real credit concentrations we.

Unknown Executive: We did review about a fourth of this book, and we don't really see any stresses in the rest of the portfolio. On page 13, there is a breakdown of our allowance for loan losses. And I'll just point out that on the multifamily portfolio, again, we're at 1.3% allowance coverage ratio. That's up 45 basis points from 82 basis points at the first quarter, sorry, at year end.

Unknown Executive: We did review about a fourth of this book and we don't really see any stresses and the rest of the portfolio.

Unknown Executive: On page 13 is a breakout of our allowance for loan losses, and I'll just point out that on the multifamily portfolio again, we're at one 3% allowance coverage ratio.

Unknown Executive: That's up 45 basis points from 82 basis points at the first quarter, assuming that the year end and again you can see the office allowance ratio was 10, 3%.

Unknown Executive: And again, you can see the office allowance ratio is 10.3%, and that the office ratio in particular puts us at the high end of the range compared to our regional bank peers. Moving to Liquidity, Deposits, and Liquidity, if you turn to page 14, you'll see on the top left-hand side that roughly 41% of our deposit base is transactional and lower cost funding. It's not a CD-focused book.

Unknown Executive: The office ratio in particular puts us at the high end of the range compared to our regional bank peers.

Moving to liquidity deposits and liquidity, if you turn to page 14.

Unknown Executive: Youll see in the top left hand side the <unk>.

Unknown Executive: Roughly 41% of our deposit base, our transactional and lower cost funding, it's not a CD focused book.

Unknown Executive: That said, we have looked to the CD market for some recent funding needs. On the left-hand side, importantly, you can see that our deposit base has been very stable since the capital infusion, and in fact, we've grown deposits. And that's not only through the end of March but subsequent to the end of March. To date, in April, we've seen a very stable deposit base and stable growth. I'm sure you know and you've seen that in the market. We have a premium product; we call it the 555 product.

Unknown Executive: That said, we have looked to the CD market for some reset.

Unknown Executive: Funding needs.

Unknown Executive: Bottom left hand side importantly, you can see that our deposit base has been very stable since the capital infusion and in fact, we've grown deposits.

Unknown Executive: And thats not only through the end of March but subsequent to the end of March to date in April we've seen a very stable deposit base and stable growth.

Speaker Change: I am sure you know are you seeing that in the market, we have a premium product we call. It the 555 product.

Unknown Executive: Importantly, we're seeing good traction, but it's not so large as to move our margin. It's focused on new money and new customers that we are bringing to the bank. And I would say that it's not driving an overall wholesale repricing of our deposit book. If you turn to slide 15, as I mentioned before, the vast majority of our deposits are insured deposits. We only have $12.4 billion of uninsured deposits.

Speaker Change: Importantly, we're seeing good traction, but it's not so large as to move our margin.

Speaker Change: It's focused on new money and new customers that we're bringing to the bank.

Speaker Change: And I would say that it's not driving an overall wholesale repricing of our deposit book.

Speaker Change: If you turn to slide 15.

Speaker Change: As I mentioned before the vast majority of our deposits are insured deposits.

Speaker Change: We only have $12 $4 billion of uninsured deposits.

Unknown Executive: And on this slide, you can see that we have more cash on the balance sheet than the entire amount of our uninsured deposits. That's quite unusual compared to regional bank peers. In fact, from a total liquidity perspective, we have over 200% of our uninsured deposits. We continue to focus on building liquidity. And as Joseph mentioned, as we look at potential strategic portfolio transactions, we would expect to see some degree of further build-up in liquidity coming from those transactions. Slide 16 is just a brief look at our first quarter financial highlights. We had a net loss to common shareholders of $335 million for the quarter.

Speaker Change: And on this slide you can see that we have more cash on the balance sheet than the entire amount of our uninsured deposits, that's quite unusual compared to regional bank peers.

Speaker Change: In fact from a total liquidity perspective, we have over 200% of our uninsured deposits.

Speaker Change: We continue to focus on building liquidity and as Joseph mentioned as we look at potential strategic portfolio transactions, we would expect to see some degree of further build in liquidity coming from those transactions.

Speaker Change: Slide 16 is just a brief look at our first quarter financial highlights.

Speaker Change: We had a net loss to shareholders to common shareholders of $335 million for the quarter that was largely driven by the provisioning of $315 million for the quarter certainly elevated there was a bit of noise as well in our net internet loss related to our merger related activities, which we see declining throughout the year.

Unknown Executive: That was largely driven by the provisioning of $315 million for the quarter. Certainly elevated. There was a bit of noise as well in our net loss related to our merger-related activities, which we see declining throughout the year and don't see that carrying over into 2025 and 2026. And then we also had a bit of noise related to some adjustments from the previous bargain game that we recorded last year as we close out the accounting associated with the signature transaction.

Speaker Change: I don't see that carrying over into 2025 and 2026.

Speaker Change: And then we also had a bit of noise related to some adjustments from the previous bargain gain that we recorded last year as we close out the accounting associated with the signature transaction, excluding those in a more at a more normal provision level you can see that our base operations were actually had a slight net income level in the first quarter.

Unknown Executive: Excluding those and at a more normal provision level, you can see that our base operations were actually at a slight net income level in the first quarter. Now, I'd like to turn the call back to Joseph.

Speaker Change: And now I'd like to turn the call back to Joseph Thank you.

Joseph M. Otting: Thank you. Okay, thank you, Craig. First of all, I appreciate your patience.

Joseph M. Otting: You know, since this is really our first opportunity to get together with all of you, we thought it was very important to go through the deck as opposed to just reading opening comments so that you could get the context and details of where the organization is today and then how we see that transforming in the future. So I hope you found that helpful and useful and clearly look forward, Craig and I do, to meeting a number of you and following up and having discussions in further detail and really discussing what other areas of the package that you would like to have.

Joseph Otting: Okay. Thank you Craig.

Joseph Otting: First of all.

Joseph Otting: I appreciate your patience.

Since this is really our first opportunity to get together with all of you. We thought it was very important to go through the DAC as opposed to just reading opening comments that you could get really the context and details of where the organization is today and then how we see that transforming into the future.

Joseph Otting: So I hope you found that helpful and useful and we clearly look forward, Craig and I do to meeting a number of you and following up and having discussions and further detail and really what other areas of the package that you would like to have.

Joseph M. Otting: You know, one of the things that we look at is what, you know, what is the upside for the company? And, you know, we are currently trading at roughly 0.42 of a fully converted tangible book value of $6.33. This compares to about 1.5 times for Category 4 banks and about 1.4 times for regional banks.

Speaker Change: One of the things that.

Speaker Change: We'd look at as well.

Speaker Change: What what is the upside for the company and we are currently trading at roughly four to have a fully converted tangible book value of $6 33.

Speaker Change: This compares to about one five times for category for banks at about one four times for regional banks.

Joseph M. Otting: I believe this valuation gap will narrow significantly as we execute on our transformation plan. And this plan is, you know, we're all experienced at going down this journey and this path. We've done it before. We know what the end looks like.

Speaker Change: I believe this valuation gap will narrow significantly as we execute on our transformation plan.

And this plan is.

Speaker Change: All experience of going down this journey and this path we've done it before we know what the <unk> looks like we know what we have to do to execute on it and we as the executive management team are optimistic that we can deliver on the plan.

Joseph M. Otting: We know what we have to do to execute on it, and we as an executive management team are optimistic that we can deliver on the plan. It's going to be a lot of hard work.

Speaker Change: It's going to be a lot of hard work, we recognize that but this is a strong team thats come together with a very diversified background that has been in environments with AC with the strong regional banks can kind of look like.

Joseph M. Otting: We recognize that. This is a strong team that's come together with a very diversified background that has been in environments that they see with the strong regional banks. So, finally, I'd like to really thank all of our teammates for their hard work and commitment to the bank and our customers. As you can appreciate, I've been here slightly under eight weeks now. Craig has been here two and a half weeks.

Speaker Change: So.

Speaker Change: Finally, I'd like to really thank all of our teammates for their hard work and commitment to the bank and our customers.

Speaker Change: As you can appreciate I have been here slightly under eight weeks now Craig has been here two five weeks.

Joseph M. Otting: But it was very important for us to be able to kind of meet with you as soon as possible and give you an overview of the organization. And we look forward to fielding any questions from the group and operator. I will turn it back over to you now for you to be able to call on people for questions.

Speaker Change: But it was very important for us to be able to kind of meet with you as soon as possible and give you an overview on the organization.

Speaker Change: And we look forward to fielding any questions from the group and operator, I will turn it back over to you now.

Speaker Change: For you to be able to.

Speaker Change: Call out people for questions.

Regina: At this time, I'd like to remind everyone that in order to ask a question, press star followed by the number one on your telephone keypad. We ask that you please limit your initial question to one and return to the queue for any additional questions that you might have. Our first question will come from the line of Ebrahim Poonawala with Bank of America. Please go ahead. K Good morning. Hi, Ebrahim. Good morning, Ebrahim.

Speaker Change: At this time I'd like to remind everyone that in order to ask a question press star followed by the number one on your telephone keypad.

Speaker Change: Can you. Please limit your initial question to one and return to the queue for any additional questions that you might have.

First question will come from the line of Abraham <unk> with Bank of America. Please go ahead.

Abraham: Hey, good morning.

Abraham: Hi Ram.

Abraham: Morning, Jim.

Ebrahim Huseini Poonawala: Good morning. I appreciate everything that you outlined around business strategy and credit. Maybe my first question. I mean, I guess both of you know this better than most.

Abraham: Good morning, Tim.

Speaker Change: So appreciate it.

Speaker Change: The reason that you outlined a balanced business strategy and said it.

Speaker Change: Maybe first question.

Speaker Change: I guess, both the field is better than most.

Joseph M. Otting: We are in a tough interest rate backdrop; just talk to us when you talk about growing the core deposit franchise, which is extremely tough right now for even the best of banks. In terms of the nuts and bolts of how you can execute that without undue pressure on deposit costs, and also, if you don't mind addressing, there's been a fair amount of chatter about talent leaving NYB over the last few weeks, like how impactful would that be, and how much of that is baked into your forecast and outlook from here. Thank you. Thank you very much.

Speaker Change: <unk>.

<unk> interest rate backdrop can you just talk to us when you talk about growing our core deposit franchise, which is extreme detail right now felt even the best of banks in terms of the nuts and bolts of how you can execute that without undue pressure on deposit costs and also if you don't mind existing theres been a fair amount of chatter about.

Speaker Change: <unk>, leaving and maybe over the last few weeks like how impactful would that be and how much of that is baked into our forecast and outlook from here. Thank you.

Joseph M. Otting: So the first question is, when you look at kind of the legacy organization, it was kind of a monoline business where they focused on multifamily, and then they raised high money market and CD rates to fund that. And then the evolution with Flagstar brought more relationship deposits into the fold. And then the third leg of that was the signature bank joining the organization through the FDIC-assisted transaction. So we've been able to, through those processes, get to, as Craig showed on the chart, 41% of our deposits are actually in non-interest bearing and interest-bearing accounts, which are transaction-related accounts.

Speaker Change: Thank you very much.

Speaker Change: So the first question is is.

Speaker Change: When you look at kind of the legacy organization. It was kind of a model line business, where they focused on.

Speaker Change: Multifamily and then they raised higher money market and CD rates to fund that.

Speaker Change: And then the evolution with flagstar brought more relationship deposits into the fold and then the third leg of that was the signature bank joining the organization through the FDIC assisted transaction.

Speaker Change: So we've been able to through those processes get too is when Craig showed on the chart, 41% of our deposits are actually in noninterest bearing and interest bearing which are transaction related accounts and if you ask most people Abraham who is your bank most people identify.

Joseph M. Otting: And if you ask most people, Abraham, you know, who their bank is, most people identify it as no matter if you have a million dollars in your brokerage account and you have your mortgage with somebody, they usually identify it as who their checking account is.

Speaker Change: Yes.

Speaker Change: $1 million in your brokerage account in your heavier mortgage with somebody they usually identify with who's their checking account is and so we have a strong baseline and our retail franchise to be able to grow off of those relationships.

Joseph M. Otting: And so we have a strong baseline in our retail franchise to be able to grow off of those relationships. And then, as we look to expand into the C&I business, usually, if you can be important to the customer stack, and usually in the middle market, in the specialty industry business, there are usually three to five banks.

Speaker Change: And then as we look to expand into the C&I business.

Speaker Change: Usually if you can be important to the customer stack unusually in the middle market and the specialty industry business, there's usually a three to five banks.

Joseph M. Otting: And if you can be important in that stack, you will usually get the relationship products, and those will be, you know, deposits, cash management, derivatives, syndication activities. And so really, our big focus is developing and recruiting talent into that space and building upon what we already have. We do already have some very good businesses in that space.

Speaker Change: And if you can be important in that stack you will usually get the relationship products and those will be deposits cash management derivatives syndication activity and so really our big focus.

Speaker Change: Is.

Speaker Change: Developing and recruiting talent into that space and building upon what we already have we do already have some very good businesses in that space and that's where I think as we execute on that strategy you will get less interest sensitive clients and more clients that are interested in supporting the overall relationship.

Joseph M. Otting: And that's where I think as we execute on that strategy, you'll get fewer interest-sensitive clients and more clients that are interested in supporting the overall relationship. The second part of your question dealt with the signature bank. And what I would say about signature bank is, you know, we really want to build the baseline of our C&I commercial business around the signature bank teams. You know, we really have a unique franchise that we were able to obtain, where we have commercial bankers and private banking people from signature bank. They're really, you know, in some of the most lucrative markets in the United States. They're in the Southwest, the Northeast, the Southeast, and then around the greater lakes.

The second part of your question I think dealt with this signature bank.

Speaker Change: <unk>.

Speaker Change: What I would say about signature bank is we really want to build the baseline of our C&I commercial business around the signature bank teams, we really have a.

Speaker Change: Unique franchise that we were able to obtain where we have commercial bankers.

Speaker Change: In private banking people from signature bank are really in some of the most lucrative markets in the United States or in the southwest and northeast Southeast and then around the greater lakes.

Joseph M. Otting: I will say it has been a tough integration of them into our bank; some of it has been our fault, and we have to take responsibility that, you know, not all of our products have flowed effectively for them. But I would also say some of the legacy clients of Signature did not meet our BSA standards, and those clients are no longer with Flagstar. So there also was a little bit of uniqueness in trying to fit in.

Speaker Change: I will say it has been a tough integration of them into our bank. Some of it has been our fault.

Speaker Change: And we have to take responsibility that not all of our products have flowed effectively for them, but I would also say some of the clients did not it did not some of the legacy clients of signature did not meet our BSA standards and those clients are no longer with flagstar.

Speaker Change: So there also was a little bit of a uniqueness of trying to fit they they had a decentralized risk model. We have a centralized risk model. So I think there was a higher standard around that but we have lost.

Joseph M. Otting: They had a decentralized risk model. We have a centralized risk model, so I think there was a higher standard around that.

Joseph M. Otting: But we have lost roughly 200 people in that group. We track them on a daily basis. The departure balance when the teams left was $6,176,000,000. And today, the current balance is $6 billion, so roughly slightly less than $200 million of deposits have left. And we do recognize that some of those deposits will take time to migrate out of the organization, but I think we've done a couple. There's been a couple of contradictory things why that has stuck is that when those teams left, they frequently did not take the whole team, so the team was 10.

Speaker Change: Roughly 200 people in that group, we do track on a daily basis.

Speaker Change: The departure balance when when the teams left was $6 billion $176 million and today. The current balances 6 billion, so roughly slightly less than $200 million of deposits have lapped that we do recognize some of those deposits will take time to migrate out of the organization, but I think.

Speaker Change: We've done a couple theres been a couple of contrary things why that has stock is when those teams last eight frequently did not take the whole team. So the team was 10, they took three and less seven people seven people have done an extraordinary job of stepping up and calling on those contacts and retaining those.

Joseph M. Otting: They took three and left seven people. Those seven people have done an extraordinary job of stepping up and calling on those contacts and retaining them. And that really has been quite positive. And where there were smaller teams where the whole team left, we quickly reassigned those to other teams.

Speaker Change: And that really has been quite positive and where there were smaller teams where the whole team left we quickly reassigned those to other teams and so I think a combination of that has helped us be able to retain a significant amount of those deposits and be in a position to kind of move forward. So there's always that.

Joseph M. Otting: And so I think a combination of that has helped us be able to retain a significant amount of those deposits and be in a position to kind of move forward. So there's always that risk for some more deposits, but it isn't like we've had a big wholesale. And as Craig pointed out on the slide, we've actually had pretty good growth in deposits during the quarter, and we continue to see that carrying through into April as well. And really, there's been strong growth in the retail franchise and growth in the private bank. So where would you, perhaps?

Speaker Change: Risk for some more deposits, but it isn't like we've had a big wholesale and as Craig pointed out on the slide we've got very we've actually had pretty good growth in deposits during the quarter.

And we will get we continue to see that carrying through into April as well and really had strong growth in the retail franchise and growth in the private private bank, So where you would perhaps.

Joseph M. Otting: You would expect that that would be rolling down, but it's actually been rolling up. Yeah, as Joseph mentioned, there's been very little Deposit Departures since the press associated with the group of advisors that left, a couple hundred million dollars of departures. All of that occurred in the first two weeks, and over the last couple of weeks, it's just been a trend.

Speaker Change: Anticipate that that would be rolling down its actually been rolling out.

Speaker Change: Yes, no. Thanks Ed.

As Josef mentioned Theres been very little.

Speaker Change: Deposit departures since the press associated with would.

Speaker Change: With the adviser with a group of advisors. It left a couple of hundred billion I'm, sorry, a couple of hundred million dollars of depart departures all of that occurred in the first two weeks and over the last couple of weeks has just been a trickle.

Joseph M. Otting: All right, thank you. Thank you. And you know, you Abraham, one of the other things is that most of those teams have left for small banks. And some of these clients, you know, just can't be serviced by those small banks. So they may move part of the relationship, but if they're fully integrated into the bank, it's very complicated to, you know, de-link treasury management and all the services and systems that you have.

Speaker Change: Yes.

Speaker Change: And one of the other things is like most of those.

Speaker Change: Those teams have left for small banks and some of these clients just can't be serviced by those small bank. So they may move part of the relationship but if they are fully integrated into the bank is very complicated to delink, the treasury management and all the services and systems that you have so my guess is we'll have split.

Speaker Change: Relationships with some of those small banks are things that can move over but we've been able to retain a significant portion of the deposits and activities.

Joseph M. Otting: So my guess is we'll have split relationships with some of those small banks and things that can move over. But we've been able to retain a significant portion of the deposits and activities. And we've been calling Sandra, and I have spent a lot of time calling on private banking clients, you know, meeting with the people trying to understand, as I said, some of this is our fault, you know, the integration process of making sure we understand how we can be more responsive to credit needs, account opening, and those things that can make it more transparent for those customers to integrate into the bank. That's great, Colin.

Speaker Change: And we've been calling Sandro and I have spent a lot of time.

Speaker Change: Calling on the private banking clients meeting with the people trying to understand as I said some of this is our fault the integration process of making sure. We understand how we can be more responsive to credit needs account opening and those things that can make it.

Speaker Change: And more transparent for those customers to integrate into the bank.

Joseph M. Otting: And I can have one quick follow-up. So I appreciate all the deep dive you've done on the office and multifamily. When all this began, there was a lot of concern around New York City's unstabilized multifamily book.

Speaker Change: That's great color and then if I can have one quick follow up so I appreciate all the deep dive you've done on the office and multifamily.

Speaker Change: I mean I'll just begin the level of concern around New York city than stabilized multifamily book.

Ebrahim Huseini Poonawala: And I appreciate there's more to do in terms of the deep dive review. Just give us a sense, like for the longest time I've covered the bank, it felt like the lost content in that book should be minimal. And I would love to hear your thoughts in terms of how we should think about rent-stabilized New York City multifamily and your view on lost content. Thank you. Well, a couple things. I mean, we all know about the 2019 legislative, you know, changes and then the expectation, perhaps, that the Supreme Court would rule against that, and they haven't.

Speaker Change: And I appreciate there is more to do in terms of the deep data deal just give us a sense for the longest time I have covered the bank. It felt like the lost content in that book should be minimal.

Speaker Change: And I would love to hear your thoughts in terms of how we should think about that <unk> stabilized New York City multifamily and your view on the loss content. Thank you.

Joseph M. Otting: So we're kind of in the army, so to speak, with what we have. We may have hit a low point now that some of the jurisdictions are doing tax abatement. You know, we looked at the very big multifamilies that have large exposures, and we'll do more work on the remainder of the portfolio during this particular quarter. But as we say, you know, the revenue is pretty solid in that space. I mean, there are very few vacancies.

Well couple of things I mean, we all know about the 2019 legislative.

Speaker Change: Changes and then the expectation perhaps at the Supreme Court would rule against that and they and they haven't so we're kind of in the army so to speak with what we have.

Speaker Change: We may have hit the low point now that some of the jurisdictions are doing tax abatements.

Speaker Change: We've looked at the very big multi families that have large exposures.

Speaker Change: And we will do more work on the remainder of the portfolio. During this particular quarter, but as we say the <unk>. The revenue was pretty solid in that space I mean, there's very few vacancies they know with.

Joseph M. Otting: You know, they know with the revenue, where there's been problems really is how on the other side of the operating expenses have risen. You know, people will tell you buy a new HVAC system, it's 30 or 40% higher than what it was two years ago. You know, hiring people to do work on site, you know, interest rate resets, just a lot of, you know, negative consequences on the expense side. You know, we, in one of the chart pages, Craig, yeah, chart 11, I think one of the important parts about our portfolio is if you look at the part that shows the past due, there's a page that says, The one that shows the past due, 30 to 89 days past due.

The revenue where theres been problems really is how on the other side of the operating expenses have risen.

Now people will tell you buy a new HVAC system, it's 30% or 40% higher than what it was two years ago hiring people to do work on site.

Speaker Change: Interest rate resets.

Speaker Change: Lot of.

Speaker Change: Negative consequences on the expense side.

Speaker Change: <unk>.

Speaker Change: On one of the chart pages Craig Yes.

Unknown Executive: Chart 11, I think one of the important parts about our portfolio.

Unknown Executive: If you look at.

That's the part that shows capacity.

Unknown Executive: David.

Unknown Executive: Such as the one that shows the past due.

Unknown Executive: 30 to 89 days past due.

Joseph M. Otting: Anyway, while he's finding that page, Ebrahim, one of the things that our portfolio has exhibited is amazing resiliency, where clients are not going past due. So where we see that, you know, perhaps the property is over 100% loan-to-value, and just for the properties, the debt service coverage is below one-to-one. These are frequently long-term-owned properties by families, and they are supporting those properties from resources within the family because they don't want those properties to lose those properties.

Unknown Executive: Anyway, well he is finding that page eight.

Unknown Executive: Abraham one of the one of the things that our portfolio has exhibited amazing resiliency.

Unknown Executive: Our clients are not going past due so where we see that perhaps the property is over 100% loan to value in <unk>.

Unknown Executive: Just for the properties the debt service coverage was below one to one.

Unknown Executive: These are frequently long time owned properties by by families and they are supporting those properties from resources amongst our family because they don't want those property to lose those properties and in those instances, we don't have you know.

Joseph M. Otting: And while, you know, in those instances, we don't have, you know, guarantees, potential tax liabilities are motivating people to be at the table with us negotiating to make sure that they can, you know, they have time to kind of manage their way. And Ebrahim, what I was referencing is on page 8, the third item up from the bottom is, or excuse me, the second item up from the bottom is total loans 30 to 89 days past due. At the end of the first quarter, we were 26%. Versus category four, we're 64. And then, and then 50 to 100 was 29.

Unknown Executive: Guarantees.

Unknown Executive: Potential tax liabilities are motivating people to be at the table with us negotiating.

Unknown Executive: To make sure that they.

Unknown Executive: They have time to kind of manage their way and what I was referencing is on page eight.

Unknown Executive: The third item up from the bottom is or excuse me second item from the bottom as total loans 30 to 89 days past due.

Unknown Executive: At the end of the first quarter, we were 26% versus category for over 64, and then and then 50 to 100 was 29, so our portfolio. While we do feel there is loss given default and probability of default. The portfolio has held up very well from the standpoint of.

Joseph M. Otting: So our portfolio, you know, while we do feel there's, you know, loss given defaults and probability defaults, the portfolio is held up very well from the standpoint of the borrowers continuing to make payments. Got it. Thanks for taking my question. Your next question comes from the line of Dave Rochester with Compass Point. Please go ahead. Hey, good morning, guys. And congrats on getting all this together in such a short period of time. It's very impressive.

Unknown Executive: Our borrowers continue to make payments.

Speaker Change: Got it thanks for taking my questions Youre.

Speaker Change: Youre welcome.

Your next question comes from the line of Dave Rochester with Compass point. Please go ahead.

Hey, good morning, guys.

David Patrick Rochester: Grafts on getting all this together in such a short period of time, that's very impressive.

David Patrick Rochester: Following up on your comments on the $6 billion in deposits, I appreciate all the color on that. What's the mix of that $6 billion that's remaining? So what portion of that is DDA versus interest-bearing or higher-rate CDs? And then, if you could just talk about how many of those teams are remaining at the bank and where you stand with lockups and whatnot with the remaining private bank teams and how you're managing that relationship at this point going forward. Yeah, there are about 100 teams left with the bank today. So, if you said there were roughly 130 at the beginning, there are 100 left.

David Patrick Rochester: Just following up on your comments on the 6 billion in deposits I. Appreciate all the color on that whats the mix of that 6 billion. That's remaining so what portion of those DDA versus interest bearing or higher rate Cds.

David Patrick Rochester: And then if you could just talk about how many of those teams are remaining at the bank and where you stand with Lockups and whatnot with the remaining private bank teams and how youre managing that relationship.

David Patrick Rochester: At this point going forward.

Speaker Change: Yes, there is about 100 teams left with the bank today. So so if you said there was roughly 130 at the beginning there is a 100 left.

Joseph M. Otting: And, and, you know, we had in place, cash payment after one year of cash payment after two years, and then then equity pain, you know, RSRs that would vest in the third year kind of on a cliff vesting. And, and, you know, but I would also say money is one thing, but if you're servicing your clients in that space, and they have a really unique model, which I actually like, is that they're a single point of contact for their customers, and I'm supportive of that model. If you're not able to support your clients, you're going to be frustrated, and you're not going to stay at an institution you don't think will give you those tools.

And and we have in place.

Speaker Change: Cash payment after one year of cash payment after two years and then then on equity.

Pain.

Speaker Change: <unk> would vest in the third year kind of on a cliff vesting.

Speaker Change: And but.

Speaker Change: But I would also say Dave.

Speaker Change: Money is one thing, but if you're servicing your clients in that space and they have a really unique model, which I actually like is there a single point of contact for their customers and I am supportive of that model, if youre not able to support your clients you're going to be frustrated and youre not going to stay at an institution you don't.

Speaker Change: I think that will give you those tools and so it's really we got to fix that and if we can fix that I think people can really have a successful career here and we can take care of their clients because we have the ability to execute so lockups are one thing, but if youre not able to take care of your customers and Thats your franchise.

Joseph M. Otting: And so it's really, we've got to fix that. And if we can fix that, I think people can really have a successful career here, and we can take care of their clients because we have the ability to execute. So lockups are one thing, but if you're not able to take care of your customers, and that's your franchise, then I don't think there's any money that would keep you at the bank. And I don't know. Do you have the number on this?

Speaker Change: Then I don't think Theres any money that would keep you at the bank and I don't know if you have the new Brian to put some numbers around the deposit mix of that of that $5 8 billion only about $250 million of that is <unk>. So it's not it's stable because of the relationship and the business not because of maturity term structure.

Joseph M. Otting: To put some numbers around the deposit mix of that $5.8 billion, only about $250 million of that is CDs, so it's not, it's stable because of the relationship in the business, not because of maturity temperature. What piece of that is DDA? [inaudible] I don't have that number in front of me, but the bulk of it is transactional accounts. Gotcha. What do you think in terms of the timing of, you know, ironing out all the issues on the service side?

Speaker Change: What piece of that DDA.

Speaker Change: Noninterest bearing.

Speaker Change: I don't have that number in front of me, but it's the bulk of it is transactional accounts.

Got you what do you think in terms of the timing.

Speaker Change: Ironing out all the all the issues on the service side, we've been all over it.

Joseph M. Otting: We've been all over it. It's been one of my personal initiatives. You know, we meet, we have met and continue to meet with these people, they're called private bankers, but I'll be honest with you, most of them are really good commercial bankers.

Speaker Change: It's been one of my personal initiatives.

Speaker Change: We meet we have met and continue to meet with the call private bankers, but I'll be honest with you most of them are really good commercial bankers.

Joseph M. Otting: And we're kind of working through, we first worked through some of the approval levels that were assigned, and we got them back to kind of what their approval levels were with Signature Bank. And then we've been working through the credit process. We've assigned a particular person to work through how credits get approved. So, for the most part, I think we're ironing those kinds of things out. You know, we've kind of, basically gone down to a trickle of people leaving at this point.

Speaker Change: And we're kind of working through we first worked through some of the approval levels.

Speaker Change: That were assigned.

Speaker Change: We got them back to kind of what their approval levels were with signature Bank and then we've been working through the credit process. We've assigned that particular person to work through how credits get approved so.

Joseph M. Otting: So I really think that the people that are here are engaged, and they want to be part of the organization. All right, great. Thanks, guys. I appreciate it.

Speaker Change: For the most part I think we're ironing those kind of things out.

Speaker Change: We've kind of we've kind of basically gone down to a trickle of people, leaving at this point. So I really think that people that are here are engaged and they want to be part of the organization.

Speaker Change: Alright, great. Thanks, guys appreciate it.

David Patrick Rochester: Thank you. Thank you. Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Speaker Change: Thank you. Thank you.

Speaker Change: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Thomas Fitzgibbon: Hey guys, good morning and thank you for all the detail. I wondered if you could share with us what you're assuming for the balance sheet size in your modeling. Yes, we can. We are not assuming any significant reduction in the modeling that represents the numbers on pages six and seven in our balance sheet size. As Joseph mentioned, we are thinking about and looking at a number of strategic transactions, but we don't have a balance sheet reduction as our principal target. We'll make strategic moves that are right for the business and right for our balance sheet and, importantly, increase our shareholder returns. Okay.

Mark Thomas Fitzgibbon: Hey, guys. Good morning, and thank you for all the detail.

Mark Thomas Fitzgibbon: Okay.

Mark Thomas Fitzgibbon: I wondered if you could share with us what you're assuming for the balance sheet size in your modeling.

Mark Thomas Fitzgibbon: Yes, we can we are not assuming any significant reduction in the modeling that represents the numbers on pages six and seven in.

Mark Thomas Fitzgibbon: In our balance sheet size as Josef mentioned, we are thinking about and looking at a number of strategic transactions, but we don't have a balance sheet reduction as our principal target will make.

Mark Thomas Fitzgibbon: We'll make strategic moves that are right for the business and right for our balance sheet and importantly.

Mark Thomas Fitzgibbon: Increase our shareholder returns.

Joseph M. Otting: And then secondly, I think your lead independent director recently suggested on CNBC that the company could be used as a roll-up vehicle for more FDIC deals. When do you think that's conceivable? Is any of that baked into your plan through 2020? It's not; it's not baked into our plan. What I would, you know, obviously, with my background as the comptroller of the currency, I have good visions of what a good credit, good risk management infrastructure looks like, you know, what the first line of defense and second line of defense and third line of defense should be. And by no means are we in a position, you know, in the short term, to be in that position to be acquiring other entities. We'll clean up our house and get it in order.

Mark Thomas Fitzgibbon: Okay, and then secondly, I think your lead independent director had suggested on CNBC recently that.

The company could be used as a roll up vehicle for more FDIC deals.

When do you think that's conceivable is any of that baked into your your plan through 2026.

Mark Thomas Fitzgibbon: If not it is not baked into our plan.

Mark Thomas Fitzgibbon: What I would.

Mark Thomas Fitzgibbon: Obviously with my background.

Speaker Change: Being the Comptroller of the currency.

Speaker Change: I have good visions into what a good credit good risk management infrastructure looks like.

Speaker Change: What is first line of defense in second line of defense in third line of defense.

Speaker Change: Should be.

Speaker Change: And by no means are we in a position.

Joseph M. Otting: And, you know, really, our focus is to work with our regulators at the OCC and the Fed. They're important partners to us to, you know, guide us and partner with us as we build the infrastructure here. You know, we have a lot of work to do in this organization to put the risk structure in place. And we're committed to doing that. We've taken some actions where, you know, we formed a committee at the bank, we, you know, we're hiring a person to coordinate in the organization. It's their job, we formed a management committee, and we're really focused on it. We want to deliver because we think it's important for us. We're not doing it because, you know, anybody else wants us to do it, KPMG or the regulators. We want to do it because we think it's important.

Speaker Change: In the short term to be in that position to be acquiring other entities.

Speaker Change: We will clean up our house and get it in order and really our focus is to work with our regulators at the OCC and the fed Theyre important partner partners to us to guide us and partner with us as we build the infrastructure here.

We have we have a lot of work to do in this organization to put the restructure in place.

Speaker Change: And we're committed to doing that we've taken some actions where we formed a committee of the bank we were hiring a person a coordinated in the organization. It's our job we formed a management committee, we're really focused on it and we want to deliver because we think it's important for us we're not doing it because.

Speaker Change: Anybody else wants us to do of KPMG are the regulators, we want to do it because we think it's important and I would tell you that the financial impact of that infrastructure.

Joseph M. Otting: And I would tell you that the financial impact of that infrastructure need and build is included in the financial forecast. So we will see that some of the opportunities for efficiency that will drive out the business will be reinvested in developing risk management infrastructure. Great.

Speaker Change: Leads and build is included in the financial forecast. So we would see that some of the opportunities for efficiency that will drive out of the business will be reinvested in developing risk management infrastructure.

Joseph M. Otting: And then just lastly, would you consider selling a part of the branch franchise? Are there any sort of far-flung areas where you see an opportunity to kind of shrink down part of the branch franchise? I don't think so.

Speaker Change: Great and then just lastly would you consider selling a part of the branch franchise.

Speaker Change: Are there any sort of far flung areas, we see an opportunity to kind of shrink down part of the branch franchise.

Joseph M. Otting: Not at this point. I think we really like the deposit and how the bank has operated in the retail bank. If anything, we would like to get more products that they could have available. We obviously are really good at originating mortgages, and being better at originating mortgages out of the branch could be a strong initiative. Reggie is focused on doing more small business lending out of the branches as well. So I think we're more into how do we enhance what we offer through our branch network. They've done a really great job.

Speaker Change: I don't think so not at this point I think I think we really like the deposits.

Speaker Change: And how does the bank has operated in the retail bank if anything we would like to get more products that they could have available.

Speaker Change: We obviously are really good at originating mortgages in being better at originating mortgages out of the branch could be a strong initiative.

Speaker Change: <unk> is focused on doing more small business lending out of the branches as well. So I think I think we're more into how do we enhance what we offer through our branch network they've done a really strong job we have a very powerful deposit base out of the branch network and we think we can grow upon that.

Speaker Change: Thank you.

Speaker Change: Youre welcome.

Joseph M. Otting: We have a very powerful deposit base out of the branch network, and we think we can grow upon that. Thank you. Your next question comes from the line of Chris McGratty with KBW. Please go ahead. Oh, good morning. Thanks for the question. Good morning.

Speaker Change: Your next question comes from the line of Chris Mcgratty with GW. Please go ahead.

Christopher Edward McGratty: Could you share where you are looking to run the loan to deposit ratio over over the next two to three years? Yeah I think that the loan to deposit ratio as we as our current balance sheet mix looks will continue out at least over the next 24 months as we get beyond that and look at our wholesale funding and our on balance sheet liquidity position you might see us move to a lower reliance on wholesale deposits I'm sorry on wholesale funding and perhaps an increase in deposits that would reduce that ratio a bit but I don't expect to see it transition significantly in the next 24, It'll remain elevated.

Christopher Edward McGratty: Hi, good morning, Thanks for the question.

Christopher Edward McGratty: Good morning.

Speaker Change: Sure.

Speaker Change: <unk>.

Christopher Edward McGratty: We're looking to run the loan to deposit ratio over over the next two to three years.

Christopher Edward McGratty: Yes, I think that the loan to deposit ratio as we as our current balance sheet mix looks will continue at least over the next 24 months as we get beyond that and look at our wholesale funding and our on balance sheet liquidity position you might see us move too.

Christopher Edward McGratty: A lower reliance on wholesale deposits I'm, sorry on wholesale funding and perhaps an increase in deposits it would reduce that ratio a bit but I don't expect to see that transition significantly in the next 24 months.

Christopher Edward McGratty: It will remain elevated.

Christopher Edward McGratty: Well, as we look at strategic transactions, we might see some reduction in loans that would reduce the loans to deposit ratio, just through strategic transactions that would be intended to drive liquidity, as well as perhaps operational efficiency, and ultimately shareholder value, particularly by releasing some capital demand.

Christopher Edward McGratty: As we look at strategic transactions, we might see we might see.

Christopher Edward McGratty: Some reduction of loans that would that would reduce the loan to deposit ratio just through strategic transactions that would be intended to drive liquidity as.

Christopher Edward McGratty: As well as perhaps operational efficiency and ultimately shareholder value, particularly by releasing some capital demand alright, Chris one of the I'd say the overarching strategies within the company is to really look at.

Joseph M. Otting: Hey, Chris, one of the, I'd say the overarching strategies within the company is to really look at where we have scale and where we have relationships. Some businesses where we don't know the customer, they're just using the balance sheet. Those would be businesses that probably would be complicated and difficult for us to hold on to in the future.

Christopher Edward McGratty: Where we have scale and where we have relationships some businesses.

Christopher Edward McGratty: We don't know the customer, they're just singularly using the balance sheet those would be businesses that probably.

Christopher Edward McGratty: It would be complicated and difficult for us to hold onto in the future and the market. Today is there is a lot of buyers for that kind of product and so as we would <unk>.

Christopher Edward McGratty: And the market today is, there are a lot of buyers for that kind of product. And so we would execute on transactions, as Craig said, that would give us the ability to use that liquidity either to reduce wholesale borrowings or increase our liquidity. Great, and I guess as my next follow-up, it's two parts. The $5 billion you talked about that you might be at a point to announce details. Can you share with me what asset class that is?

Christopher Edward McGratty: Executing on transactions as Craig said that would give us the ability to use that liquidity.

Christopher Edward McGratty: Either to reduce wholesale borrowings or increase our liquidity.

Christopher Edward McGratty: Okay.

Speaker Change: For questions.

Speaker Change: Great and I guess, just my follow up two part the $5 billion you talked about that you might be able to.

Speaker Change: 0.2 to announce details can you share with what asset class at it and also would be strategic decisions with the balance sheet also be considering like CRT transaction, where you reduce risk weighted assets. Thanks.

Joseph M. Otting: And also, would the strategic decisions with the balance sheet also be considering like a CRT transaction where you reduce risk-weighted assets? Yeah, you know, Chris, I wanted to make sure people were aware of it in case we announce it in a day or two. But I did, I don't want to go into details.

Joseph M. Otting: I think at this point, it's not appropriate to do that. But But, you know, we are right at the doorstep of deciding whether we're going to move forward with that. Importantly, that transaction would be accretive to our capital ratios, it would reduce our capital demand, and wouldn't have a significant effect on either immediate gains or losses or earnings. Great, thank you. Your next question comes from the line of Manan Gosalia, with Morgan Stanley. Please go ahead. Hi, good morning. This is Brian Wolczynski filling in for Manan.

Speaker Change: Yes, Chris.

Speaker Change: Chris.

Speaker Change: I wanted to make sure people are aware of it in case, we announced it in a day or two but I don't want to go into details I think at this point issue not appropriate to do that.

Speaker Change: But we are right at the doorstep of deciding whether we're going to move forward with that transaction.

Speaker Change: Importantly that transaction would be accrued.

Speaker Change: Accretive to our capital ratios it would.

Speaker Change: Reduce our capital demand and wouldn't have a significant effect on either immediate gains or losses or or our earnings our earnings potential.

Speaker Change: Great. Thank you.

Speaker Change: Yes.

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

Manan Gosalia: Can you talk about your approach to complying with the long-term debt rules that were proposed last year? And a related question is, what do the rating agencies need to see in order for you to have a better rating? Thanks.

Manan: Hi, good morning.

Manan: Brian I will ask you a selling and from it.

Manan: Can you talk about your approach to complying with the long term that Ross.

Speaker Change: This last year.

Manan: And related question is what is the rating agencies need to see in order for you to have a better rate.

Unknown Executive: I'll move to the last one. They need the second question; they need to see a reliable path to earnings and the ability to demonstrate our understanding of the credit risk. I don't see that as an immediate term. We certainly think that there are opportunities for us to demonstrate our understanding of the business and our financial performance in a repeatable way that could lead to upgrade potential or a positive outlook in a medium-term timeframe.

Manan: Now I'll move to the last one and then the second question that I need to see.

Manan: A reliable path towards earnings.

Manan: And the ability to demonstrate our understanding of the credit risk.

Manan: I don't see that as a immediate term, we certainly think that there are opportunities for us to demonstrate our understanding of the business and our financial performance in a repeatable way that could lead to upgrade potential or positive outlook.

Unknown Executive: In terms of the long-term debt rules, I think where we stand from a capital position, our funding will benefit as we continue to increase our capital ratios. But we continue to evaluate our balance sheet position and really haven't made any long-term decisions on how we'd be structuring it. Okay, great. Thank you.

Manan: And a medium term timeframe in terms of long term debt rules.

Manan: I think where we stand from a capital position we will.

Manan: It will benefit our funding will benefit as we continue to increase our capital ratios.

Manan: But we continue to evaluate our balance sheet position and haven't really havent made any long term decisions on how we can restructure there.

Joseph M. Otting: And then, just as a follow-up, when it comes to bringing down the commercial real estate concentration, can you give some more details on the types of commercial real estate that you might choose to maintain or grow over time versus what you are more likely to deemphasize? Well, you know, clearly, the biggest concentration is in the multi-family sector of the portfolio. So to move any significant numbers, you would have to reduce your exposure in that particular area.

Speaker Change: Okay, great. Thank you and then just as a follow up when it comes to bringing down the commercial real estate concentration can you give us some more details on the types of commercial real estate that you might choose to maintain or grow over time versus what you are more likely to deemphasize.

Speaker Change: Well clearly the biggest concentration is in the multifamily sector of the portfolio. So to move any significant numbers you would have to reduce your exposure in that particular area I would say from a risk perspective.

Joseph M. Otting: I would say from a risk perspective, you know, it would be our desire to reduce our exposure in the office marketplace. You know, we've done a pretty deep dive on 2.5 billion of the $3.3 billion in the portfolio. There's stress there. You know, you know, I think there's been a fundamental change, you know, how people are going to work and, you know, what space is going to be used in the future. There's just, you know, it's difficult to see the end of the office.

Speaker Change: B, our desire to reduce our exposure in the office marketplace.

Speaker Change: We've done a pretty deep dive on $2 5 billion of the $3 3 billion of the portfolio.

Speaker Change: And so clearly.

Manan: <unk> stress there.

Manan: I think there has been a fundamental change.

Manan: People are going to work in what space is going to be used in the future.

Manan: It is difficult to see the and an office and so I would say if I will.

Joseph M. Otting: And so I would say, you know, if I were like, where I would like to see the first reduction, it would be an office, but then eventually, to get down to that $30 billion level, we would definitely have to go into the multifamily book and reduce our exposure. But I'd say it's more likely to be through how we manage our relationships and the transactions as opposed to portfolio sales.

Manan: As slide where would I like to see the first reductions it would be an office, but then eventually to get down to that $30 billion level. We would definitely have to go into the multifamily book in and reduce our exposure there.

Manan: But I'd say, it's more likely to be through how we manage our relationships and the transactions as opposed to as opposed to portfolio sales alright.

Joseph M. Otting: Yeah, I mean, our goal around here is like if we have a relationship with you and deposits, then if you want to do something, and you have good credit, we'll still do it. Option B is, you know, if you want us to do a loan, and you're either going to bring deposits back, or we can gather a big part of your relationship, we'll do it. Option C, where you just want to use our balance sheet; we won't do transactions like that. Thank you for taking my questions. Your next question comes from the line of Ben Gerlinger with Citi. Please go ahead. Hey, good morning.

Manan: Okay.

Manan: Our goal around here is like a if we have a relationship with you in the deposits.

Manan: If you want to do something and its a good credit we'll still do it for Ya option. B is if you if you want us to do a loan and you're either going to bring deposits back or we can gather a big part of your relationship. We will do those option C where you just want to use our balance sheet, we won't do transactions like that in the future.

Speaker Change: Thank you for taking my question.

Speaker Change: And welcome Brian.

Speaker Change: Your next question comes from the line of Ben Garlinger with Citi. Please go ahead.

Ben Garlinger: Hi, good morning.

Ben Gerlinger: I know you gave a good amount of information on your independent, or excuse me, the individual categories of your CRE book. Just curious, because I mean, multifamily reviewed roughly a third, some non-office CREs, roughly a quarter. Is there an intention to do a complete 100%, or do you start with the largest just to make sure you're kind of in an appropriate area for your reserve level? So we started with the largest, not only because they're large loans and we get more coverage with less count, but because they're generally more institutionally owned as opposed to either family owned or privately owned. And the decisioning factors are different there, as Joseph pointed out.

Ben Garlinger: Right back in.

Ben Garlinger: I know you gave a good amount of information on independent or excuse me.

Ben Garlinger: Visual categories with them.

Ben Garlinger: CRE book.

Ben Garlinger: Curious just because I mean multifamily reviewed roughly a third some.

Ben Garlinger: Non office areas, principally a quarter.

Ben Garlinger: Is there any intention to do a complete 100% or you start with the largest just to make sure you're kind of.

Ben Garlinger: Appropriate area for your reserve levels.

Ben Garlinger: So we started with the largest not only because it's.

Ben Garlinger: There are large loans and we get more coverage.

Ben Garlinger: Less count, but because they're generally more institutionally owned as opposed to either family owned or privately owned.

Ben Garlinger: Investments.

Ben Garlinger: And the Decisioning factors are different there as Joseph pointed out. Additionally, obviously as I mentioned the refinance risk is a more of a challenge. When you are talking about $100 million credit as opposed to a $3 3 million credit we will continue through our standard and improving credit processes to to take her.

Unknown Executive: Additionally, obviously, as I mentioned, the refinance risk is more of a challenge when you're talking about a $100 million credit as opposed to a $3 million credit. We will continue through our standard and improving credit processes to take a closer look at the smaller loan portfolio. And I'd say the next cut would be in a more standardized approach to look at our portfolio balances over about a $10 million threshold. As we continue to look at that, and as we continue to see borrower performance in the current environment, that could impact our reserve levels. But we believe that we have appropriate levels of reserves for the portfolio right now.

Ben Garlinger: Look at the.

Ben Garlinger: <unk>.

Ben Garlinger: The smaller loan portfolio and I'd say the next cut would be.

Ben Garlinger: And Ah.

Ben Garlinger: A more standardized approach to look at our portfolio balances over about a $10 million threshold.

Ben Garlinger: As we continue to look at that and as we continue to.

Ben Garlinger: C borrower performance in the current environment that could impact our reserving levels.

Ben Garlinger: But we believe that we have appropriate levels of reserves for the portfolio right now.

Joseph M. Otting: One other thing, the next phase is, we're kind of looking at the large borrowers. And what we mean by that is, instead of large loans, we're going to look at where there's a consolidation of the borrowers. And then also, any relationship where there's $10 million or more, by June 30, we'll be through that process. So when we report to you next time, as well, we'll be able to kind of give some statistics around that.

Ben Garlinger: Gotcha.

Ben Garlinger: Okay.

Ben Garlinger: One other thing the next phase is we're kind of.

Ben Garlinger: Looking at the large borrowers.

Ben Garlinger: And what we mean by that is incentive large loans, we're going to look at where there is a consolidation of the borrowers and then also any relationship where there is $10 million or more.

Ben Garlinger: By June 30, we'll be through that process. When we report to you next time as well, we'll be able to kind of give some statistics around that so we are kind of water falling our way down to the portfolio to make sure that we're comfortable with obviously the risk ratings and the reserves against the portfolio.

Joseph M. Otting: So we are kind of waterfalling our way down to the portfolio to make sure that we're comfortable with, you know, obviously, the risk ratings and the reserves against the portfolio. Gotcha. And then just to follow up here quickly, I know you gave the guidance of an elevated loan loss provision throughout the rest of this year, and Wayne is pretty much early on, 25 and 26. For this year, what is it really predicated on?

Speaker Change: Got you and then I'll just follow up here quickly I know you gave the guidance and elevated loan loss provisions throughout the rest of this year and it weighs pretty materially.

Speaker Change: Five six for this year, what does it really predicated on is it more so allowance building or is there some sort of.

Ben Gerlinger: Is it more so allowance building? Or is there some sort of As you push things out, you might have to be marking a loss, similar to earlier this year, just kind of trying to get a sense of why you're anticipating higher provisioning going forward. Well, I think it's a good question.

Speaker Change: As you push things that you might have some great marketing loss similar to earlier. This year, just kind of I'm, just trying to get a sense of why youre in.

Speaker Change: <unk> higher provisioning going forward.

Unknown Executive: I think that what we've seen is repricing at higher interest rate levels obviously puts stress on debt service coverage ratios for some borrowers. We've had really good experience, and that's particularly relevant to the way we model credit loss for reserve purposes. But we also know that there will be some classes of borrowers that will experience stress.

Ben Garlinger: Well.

Speaker Change: So it's a good question I think that what we've seen is repricing at higher interest rate levels, obviously put stress on.

Speaker Change: Debt service coverage ratios for some borrowers we've had really good experience and thats.

Ben Garlinger: Particularly relevant to the way we model a credit loss for reserving purposes, but we also.

Ben Garlinger: No that there will be some classes of borrowers that will experience stress and as we begin to get more insight into current market level debt.

Unknown Executive: And as we begin to get more insight into current market-level debt service coverage ratios and see how those borrowers, a broader population of those borrowers react in reset environments, we could see that until the rate curve comes down, there'll be additional stress. Our expectations are based upon the current rate curve and the current market conditions. And those conditions, you know, could change the feds talking about high temperatures for longer and higher, and that could have an impact on future conditions. And we've considered that as we put together our forecast. Gotcha, that's helpful, thank you. Your next question will come from the line of Christopher Marinac with Janie Montgomery-Scott. Please go ahead.

Ben Garlinger: Debt service coverage ratios and see how those bars are a broader population of those borrowers react in and reset.

Ben Garlinger: Environments, we could see that until we until the rate curve comes down that that there'll be additional stress.

Ben Garlinger: Our expectations are based.

Ben Garlinger: Based upon the current rate curve in the current market and.

Ben Garlinger: Conditions and those conditions could change the fed is talking about high longer and higher longer and that could have an impact on future conditions and we've considered that as we put our forecast together.

Speaker Change: Gotcha Thats helpful. Thank you.

Speaker Change: Youre welcome.

Speaker Change: Your next question will come from the line of Christopher <unk> with Janney Montgomery Scott. Please go ahead.

Christopher William Marinac: Thanks, good morning, and thanks for taking all of our questions and information. I wanted to drill down on the net reserve field. So, based on the provision guide that you gave us this year, next year, what type of charge-offs should we anticipate? And how should net reserves change over time? Yes, we anticipate an elevated level of charge-offs. We had about $80 million this quarter.

Christopher: Thanks, Good morning, and thanks for taking all of our questions and information I wanted to drill down on the net reserve build so we look at the provision guide that you gave us this year or next year, what type of charge offs should we anticipate and how we should net reserves will change over time.

Unknown Executive: And in our, in our outlook, we don't distinguish dramatically between chargeoffs and reserve building, I should say, and reserve build because they all ultimately reflect the underlying credit loss of the portfolio. But I think that we'll see a ramping of chargeoffs over the next couple of quarters. And, and then as we get out beyond that, offers are built, we think it'll come back to a more normalized run rate credit line.

Speaker Change: Yes, so we anticipate.

Speaker Change: An elevated level of charge offs, we had about $80 million this quarter and.

Speaker Change: And our outlook, we don't distinguish dramatically between charge offs and reserving.

Speaker Change: And reserve build.

Speaker Change: They all ultimately reflect the underlying.

Speaker Change: Credit loss in the portfolio, but I think that we will see a ramping of charge offs over the next couple of quarters.

Speaker Change: <unk>.

Speaker Change: And then as we get out beyond that.

Speaker Change: Whether it's a charge off reserve build we think it will come back to a more normalized run rate credit loss.

Unknown Executive: And as some of those charge-offs are taken, would some of those be kind of new loans that are reset and just take the value impairment, or would some of those be loans that leave the bank altogether? So it's loans that, the charge-offs this quarter are principally a couple of office loans. And, as we talked about, the office market's pretty stressed, and it was a couple of stressed office loans that got to the point where the investors chose to just have come to us, and we had to take over the property. I don't know if we've taken them at this point.

Speaker Change: Great and then some of those charge offs are taken with some of that be kind of new loans that are reset and just taken the value impairment or with some of those loans are that need the bank altogether.

Speaker Change: So it's loans that the charge offs. This quarter are principally a couple of office loans and as we've talked about the office markets pretty stressed and it was a couple of stressed office loans that.

Speaker Change: Got to the point, where the investors chose to.

Speaker Change: Just to have a.

Speaker Change: To us.

Unknown Executive: But we look at them and believe that a loss is likely on those. It's just a couple of office loans. Great. Thanks very much for the questions this morning. Thank you. Your next question will come from the line of Bernard von Gizycki with Deutsche Bank. Please go ahead. Oh, yes. Hi, good morning.

Speaker Change: And we had to take over the property I think I don't know that we've taken them at this point, but what we look at them and believe that a loss is likely on those with just a couple of a couple of office loans.

Speaker Change: Great. Thanks, very much for the questions. This morning.

Speaker Change: Thank you.

Bernard Von Gizycki: So, with regard to being a Category 4 bank, and the 10K, you noted anticipating significant expenses to develop policies, programs, and systems that comply with the enhanced standards, I would have assumed the revamping of risk management infrastructure would also be costly, but I think, Craig, you noted it's included in the forecast today. So, on today's call, it sounds you're optimistic about driving expenses down, which is seen in your forecast on page 7. Can you just help reconcile these expected cost pressures and efficiencies you expect over time? Hi Bernard, thanks for the question. So if you look on page 7, you can see a walk forward.

Speaker Change: And your next question will come from the line of Bernardo <unk> with Deutsche Bank. Please go ahead.

Bernardo: Yes, hi, good morning.

Bernardo: <unk> being a category four bank and the 10-K, you noted anticipating significant expenses to.

Bernardo: To develop policies programs and systems that comply with the enhanced standards.

Bernardo: I would have assumed the revamping our risk management infrastructure would also be costly.

Speaker Change: Greg You noted is included in the forecast today.

Greg: So on today's call it sounds youre optimistic about driving expenses down which are seen in your forecast on page seven can you just help reconcile these expected cost pressures and efficiencies you expect over time.

Unknown Executive: As I mentioned, it's roughly a year between 10% and 15% reduction. Obviously, there are some of those costs that are fixed that we can't do a lot about, and there are other portions that are very manageable. If you think about our organization, we took three – it wasn't a large bank that bought a small bank, and there was only a little bit of opportunity to drive efficiency out of the organization. It was three banks that had three full sets of infrastructure.

Speaker Change: <unk> thanks for the question.

Greg: So if you look on page seven you can see a walk forward as I mentioned is roughly.

Speaker Change: By year between 10, and 15% reduction obviously there is some of those costs that are fixed that we can't do a lot about and there are other portions that are very manageable. If you think about our organization we took three.

Greg: It wasn't a large bank that bought a small bank and and there is only a little bit of opportunity to drive efficiency out of the organization is three banks that had three full sets of infrastructure and while we've partially.

Unknown Executive: And while we've partially been able to take advantage of the opportunities there, there's certainly more to come. As Joseph mentioned, we have a strong existing employee base, but we've brought in a number of management team members that have experience building risk management functions. We've done this before, and we have a pretty good feel for what that scale looks like and what the costs are for that.

Greg: <unk> been able to take advantage of the opportunities there is certainly more to come.

Greg: As Joseph mentioned.

Greg: We have a strong existing employee base, but we brought in a number of management team members that have experienced building risk management functions. We've done this before and we have a pretty good feel of what that scale looks like and what the costs are for that.

Joseph M. Otting: And so as we think about our forecast for the future, I think there's a pretty high degree of predictability around what the costs are associated with the risk management build, and we've contemplated that in these numbers. Okay, and then just another follow-up from the 10k, you noted a number of items included in the remediation status of the reported material weaknesses identified by your auditors. You know, just a few items noted included the infrequency of reporting, expanding the use of independent credit analysis, reducing the reliance on internally created tools, and just assessing staffing qualifications.

Greg: And so as we think about our forecast for the future I think there's a pretty high degree of predictability around.

Greg: What the costs are associated with risk management build and we've contemplated that in these numbers.

Speaker Change: Okay, and then just another follow up from the 10-K.

Speaker Change: Noted a number of items included in the remediation status of the reported material weaknesses identified by your auditors.

Speaker Change: A few items noted included then frequency of reporting expanding the use of independent credit analysis, reducing the reliance on internally creative tools and just assessing staffing qualifications.

Joseph M. Otting: You know, could you just help explain the situation you inherited? It does sound like the department was working entirely on manual spreadsheets and had no defined reporting or guidelines. So, any color here would be helpful to just understand the situation that you inherited.

Speaker Change: Could you just help explain the situation you inherited it does sound like a department was working entirely on manual spreadsheets.

Speaker Change: Final reporting our guidelines so any color here would be helpful to just understand the situation that you inherited.

Unknown Executive: Yeah, I think the probably the biggest indicator of the situation was just that there wasn't as much visibility into the developing situation in the office market, and to a small degree in the multifamily market, and the impacts that that would have on provisioning. So, that ultimately passed through in the 10K and the fourth quarter in a big reserve. I think what we've demonstrated here is that this management team, along with the existing staff, have done a good job of really catching up, so to speak.

Speaker Change: Yes, I think probably the biggest indicator of the situation was just that.

Speaker Change: There wasn't as much visibility to the developing situation in the office market and to a small degree in the multifamily market and the impact that that would have on provisioning. So.

Speaker Change: That ultimately pass through in the 10-K in the fourth quarter and a big Reserve I think what we've demonstrated here is that this management team along with the existing staff have done a good job too to really catch up so to speak now our internal infrastructure still has has a lot.

Unknown Executive: Now, our internal infrastructure still has a lot of improvement to go, and we continue to work on those action plans. Again, many of us are pretty new here, so we're jumping into existing action plans and bringing our knowledge and experience to how we can further improve those. So, we have a ways to go. We're not done, but over the last few years, we've done a lot of work to make up for some of the previous deficiencies, at least as we stand today.

Speaker Change: Lot of improvement to go and we continue to work on those action plans.

Speaker Change: Again, many of us are pretty new here and so we're jumping into existing action plans and bringing our knowledge and experience into how we can further improve those so we have a ways to go we're not done but over the last.

Speaker Change: Four to six weeks, we've done a lot of work to make up for some of the previous deficiencies at least as we stand today and the other thing that I would add is that we have brought to bear.

Joseph M. Otting: The other thing that I would add is we have brought very experienced talent into the company from Jim Simmons, who for 20 years was the head approval officer and ran the workout for commercial real estate at US Bank. He joined in. He's called the Special Assistant to the President, but we wanted Jim to come in and look at all the processes, the forecasting of the NPLs, and charge-offs. And so Jim's working on that project right now, and we're adding additional staff to that infrastructure as well. So we recognize the need to beat that up, but we don't see that as a heavy lift for us.

Speaker Change: <unk> experienced talent into the company from.

Speaker Change: Jim Simmons, who.

Speaker Change: For 20 years with that was the head approval officer around.

Speaker Change: The workout for commercial real estate at U S Bank joined Us.

Speaker Change: He has called the special assistant to the President, but we want to Jim to come in and look at all the processes. The forecasting of the Npls charge offs and so Jim is working on that project right now and we're adding additional staff into that infrastructure as well. So we recognize the need to beef that up.

Speaker Change: But we don't we don't see that as a heavy lift for us we think thats more just bringing our expertise and the talents together. The information is available to us we just need to formulate that information in the right way.

Joseph M. Otting: We think that's more just bringing our expertise and talents together. The information is available to us. We just need to formulate that information in the right way. Okay, thanks for taking my questions. You're welcome. Your next question will come from the line for Casey Haire with Jeffries. Please go ahead. Yeah, thanks. Good morning.

Speaker Change: Okay. Thanks for taking my questions.

Speaker Change: Awesome.

Speaker Change: And your next question will come from the line of Casey Haire with Jefferies. Please go ahead.

Casey Haire: Follow up on credit quality. So following the review of some of the more troubled Exposures in your loan book, office, multifamily, and traditional CRA. Just wondering what kind of price declines you guys came across as you built reserves? Just looking for some... Yeah, it depends on the book, but I would tell you that our reserving process contemplated 42% price declines in office and in the 30s range for multifamily. That's the way we've modeled it. If you think about LTVs, that's why we see the office is pretty stressed because our origination LTVs, that 42% puts us pretty close. On the multifamily book, our origination LTVs were in the 60% range.

Casey Haire: Yes, thanks, good morning.

Casey Haire: A follow up on <unk>.

Casey Haire: Credit quality so far.

Casey Haire: Following the review of some of them more.

Casey Haire: Troubled exposures in your loan book.

Casey Haire: Office multifamily and traditional CRE, just wondering what what kind of price declines.

Casey Haire: You guys came across as you built reserves just looking for some yes. It depends on the on the book, but I would tell you that.

Casey Haire: Our reserving process contemplated.

Casey Haire: 42% price declines in office and in the 30 ish range for multifamily Thats.

Casey Haire: The way we've modeled it if you think about ltvs.

Casey Haire: That's why we see office is pretty stressed because our origination ltvs at 42% puts us puts us pretty close on the multifamily book our origination Ltvs were in the 60% range, our origination debt service coverage.

Unknown Executive: Our origination debt service coverage was in the 1.6 plus coverage ratio level. So if we think about current LTVs being in that multifamily book, perhaps down as much as 30%, which is what we modeled, that puts the overall loan-to-value ratio potentially in the high 80s or low 90s range. And if you think about the resets and the rate level for resets, depending on where we are in the rate curve and when those reset, they're sort of hovering in that 1 to 1.1 debt service coverage ratio, which is why we're not seeing a lot of defaults because they're able to cover the debt service.

Casey Haire: It was in the one six plus coverage ratio level. So if we think about <unk>.

Casey Haire: Current ltvs being in that multifamily book, perhaps down as much as 30%, which is what we've modeled that puts the overall.

Casey Haire: Loan to value ratio of potentially in the high <unk> low 90% range and if you think about the resets and the right level for resets.

Casey Haire: Depending on where we are in the rate curve and windows reset.

Casey Haire: There is sort of hovering in that one to one <unk> debt service coverage ratio, which is why we're not seeing a lot of defaults.

Casey Haire: Because they are able to cover the debt service, they're not making as much money as they like.

Unknown Executive: They're not making as much money as they'd like to for owners, but they're able to cover. Got it, thanks. And then on slide eight, you guys compare your relative position versus Cat4Bank. One of the metrics not here is CRE concentration.

Casey Haire: For owners, but they are able to cover the debt service.

Speaker Change: Got it thanks, and then on slide eight you guys outlined your relative position versus cat four banks.

Casey Haire: It sounds like you guys are, your forecast is based on a flat balance sheet, aside from the $5 billion potential sale, but on a flat balance sheet, with CNI, I think Craig, I think you mentioned the $10 billion growth opportunity in CNI over the long term. Just wondering, how does the CRE concentration evolve in the coming years on a flat balance sheet? I think it will evolve as we work through the refinance, reset, and maturity cycle over the next two to three years and retain the credits that we want where we have broader business relationships and allow the credits that are more balance sheet-focused to run off the balance sheet.

Speaker Change: One of the metrics not here is the CRE concentration it sounds like you guys are.

Speaker Change: Your forecast is based on a flat balance sheet.

Speaker Change: Aside from the $5 billion potential sale, but on a flat balance sheet.

Speaker Change: With C&I.

Speaker Change: Greg I think you mentioned, a $10 billion growth opportunity in C&I longer term.

Speaker Change: Just wondering how does the CRE concentration evolve.

Speaker Change: In the coming years.

Speaker Change: On a flat balance sheet.

Speaker Change: I think it evolves as we.

Speaker Change: As we work through the refinance reset and maturity cycle over the next two to three years and retain the credits that we werent, where we have broader business relationships and allow the credits that are more balance sheet use focused two to run off the balance sheet. Then we're able to have capital to deploy into these growing busy.

Casey Haire: Then we're able to have capital to deploy into these growing business opportunities. Yeah, just a point: It isn't like we're saying the balance sheet is going to remain flat. In our baseline case, we had it flat. And then the other attributes of asset sales, winding down businesses, could obviously have impacts on the size of the balance sheet. So it's just in the baseline case, that's the way it's set.

Speaker Change: This opportunities yes.

Speaker Change: And just a point of.

Speaker Change: Information.

Speaker Change: <unk> it isn't like we're seeing the balance sheet is going to remain flat.

Speaker Change: Our baseline case, we had it flat and then the other attributes of asset sales winding down businesses could have obviously impacts to the size of the balance sheet. So insistent that baseline case, that's the way it's Scott.

Joseph M. Otting: But clearly, you know, if we're sitting here three years from now, we would like to be looking down, you know, the path of a $30 billion CRE portfolio. Thank you. Your next question will come from the line of George Shaw with Barclays. Please go ahead. Hi George. Hi, good morning. It's actually Jared Shaw.

Speaker Change: But clearly if we're sitting here three years from now we would like to be looking down the path of a $30 billion CRE.

Speaker Change: CRE portfolio.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Your next question will come from the line of George <unk> with Barclays. Please go ahead.

George Shaw: But just a quick question on liquidity expectations. You know, how should we be thinking about balance sheet liquidity and HQLA in light of some of the guidance that we've seen here? Yeah, so on balance sheet liquidity right now is ample. As I pointed out, we have quite a bit more on balance sheet liquidity today than what we have in uninsured deposits. As I mentioned, to the extent that we do transactions, I would expect that a good portion of that, at least in the near term, would be continuing on balance sheet liquidity. I don't really expect to grow the securities portfolio substantially.

Speaker Change: Hi, George Hi, good morning.

Speaker Change: Alright.

George: Jared Shaw.

George: Just a quick question.

George: Liquidity expectations.

George: How should we be thinking about on balance sheet liquidity and HLA.

George: Light us of some of the guidance that you are seeing here.

Jared Shaw: Yes, so on balance sheet liquidity right now as ample as I pointed out we have.

George: Quite a bit more on balance sheet liquidity today than what we have in uninsured deposits.

George: As I mentioned to the extent that we do transactions that I would expect that a good portion of that at least in the near term, we'll be continuing on balance sheet liquidity I don't really expect to grow the securities portfolio substantially.

Unknown Executive: It'll be pretty short-term liquid liquidity. As I mentioned, we're pretty interest rate risk neutral right now. I'm not sure I want to extend the duration very far out.

George: I'll be pretty short term liquid liquidity.

George: As I mentioned, we're pretty interest rate risk neutral right now.

George: Not sure I want to extend the duration.

Unknown Executive: We'll take a look at it. But we're pretty interest rate risk neutral, so we like the balance of our liquidity mix. Okay, thanks. And then just two quick modeling questions.

George: Very far out we'll take a look at it but we're pretty interest rate risk neutral. So we like the balance of our liquidity mix.

George Shaw: Do you have what the loan accretion was in the quarter? And then when we look at the expense guide, is that including intangible amortization? The expense guide is not including intangible amortization. I don't have the loan accretion.

Speaker Change: Okay. Thanks, and then just two quick modeling questions do you have with the loan accretion was in the quarter and then when we look at the expense guide is that including intangible amortization.

Speaker Change: The expense guide is including intangible amortization I don't have the loan accretion.

Speaker Change: Okay. Thanks.

Unknown Executive: Okay, thanks. Your next question will come from the line of Stephen Alexopoulos with JP Morgan. Please go ahead. Morning, this is actually Janet Li on behalf of Stephen Alexopoulos.

Speaker Change: Your next question will come from the line of Steven Alexopoulos with Jpmorgan. Please go ahead.

Steven A. Alexopoulos: Back to your flat balance sheet comment earlier, is it fair to say that overall deposits are basically staying flattish through 2026 at the $75 billion level? And in your NII Outlook, what is assumed for your non-interest-bearing deposits to bottom out? And can you share color and how that deposit mix should change from here for the remainder of 2024? Hi Janet.

Speaker Change: Good morning, this is actually Janet Lee on for Steve Alexopoulos back.

Janet Lee: Back to a flat balance sheet comment earlier is it fair to say that overall deposits are basically staying flattish through 2026 at the 75 million level and your NII outlook. What is assumed for your went.

Janet Lee: <unk> assumed for your noninterest bearing deposits to bottom out and can you share colored how that deposit metric change from here for the remainder of 2024.

Unknown Executive: We've been pretty conservative from a forecasting standpoint. We've assumed a flat mix to date. We do expect that we'll see, as Joseph mentioned, as we expand our relationships with many of these customers into deeper relationships, we expect to see more demand deposit and transactional type funding. And so there's the opportunity for upside in terms of our funding mix, but in our base model that we've presented, we haven't included an optimistic outlook on that, so to speak. Okay.

Speaker Change: We've been pretty conservative from a forecasting standpoint.

Speaker Change: Assumed a flat mix to date, we do expect that we will see as Joseph mentioned as we expand our.

Speaker Change: Relationships with many of these customers into.

Speaker Change: Deeper relationships, we expect to see more demand deposit and transactional type funding and so there is the opportunity for upside in terms of our funding mix, but in our base model that we've presented we havent included in.

Speaker Change: An optimistic outlook on that so to speak.

Steven A. Alexopoulos: And as your CRE loans are coming down to the $30 billion range over the next few years, can you give us more detailed timeline on that? As in, where do you expect your overall loan balance to be at the end of 2024? And what's a more normalized level of loan growth for you going forward in 2025 and 6? So the portfolio, excuse me, the forecast that we've included does not really include a loan mix change in the outlook.

Speaker Change: Okay.

Speaker Change: And as your CRE loans are coming down to the $30 billion range over the next few years can you give us more detailed timeline on that and then where do you expect your overall loan balances to be at towards the end of 2024, and what's a more normalized level of loan growth for you going forward in 2025 and six.

Speaker Change: So the portfolio assuming the forecast that we've included does not really include.

Speaker Change: A loan mix change in the.

Speaker Change: And the outlook.

Steven A. Alexopoulos: These are more, think of them as strategic plans as opposed to forecasting, but as we think about the potential, as I mentioned, we have about $4 billion a year that will hit resets and maturities over the next three years. And so you think about that's the kind of, and the bulk of that is either multifamily or office. About 2.5 of that a year is multifamily, so as we think about the opportunity, it's that kind of size, which would be a natural opportunity to adjust concentrations over the next three years as opposed to portfolio sales. And as we think about loan growth, we haven't modeled substantial loan growth in the book here. We've kept the balance sheet relatively flat.

Speaker Change: These are more think of them as strategic plans as opposed to forecasting.

Speaker Change: But as we think about the potential as I mentioned, we have about $4 billion a year that will hit.

Speaker Change: We'll hit resets and maturities over the next three years and so you think about that as the <unk> and the bulk of that is either multifamily or office.

Speaker Change: About $2 five of that the year is multifamily so as we think about the opportunity.

Speaker Change: That kind of sizes, what is would be a natural opportunity to adjust.

Speaker Change: Concentrations over the next three years as opposed to portfolio sales.

Speaker Change: And then as we think about loan growth, we haven't modeled substantial loan growth in the.

Speaker Change: In the book here, we've kept the balance sheet relatively flat.

Unknown Executive: Okay, my last question on credit, besides the couple of office charge-offs you had in the first quarter. Can you talk about how much of the rent-regulated multifamily and CRE loans that came due in 1Q24 and what happened to these loans? How much got refinanced or paid off, or these given modifications and extensions?

Speaker Change: Okay and my last question on credit. Besides a couple of office charge offs you had in the first quarter can you talk about how much of a rent regulated multifamily and CRE loans that came due and <unk> I know what happened to these loans, how much got refinanced or paid off or were these kevin.

Speaker Change: Modifications and extensions.

Steven A. Alexopoulos: Well, as I mentioned, over the last 15 months, we've had, you know, $2 billion that has reached reset dates, and a fourth of that has paid off, and 75% of that has refinanced, and the performance has been really, really strong. But I'm not going to say that we haven't had any delinquencies. There's probably one or two out there, but there have been essentially no delinquencies to date on those loans that have reset at current rate levels.

Speaker Change: As I mentioned over the last 15 months, we have had.

Speaker Change: $2 billion that is.

Speaker Change: <unk> has reached.

Speaker Change: Our reset dates and a fourth of that has paid off 75% of that is refinanced in the performance has been really really strong.

Speaker Change: I'm not going to say that we haven't had any delinquencies, there's probably one or two out there, but it's essentially no delinquencies.

Unknown Executive: And the first quarter performance was relatively similar. I mean, something that resets in the first quarter hasn't had much time to perform, so I don't want to speak too hard on that, but the overall characteristics of the first quarter weren't any different than the previous 12 months. All right, thanks for taking my questions. Thank you. Your next question will come from the line of Peter Winter with D.A. Davidson.

Speaker Change: Date on those loans that have reset at current rate levels in the first quarter performance is relatively similar I mean, something that reset in the first quarter Hasnt had much time to perform so don't want to speak too hard on that but.

Speaker Change: The overall.

Speaker Change: Characteristics of the first quarter weren't any different than the <unk>.

Speaker Change: In the previous 12 months.

Speaker Change: Alright, thanks for taking my questions. Thank you.

Peter J. Winter: Please go ahead. Thanks. Good morning.

Speaker Change: Your next question will come from the line of Peter Winter with D. A Davidson. Please go ahead.

Unknown Executive: Can you provide an update on the criticized and classified loans, the trends this quarter? Yeah, so we did have about a little over a billion in rating changes, but Criticized and Classifieds, I'm just taking a quick look here. So Criticized and Classifieds increased about $500 million from quarter to quarter. Not the wrong number, I'm sorry.

Peter J. Winter: Thanks, Good morning, Ken can you provide an update on the criticized and classified loans the trends this quarter.

Peter J. Winter: Yes, so we.

Peter J. Winter: We did have.

Peter J. Winter: Hey.

Peter J. Winter: About a little over a $1 billion of rating changes.

Peter J. Winter: But criticized and classifieds.

Peter J. Winter: I'm just taking a look quick look here, so criticized and classifieds increased about $500 million.

Peter J. Winter: From quarter two.

Peter J. Winter: From quarter to quarter.

Peter J. Winter: That's the wrong number I am sorry criticized and classifieds increased about $2 billion from quarter to quarter.

Peter J. Winter: The number of distressed classifieds increased about $2 billion from quarter to quarter. And those are the loans that we're looking at as we think about how to... How do changes in the interest rate curve impact them when they get to the reprice dates? Not all of those reprice in the near term, but overall, it was about $2 billion. Got it, thanks. And then just, if I could just ask...

Peter J. Winter: And those are the two those are the loans that we're looking at as we think about how to.

Peter J. Winter: Changes in the interest rate curve impact them when they get to the reprice states not all of those reprice in the near term, but overall it was about a $2 billion increase.

Speaker Change: Got it thanks, and then just if I could just ask.

Unknown Executive: If I look at the average share count, pretty much most people got it wrong in the first quarter. Just how do we, what should we think about the average share count in the second and third quarter? Yeah, I won't say that people necessarily got it wrong.

Speaker Change: If I look at the average share count pretty much most people got it wrong in the first quarter just how do we how should we think about the average share count in the second and third quarter.

Peter J. Winter: It's a confusing math story, in part because the way we're presenting this deck is on a fully converted basis for the preferred stock. So the transaction that we did in March had a good portion of that being preferred. So we have 750 million shares today, and on an as-converted basis, it will be over a billion, and we present the details of that in the materials.

Speaker Change: Yes, I won't say that people necessarily got it wrong.

Speaker Change: As a confusing is a confusing mass story in part because of the way we are presenting in this deck is on a fully converted basis for the preferred stock. So the transaction that we did in March had a good portion of that being preferred we have 750 million shares.

Speaker Change: Today and on an as converted basis will be will be over 1 billion and we present the details of that in the materials.

Unknown Executive: But that's an expectation that those shares would convert in the second quarter. And so all of our information is presented as if those shares were fully converted throughout the forecast period. Okay, thanks. You're welcome. Your next question comes from the line of Matthew Breese with Stevens. Please go ahead. Good morning.

Speaker Change: Yes.

Speaker Change: An expectation that those shares would convert in the second quarter and so all of our information has been presented as if those shares were fully converted throughout the forecast period.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Youre welcome.

Matthew M. Breese: I was hoping you could talk about the potential sale and runoff of non-strategic assets beyond the identified $5 billion areas you're focused on and the amount you deem non-strategic. And then, in addition, last quarter, we discussed the CRE concentration and the need to get that in line with Category 4 bank peers, which is a significant gap between where you are today. I'm curious where you see that CRE concentration going by year end twenty six with the rest of the guidance areas capital and profit. So, Matthew, obviously, we're not in a position to comment on the $5 billion.

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

Matthew M. Breese: Good morning.

Matthew M. Breese: Hi, Matthew I was hoping you could talk about the.

Matthew M. Breese: The potential sale and one off of nonstrategic assets beyond the identified 5 billion.

Matthew M. Breese: Areas, you're focused on and the amount you deem non strategic and then in addition last quarter, we discussed the CRE concentration and they need to get that in line with category for bank peers.

Matthew M. Breese: A significant gap between where you are today.

Matthew M. Breese: I'm curious, where you see that theory concentration going by year end 2006, with the rest of the year.

Matthew M. Breese: The guidance <unk> capital and profitability.

Matthew M. Breese: So so Matthew obviously.

Speaker Change: We're not in a position to comment on the $5 billion. So.

Joseph M. Otting: So, as I indicated, we are we are close to having the option of choosing that transaction. So we'll be we'll be working on that over the next, you know, 2448 hours. As far as, like, our process, we really have been, you know, both Craig and I have been here for a relatively short period of time, but going through, sitting down with the business owners within the company and trying to understand the business. We've had numerous meetings to kind of go through, sit down and understand the business, and make a determination, you know, where we have relationships.

Speaker Change: As I indicated.

Speaker Change: We are we are close to being have the option of choosy.

Speaker Change: Choosing that transaction.

Speaker Change: So.

Matthew M. Breese: We'll be we'll be working on that over the next.

Matthew M. Breese: 24 48 hours.

Matthew M. Breese: As far as like our process.

Matthew M. Breese: Ben.

Matthew M. Breese: Both Craig and I have been here in a relatively short period of time, but going through sitting down with the business owners within the company and trying to understand the business. We've had numerous meetings to kind of go through sit down and understand the business and make a determination.

Matthew M. Breese: Or is it that we have relationships.

Joseph M. Otting: And so that has really given us the opportunity to kind of then come back, and we're going to put through a process where we'll build our strategic plan for the company, and we'll be in a position to give you better identification when we get together for the second quarter. After we've had a little bit more time to kind of go through that and make some determinations about which are strategic assets, And then on the CRE concentration, where do you anticipate that being by year-end 26? What where do I think?

Matthew M. Breese: And so that has that has really given us the opportunity to account and then come back and we're going to put through a process.

Matthew M. Breese: We will build our strategic plan for the company and we will be in a position to give you better identification when we get together for the second quarter.

Matthew M. Breese: After we've had a little bit more time to kind of go through that and make some determinations of which are strategic assets and which are not.

Matthew M. Breese: And then on the CRE concentration, where do you anticipate that being by year end 'twenty six.

Matthew M. Breese: Where do I think about what? The commercial real estate concentration. I mean, I think, I think the commercial real estate concentration probably, I think, in an ideal world, you're probably somewhere around, 25 to 30% some type of consumer related, probably 40% in CNI, and probably 30% in your CRB. We really, we really see the growth potential in CNI based not only on my experience but the talent that we will, we will draw. Okay, and then I did want to touch on capital. How are you thinking about the warrants?

Matthew M. Breese: Where do I think.

Speaker Change: Where do I think what Matthew.

Matthew M. Breese: Commercial real estate concentration.

Matthew M. Breese: I mean.

Matthew M. Breese: I think I think that.

Matthew M. Breese: Real estate concentration, probably I think I think in an ideal world, you're probably somewhere around.

Matthew M. Breese: 25% to 30%.

Matthew M. Breese: Some type of consumer related probably 40% in C&I in probably 30%.

Matthew M. Breese: <unk> in your CRE.

Matthew M. Breese: We really we really see the growth potential in the C&I based upon.

Matthew M. Breese: Not only my experience but.

Matthew M. Breese: Alan that we will we will draw into the company.

Matthew M. Breese: Okay, and then I did want to touch on capital.

Matthew M. Breese: How are you thinking about the warrants.

Unknown Executive: and timing on those being exercised, or is that a longer-term item? And then I wanted to touch on, you know, TLAC-related debt, whether that's incorporated in your, you know, 2026 outlook. The answer is, on TLAC, we haven't incorporated a significant amount of long-term debt into this outlook. With respect to the warrants, the capital numbers that we include here do not include any capital that would come from the exercise of the warrants.

Matthew M. Breese: And timing on those being exercised or is that a longer term item.

Matthew M. Breese: And then I wanted to touch on Chile related debt, whether that's incorporated in your 2026 outlook.

Speaker Change: The answer is.

Speaker Change: On T. Lac we haven't incorporated a significant amount of long term debt in this outlook with respect to the warrants.

Speaker Change: The capital numbers that we include here do not include any capital that would come from the exercise of the warrants. They do include an allocation of a portion of a portion of the $1 billion.

Matthew M. Breese: They do include an allocation of a portion of the billion dollars capital raised in March to the warrant classification, but we haven't included anything from an exercise. So there's potential upside. Okay, and then last one for me is, how much in deposits are at the bank tied to the signature legacy specialized mortgage solutions team? And then how important is that business to you all going forward? Well, I think I'd focus less on the signature and more on the mortgage banking aspect of their business relationships that are part of either broader business activities or our mortgage model more so than the signature. Advisors, so to speak, it's roughly about it varies because they're mortgage escrow related.

Speaker Change: Capital raise in March to to the warrant classes classification, but we haven't included anything from a exercise price.

Speaker Change: So there's potential upside from that.

Speaker Change: Okay, and then last one from me is how much in deposits.

Speaker Change: Our at the Bank high two signature legacy specialized mortgage solutions team.

Speaker Change: And then how sticky important as that business to you all going forward.

Speaker Change: Well I think I'd focus on.

Speaker Change: Les on the signature and more on the on the mortgage banking aspect of their business relationships that are part of <unk>.

Speaker Change: Peter broader business activities or our mortgage model more so than the than.

Speaker Change: And then the signature.

Unknown Executive: And so some of them move up and down with principal and interest and the cash flows associated with that, but call them big round numbers like three or 4 billion. It's not a big number for us. I'll leave it there. Thank you for taking my questions. You're welcome.

Speaker Change: Advisors, so to speak it's roughly about it varies because their their mortgage escrow related and so some of the move up and down with principal and interest in the cash flows associated with that but call. It big round numbers $3 billion to $4 billion, it's not a big number for us.

Speaker Change: I'll leave it there thanks for taking my questions Youre.

Speaker Change: Youre welcome. Thank you.

Stephen M. Moss: Thank you. Your next question comes from the line of Steve Moss with Raymond James. Please go ahead. Hi Steve.

Speaker Change: Your next question comes from the line of Steve Moss with Raymond James. Please go ahead.

Stephen M. Moss: Hi, Steve.

Speaker Change: Morning.

Stephen M. Moss: Hi David, just going back to multifamily credit. I hear you guys with regard to, you know, rates seem to be influencing your expectation of credit costs. Should we think about the provision primarily being driven by loans resetting over the next 12 to 18 months? And could that provision therefore be more elevated as we go through, you know, a larger set of resets over the next four to five years if we stay up at a four to 5% coupon on the five years?

Stephen M. Moss: Maybe just going back to multifamily credit here I hear you guys with regard to rates seem to be influencing your expectation on credit costs.

Stephen M. Moss: Should we think about the provision primarily being driven by loans resetting over the next 12 months to 18 months.

Stephen M. Moss: And could that provision therefore be more elevated as we go through a larger set of resets over the next four to five years, if we stay up at a 45% coupon on the five years.

Stephen M. Moss: Well, I think we focused our credit review based on where the market forecasts are from interest rates. I mean, certainly it could, as I mentioned, we have $4 billion in the whole book that matures, that resets over the next each year, over the next three years. If you get out into 2027, it's about $9 billion.

Speaker Change: Well I think we've focused our credit review based on where the market forecasts are from interest rates I mean, certainly it.

Speaker Change: <unk> as I mentioned, we have.

Speaker Change: $4 billion in the whole book that matures that resets over the next each year over the next.

Speaker Change: Three years, if you get out into 2027, it's about $9 billion. So you've got a bit of a bubble as you as you sort of take five years five year stuff out to 2027.

Unknown Executive: So you got a bit of a bubble as you sort of take five-year, five-year stuff out to 2027. So if you see rates stay this high that long, but I think that would, I think there's other issues that that might foretell for the economy if we see rates that high that long. Okay, and then in terms of just the ability of a number of these borrowers who are, you know, in more aggressive structures to pay, it sounds like you have some expectation of government subsidies, whether it's tax benefits or other programs. Just kind of curious about how much maybe government programs are influencing your expectations of credit costs going forward.

Speaker Change: If you see rates stay this high that long, but I think that would.

Speaker Change: Other issues that might foretell for the economy, if we see rates that high that loan.

Speaker Change: Okay, and then in terms of just the ability for a number of these borrowers who are in more aggressive structures too.

Speaker Change: Hey, it sounds like you have some expectation.

Speaker Change: Government substance teams, whether it's tax benefits our other program just kind of curious how.

Speaker Change: How much maybe government programs are influencing your expectations on credit costs going forward.

Unknown Executive: And one other thing with regard to the coverage there, just curious as to, well, I'll stop there with that. So I'd say that government support hasn't really influenced our view on credit, credit risk, or reserve requirements. I think what we were really speaking about more was not government aspects, but just simply the ownership aspects. What types of owners, how they've invested, what their historical investment path has been, whether they have a significant basis or a small basis, and the potential for tax implications for them if they were to exit versus continue to hold and support the debt.

Speaker Change: And one other thing.

Speaker Change: With regard to.

Speaker Change: The coverage there just curious as to.

Speaker Change: Well ill stop there with that.

Speaker Change: So I'd say that we Havent government support doesn't hasn't really influenced our view on credit.

Speaker Change: Risk or reserving.

Speaker Change: What we were really speaking to more is is not the government aspects, but just simply the ownership aspects.

Speaker Change: What types of owners, how they've invested with their historical <unk>.

Speaker Change: Investment path has been whether they have significant basis or small basis and.

Speaker Change: And the potential for tax implications to them if they were to exit versus continue to hold and support the debt yes.

Unknown Executive: Yeah, and Steve, the thing I would add there is, you know, the owners of these properties will come and advise us that they have, or are seeking tax abatement. And we do not put that into, you know, our models on their NOI until they get it. And so, and there have been some recent surprises that they were able to get those completed, which were very positive for the property. Okay. I appreciate that. And just two more for me.

Speaker Change: The thing I would add there is.

Speaker Change: The owners of these properties will culminate devices that they have.

Speaker Change: Our seeking tax abatement.

Speaker Change: We do not put that into our models on their NOI.

Speaker Change: Until a week unless the habit.

Speaker Change: Until they get it and so there have been some recent surprises that they were able to get those completed which were very positive for the properties.

Stephen M. Moss: In terms of Craig, you mentioned debt service coverage on the portfolio of one-sixth. But I think when NY, you know, previous management was disclosing that it was on current payment terms. Is that debt service coverage ratio based on current payment terms or a full P&I for even the interest-only loans? So the number I gave you was based on current payment terms and their existing contractual rates. On full P&I, it's, call it, 20 basis points lower than that.

Speaker Change: Right, Okay I appreciate that.

Speaker Change: Just.

Speaker Change: Two more for me in terms of Craig you mentioned debt service coverage on the portfolio of one six.

Speaker Change: But I think one.

Speaker Change: Previous management was disclosing that on current payment terms does that debt service coverage ratio on.

Speaker Change: Payment terms of our full P&I.

Speaker Change: Given the interest only loans.

Speaker Change: The number I gave you was on current payment terms based upon.

Speaker Change: Correct.

Speaker Change: Current payment terms.

Speaker Change: And their existing contractual rates.

Speaker Change: On full P&I, it's call it 20 basis points lower than that.

Speaker Change: Okay.

Unknown Executive: And last one for me, just curious here as to when the lockup expires for the investors in March. I don't know the answer to that question. Okay. Okay. I appreciate all the color and time.

Speaker Change: And last one for me just curious here as to when the lockup expires for the investors in March.

Speaker Change: Okay.

Speaker Change: I don't know the answer to that question.

Speaker Change: Okay.

Speaker Change: I appreciate all the color and time, thank you very much.

Stephen M. Moss: Thank you very much. You're welcome. Our next question will come from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead.

Speaker Change: Youre welcome.

Speaker Change: Our next question will come from the line of Jon <unk> with RBC capital markets. Please go ahead.

Jon Glenn Arfstrom: Thanks. Good morning, guys. One for each of you. Craig, on slide six, your numbers suggest maybe a modest loss from here for 24, maybe break even. I don't know.

Jon: Thanks, Good morning, guys.

Jon: Hi, John.

Jon: For each of you.

Jon: Greg for you on slide six you're numbers suggest maybe a modest loss from here for 'twenty four may be breakeven I don't know, but how should we think about the cadence of earnings in the very near term should we expect a second quarter loss.

Unknown Executive: But how should we think about the cadence of earnings in the very near term? Should we expect a second quarter loss and then profitability to build from there? Are you sending a different message there? No, I think you're getting the message.

Greg: And then profitability to build from there are you sending a different message.

Jon: No I think youre seeing in the message.

Jon Glenn Arfstrom: Okay, so all right, that's helpful. And then, Joseph, for you, a much bigger picture. Any major surprises for you on the deep dive?

Speaker Change: Okay. So alright, that's helpful.

Speaker Change: And then Josef for you.

Josef: Any major surprises for you on the deep dive.

Jon: And you raised $1 billion.

Joseph M. Otting: Based on what you know now, is that enough or is it too much, given what you know right now? I know we think it was appropriate. When we went through the due diligence process, you know, initially, we had a smaller number, and then it was concluded that it needed to be north of a billion dollars.

Josef: Based on what you know now is that enough through that too much.

Josef: Given what you know right now.

Josef: No. We think it was appropriate when we went through the due diligence process. Initially we have a smaller number and then it was concluded it needed to be north of $1 billion. So I think I think that's the right number and when you look at kind of our CET one the baseline of where we are today and how that growth we feel like we have sufficient.

Joseph M. Otting: So I think I think that's the right number. And when you look at kind of our CET one, and the baseline at where we are today, and how that grows, we feel like we have sufficient liquidity and capital to execute. Okay. And were there no real surprises from your point of view in the review?

Josef: Liquidity and capital to execute the business plan.

Speaker Change: Okay, and no real surprises from your point of view and the ruble.

Joseph M. Otting: Well, I mean, you know, when you say surprises, I wish the regulatory relationships were better at the organization. We have a lot of work to do, and that's on us because we, as an organization, in some regards, were not ready to be regulated by the OCC. And so we have a lot of catching up to do to get our standards up, but we're committed to doing that, and we've hired people who understand what that looks like.

Josef: Yes.

Josef: When you say surprises.

Josef: Yes.

Josef: I wish the regulatory relationships were better in the organization we have a.

Josef: A lot of work to do and that's on us.

Josef: That that.

Josef: We were we as an organization.

Josef: Some regards we're not ready to be regulated by the OCC and so we have a lot of catching up to do to get our standards up but we're committed to doing that and we've hired the people who understand what that looks like and I think part of the problem. We had before was we didn't have people that could visualize the end game or work and work in a work environment.

Joseph M. Otting: And I think part of the problem we had before was we didn't have people that could visualize the end game or worked in a work environment that had the proper regulatory infrastructure. So I would say that is kind of number one.

Josef: That have that proper regulatory infrastructure. So I would say that is kind of number one number two Craig and I grew up where every unit in the bank of significance has their own personal financial statements and we do monthly reviews with them and we're constantly forecasting out.

Joseph M. Otting: Number two, Craig and I grew up where, you know, every unit in the bank of significance has its own personal financial statements, and we do monthly reviews with them, and we're constantly forecasting out with those business units what their business is going to look like over a 12-quarter basis. That doesn't exist in this company. I think culturally, that will change a lot when we get that implemented. That isn't a long-term thing

Josef: Those business units with their business is going to look like over a 12 quarter basis.

Josef: That doesn't exist in this company I think culturally that will change a lot when we get that implemented that isn't a long term thing that will be in a relatively short thing will get done and then.

Joseph M. Otting: That'll be a relatively short thing we get done. And then we can do a much more accurate job, I think, and influence the performance of the company by driving that through those units. It'll make us more nimble. Yeah. And, and, you know, the other thing I would just add to that is when the infrastructure part of the company can spend money, and the business units aren't being allocated, and, and, you know, we need to create a little tension between, you know, infrastructure and the lines where they'll be paying for it. So there's a little bit of pushback and questioning the dollar amount. There's in, you know, that enhances, I think, our financial discipline.

Josef: We can do a much more accurate job I think and influence the performance of the company by driving that through those businesses make us more nimble.

Josef: And.

Speaker Change: The other the other thing I would just add to that is.

Josef: When when the infrastructure part of the company can spend money in the business units arent being allocated it and we need to create a little tension between.

Josef: Infrastructure in the lines, where they will be paying for it so theres a little bit of pushback and questioning the dollar amount there is.

Josef: That enhances I think our financial.

Josef: Disciplines.

Speaker Change: Okay, Alright, thanks, guys good luck with homes.

Jon Glenn Arfstrom: All right. Thanks, guys. Good luck to all of you. Thank you. I will now turn the call back over to Joseph Otting for any closing remarks. Okay.

Speaker Change: Thank you.

Speaker Change: I will now turn the call back over to Joseph Otting for any closing remarks.

Joseph M. Otting: Well, first of all, thank you all for joining the call today. It was an important day for us and the company and the board to be able to share this information with you. We're excited about the journey ahead, but we do recognize it's going to take a lot of work. But we also think that this plan is achievable and one that the management team will be able to execute on. And so, we appreciate your support and confidence in us. And as Craig said, we do look forward to having some follow-up calls and information. That will conclude today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Hey.

Joseph Otting: Well first of all thank you all for joining the call today.

Joseph Otting: An important day for us in the company.

Joseph Otting: And the board to be able to share this information with you.

Speaker Change: We're excited about the journey ahead, we do recognize it's going to take a lot of work.

Speaker Change: But we also think that this plan is achievable and one that the management team will be able to execute on it. So I appreciate your support and confidence in us and as Craig said, we do look forward to having some follow up calls and information to be able to address any particular questions that people have so thank you very much.

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

Speaker Change: [music].

Speaker Change: Yes.

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Speaker Change: Yes.

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