Q3 2024 New York Community Bancorp Inc Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the New York Community Bancorp third quarter 2024 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question Press Star One again I would now like to turn the conference over to Sal Dimartino Director of Investor Relations. Please go ahead.
Sal Dimartino: Thank you Regina and good morning, everyone. Thank you for joining the management team of New York Community Bancorp for today's call.
Sal Dimartino: Today's discussion of the Companys third quarter results will be led by chairman President and CEO Joseph Otting, along with the company's Chief Financial Officer, Craig Gifford.
Sal Dimartino: Chief Credit Officer, Chris Gagne before.
Speaker Change: 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. P dot com.
Speaker Change: Additionally, certain comments made today by the management team of New York Community. Bancorp May include forward looking statements within the meanings of the private Securities Litigation Reform Act of $19 95.
Speaker Change: Such forward looking statements, we may make are subject to the safe Harbor rules.
Speaker Change: 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.
Speaker Change: Also when discussing our results today, we will reference certain non-GAAP measures, which exclude certain items from reported results.
Speaker Change: These refer to today's earnings release for reconciliations of these non-GAAP measures.
Speaker Change: And now I would like to turn the call over to Mr. Auty.
Thank you Sal and good morning, everyone and welcome to our third quarter earnings call.
Mr. Auty: We're actually pretty excited about the quarter and what we accomplished during the course of the quarter and today, we're going to review the third quarter results.
Mr. Auty: An update of our three year forecast and provide an overview on our key strategic initiatives.
Mr. Auty: As I've mentioned in the past it is important to board and management team that we remain engaged with the analyst community and investors of our.
Mr. Auty: Our progress as we continue to transition for the remainder of 2024 and 2025.
During the third quarter, we continued to make significant progress on multiple fronts towards our goal of becoming a diversified regional bank, which focuses on consumer small business commercial banking private banking and commercial real estate and some of the actions that we've taken over the last three to five months plaintiffs in that.
Mr. Auty: <unk>.
Mr. Auty: Turning to slide three.
Mr. Auty: Under the first area you will see that with our board transformation complete we are quickly building out our middle market commercial banking and specialize in industry lending verticals.
Mr. Auty: With the addition of over 30, new hires in this space over the last 90 days.
Mr. Auty: This includes seasonal lenders and the infrastructure to support Devon.
Mr. Auty: In addition, we're excited we also hired a new Chief Information Officer. His name is Chris Higgins, Chris previously worked at U S Bank and most recently was the CIO at <unk>, Chief Chris brings tremendous amounts of experience and.
Mr. Auty: And we will be a key asset of.
Mr. Auty: As leader in the company as we go forward as well.
Mr. Auty: One of the things I think we're most excited about as we continue.
Mr. Auty: Tracks top tier talent to the organization in virtually every.
Excuse me.
Mr. Auty: Every area of the company.
And I'm very confident in the leadership team at the bank.
Mr. Auty: As far as our executing on our operating plan. This quarter was the second consecutive quarter of really solid deposit growth both in retail and in the private bank.
Mr. Auty: And the private bank, we're seeing many customers returning to the bank. After the disruption earlier this year and we are winning new relationships. Moreover, the private banking deposits are more moderately priced having a weighted average cost in the low 2% range.
Mr. Auty: Last quarter I talked about the opportunity to exit another $2 5 billion in noncore businesses.
Mr. Auty: During the quarter, we made the strategic decision to exit certain non-religious ship based businesses and reduced our exposures.
Mr. Auty: Under some larger exposures, where we syndicated our positions out.
Within the C&I portfolio as a result, the C&I loans declined $1 3 billion or 8% compared to the second quarter to the run off of these loans.
Mr. Auty: Our pro forma CET, one ratio, including the impact of the sale of the MSR third party origination business.
Mr. Auty: Is 11, 4%, which compares very favorably to our peers and.
Mr. Auty: As a matter we do anticipate.
Mr. Auty: At the end of this month the first of November of closing the sale of the servicing MSR and third party broker business to Mr. Cooper.
Mr. Auty: Also we made significant progress in reducing operating expenses through headcount reductions and cost controls, while still investing in key areas like our commercial private banking and our risk infrastructure.
Mr. Auty: Last week, we announced a workforce reduction plan, which will show up in our fourth quarter results.
Mr. Auty: And in addition to that we've also taken out significant cat non personnel cost.
As we focused the organization and brought talent and to perform functions within the organization.
Mr. Auty: And as Craig will speak to shortly we are on track to meet our earnings forecast goals by year end 2027.
Mr. Auty: Under improved funding profile.
Mr. Auty: One of the areas that when Craig <unk>.
Speaker Change: Right, we talked about increasing the liquidity in the company.
Speaker Change: Quality remains extremely strong at over $41 billion, resulting in an approximate 300% coverage to uninsured deposits.
We also utilized a portion of our excess liquidity during the quarter to pay down $9 billion and wholesale borrowings.
Speaker Change: And during the month of October we paid down an additional $1 billion, which will help improve our funding cost over time.
Yes.
Speaker Change: Finally, there is our focus on credit and risk management Youll get a chance to hear from Chris <unk>, Our new Chief Credit Officer, we have completed reviewing virtually the entire CRE portfolio at the end of the third quarter, we were 97% complete compared to 75% in the second quarter.
Speaker Change: We continue to proactively manage our problem loans and take appropriate action to derisk, our loan portfolio, including taking significant charge offs and continuing to build our allowance for credit losses.
Speaker Change: In addition, we continue to add both talent and resources and our risk management area as we build out our risk governance infrastructure.
Speaker Change: Slide four highlights.
Speaker Change: The five key takeaways for the third quarter.
Speaker Change: The biggest takeaway from our perspective is that our multifamily borrowers continue to support their properties.
During the first nine months of the year approximately $2 $1 billion of our multifamily reach their repricing date and in most instances. These properties are repricing from the mid three percents to the.
Speaker Change: The mid sixes or higher off these lows over 90% have either paid off or.
Speaker Change: At par remain current.
Speaker Change: We also continued to reduce our CRE exposure as Chris will discuss we had another strong quarter in loan payoffs as you know one of our key strategic goals is to reduce our CRE portfolio to about $30 billion over time and these payoffs certainly will help us towards that goal.
Speaker Change: Deposit growth as we've previously discussed in our prior earnings call was another one of the highlights this quarter this growth along with us paying down about a third of our wholesale borrowings resulted in a positive shift in our funding mix.
Speaker Change: And lastly, I believe we are well positioned to successfully execute on our C&I strategy, which we've talked about trying to get significant growth in C&I, which I will discuss in the next two slides.
Speaker Change: On slide five highlights the senior management team, we have assembled within the commercial industrial space to drive our growth in this area rich referred oversees this effort and it's assembled what I believe is a long time commercial banker myself some of the best leadership in the industry, reflecting our commitment to this strategic area of growth.
As you can see we are hiring approving group of individuals to execute on our business strategy.
Speaker Change: Slide six outlines our C&I strategy, we already have a good platform to build from with approximately $16 billion of C&I loans. Our goal is to get that to $30 billion in the next three to five years spikes by expanding our existing platform across middle market.
Speaker Change: Corporate banking and various specialized industries and building out our product capabilities and to drive fee income and relationship pricing.
Speaker Change: Part of this build out includes hiring more experienced bankers and support staff.
To date, we have brought in more than 30 individuals and continue to attract top talent.
Speaker Change: I'm really pleased with how far the management team has brought the company over the last seven months.
Speaker Change: We are building a great company that will be reflected in our future financial results and I'll now turn it over to Craig and I look forward to your questions.
Craig Gifford: Thank you Joseph.
Craig Gifford: On slide seven you can see our financial balance.
Craig Gifford: Balance sheet information and you can see that our CET ratio.
Craig Gifford: On a pro forma basis for the sale of the MSR business as Joseph mentioned is 11, 4%. We ended the quarter with an actual GAAP ratio of two 8%.
Craig Gifford: The 60 basis point increase.
Craig Gifford: On a pro forma basis reflects the lower <unk> from the sale of the mortgage transaction as well as the increase in capital that comes from these small game that we expect to recognize on the transaction Joseph mentioned that we expect that transaction will close in the next couple of weeks.
Craig Gifford: Adjusting for our four <unk>, our pro forma CET one ratio is 10, 7% in general we have lower securities unrealized losses in our peers.
And you can see that our liquidity position is robust and continues to improve.
Craig Gifford: Yes.
Craig Gifford: Slides eight and nine present, an updated forecast out through 2027.
Craig Gifford: And I'll cover some of the more relevant changes from prior <unk>.
Craig Gifford: Information that we provided.
Craig Gifford: The most significant updates reflect an expectation that our non accrual loans will remain elevated through 2026, which Chris will discuss in more detail.
Craig Gifford: We also reflect an expectation of a higher FDIC assessment costs level through 2026, principally related to our criticized and classified loan levels.
Craig Gifford: And there is a line switch between margin and fees related to the cost of sub servicing deposits. They go away this quarter, which I'll describe on the next page.
Craig Gifford: You can see that from a ratio perspective, the impact of those items does reflect an expectation from a EPS perspective, or a reduced level of earnings in 2025, and 2026, but as we get beyond the non accruals in the FDIC assessment.
Craig Gifford: Creases, we would expect 2027 to be consistent with our previous expectations.
Craig Gifford: Yeah.
Craig Gifford: Turning to slide nine from a margin perspective, as I mentioned, we will have pressure on noninterest and interest income related to a higher level of non accruals out through 2026. Additionally.
Craig Gifford: In $2025 20, and 2026, there is roughly $150 million.
Craig Gifford: The change in our re mapping of interest expense on the custodial deposits, which reduces from prior forecast or not.
Craig Gifford: Our net interest income and increases our noninterest income. So again, it's just the line switch.
Craig Gifford: If you think about margin our margin does continue to improve beginning in 25 through 27 as a result, principally of repricing of our commercial real estate and multifamily loan portfolio, we do expect that our margin.
Craig Gifford: Has bottomed in the third quarter Youll see in our press release the margin percentage, we expect a similar margin percentage in the fourth quarter and then increasing through 2025.
Craig Gifford: Our provision for loan losses was impacted by.
Craig Gifford: Yes.
Craig Gifford: Charge off level net of recoveries of $240 million in the third quarter. We do have an expectation of a similar although probably slightly less in the fourth quarter of charge offs and then tapering in 2025, our expectation for the full year of provision for loan losses, or 24 1 billion.
Craig Gifford: <unk> to a $1 two.
That's an increase from our prior guidance and that is related to our experience on the charge offs associated with multifamily loans as Chris will point out the multifamily portfolio continues to perform quite well and the vast majority of loans that are in our non accrual portfolio continue to be current on their payments.
Craig Gifford: From a noninterest perspective noninterest expense perspective, we do expect a higher level of FDIC assessment again, principally related to the criticized and classified portfolio that has an impact of about $100 million a year in 'twenty five and 'twenty six.
Craig Gifford: Incrementally in the fourth quarter of this year.
Craig Gifford: Mortgage transaction will close in.
Craig Gifford: In the next couple of weeks, but we had previously anticipated that it would be completed by the end of September.
Craig Gifford: Regulatory approvals delay that a little bit and that will have a little bit of a negative impact on expenses for the fourth quarter. These.
Craig Gifford: These reflect those changes.
Craig Gifford: Yes.
Craig Gifford: Slide 10 shows the success that we're having on the deposit gathering front.
Speaker Change: As Joseph said earlier on the call. This is the second quarter of very solid deposit growth. We continue to grow deposits in the retail retail channel up $2 $5 billion or just under 8%. This quarter. We also had a very good deposit growth quarter in the private bank with deposits, increasing $1 8 billion or 11%.
Speaker Change: <unk> to nearly $18 billion as our bankers are successfully winning new relationships and many customers are returning dollars to the bank.
Speaker Change: More importantly, the private banking deposits overall carry a lower of cost or lower cost of funds. They are generally a more moderately priced.
Speaker Change: And now I will turn the call over to Chris <unk> to discuss our asset quality and credit metrics.
Speaker Change: Yes.
Chris <unk>: Thank you Craig.
Chris: If we turn to slide 11.
We had just over $1 billion in commercial real estate payoffs during the third quarter.
Chris: Bringing the year to date amount to $2 6 billion importantly, these payoffs were at par and approximate 34% of these payoffs were related to our substandard portfolio.
Chris: If we move to slide 12. This is an update of our annual CRE portfolio review through the third quarter. We have reviewed 97% of the total CRE portfolio that includes 97% of the multifamily portfolio, 93% of the office and 94% of the non office CRE.
Chris: We turn to.
Chris: Slide 13, just an overview of the multifamily portfolio. The key takeaways here are that year to date, we had $2 $1 billion of multifamily loans repricing.
Chris: Of those loans is 34% paid off at par and the remainder stayed within the bank will talk about the repricing.
Chris: That were facing going forward in the next slide So slide 14 provides a few more details on the multifamily portfolio.
Chris: Approximately 3% of the portfolio is left to review.
Chris: These are loans with an average balance of $3 million. So we're getting to the smaller end of the portfolio all of the largest loans in the portfolio had been reviewed and nearly all of loans with rent regulated units between 50 and 100% of total units have been reviewed.
Chris: Where I want to spend a little bit of time knows on the bottom right side of the portfolio as you can see through 2027, and we have a significant amount of loans multifamily loans that are either going to reprice or mature and the important thing to understand here is that as these loans into the window.
Chris: 18 months in advance we reevaluate those loans.
At current market rates and their ability to service those allowance.
Chris: <unk> to service those loans on change.
Chris: Changed terms.
This can lead to more severe classification of those loans is the result of the analysis is that the cash flow is either impaired or insufficient service lines appropriately.
Chris: Yeah.
Chris: Moving on to the office portfolio on slide 15.
Chris: 93% of this portfolio.
Again, I think we've gotten through the largest loans. So the remaining 7% is generally smaller balance loans.
Chris: We've been very proactive and aggressive in managing this portfolio, we've taken significant charge offs through the years.
Chris: With this portfolio because early on in the larger loans that we've looked at there were some idiosyncratic losses I think we're largely through those issues.
Chris: The reserves associated with the remainder of the loans in the portfolio at 6%, which compares favorably alongside our peers.
<unk> 16 is our non office CRM CRE portfolio.
Chris: 94% of this portfolio has been reviewed.
Chris: Most loans that remain degree reviewed our again.
Chris: The smaller end of the portfolio, which are non New York City loans, and it's a very diversified portfolio.
Chris: Slide 17 provides our allowance by loan category, our allowance for credit losses up to one 7% this quarter compared to $1 78, the prior quarter.
Chris: And then slide 18 provides some further perspective around asset quality.
Chris: We have been diligently identifying problem loans and working towards resolution.
On this slide this quarter, we had approximately $600 million increase in our non non accrual portfolio.
Chris: Important to note that 68% of these non accruals are actually performing as agreed to the.
In terms of their credit agreement.
Chris: And this sort of relates back to the issue that we talked about before is we've put some of these loans on non accrual or substandard is related to future ability to pay as they enter those re pricing windows.
Craig Gifford: So Craig I'll turn it back over to you. Okay. Thank you Chris Slide 19 depicts our liquidity profile overall, our liquidity remains.
Craig Gifford: Quite strong due to the success of our deposit gathering efforts over the last two quarters, we have $41 $5 billion of total liquidity, which represents about 300% of our uninsured deposits.
Craig Gifford: Slide 20 summarizes our third quarter financials, and as I mentioned.
Craig Gifford: The net loss attributable to common stockholders was 289 million or <unk> 79 per share principally driven by the provision expense for the quarter.
Craig Gifford: It was also related to a lower level of noninterest income due to the sale of the mortgage warehouse portfolio, which closed in July.
Craig Gifford: Joseph I'll turn the call back to you, Okay, Thanks, Chris and Craig.
Joseph Otting: One final slide before we will turn it over for questions on Slide 21, we show.
New York CBS investment profile.
Joseph Otting: Currently trade at 63% of tangible book value.
Joseph Otting: Think of being able to move forward and deal with our credit issues and then the emergence of our C&I strategy should help close that gap. This compares to 179% for category for banks and about 155% for regional banks, So significant upside in the company as we execute on the business plan.
Joseph Otting: Okay.
Joseph Otting: I would also like to thank a number of you recommended and suggested that we convert our holding company name.
Joseph Otting: We chose flagstar financial with the symbol will begin trading on Monday of LG.
This aligns the overall organization going forward with our flagstar brand in the branches, which.
Joseph Otting: Between November and March.
Joseph Otting: Last year end of November to March of this year, we rebranded all the branches with a consistent brand consistent look and consistent theme now all across our retail banking franchise, which all of you, though is California, Arizona, Florida.
New Jersey, and then around the Michigan, Great Lake, So a really solid retail banking practice.
Joseph Otting: So.
Speaker Change: Finally, I'd like to thank each of our teammates for their dedication and determination and their commitment to our customers and now we'd be happy to answer any questions. You may have operator, you can now open the line for questions.
Speaker Change: At this time I would 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.
Speaker Change: First question comes from the line of <unk> <unk> with Morgan Stanley. Please go ahead.
Speaker Change: Hi, good morning.
Yes.
Speaker Change: Great appreciate all the color on the moving pieces between the old and New guide.
Speaker Change: Is there any of the change from the change in the forward rate curve.
Speaker Change: Can you talk about.
Speaker Change: How do you think the balance sheet is positioned for rate cuts here.
Speaker Change: Yes. So we are slightly liability sensitive we will benefit from a bit from lower rates, we do have quite a bit of very short term assets and our cash and securities portfolio. So.
Speaker Change: We will certainly benefit from a deposit side perspective, but but there will be pressure on the on.
Speaker Change: On the on balance sheet liquidity aspect of the portfolio I would say, though that we've been very successful in bringing down our deposit rates in the last six weeks. So on are more liabilities are more rate sensitive deposits are savings portfolios that are Cds, we've actually have a higher than 100 beta we brought down those rates between <unk>.
Speaker Change: $6 75 basis points compared to the federal reserve move, but we've been very successful in tapering that the impact of that in the fourth quarter will be a lower level of deposit gathering on the retail bank I would expect I think that will be flat to slightly positive.
From a retail deposit gathering and.
Speaker Change: But I still think we'll see strength in the private bank, probably not as strong as the third quarter was but we'll still see deposit growth in the private bank in the fourth quarter.
Speaker Change: Got it and if I can I have a quick follow up so it seems like that the main difference between the two guide between last quarter and this quarter is the.
Speaker Change: The non accrual loan so whats, causing those non accrual loans to remain on the balance sheet for longer.
Speaker Change: Is it that you would rather not sell them given the pricing being offered in the open market and would you consider selling them down down the line.
Speaker Change: Yes.
Speaker Change: Thank you for that question.
Speaker Change: We're exploring all opportunities to reduce our non accrual portfolio, we're working with borrowers to work them out.
Speaker Change: We're looking at.
Speaker Change: Discounted payoffs.
Speaker Change: We'll explore the market to see if theres an opportunity to sell in some cases, so far as we've looked at that we think that we can do better working them out ourselves as opposed to selling them.
Speaker Change: So those are some of the avenues that were taking to reduce the portfolio.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Ebrahim <unk> with Bank of America. Please go ahead.
Speaker Change: Good day everyone.
Speaker Change: Okay.
Speaker Change: Just wanted to follow up on the credit comments.
Speaker Change: So the 68% of loans on nonaccrual.
Speaker Change: And the maturity profile that you chose to 'twenty six 'twenty seven.
Speaker Change: Yeah.
Speaker Change: I'm trying to get to.
Speaker Change: It looks like your provisioning outlook did not change quarter over quarter as Youll talk looking to 2500, when you say so.
Speaker Change: To conclude that at this point credit quality risk tied to replacing all of that even for loans that are coming up what are you guys seeing in 2007 has been zinc fence either to resolve all of these loans have been already put into nonaccrual wilco.
Speaker Change: I'm getting to is the risk of negative surprises on credit from here should be fairly limited.
Speaker Change: Talk to us in terms of the rate sensitivity like the five year being 20, or 30 basis points higher or lower from where it is today because that have a meaningful impact in that analysis.
Speaker Change: Ebrahim. Thank you so.
Ebrahim: The rate profile is interesting right because at the end of the third quarter rates had come down at the five year point, roughly 90 basis points, but since then they've backed up about about 35% to 40 basis points. So.
Ebrahim: We were cautious and reflecting the the.
Ebrahim: The improvement in rates in the reserving recognizing that it can be it can be transient, but I will say that the decrease in rate levels that we've seen is quite favorable to the portfolio.
Ebrahim: In our credit modeling, probably about a about a $200 million.
Ebrahim: <unk> and the credit risk profile as a result of the improvement in rates and I would expect a similar level of that as rates continue if rates continue to decline at the.
At the intermediate term, but importantly, it's that intermediate term point that is particularly relevant relevant for the repricing of these loans.
Speaker Change: As Chris mentioned, if you look out into <unk>.
Speaker Change: The projections from a provisioning standpoint, I do expect that the provisioning for the $25 26 timeframe.
Speaker Change: Is is still relatively in line I think that we will see a higher level of charge offs in the first quarter and tapering through the rest of the year.
Speaker Change: Chris pointed out on slide 14, the maturity profile of the reset profile of the portfolio.
Speaker Change: We are effectively reflecting in our criticized and classified loans.
Speaker Change: Those loans that we would expect to reprice out through the middle of 2026, So thats 18 months from now.
Speaker Change: Look at that chart, then you still have a reset profile out beyond that.
Which which would be reflected.
Speaker Change: As we then begin to re grade those loans as they move into that.
That repricing window that we analyzed from our loan grading perspective, but we feel like from a provisioning perspective. The guide reflects the impact of them.
Speaker Change: That is helpful and just one follow up question, maybe Joseph for you I think you talked about where the stock here relative to tangible book I think the concern from an investment standpoint is just the lack of visibility.
Speaker Change: Seeing a lot of senior hires that you announced but.
Speaker Change: We started a big change in 'twenty six 'twenty 'twenty five 'twenty six earnings outlook relative to what you expected last quarter I. Appreciate 2007 is the same.
Speaker Change: Talk to us in terms of how we can measure.
Speaker Change: All the senior hires that youre, bringing on to the bank banking is a tough business, even though on a 10% <unk>. So I'm just trying to.
Speaker Change: Understand is the goal and should we start seeing proof points of these teams come in we should see accelerated low cost deposit growth loan growth as we look even starting fourth quarter 'twenty five.
Speaker Change: What's the best way to measure that we are moving the right direction.
Speaker Change: Yes.
Thank you Andrea I think.
Speaker Change: First starts with like how are we rebalancing the balance sheet and our goals here.
Speaker Change: We're sitting somewhere slightly south of $45 billion in commercial real estate and our goal is to get that into the low $30 billion range and so we're doing that through a combination of payoffs, which are averaging somewhere around since we've arrived.
Speaker Change: Roughly $1 billion a quarter. So obviously, that's $4 billion title III is 12, so we naturally get there.
Speaker Change: In a three year period.
Speaker Change: So that rebalancing is occurring with going in our C&I book today, which is about $16 billion.
Speaker Change: In 2027, we would like to get that into the $30 billion range as our goal and so most of US who have joined this company have spent the vast majority of our career in the C&I space and grew up in it.
And so we've gone out and they've added really talented people who are highly experienced who have operated in this space for <unk>.
Some of US 25% to 35 years, so we have those relationships.
Speaker Change: Indirect involvement with Ceos and Cfos.
Speaker Change: And companies that we bank so to answer your question, we do see right away the ability as these people come onto the organization and the opportunity to do out we're bound solicitation into relationships and the other Avenue is if you look at the makeup of our C&I portfolio.
Speaker Change: Very limited of that is commercial and corporate banking and the type of people that we're hiring are commercial and corporate bankers to whit. So it isn't like we're going into these syndicated credits or large one or two bank credits, where we have a lot of exposure in that area. We are we are somewhat of a new entrant into that segment of the market, which should prove.
<unk> has some pretty significant growth opportunity.
Speaker Change: The balance sheet projections, if you think about the portfolio that re prices and resets and the experience that we've had in repayments.
Speaker Change: You look out on a projected basis, something between $750 million and $1 billion of commercial real estate and multifamily runoff per quarter over the next two years and as we get into late 2025 are pretty we're projecting a pretty similar level of increases in commercial and commercial banking and C&I growth.
Speaker Change: From a loan perspective, we're also expecting.
Speaker Change: That those bankers bring in deposits and that we will increase our deposit growth starting in late 2025 pretty significantly through 'twenty six and into 'twenty seven roughly.
Speaker Change: Roughly think about it is roughly a two for one basis loans for deposits. So we're expecting that that commercial banking group does bring in deposits.
Speaker Change: That are supportive and funding that that loan profile.
Speaker Change: Thank you Bob.
Thank you.
Our next question comes from the line of Dave Rochester with Compass point. Please go ahead.
Speaker Change: Hey, good morning, guys.
Dave Rochester: Hi, David Good morning, sorry, if I missed this earlier, but I heard you mentioned the $2 billion to $5 billion of assets that you'd had a SaaS was non core and you talked about that last quarter as well was just wondering where you guys stand on that now just given the runoff that we've seen on the C&I front.
Speaker Change: And then are you still.
Speaker Change: Looking at the business and trying to analyze for core non core and could that increase from here. How are you guys thinking about that.
Yes.
Speaker Change: We've done virtually a business review of all the business is now in the company and and.
Speaker Change: Are in the market.
Speaker Change: Generating new C&I loans.
Speaker Change: Some of those had been table.
Speaker Change: Prior to our arrival.
Speaker Change: But we are the viewpoint overall is that.
Speaker Change: The businesses that we have today, we like there are certain aspects of some of the businesses.
Speaker Change: We wanted to reduce our exposure either because where we are in the cycle in relationship to that industry.
Speaker Change: Or are viewpoint was and some of the hold levels in the company were larger than what our comfort level was and so we brought the whole levels down and then brought participants and for those credits so.
So I'd say its a combination of reevaluating, where we are in the cycles for certain industries.
And then the other is reducing hold limits. The bank historically took very large hold positions in credit and we just favor a more diversified portfolio.
Speaker Change: Great and whereas the $2 billion to $5 billion now is that one to three just given some of the runoff or where do you where do you see it today.
Speaker Change: We're not anticipating any significant portfolio repositioning in the near term at this point I could see a bit more of the.
Speaker Change: Re scaling on some credits, but I think it will be less significant than it was in the third quarter.
Speaker Change: Great Alright, thanks, guys appreciate it.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Fitzgibbon: Hello morning, Hey, guys good morning.
Mark Fitzgibbon: This quarter, you made some pretty sizable changes to your projections outlook over the next couple of years and I guess I'm trying to get a sense for.
Mark Fitzgibbon: I certainly understand there is a lot of moving parts here, but trying to get a sense for how much more confidence you have in these projections than you did in the old ones and whether we're likely to see similar kinds of variability in coming periods.
Speaker Change: Yes, I would say that we continue to improve our visibility into the portfolio into.
Speaker Change: The credit performance and ended the expense profile of the company. This is now Joseph in mind.
Speaker Change: Second quarter of.
Speaker Change: In depth review of the financials, we have instituted a and.
Speaker Change: An in depth review of the business line level each month on our financial performance was each with each of the senior leaders. So every month, we get more and more visibility I have a pretty good degree of confidence in the noninterest income.
Speaker Change: Excuse me in the net interest income and the margin line at this point again, there's a bit of noise in the.
Speaker Change: In the <unk>, comparing the projections because of the remap associated with.
Speaker Change: With the cost of those mortgage deposits, we had projected that as a benefit in the margin line, it's actually a benefit and the fees line, which is where the.
Speaker Change: Where that has previously been recorded from an expense perspective.
Speaker Change: The other area is obviously, what we're seeing from a noninterest expense perspective, we did take a pretty significant action last week that will improve our expense profile on an ongoing basis, roughly $200 million a year and we still have more to go so.
Speaker Change: This forecast.
Speaker Change: <unk> forecast expects that we will continue to identify efficiency opportunities many of which are underway as we continue to improve our technology capabilities and our business processes.
Speaker Change: Those will result in further cost improvements as we get into the 25 in early 2006 timeframe.
Speaker Change: The FDIC assessment pressure is something that.
Speaker Change: It's related to the business profile and related to the.
Speaker Change: The way the FDIC determines its insurance premiums.
Speaker Change: It's a complex formula, but it does encompass some things that are there.
Speaker Change: It provides that resulted in an increased rate for us and I expect that we'll go through 'twenty six is probably the most significant change in the.
Speaker Change: In the forecast from an earnings perspective.
Okay, and then just one quick follow up.
I am curious Craig on your modeling what are you assuming in terms of the balance sheet size, maybe at the end of 'twenty five and the end of 'twenty six.
Craig Gifford: We're essentially assuming a relatively flat balance sheet.
Craig Gifford: We're assuming that we will see a transition from commercial real estate multifamily loans in the C&I loans.
Craig Gifford: As the real estate loans repay and runoff.
Craig Gifford: In the C&I begins to come on as those bankers get traction in the marketplace. So not seeing a lot of balance sheet growth, we're projecting a lot of balance sheet growth through 'twenty six but we are projecting a degree of balance sheet growth in the commercial banking space in 2007.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Bernard Bon <unk> with Deutsche Bank. Please go ahead.
Hey, guys good morning.
Speaker Change: My question is on <unk>.
Ramping the company structure, you've done a good job on bringing new hires on the senior management level and changing the board.
Speaker Change: Delighted progress within C&I can.
Speaker Change: Can you just talk to like what inning you are in with regards to building out your C&I platform and then in risk management given previous deficiencies identified how far are you with revamping your risk controls function and then just lastly on the same topic any other further head count optimization left to go that hasn't been announced.
Speaker Change: Yes sure.
Speaker Change: Obviously.
Speaker Change: The board level.
Speaker Change: We announced that Peter who is a longtime flagstar board member will be leaving the board.
Speaker Change: We do anticipate to fill that position hopefully in the fourth quarter. So that is kind of the remaining <unk>.
Speaker Change: George.
Not at the kind of what I would call the executive management team, we are fully deployed now.
Speaker Change: And with the addition of Chris Higgins that completes the rebuild of the executive management.
The next level down.
Speaker Change: 10 to 20 people in that category, where we've upgraded both risk positions and infrastructure under Craig's World Finance people to help us prepare our financials to have confidence in them and then when you look at the two specific areas you mentioned I'd say in the C&I.
Speaker Change: We're rounding first space is what I would say, we anticipate to go from roughly 30 hires to 130 hires.
Speaker Change: Is what's built into our plan that we will build that out. So we have a fair amount of hiring to do but we're not hiring all those people at once now we're going to start to grow the revenue and so it will be a revenue seeing the revenue and we'll add the expensing the revenue at the expense.
Speaker Change: On the risk infrastructure I think that's a relatively good story.
The direction and how far we've come in seven months, obviously, we've added some really highly talented people who work at the OCC for the vast majority of their careers having groups Bob felt said, the Mcafee and Brian Hubbard. So three very senior people from the OCC and it helped US one of the things that we're doing.
Speaker Change: And the company is really building out the first and second and third line defenses those were not here in the organization and as everybody knows that category.
Speaker Change: Bank you have enhanced standards, you have to adhere to but.
Speaker Change: But I really feel good about the people and the direction that we're going in that regards and I do believe that we have worked closely with the regulatory community since we all arrived.
Speaker Change: Obviously my background of being the controller I understand the importance of that and so I think we've built a strong bridge to our regulatory regulators.
Speaker Change: We appreciate their input and guidance as we build this but I would say as we look at the risk infrastructure, we feel really good about where we are with the risk management in the organization, our internal audit and we're building out the first line of defense in the business units and that's also built into our our.
Speaker Change: Our cost model.
Speaker Change: Okay, great. Thanks for that color just maybe as a follow up so you paid down nearly $9 billion of borrowings utilizing excess liquidity from the business sales and deposit growth.
Speaker Change: You noted that you paid down an initial $1 billion in October.
Speaker Change: What are you targeting as a normalized level of borrowings and how can we think of the pace of those coming down from here.
Thanks for the question. So if you look at the third quarter, we will have a reduction in the overall liquidity of about $3 billion related to the mortgage servicing sale of business sale. So.
Speaker Change: Those deposits will leave and we have been holding excess liquidity to provide for that from here I think that will relatively match the loan growth with deposit growth.
Speaker Change: We have a bit of excess liquidity that we will use to reduce our broker deposit funding in 2025 is.
Speaker Change: As those broker deposits, which are principally Cds come due we won't I don't expect it will replace those broker deposits on a dollar for dollar basis. So we will see the broker deposit funding come down and then as we grow customer deposits, particularly in the private banking commercial space. Then we'll look to continue to repay some of.
Our wholesale some of our wholesale borrowings with the home loan bank, but I wouldn't expect that it would be material in the rest of 'twenty five.
Speaker Change: You mean, the rest of <unk> 24, and then 25, maybe a couple of a couple of million dollars.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Our next question comes from the line of Jared Shaw with Barclays. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Thanks.
Speaker Change: And then just circling back on the deposit trends could you could you give us.
Speaker Change: Spot rate on deposit costs at the end of the quarter and then you talked about.
Speaker Change: The early data being greater than 100% on some of the retail deposits how should we be thinking about.
Speaker Change: Data over.
Speaker Change: Over the next few rate cuts.
Speaker Change: Yes, so our spot rate on our savings is is at 5% that was about $5 55.
Speaker Change: Three clay if you call it six months ago, even three months ago. So we brought that down over 50 basis points and I would expect to see that continue to decrease.
Speaker Change: As rates decline here in the fourth quarter a bit further.
Speaker Change: Modeling from an overall interest bearing deposit perspective on modeling a 50 beta.
Speaker Change: Obviously on the more premium product it will be more significant than that.
Speaker Change: And from a private banking perspective, again, we see that as a more moderate deposit base because it has more noninterest bearing DDA type of accounts. There. So when we bring on those deposits generally that has not been in our at our most premium rates that's been at a more moderated rate and Thats, what I would expect going forward.
Speaker Change: Okay, Alright, Thanks, and then.
Speaker Change: Follow up.
Speaker Change: How should we be thinking about the multifamily reserve level.
Speaker Change: Here with the expectation for higher higher losses have you have you been reserving for that or.
Speaker Change: Yes, we should expect to see that reserve level start to go higher with the provisioning going forward.
So it's a balance of the expectations around.
Speaker Change: The criticized and classified portfolio as well as the level of charge offs.
Speaker Change: I don't expect to see the reserve level coming down significantly in the.
Speaker Change: In the fourth quarter and the first quarter.
Speaker Change: And that as we get into 'twenty five 'twenty six, particularly as the portfolio gets through a lot of the repricing and we see how the borrowers perform against that repricing that will inform where we go with reserve levels.
Speaker Change: You will see a pretty consistent reserve level for the next quarter or two.
Great. Thank you.
Speaker Change: Our next question comes from the line of Ben Garlinger with Citi. Please go ahead.
Ben Garlinger: Hey, good morning.
Ben Garlinger: Good morning.
Ben Garlinger: Just wanted to clarify something here in your guidance.
Speaker Change: Forward couple of years, because our booth pro you talked about the re mapping. So if you look at NII change in net fees change.
Ben Garlinger: The <unk> associated with the ECR.
Ben Garlinger: If you give me some revamping of a couple of items. So that net revenue is down $5 million.
Speaker Change: That's kind of what you wanted to convey I just wanted to make sure that.
Speaker Change: The net change associated.
Speaker Change: You have to keep it general revenue difference.
Speaker Change: To keep it simple and 25% and 26, there is a $150 million that moves from non it from net interest income to noninterest income.
Speaker Change: And thats associated with the earnings credit on the escrow upon the subsurface escrow deposits.
Speaker Change: Incremental I do expect a higher level of non accruals than what we had previously contemplated out through 'twenty six and that has.
Speaker Change: That is an increased level of pressure in the guide for 'twenty six.
Speaker Change: Got you, Okay, and then permanent ECR excuse me from an expense guide perspective.
Speaker Change: You guys are increasing a $150 million so.
Speaker Change: It was about $100 million of that roughly the FDIC that guidance for <unk>.
So just really just temporary like once you have lower rates you assume you can probably do a little bit better.
Speaker Change: Credit review.
Speaker Change: And since that doesn't get taxed it's not tax deductible, that's kind of what the differences.
The footnote here. So I'm just trying to think like your guidance really unchanged, but youre just kind of a long dated.
Speaker Change: That expense.
Speaker Change: Particularly with respect to the FDIC that's correct yes.
Speaker Change: Yes, the piece related to taxes, as mostly because the tax rate moves around quite a bit.
And that's because the FDIC piece is pretty sizeable the FDIC assessment is pretty sizeable and being non deductible.
Speaker Change: It represents a fairly large percentage of the bottom line over the next next two years and that causes a tax rate can move around so that fitness just explaining the tax rate.
Speaker Change: So for me thinking about the rate perspective.
Speaker Change: In order to move rates lower back to kind of the weather This where recently a couple of weeks ago.
Speaker Change: Probably get a little bit more of a green light to change or how long do you need to be in that Green line, you need 12 straight months before things would work better on a credit perspective due to the rates.
Speaker Change: I'm just trying to think about the timing of which you think if you look like you did better but you can't as oscillate these things quarter to quarter based on rates themselves.
Speaker Change: Right, we can't move them around and the other challenges at once we.
Speaker Change: Once we do have a downgrade the rates have to move pretty substantially in order for us to be able to upgrade the loans and so that that pressure continues out for a couple of years I do expect it will be through 'twenty six.
Speaker Change: Got it okay I appreciate the color thanks, guys.
Speaker Change: Our next question comes from the line of Christopher <unk> with Janney Montgomery Scott. Please go ahead.
Speaker Change: Hey, Thanks, good morning, and thanks for hosting US just wanted to clarify if the substandard and special mention loans are falling this quarter or kind of what you see is their trend from here.
Speaker Change: Yes.
Speaker Change: In the fourth quarter I would expect to see that our special mention substandard loans.
Speaker Change: <unk> continued to increase.
Not at the pace that we've seen thus far but as we.
Speaker Change: We still have a bit of financial information to get through and we have things moving into the repricing window. So I think the trend would be for an increase in substandard and special mention.
Okay.
And they are higher at the end of September just given the inflow outflow I need that payoffs, which you also push the.
Speaker Change: New loans and from the repricing schedule as you said is that right.
Speaker Change: That's correct.
Speaker Change: Okay got it.
Speaker Change: And then on the general cost of funds for the company going forward. How would you look at that relative to whatever fed funds go I think if we look at a year from now or fed funds is for for example, what the cost of funds be at a more of a discount to that than it is today.
Speaker Change: I'm thinking about the math of your question.
I think that the answer would be our average cost of funds.
Speaker Change: <unk> would be at roughly the same discount that it is today on in total.
Speaker Change: If you think about our funding profile about half of our funding profile is very short term priced and the other half is either noninterest bearing or longer term priced.
Can kind of do the math of that as the fed moves the short term price component of that I expect that we will see a very high beta on that.
So virtually all of our wholesale funding at this point is price something under a year.
Speaker Change: And of course, our savings deposits or our move immediately so I think that youll see that discount roughly remain roughly the same over time.
Speaker Change: The mix will change a little bit with wholesale.
Speaker Change: With more C&I customers coming onboard the mix of that will move more to a transaction accounts, which should help as well.
Alright, great.
Speaker Change: Great. Thank you very much for that background.
Speaker Change: Yes.
Speaker Change: Our next question will come from the line of Chris Mcgratty with BW. Please go ahead.
Speaker Change: Great Good morning, Chris.
Speaker Change: Great.
Speaker Change: The loan to deposit ratio is at about.
Speaker Change: Where you would like it to be longer term kind of low eighty's.
Speaker Change: I'd actually like to see it be a bit higher I think that will continue to gather customer deposits over the course of the next.
Speaker Change: Two years, we'll see a relatively flat overall balance sheet and continue to gather deposits and so I would expect that it would improve that will see a <unk>.
Speaker Change: <unk> decrease of the loan to deposit ratio, but it won't be of the significance that we've seen in the last two quarters.
Speaker Change: Okay, Great and then just a couple of housekeeping items for the fourth quarter.
Speaker Change: Just teasing through the one timers that are in the guide could you just help start the fees and expenses for the fourth quarter and also.
The share count once the.
Speaker Change: Almost all the preferreds are converted thanks, yes.
Speaker Change: Yes, so the share count has pretty much settled down.
Speaker Change: End of quarter share count will be as reflective of the expectation on a on an ongoing basis.
Speaker Change: Virtually all of the preferred.
Speaker Change: I expect will convert in the near term has did convert in the third quarter and that that's been public information.
Speaker Change: From a one timer perspective in the fourth quarter I do expect that we will see some charges associated with the mortgage mortgage business transaction exit.
Speaker Change: So we will have some asset impairments.
Speaker Change: A bit of severance and then the action that we took last week will also have some severance associated with it all in I think that those charges will be in the $100 million range.
Speaker Change: Okay.
Speaker Change: Okay, great. Thank you.
Speaker Change: Youre welcome. Our next question comes from the line of Matthew Breese with Stephens. Please go ahead.
Hey, good morning.
Speaker Change: I was hoping we could first talk a little bit about.
Speaker Change: Loan portfolio yields so loan yields have been down for four consecutive quarters, despite kind of a positive.
Speaker Change: <unk> re pricing narrative and repricing dynamics within CRE and multifamily.
Speaker Change: Yes, how much accretion was there this quarter within loan yield how much impacted non accruals have and when do you think we can actually start to see loan yields begin to expand.
The majority of the impact on from decreasing loan yields as from the non accruals there.
Speaker Change: There is not much accretion at this point that's built into the.
Speaker Change: And to the margin or that would go away, it's maybe $15 million a quarter that tapers off over the next.
Speaker Change: Four quarters.
Speaker Change: If we think about from a repricing perspective.
Speaker Change: You can see that we've got about $5 billion, a year that will reprice and that moves up from an average rate of about three and a half two.
Speaker Change: Forecast, we do have rates coming down but.
Speaker Change: But at that intermediate term level not a lot so.
So we see that those loans as they come in from a repricing perspective reprice for the three and a half level up to the 7% app level. So that's what's driving the increase and I do think that we will see that that turn in the fourth quarter a bit.
Speaker Change: And then as we get into 'twenty five.
Speaker Change: And we see less incremental non accruals than what we've had on a quarterly basis. The last two quarters that we'll see that turn positive.
Got it okay.
Speaker Change: Then I just wanted to go back.
Speaker Change: Noted that you expect the balance sheet to be flat a couple of times now if I look at the forward guide the NII guidance implies that you'll take.
Speaker Change: Earning assets down to around 102 billion, 25% to 26 from 109 billion today.
Can you just talk a little bit about that and then.
Speaker Change: The pros and cons of going below $100 billion as it relates to category four bank designation. It feels like Youre hesitant to go that route to go sell a $100 billion I'm curious.
Speaker Change: If there is more to it than we currently understand.
Speaker Change: So regarding the $100 billion level.
Speaker Change: If you.
Work your way through that if you get below a $100 billion you still have four quarters that you are anticipated to be compliant with the category four and then from a regulatory perspective, when you start to get close to $90 billion you have to put in place a plan to become compliant so just because.
Speaker Change: You get below a $100 billion does it mean that you don't have to have the enhanced standards.
So that isn't like our target to get below $100 billion in <unk>.
Speaker Change: <unk> said, what we've taken the approach was to build out the appropriate risk infrastructure in the company and then and then allow our business model too.
Take it where we can grow and expand and so it isn't it isn't a goal of ours. It isn't a desire and quite frankly, you would probably have to shrink $20 billion or more to get to the point, where you wouldn't be subject to those standards.
Speaker Change: Understood is my thinking correct in that earning assets could shrink five to 10 billion here.
Yes, but I think that theres, a reasonable chunk of that is actually coming out from a cash perspective, so it's earning.
Speaker Change: But we're deploying that cash either to pay down debt or to pay down broker deposits others.
Speaker Change: The loan portfolio I don't expect it to be decreasing as much as the cash to come up with the cash component.
Speaker Change: I appreciate that thank you.
Speaker Change: Mhm.
Speaker Change: Our next question comes from the line of John Armstrong with RBC capital markets. Please go ahead.
John Armstrong: Hey, Thanks, good morning, guys.
Speaker Change: Good morning.
John Armstrong: I don't know if this is an easy question or a hard question, but if the economy stays in kind of a steady state. When do you guys think you will see the peak.
Speaker Change: Non performers.
Speaker Change #101: I think the repricing that.
Speaker Change #101: That comes into the portfolio over the course of the next.
Speaker Change #101: Next two years, we'll continue to have a component of it that moves into nonperforming and so I think we'll see a continued level of new additions to nonperforming <unk> through 'twenty six.
Speaker Change #101: And then the question becomes how quickly we would be able to action the existing portfolio of non performers. Many of the loans that are in the non accrual category are in there because of our focus on.
Looking out at the repricing characteristics and a pretty stringent assumption that.
Speaker Change #101: Or a criteria that from a.
Speaker Change #101: Classification standpoint would suggest that we expect them to default. The reality is that we see the vast majority of them continuing to perform even when they do reprice and so that will.
Speaker Change #101: Those loans are performing they are amortizing their principal balances, but I think that will continue to see new loans being added to the nonperforming portfolio over the course of the next two years as loans reprice.
Speaker Change #101: Anything.
Speaker Change #102: Unusual about this quarter in terms of the review.
Speaker Change #103: Obviously, it didn't go up like last quarter, but.
Speaker Change #104: Are you, saying this is increasing at a decreasing rate or how material do you expect it to be increases.
Yes.
Speaker Change #105: No there wasn't anything particularly unique.
Speaker Change #106: What's unique about this quarter, we just are continuing to run our process.
Speaker Change #106: Yes.
Speaker Change #106: We still had some financials to grind through.
Speaker Change #106: Level of new sub standards.
Speaker Change #106: Sort of at the same pace that we saw before.
We've gotten through the bigger loans is smaller so we're looking at a lot of smaller loans that.
Speaker Change #106: Okay.
Speaker Change #106: We just.
Speaker Change #106: <unk>.
It wasn't much of a change we're just sort of getting through it. This is an annual process as Craig said. This will continue each year, we will have to do financial reviews and review these losses are getting into.
Speaker Change #106: Refinance window, but so I wouldn't say there's anything unique.
Speaker Change #107: The one thing that I would add is Krishna this is an annual process.
Speaker Change #107: We went to a standard on the expectation is that the borrowers would provide us the financial data and perhaps in the past there was more lax about whether they sent their financial data in to the company.
Speaker Change #107: And then and then second of all I think there is a new standard of underwriting around debt service coverage and loan to value as opposed to using loeb to value for the risk rating process.
And so that in itself Theres, a theres more rigor around your primary and secondary source of repayment, yes, I agree with that just so that we we were very aggressive in terms of getting financial information I think.
98% of our borrowers provided financial information, which is significantly higher than in the past and we did in the second quarter Institute changes.
Speaker Change #107: Relative to how we evaluate risk with a more of a focus on debt service coverage ratios as just said as opposed to loan to value.
Speaker Change #107: But that process started in the second quarter and continued on into the third and that will be our standard going forward.
Speaker Change #108: Okay that helps.
Speaker Change #109: And then just two others you guys do a lot of benchmarking in the presentation and I know this isn't an easy question, but.
Speaker Change #110: What do you think the normalized more normalized reserve percentage should look like for the company.
Speaker Change #111: 26% into 'twenty seven.
Speaker Change #112: From a provisioning our overall reserve percentage overall reserves overall reserves.
Speaker Change #113: Yes, I think our portfolio is pretty idiosyncratic and it kind of depends on how the portfolio performs as we transitioned into a more C&I based portfolio and balance the portfolio I think that youll see the C&I reserve levels will be substantially lower than what the commercial real estate levels on the existing port.
Speaker Change #112: Folio are.
Speaker Change #112: And so that will have an impact, but it will really depend on the portfolio performance portfolio, that's very important.
Speaker Change #114: Okay, you said the mix, Okay I understand that.
Speaker Change #112: Sure.
Speaker Change #112: And then.
Speaker Change #115: On slide nine and then some of your comments about.
Speaker Change #115: The margin thinking.
Speaker Change #115: I hate to ask it this way, but is that the easy part of the Formula just the margin lift from CRE repricing is that just the natural output.
And our maturity schedule and you have high confidence in that margin trajectory.
Speaker Change #116: Yes, the bulk of it.
Speaker Change #116: The margin percentage.
Speaker Change #116: As a combination of the.
Speaker Change #116: Of the repricing of the commercial real estate multifamily portfolio, but it's actually tempered a bit with the C&I bill because we expect that the C&I loans would have a slightly lower.
Speaker Change #116: Overall spread in the commercial real estate and multifamily loans as they reprice.
Speaker Change #116: No.
Speaker Change #116: It's the C&I, it's the lift from the repricing.
Speaker Change #116: Balanced with the growth in the C&I portfolio.
Speaker Change #116: Okay.
Speaker Change #117: Alright, thanks, guys.
Speaker Change #117: Okay.
Speaker Change #118: Our final question will come from the line of Steve Moss with Raymond James. Please go ahead.
Speaker Change #118: Hi, good morning.
Steve Moss: Thanks, Jim.
Steve Moss: Just wanted to.
Steve Moss: A follow up on non performers and your multifamily bucket was the driver of the increase this quarter and I'm just curious if that's related to the roll forward setup in terms of the 18 month look forward on.
Speaker Change #121: As you analyze what substandard criticized and maybe there will be certain quarters, where we'll see the step up given.
Given the repricing dynamics stretch out into 2026 and pick up in 'twenty 'twenty seven.
Speaker Change #121: Or if there is something special in this quarter.
Speaker Change #121: Something else that drove that.
Speaker Change #122: Well this quarter is a combination of <unk>.
Speaker Change #122: Getting through more of the portfolio, we moved from 75% to 95% of the portfolio and another quarter coming into the 18 month window. So to speak moving forward, we have a little bit more of the.
The catch up to do but not much and then we will each quarter have more loans that will come into the window, it's about $1 billion a quarter for the next four quarters that comes into the window and then the 2000.
2027 re pricings that move in or about 1 billion and a half a quarter that moved into the window for evaluation and when they do some portion goes to sub standards. Unfortunately remains in past graded.
Speaker Change #122: At that.
Speaker Change #122: Re pricing.
Speaker Change #122: Pathway is what will drive it moving forward if you get once we get beyond the fourth quarter, where we've gotten through the full portfolio review.
Speaker Change #122: Okay.
And then just one follow up here in terms of I know that the secondary market seems to have improved here in the past couple of months. Just curious if you think there is any potential for an acceleration in prepaid.
Speaker Change #122: For the multifamily portfolio just given the shifts in rates I know you kind of back up here in last couple weeks, but.
Speaker Change #122: Just curious if theres any possibility.
Speaker Change #122: One comment I would have obviously when rates as Craig mentioned backed up a bit there was somewhat of a flurry of a lot of people locking in rates.
Speaker Change #123: I think because they've now increased backup slightly people are waiting to see the next fed move but that should spur a fair amount of refinancing and what we're finding is people are coming.
Speaker Change #123: Coming out of pocket to rebalance loans, and our objective would be for them to take those loans elsewhere.
Speaker Change #123: Financing.
Speaker Change #123: So we have found in the.
Speaker Change #124: A number of the large office transactions, we have as you probably noticed we moved one large transaction to held for sale. We do expect in the month of November to close that transaction, we marked it at what.
Speaker Change #124: Our agreed upon sales price was for that transaction and there are a number four or five other large transactions were under discussion at this point. So there is interest even in the office space for <unk>.
Speaker Change #124: Investors.
Speaker Change #124: And some of those were showing at where we have a marked and some of them were taking slight losses, but overall that we do think that will pick up.
Speaker Change #124: And then on the multifamily side, there has been kind of a renewed interest even in the rent regulated.
Speaker Change #124: Base for people looking for assets in that space. So we are optimistic that the next couple of quarters as we did bring on a new head of our workout group is organized that group with a team who is doing outreach to customers.
Having dialogue, we have an assigned kind of Swat team, that's taking that on we do think we'll see the fruits of that activity going forward.
Speaker Change #125: Okay, Great really appreciate all color. Thank you very much.
Speaker Change #125: Thank you.
Speaker Change #127: And with that I will turn the call back to Joseph Otting for closing remarks.
Speaker Change #125: Okay.
Thank you for taking the time to join US. This morning, we very much appreciate your questions and your interest in the company.
Speaker Change #128: Craig are you Craig and I are usually readily available if you would like to have dialogue or further questions. If you do please contact Sal and he'll arrange time for us to talk and.
Speaker Change #128: I'd just like to say this is the closeout on for US at New York Community Bank as the holding company and look forward to next time, we meeting being under the Flagstar financial banner. So thank you very much.
Speaker Change #128: Yes.
Speaker Change #129: That will conclude today's call. Thank you all for joining and you may now disconnect.
Please wait the conference will begin shortly.
Speaker Change #129: Sure.
Speaker Change #129: Sure.
Okay.
Speaker Change #129: Yes.
Speaker Change #129: Okay.
Yes.
Speaker Change #129: Sure.
Speaker Change #129: Okay.
Yes.
Speaker Change #129: Yes.
Speaker Change #129: Yes.
Speaker Change #129: Sure.
Speaker Change #129: Thanks.
Speaker Change #129: [music].
Speaker Change #129: Thanks.
Speaker Change #129: [music].