Ladies and gentlemen, thank you for standing by. Welcome to New York Community Bancorp's conference call and webcast. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Sal DiMartino. Mr. DiMartino, you may now begin.
Thank you, Rob, and good morning, everyone. Thank you for joining management on short notice for today's conference call. Today's discussion will be led by Executive Chairman Sandro DiNello and President and CEO Thomas Cangemi, along with the company's Chief Financial Officer, John Pinto. Before we begin, I'd like to remind you that 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 Act of 1995. Such forward-looking statements we may make are subject to the safe harbor rules.
Please review the forward-looking disclaimer and safe harbor language in today's press release for more information about risks and uncertainties which may affect us. With that, I would now like to turn it over to Mr. DiNello. Sandro?
Thank you, Sal, and good morning, everyone. Many of you know me. I'm the former CEO of Flagstar Bank and have been the non-executive Chairman of NYCB Bancorp and Flagstar Bank since December 1, 2022. As you saw in our recent press release, our board made the decision last night to appoint me as Executive Chairman. In that role, Tom and I will be working together to strengthen every aspect of the bank's operations. We have obviously been dealing with a very serious situation since our fourth quarter earnings release. What I hope to do this morning is instill some confidence that this bank remains strong and will get itself back on the right track. To do that, we must acknowledge the tough work that lies ahead.
You may know that when I became CEO of Flagstar in 2013, we were in a very difficult situation. We were under an OCC consent order, as well as a Federal Reserve Bank supervisory agreement. We were a monoline mortgage company that had been decimated by the Great Recession. That was a difficult situation, but we successfully made our way through it by building the right team, building a strong risk and compliance framework, and by building the right business model. I'm proud of what our team did. We took a company that was one of the most troubled in the mid-sized space from a safety and soundness point of view, and turned it into a very strong bank, one that provided one of the best total shareholder returns amongst all mid-sized banks during my tenure as CEO.
The challenge today is not easy, but this company has a strong foundation, strong liquidity, and a strong deposit base, which gives me confidence for our path forward. The topics I would like to focus on today are as follows. One, deposits is one of the best stories I can share with you. I built the Flagstar branch network. These people know how to take care of customers. Since we joined with NYCB, I've become close with a number of NYCB branches. They also know how to take care of customers, and because of that, we have seen virtually no deposit outflow from our retail branches. Overall, deposits are up from year-end 2023, as all areas of the company have performed strongly, including our private banking and mortgage teams. The press release we sent out last night tells the story of how resilient our deposits have been.
While we are already in a strong liquidity position, again, as set forth in last night's press release, we are committed to building liquidity further. Currently, our total liquidity position is over $37 billion, which well exceeds uninsured deposits with a coverage ratio of 163%. Three, we will build a solid capital base. We will be focused on doing whatever it takes to build our capital ratios with special focus on CET1. We will build a financial plan that gradually builds capital, no ifs, ands, or buts. We have already reduced the dividend to preserve capital, so that's a step in the right direction. If we must shrink, then we'll shrink. If we must sell non-strategic assets, then we'll do that. We'll do whatever it takes. All this will be accomplished by being mindful of maintaining the earnings power of the organization.
4, we will continuously review our loan portfolio and take whatever steps that may be necessary to build a fortress balance sheet. We took a big step in the right direction in the fourth quarter with our provision, and we believe we are well provisioned as of December 31st. We will enhance the processes that are needed to properly identify the inherent losses in the book going forward. We did that at Flagstar. We know how to do this, and we will. Here's one thing I can tell you: the bank has earnings power. Consensus estimates are that we can generate over $840 million of pre-provision, pre-tax income this year.
We'll allocate whatever we need to out of that to the provision. The rest will drop to capital, and because we will not grow the balance sheet, it will be accretive. Finally, we'll be laser-focused on reducing our CRE concentration as quickly as we can. We have some work to do to identify the tactics that can speed that up, and we have already started to explore those. We took a mortgage bank that was Flagstar, and we turned it into a commercial bank. We built the second-largest warehouse lending business in the country that currently has no criticized assets.
We built one of the strongest builder finance portfolios in the country that currently has no criticized assets. We built a strong C&I business that is showing little stress. And while we had some CRE, it was largely owner, owner-occupied and continues to perform reasonably well. We will focus on building those businesses further going forward. In closing, I want to reemphasize the strength of our deposits, the resilience of our deposits, and the strong liquidity level we have built. With that, we'll open the line for a few questions. Rob?
Thank you. If you'd like to ask a question at this time, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is coming from the line of Dave Rochester with Compass Point. Please proceed with your question.
Hi, Dave.
Hey, good morning, guys. Sandro, you just mentioned reducing the CRE concentration. How quickly are you guys planning on doing that? And are you considering loan sales, or can you get where you need to go through just natural runoff?
Well, we'll consider all those things, Dave. And as I said in my comments, you know, we have work to do there to figure out how what taxes what tactics there might be that can advance that. But I think the important thing to note is we recognize that we do need to reduce that concentration level. And the team here has already done that very significantly. If you look at where NYCB was before the Flagstar merger, that's one of the reasons Tom did that deal, was to bring the CRE concentration down, and that came down further as we brought Signature into the organization.
And we've really curtailed originations in the past number of months. So we're going to continue to think about all the opportunities to do that. I think the important thing to take away is that we're, while we've come a long way, we're going to be focused on taking it further down.
Yeah. Great. And then I've had a number of investors ask about this this morning. Just on the reciprocal deposit capacity you have, you talked about in the 8-K last night. Could you increase that capacity if you wanted to? How easy would it be for you to do that, to cover more deposits? And then how quickly can you apply that capacity if that's something that you want to do? And if you also have the deposit total at the end of yesterday, that'd be great to hear, too. Thanks.
Well, let me first start, and John will give you some specifics. We, I believe that we can increase that opportunity. I'm not sure that we're going to need to. As I said, our liquidity is very, very strong right now, and our deposits have performed so strongly that I have just a high level of confidence that that's not going to be an issue. But that said, we know that that's a tool that we have in the toolbox, and if we start to see the need to explore expanding that capacity, we certainly will. John, anything you'd like to add on that?
I agree, Sandro. And also, when you look at, you know, deposits, as we put out in the 8-K, which as of the 5th, the deposits as of the 6th were relatively stable to the 5th, so no significant change there.
All right, great. I'll step back. Thanks, guys.
Thank you, Dave.
Our next question is from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.
Hi, Abraham.
Good morning. So Sandro, I guess question is, coming out of the fourth quarter results, speaking to investors, it feels like, you may or may not be able to comment on this, but management's hand was forced by regulators to take actions that in normal course you may not have taken. I'm just wondering, do you feel confident?
Let me put that to bed.
Yeah
Right here, okay? What we did was what we needed to do. All right? We did the proper review of our loan portfolio. We made some changes in the way we risk-weighted our loan portfolio and came to the conclusion that we needed to take action, and we did. With respect to the dividend, if we're going to be a strong capital organization, then we have to be mindful of how much of a dividend we can afford to pay. So we took the—we made the decision to preserve capital by cutting the dividend, and we're going to go forward with that. Those are two important steps that we're taking to build the foundation of this organization. So this speculation of why and when and who... Look, we did the right thing, and we're going to go forward now.
Thanks for that. And I guess you mentioned, you referenced the consensus $840 million pre-tax provision number for the year. Do you see where things stand today that NYB, you can earn somewhere in that vicinity in terms of PTPP? What we don't know is just, I, I think what investors are struggling with is the repricing, the PCG deposits or DDA outflows. If you can comment on that, that would be tremendously helpful.
Well, as I already said in my prepared comments, the deposit resilience has been outstanding. Our people are doing a great job in all areas, including in the private client group. So you know, right now, we're, we feel very, very comfortable with that, but we are talking to our teams every day. I mean, I know Tom and Reggie and his team have been talking to customers every day, and they've been effective in building confidence out there in the marketplace. And our people in the retail branches have just been unbelievably outstanding.
So let's just, you know, understand that I can't, I can't imagine how it could be any better, frankly, given, you know, the circumstances here. So I feel good about that. The first part of your question was, I'm sorry, I already forgot.
On the consensus PTPPU reference case.
Oh, yeah, yeah, yeah. Okay. Yeah. So, we don't give guidance on earnings, and we're not going to start doing that today. So, we're using the numbers that you all think are reasonable. But look, whether it's $700, $800 or $900, the answer is still the same, right? It's enough to outrun any provision need we might have, and whatever we don't need will flow to the bottom line and build our capital, our capital position.
Good. Thank you.
Thank you, Ebrahim.
The next question is from the line of Mark Fitzgibbon with Piper Sandler. Please proceed with your questions.
Hi, Mark.
Hey, guys. Good morning. First, I wonder, Sandro, does your plan to increase CET1 contemplate raising any capital?
Well, that's another option for us. I don't know whether we'll need to do that, but it's certainly something that we will consider with all other ways that we can strengthen the capital level. So, we have no plan to do it right at the moment, but it's certainly something that will be on our minds going forward.
Okay.
I believe that we could if we needed to, but at this point, you know, we haven't made any decision on that.
How often should we expect that you'll sort of provide liquidity or deposit updates going forward?
Go ahead, John.
I think what our plan is right now is, you know, as we see changes in deposit base, we'll put out information to ensure that, you know, what we're seeing is out in the marketplace.
Okay. Thank you.
You're welcome.
Our next question is from the line of Chris McGratty with KBW. Please proceed with your question.
Good morning, Chris.
Oh, great. Hey, good morning. The reference to the Moody's downgrade in the AK this morning noted no real direct impact on deposits, and your depositor ratings are all investment grade. Can you remind us what, if any, I think I'm getting questions on, like, the mortgage escrow, like, is there a level of rating that you would need there, and also the size of that deposit base?
So in the mortgage escrow side, agency escrows, we'd have to be considered not prime rated, so that would be another two-notch downgrade.
Thanks, John. How much, what's the level of deposits related to that business today?
It's quite variable throughout the month, depending on when payments come in, when remittances are made, so it fluctuates. John, you want to have a range on that?
Probably $6 billion to $8 billion.
Okay. Okay. Thank you.
You're welcome.
The next question is from the line of Manan Gosalia with Morgan Stanley. Please proceed with your questions.
Good morning.
Hey, good morning. Given the events of the past few days and your comments on reducing CRE concentration, can you talk about how comfortable you are with the $2.8 billion to $2.9 billion NII guide and what the risks are there?
I'll let John answer that.
So yeah, depending on the measures that we take, we're comfortable with what the PPNR guide that Sandro talked about in his opening comments. We're confident in that number, given what we're seeing so far, the absolute strength that we talked about on the deposit base. So as of right now, yes, we are.
Okay. And, and how important is selling assets to hit your CET1 goals? You know, you mentioned selling some non-strategic assets, reducing the CRE concentration. You know, would you limit asset sales to those with, with gains or maybe a neutral impact on, on capital? And, will that weigh on your NII guide?
Well, let me, let me start kind of at the beginning, right? We're at 9.1% right now, and if you look at what we believe earnings will be and consider the capital preservation through the dividend cut, that gets us close to 10%. So, you know, we do have non-core assets that we could sell, and we'll be considering those sales. But we will be mindful, as I said in my opening comments, about the earnings power of the organization. So there's a balance between selling assets and preserving the earnings power of the organization. So we will make sure that we do that analysis and that we don't hurt one at the—we don't help one at the harm of the other, if that makes any sense.
Got it. Okay. And just a quick follow-up is that 10% CET1 target is still a target for the end of 2024, even if you reduce your CRE concentration?
Yeah, you know, I think that's, you know, aspirational. We want to get there, and I think we can. But I think the most important thing is the commitment to growing capital, and we do that on a consistent basis over time. And it doesn't mean that when we get to 10%, we stop either, by the way. So, you know, this is the plan here is just to be focused on building capital right now, as opposed to growing the company, right? You can do one, you can do the other, you can—in a perfect world, you do both, but the focus is going to be on growing the capital base.
Okay. Thank you.
You're welcome.
Our next question is from the line of Steven Alexopoulos with JP Morgan. Please proceed with your question.
Hi, Steven.
Hi, good morning. So I want to start, Sandro. So moving into the executive chair role, was this planned last week when all the strategic actions were announced? Just surprised it's coming a week later.
Well, look, I'm not going to talk about what discussions that we may have had internal. I don't know why that matters, you know, when that decision was made. The fact is we made the decision, and here we are, and we're ready to answer any questions you have about, you know, our plans for the organization going forward.
Okay. On provision, on the call, the earnings call last week, I thought the message was reserves were being built, maybe pulling some reserves and provision basically into the fourth quarter. You've mentioned provision a few times here and having enough pre-tax pre-provision to pay for a provision. Are you signaling more of a need for provision expense in 2024? Am I reading too much into that?
No, I don't have any idea what that need might be, because the only thing I can tell you is that at 12/31, we were in the right place. I don't know what the economy is going to do.
Okay.
I don't know how the portfolio is going to perform, but using the estimates of the Street, that's the only thing that at this point, you know, I have to have something that I can use as I talk about it. But again, I think the takeaway here is that we will build a fortress balance sheet, and that's extremely important. You've got to have that in order to go forward, and we think we're there now. But we know that we have an earnings engine here that will give us the flexibility to build that balance sheet even with more strength, should it be necessary.
Got it. And maybe one final one, and now moving into the executive chair role. What, what's your assessment of the risk management infrastructure at the company today and relative to where you need to be as a Category Four Bank? Thanks.
Well, of course, as you grow as an organization, you have to continue to strengthen your risk and compliance framework. You know, it's a hallmark of mine. You may not know this, but I started my career as a bank examiner, so I have, you know, a high respect for not only the regulatory process, but the way the world thinks about the importance of risk compliance and having the right infrastructure. Because if you're not in a position to properly identify the risks that you're exposed to, then you're not going to be ready for them when they come to pass. And so, you know, we're not - we're probably never going to be totally satisfied with it. But...
Look, we're in a position here where I think we can announce a very strong, a new CRO in the very near future. We're getting that wrapped up. And that person will come in and assess it better than probably I can right now and make sure that if we need to improve it, how we need to improve it, that we do it, and we are absolutely committed to that.
Got it. Thanks for doing this call. We appreciate the transparency.
You're welcome.
Our next question is from the line of Bernard Von Gizycki with Deutsche Bank. Please proceed with your questions.
Good morning. Alessandro, you mentioned wrapping up the CRO hire. You know, just looking through that Moody's downgrade, you know, one rationale behind it was its views that, you know, New York Community Bank was facing high governance risks from its transition and, you know, that Chief Risk Officer and the audit roles. You know, could you just-- and obviously, in the press release you mentioned, you do have people there on an interim basis.
Yeah.
Could you maybe just address it like, you know, why did they flag that as a risk? It seems like, you know, you had people in the role, and just anything you can update us on that specifically. Thank you.
Yeah. I suppose you should ask Moody's why they said what they said. But, you know, what I can tell you is that we, we believe, we understand where we're at and where we need to go, and we believe that this organization is a great place to come and work, and that's evidenced by the high quality of people that are interested in joining this organization. And, you know, we're, as I mentioned, we're close to bringing the CRO on board. We've got a great interim audit executive in place. We've got a great, permanent solution that we're wrapping discussion around here in the next few days. So look, people are looking at this organization despite the challenges that we're facing, and they want to come here. And we already have a great team here.
We have a lot of really good people here. We have a strong executive team. Lee Smith is running the mortgage business, Reggie Davis running our banking business, John here as CFO, Julie Signorille-Browne , that's our COO. These are very strong people, and we're going to make sure that we have additional strength into this organization. And look, we'll look to the outside to provide good advice for us in terms of what are—what the right steps to take going forward.
Oh, no, I really appreciate that color. That's really helpful, you know, given all the news that was out there on that. And just second, just, you know, you talked about, you know, enhancing or building the risk management infrastructure. Just curious, in the full year guide, expense guide, is that kind of already kind of built in, that you have expenses or, you know, maybe post 12/31 and what's happened recently? Do you think there could be some additional pressure there? Just trying to get a rough sense.
Yeah. The short answer is yes, but John will be more articulate.
Yeah. Yes, we did keep that in mind as we were coming up with our guide. So yes, it is included. You know, we have seen expenses increase. So yeah, it's included in the guide, and it's what we anticipated so far.
Okay, great. Thanks, guys, for all the color. Really appreciate it.
You're welcome.
Thank you. Our next question is from the line of Christopher Marinac with Janney Montgomery Scott. Please proceed with your question.
... Hey, thanks. Good morning, and thank you for hosting the call. There's been a business model change that's been happening long before these recent events. And so can you just kind of walk us through maybe one more time, Sandro, about, you know, where the concentrations can go? And, and perhaps, you know, how C&I can be higher, and mortgage can be higher, and maybe John can remind us on the yield improvement that can happen as you continue to change the weights of the loan portfolio.
Yeah, I don't know if we're prepared to answer that last part. But in terms of the first part, you know, as I said in my prepared comments, from my experience at Flagstar, when we were changing from a mortgage company to a bank, you know, we were very opportunistic in the actions that we took to gradually build a real safe and sound commercial bank. And those businesses, one of the reasons that this transaction with Flagstar and NYCB took place was to give more runway for those to grow those businesses. And that was Tom's vision in bringing these two companies together, was the diversification.
You know, everybody's known that being a multifamily lender exclusively was not a long-term strategy, nor any more than back in my early Flagstar days, that being a mortgage model line was a good long-term strategy. So the plan to change the makeup of the assets of this organization started a long time ago. And what the Signature situation did was take what we already were working on, on the asset side and brought some liabilities in that matched up well with what we were doing on the asset side, and took a liability-sensitive company and actually turned it into an asset-sensitive company. So look, but you can be critical. People want to be critical about where things are here.
It's not perfect, but there's a lot of good work that's been done over the last two years to change the makeup of NYCB and then the new Flagstar, I'll call it, if you will. And, you know, that's where we're at, and we're going to keep moving in the right direction. And, you know, we've gotten a couple of, you know, tough punches to the gut, but we're strong. And as I said, you know, look at the deposits of this organization. I mean, does anybody think that they could be higher today than at the end of the year, given what we've been going through here? I mean, come on! That's, if that doesn't tell a story about the strength and resilience of this company and the people that work here, I don't know what does.
Thank you for that. I appreciate that. And John, my question on yield was more kind of directional, and if there is a yield pickup that you have as you sort of reposition. Is that fair impression?
Yes. Yeah, it is. And as you know, the multifamily and CRE loans that are coming off are at extremely low yields. So as those do pay down, as the market starts to change, and as we could take those into different types of loan categories, there will be a yield pickup, no doubt. And, and, you know, I keep hearkening to my Flagstar experience because I think that's one of the great benefits that I bring to the table here as I join the management team. When I became CEO of Flagstar, our NIM was under 2%. When we brought these companies together on December of 2023, I think we were around 4% at Flagstar. It took a long time.
You know, it took 10 years to do that, but we got it there. And, and if you do it the right way, you do it gradually, don't, you don't try to do things too quickly, and you keep safety and soundness in the forefront, it can be done.
Last question for me just goes back to kind of the big picture of moving deposits from your Flagstar relationships. I mean, there's still a lot more to, to transition from that, so that still is runway for you on deposits ahead.
Yeah. Look, we've got 400 retail branches out there. Reggie Davis has been from before we even started talking to NYCB at Flagstar, started building the foundation of a truly strong and elite deposit-generating organization. That's where the core of this organization will be built around, is that branch system, and there's a lot more that we can leverage with growing relationship core deposits. And, I'd love at some point to bring Reggie into the picture here, where he can really articulate with greater detail than he's ever had the opportunity to do, the data analytics that we're using to put our strategy together and the successes that it's showing. It's something that hasn't been probably touted enough here, but we're going to going forward.
Very well. Thank you for all your time this morning.
You're welcome.
Our next question is from the line of Brodie Preston with UBS. Please proceed with your questions.
Hey, good morning, everyone. I've got a handful of questions here. Wanted to know if you could clarify if you've tapped the discount window or BTFP to help increase the cash on hand, Sandro.
John,
So we, as we put out in the release last night, you see where our availability is. As we talked about on the call, we've used the Federal Home Loan Bank to continue to build that liquidity. So, you know, that's been the majority of the build, as we talked about. You know, it's the process that we started at the end of December and has gone into here in the first quarter to build our liquidity buffers through the Home Loan Bank.
Okay, got it. I guess, you know, people have asked a lot of questions about the balance sheet and the size and how you get to the 10% CET1. I guess I just have a couple follow-ups. You know, the markdown that you guys took on the held-for-sale loan from this quarter kind of implies like a 30% to 50% loss from just from a rate mark alone. You know, CRE is obviously the biggest asset you have on the balance sheet, you know. Do you run that off? Are there more sales to come, you know, in the CRE specifically? And if there are, how do you kind of get to a 10% CET1 with that as the backdrop of the size of the write-down that you'd be taking in a CRE loan sale?
Well, first of all, with respect to the one loan you mentioned, that was an extremely unique situation and is not representative of any other situation on the balance sheet. So we got to put that one aside and then think broadly about the rest of the portfolio. As I've already mentioned, we feel like we're well provisioned as of 12/31/2023. I don't know what the future's going to hold, but we are in a position, given the earnings power of this organization, to outrun any provision need that we may have. And so, you know, if you want to take any bank and hit it for an interest rate mark, well, good luck with that. What's important is what's the overall situation.
Overall, we're in a position where the earnings power of the organization is strong, and our ability to appropriately deal with any provision needs that may come is there.
Got it. In terms of, in terms of the TLAC and the long-term debt, you know, just being above $100 billion, how challenging, you know, would it be to kind of like, how are you going to kind of meet those requirements just with the ratings downgrades that have occurred? Or would there be an option where maybe you shrink the balance sheet enough that you're not a $100 billion organization anymore, and maybe you don't have to worry about long-term debt ratings for the short term?
Well, I don't have a view on that just yet. I think, you know, we've got to deal with what's right in front of us now, and that's what we're focused on. But certainly, the management team here has been thinking about that situation, and I think they feel like they've got options that are in place that we can utilize in order to meet whatever requirements we may have. Shrinking below $100 billion, I don't know. I suppose that's something we can, that'll be part of what we consider, but we certainly haven't made any decision to do that.
Okay. Do you happen to have what the deposit mix looks like, you know, today, you know, as, I guess, as of 2/5, you know, non-interest bearing? You know, just, just kind of given the moving pieces that happen, it looks like what happened between the uninsured, you know, versus insured deposits. Wanted to get a better sense there.
So you see some of the increase in the insured. Couple of things in that, of course, we've excluded the internal accounts, as we noted in the press release. That's one of the bigger changes that we've seen so far. And then, you know, we have seen the growth, as we talked about, in some of the escrow deposits as well, throughout the quarter. So those are the big mix shifts there that we've seen.
Okay. And the stuff that went from uninsured to insured was, you know, was that just getting insured via ICS, John?
That was a pretty small number there, you know, that we saw move, but we still have, as we noted, over $10 billion in availability with our reciprocal deposit providers. So you know that there is a small piece of that that we've seen so far, and we continue to monitor that usage.
Got it. Last one for me. Just given how the stock is trading, given there's questions about the ability to get to a 10% CET1, would you guys consider just taking the dividend to zero at this point?
It's not something that we have any plan to do. You know, we're at $0.05. We think that's a big step towards preserving capital, and we'll, of course, assess that as we go forward.
Okay. Thank you very much for taking all the questions, everyone. I appreciate it.
You're welcome.
Our next question is from the line of Steve Moss with B. Riley Securities. Please proceed with your questions.
Hi, Steve.
Hi, good morning. Hi, Sandro. Just most of my questions were answered right there. Just want to follow up on the, it sounded like the new CRO, you expect to wrap up discussions with them in the next couple of days. And then just curious, you know, what's the status of the audit executive search?
Well, as I said earlier, we're in final discussions with our top candidate, and we hope to put that one to bed in the very near future. I, I can't predict, though, whether it's two days or seven days.
That's for the CRO or that's for both positions? I'm sorry.
No, no, no, just for the audit executive. The CRO is going to be announced in the very near future.
Okay, great.
Just to be clear-
Well, thank you.
We have a very strong interim audit executive in place. So, that situation is not really problematic right now.
Okay, great. Appreciate all the color. Thank you very much.
You're welcome.
Our next question is from the line of Matthew Breese with Stephens. Please proceed with your questions.
Hey, good morning. I just wanted to go back quickly to the deposit growth year to date. You had mentioned escrow deposits, but I was hoping you could address changes in the seasonal government deposits, and then to the extent you've used additional broker deposits, where has the change been there?
... On the government deposit side, you know, not a lot of movement. We have seen, as we've talked about in previous calls, you know, the rundown of some of the government programs. We haven't had any new government programs hit in the first month or so here in 2024. And then when you look at the brokered market, we did increase some brokered CDs as of 12/31 as part of the balance sheet liquidity build. That continues as we have brokered CDs maturing, and we're issuing to meet those needs here in the first quarter as well. So it's a little bit of both.
Okay. And then, you know, you've addressed this somewhat, but one of the things I still think is a bit unclear and remains, to me, one of the most substantial issues is the, is the CRE concentration. So the new $100 billion to $250 billion peer group, the median CRE to total risk-based capital ratio is around 100%. The highest within that group is 190%, and you're at 470%. So my question is-
Yes.
This includes multifamily: Can you operate as a +$100 billion institution with a CRE concentration that is well through the regulatory 300% threshold and is well ahead of your peers? Or where does it need to go, sub-300, or is it into that peer group level?
Well, the way I look at it is I, I separate the true CRE from the multifamily, first of all. And if you look at the true CRE without the multifamily, it's at a very reasonable level. And I said, as I said earlier, the company has reduced the multifamily concentration substantially over the last 24 months. Now, can we make that same level of progress over the next 24 months? I don't know. But we, all I can tell you is, we, we realize that we're an outlier there, and we will, with prudence, reduce that going forward.
You've discussed lowering the CRE concentration. Can you give us some idea of where you want it to be?
I think the way to look at that is to gradually reduce it, and I don't have a number that, you know, should be 100, it should be 200. I don't have an answer to that, but we're gonna reduce it, and it's gonna be done in a very methodical and smart way.
Okay. You also discussed potentially selling some non-strategic assets, and I was hoping you could expand upon that. What, what areas are, in fact, under consideration? I'm asking because it feels like the CRE multifamily book are probably most likely what you'd like to get, you know, reduced here, but it's also most likely an unrealized loss position. So I'm curious if it's C&I or CRE that you're looking to dispose of.
Yeah. Look, look, you got to have the right cost benefit with any asset that you sell. So, I don't think there's any one thing that we would or wouldn't sell, and I don't know that we're gonna need to do that. So as I said earlier, we're at 9.1. With the earnings of the organization and the dividend cut, which preserves capital, we can get pretty close to 10%. So it's not like we have this massive amount of assets we have to sell. We don't see it that way. But to the extent we might have to strategically do that, then we'll figure out what the right thing to sell is, and we'll sell it, and then we'll move on.
Okay. And then, you know, there's clearly a fear that the rent-regulated multifamily portfolio is going to face some stress as values are down and bottom-line income for these property owners is down materially since the 2019 rent laws. Nobody is closer to this business than you all.
Yeah.
What is your estimate on the change in property values from pre-2019 until today, and how did you underwrite it, knowing that these changes have happened, right? Did you underwrite to a higher cap rate, and now the adjusted cap, you know, the new cap rate is, maybe we're looking at it the wrong way, or could you give us some idea of how you're underwriting this asset class?
Well, well, look, I wasn't here, so I can't speak to that. I'm not sure looking back on that does us a lot of good right here. I think that we have the portfolio, we have the loans, and now we go forward, and that's what we're doing.
All right. Last one from me is just could you remind us of the breakdown of deposits received from Signature in terms of insured and uninsured, and how much fluctuation in that deposit base have you seen overall, but especially over the last few weeks since this disruption began?
I don't know the detail on the makeup, but the deposits have held very strong, so you know, we're very, very, very pleased with the way they've performed.
I'll leave it there. Thank you.
Sure.
Our next questions are from the line of David Smith with Autonomous Research. Please proceed with your questions.
Hi, David.
Good morning. It was good to hear deposits were relatively flat yesterday despite the move in the stock. Can you put a finer point on that and give us an actual dollar amount versus the $83.0 figure from Monday?
I don't know what it is, but I looked at some summary reports late last night, and the change was very insignificant overall.
Higher than year-end still?
Oh, yeah. Yes. Yeah.
Okay. So, like, very de minimis, it sounds.
I'm not trying to dodge the question. There was just nothing there yesterday that was concerning.
Okay. And in terms of the, I guess $1.6 billion or so increase from December thirty-first through Monday, can you break out how much of that was in non-interest bearing versus interest-bearing deposits?
I don't have that information.
... And lastly, you know, I appreciate the confidence on the PPNR being able to cover any provision need that, you know, you see in the book today. Can you just give us your expectations for net charge-offs in 2024? I know the reserve build is tough given CECL, but where you see loan losses based on what you can see in the book today?
I'm just going to repeat what I've said a few times, and that is that we're well positioned as of 12/31, and we have the earnings power to provide any additional provisions we may need. So I don't know of any losses that we haven't accounted for. We're accounting for losses as we should, and so I can't give you a number. I don't know what it might be. That's why we're trying to use consensus, so that we have something to lean on in terms of showing that we've got the earnings power to overcome what the general consensus is of what we might need. But that's not a number that we necessarily agree with. We just don't know.
Thank you.
Thank you. The next question is from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your questions.
Hey, hey.
Good morning.
Thanks for hanging out here. Are all the branches and deposit products rebranded as Flagstar? Is that all done, so people see Flagstar?
Let me let Tom answer that one. He's been working passionately on that, and I think he can give you a good update there.
Yeah. Good morning, John.
Thank you.
So obviously, we have a lot of work going towards integration. We're getting close to launching our full conversion. So when that happens, everything will be on one platform. So we're excited about the team and getting the conversion complete, and we will be one band- one brand, one bank, one platform. And we're super excited about putting legacy NYCB and legacy Flagstar to create new Flagstar. We still have the Signature customer deposit, which will come after that, hopefully shortly thereafter, as we go into early 2025. But clearly, a lot of great effort has been done from a significant amount of energy within the entire organization, and we're proud of the team and the effort, and we're excited to get the conversion done. The signs will be, you know, once we get the conversion done, we'll have new Flagstar.
Yeah, it's in the works. Everything's... If you drive by any branch, you'll see that the banners are coming down, the new signs are going up. It's a big process, but it's underway and will be done in the relatively near future.
Okay. I just ask because of some of the headline risk, fair or unfair, but that's why I ask. Another way to ask the charge-off question, I guess. You, you've kind of said this, but you view the fourth quarter charge-off level as really an aberration. Is that, is that correct? I know it's hard to do.
I don't think I said... Well, I don't, I don't think I'd use that term, aberration. I think the fourth quarter, there were a lot of factors that played into why we did what we did, and I believe there's a slide back in that earnings deck that shows a waterfall of the ACL from 9/30 to 12/31. And you can look at how much of that we think is this factor versus that factor. So whatever the causes were, I mean, I think the important thing that I've said many times this morning is, we're very comfortable with where the provision is at the end of December.
Yeah. Yeah. I asked the question because if you run the same level of charge-offs and you match that with provision for the full year, every quarter, you still cover the dividend, or you're damn close to covering the dividend. So that's, that's why I'm asking the question. If you view that fourth quarter provision, or not provision-
Yeah.
- but charge-off level is much higher than usual. I know it's difficult, but that's why I ask it. Any more deep dive work to do on multifamily? You had to step up on office reserves in the fourth quarter. Maybe there's nothing new on multifamily, but can you help us understand that? Is there any more deep dive work going on that's unusual in that book?
I wouldn't say there's anything unusual going on. I think that we've put a process in place to stay very close to that activity and the pressures that might be in that category. And, you know, every quarter, we're gonna update it based on the newest information that we have. So that's all I can tell you.
Okay. And then more near term, what do you want to present to us with second quarter earnings? Maybe what are your top couple of priorities that you feel need to get nailed down right now before we go through this again in three months? Thanks.
Well, I think, you know, the clear thing right now is building confidence in the street that the company does have the strong bones here to go forward. I think the deposit situation, the liquidity situation, is evidence that we do. So we, we've got to get through this and so that we can move forward. Then, you know, we'll start to think more about providing updated guidance and all the information that you all want. So right now we feel, you know, very pleased with the position we're in, and I think the information that we put in that AK last night tells an important story about where the company stands right now.
Okay. Thank you. Appreciate it.
You're welcome.
The next question is from the line of Mark Fitzgibbon with Piper Sandler. Please proceed with your question.
My question was asked and answered. Thank you.
Thanks, Mark.
Thank you. Thank you. We've reached the end of the question and answer session. I'll now turn the call over to Alessandro DiNello for closing remarks.
Yeah, thanks, everybody. And we caught you off guard with real short notice and appreciate so many people joining and appreciate all your questions. I hope we gave you some transparency here that's helpful to you. I want to close by just reiterating that, you know, the deposits, the liquidity of this company are really strong. The people in this company are very strong. I want to thank all the people in this organization for all the hard work that they're doing. I look forward to working with Tom and John and the rest of the executive team here to build a truly strong organization and one that our shareholders will be proud of.
Thank you. This will conclude today's conference. You may disconnect your lines at this time and log off to the webcast. We thank you for your participation, and have a wonderful day.