Hello and thank you for joining us. My name is Regina and I will be your conference operator today. I would like to welcome everyone to the New York Community Bancorp, Inc. Fourth quarter 2023 Earnings Conference Call. All lines have been muted to avoid background noise. After the speakers' remarks, we will have a question and answer session. I now turn the conference over to Sal DiMartino, Chief of Staff and Vice President of Investor Relations. Please proceed.

Thank you, Regina, and good morning, everyone. Thank you all for joining the management team of New York Community Bancorp for today's conference call. Today's discussion of our fourth quarter and full year results will be led by President and CEO, Thomas Cangemi, who will be joined by the company's Chief Financial Officer, John Pinto, along with our President of Banking, Reggie Davis, and the President of Mortgage, Lee Smith. Before the discussion begins, I'd like to remind you that certain comments made today by the management team of New York Community Bancorp may include certain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and investor presentation for more information about risks and uncertainties, which may affect us. Now, I would like to turn the call over to Mr. Cangemi.

Thank you, Sal. Good morning, everyone, and thank you for joining us today. Before we go into the details of this year's results, I would like to provide some commentary to put the past year into perspective. When I was appointed President and CEO three years ago, we embarked upon transforming the legacy New York Community Bank business model from a monoline thrift to a dynamic diversified full-service commercial bank. 2023 was an important inflection point. We built on the momentum created by the Flagstar acquisition that closed in December of 2022 and continued to successfully execute our transformation strategy while establishing a clear path for future growth. We reported $2.3 billion in net income available to common stockholders, up from $617 million in 2022. We significantly diversified our balance sheet with commercial loans representing an increasingly greater percentage of total loans. Similarly, the percentage of non-interest bearing deposits of total deposits have nearly quadrupled since just before we closed the Flagstar acquisition. We began the Flagstar integration successfully meeting every milestone throughout the year with the systems conversion set for mid-February. We also unveiled a rebranding campaign that will launch shortly after the systems conversion is completed, which has been well received both internally and externally. Additionally, we acquired select financially and strategically complementary assets and liabilities of Signature Bank, which strengthened our balance sheet by adding a significant amount of low-cost deposits and added a middle-market business supported by over 130 private banking teams. Importantly, the addition of Signature Bank catapulted us to over $100 billion in total assets, placing us firmly in the Category IV large bank class of banking institutions between $100 billion and $250 billion in total assets. The last three years were all a build-up to this moment. And since the closing of the Flagstar acquisition in particular, we have been preparing to cross this important threshold. When the opportunity to acquire Signature presented itself, we were honored to be selected as the winning bidder by the FDIC; the benefits were clear. This acquisition allowed us to advance our strategy while strengthening and diversifying our balance sheet. However, this acquisition also meant we would become a $100 billion-plus bank sooner than we had anticipated, subjecting us to enhanced prudential standards including risk-based and leverage capital requirements, liquidity standards, and requirements for overall risk management and stress testing. Alongside the integration of three banks, NYCB, Signature, and Flagstar, and as we prepare for our first capital plan submission in April of this year, we have pivoted quickly and accelerated some enhancements that come with being a Category IV bank. Specifically, we are taking decisive actions to build capital, strengthen our balance sheet and risk management processes, which better align us with the relevant peers for a bank of our larger size and complexity. These actions include investing to strengthen our risk management capabilities to align with the enhanced prudential standards applicable to Category IV banks as set forth under Reg YY, building our reserve levels, which brings our ACL coverage more in line with peer banks, including Category IV banks, and adding on-balance sheet liquidity as we prepare for Regulation YY compliance. We believe these actions are another prudent step in enhancing our risk management infrastructure. I will go on to more detail in a moment on how these actions impacted our results in the fourth quarter. We are also accelerating our capital build by reducing our common stock dividend to $0.05 per share. We understand the importance and the impact of this decision on our stockholders. This was not made lightly. While NYCB remains well capitalized under all applicable regulatory requirements, resetting our capital allocation priorities was a necessary step to accelerate the building of our capital. We are confident that these actions we took in the fourth quarter and the continued execution of our strategy will position the company to deliver enhanced value over the long term. We successfully grew into a $50 billion-plus bank in 2018 and we believe the actions we are taking now are building the foundation to make our transition to a $100 billion-plus bank even more successful. Moving now to the results. The company reported $2.3 billion in net income available to common stockholders in 2023, or $3.24 per diluted share. On an operating basis, which excludes merger-related charges, a $2.2 billion bargain purchase gain related to the Signature transaction, and a one-time special FDIC assessment of $39 million, reported net income available to common stockholders was $609 million or $0.80 per diluted share. As I said earlier, the actions we undertook impacted several items during the fourth quarter. In the fourth quarter of 2023, we reported a net loss of $252 million or $0.36 per share. On an operating basis, the company reported a net loss of $193 million or $0.07 per share. Our fourth quarter results were impacted by the actions we undertook, including a $552 million provision for credit losses. Let's begin with asset quality. Non-performing loans were stable in the fourth quarter as compared to the third quarter of the year despite some continued weakness in the commercial real estate sector. At December 31, 2023, non-performing loans totaled $428 million and represented 37 basis points of total loans compared to $435 million or 40 basis points in the previous quarter. During the fourth quarter, we significantly built our reserves to address office sector weakness and an expected increase in criticized loans due to repricing risk in the multi-family portfolio, which better aligns NYCB with our relevant peer banks, including Category IV banks. At December 31, 2023, the allowance for credit losses was $992 million, up $370 million compared to the previous quarter and represented 1.17% of total loans, up from 74 basis points compared to the previous quarter. Excluding loans with government guarantees and lower-risk mortgage warehouse loans, the ACL coverage was 1.26% in the fourth quarter compared to 80 basis points in the previous quarter. Since the third quarter of 2022, we have built our reserves by $774 million. Net charge-offs for the quarter were $185 million or 22 basis points of average loans driven by two loans. First, we had one co-op loan with a unique feature for pre-funded capital expenditures. Although the borrower is not in default, we transferred the loan to held-for-sale in the fourth quarter and expect it to be sold during the first quarter. Importantly, this loan is a one-off and our review did not uncover any other co-op loans similar to this one. Second, we had an additional charge-off on an office loan that became non-accrual in the third quarter. Based on an updated valuation, this loan was more than we originally expected and we responded by recalibrating our qualitative factors in the office portfolio to address the issue and increase the ACL coverage on the office portfolio. Collectively, these two loans accounted for the bulk of the charges we took during the fourth quarter. The other major action we took was regarding our on-balance sheet liquidity. During the fourth quarter we began preparing to be Regulation YY compliant. While this was earlier than we originally anticipated, we thought it was prudent to be ready to meet the enhanced liquidity requirements that apply to Category IV banks. Therefore, we had monetized some of our contingent liquidity sources and started to build our on-balance sheet liquidity during the fourth quarter, which has continued into Q1. We realized that this will negatively impact our net interest margin in the short term, but it is essential that we, as a newly minted $100 billion bank, prudently manage our liquidity. Moving next to net interest margin, the fourth quarter net interest margin came in at 2.82%, down 45 basis points compared to the third quarter. This was 18 basis points lower than our guidance or down 27 basis points. The 18 basis points variance to the guidance was largely due to actions related to increasing our on-balance sheet liquidity and higher deposit costs. On the lending front, total loans held for investments were up $624 million or 3% annualized compared to the third quarter of 2023 to $84.6 billion. Most of the growth occurred in the C&I portfolio, partially offset by a decline in multi-family, while the rest of the CRE portfolio remained unchanged. At December 31, 2023, total commercial loans represented 46% of total loans while multi-family loans represented 44% of total loans, representing significant diversification from a year ago. Turning now to deposits. Total deposits at year-end were $81.4 billion compared to $82.7 billion at the end of the third quarter. The decrease was primarily driven by an expected $1.8 billion decrease in custodial deposits related to the Signature transaction. Excluding these deposits, the total deposits increased $457 million or 2% annualized compared to the third quarter, primarily driven by growth in CDs partially offset by lower non-interest-bearing deposits. The shift to higher-cost CDs was due to increased competition and customer behavior. Deposits from legacy Signature teams, excluding deposits to the loan portfolio we did not retain, increased $1.5 billion since the end of March. Moving now to expenses. Excluding non-interest expense our non-core expenses which this quarter includes the FDIC special assessment of $39 million, total operating expenses for the three months ended December 31, 2023 were $557 million, down $28 million compared to $585 million for the three months ended December 30, 2023. The decrease was primarily driven by compensation and benefits expense due to lower incentive compensation expense partially offset by higher professional fees. Turning now to our full year 2024 guidance. In the past, we have typically provided just quarterly guidance. However, in order to provide more transparency and to be more in line with industry peer practices, we are providing expanded full-year guidance in which we have summarized in our investor presentation on Slides 36 and 37. In 2024, we expect period ending total loans to decline 3% to 5% compared to December 31, 2023. Period ending total deposits to increase between 3% to 5%. Cash and security balances to increase $7.5 billion on a combined basis. The net interest margin 2.4% to 2.5% for the full year, inclusive of actions to increase on-balance sheet liquidity for Regulation YY compliance. Non-interest income in the range of $570 million to $620 million, which includes mortgage-related income of $220 million to $250 million. Operating expenses in a range of $2.3 billion to $2.4 billion, due to a full-year impact from Signature Bank, the full-year impact of 13 private banking teams from the former First Republic Bank, Signature Bank integration deferral in 2025 in order to minimize customer impact, and additional costs related to becoming a Category IV bank. Normal compensation and benefits expense increases and approximately $60 million of conversion-related savings from Flagstar. We expect our CET-1 regulatory capital ratio for the holding company to be at 10% by year-end 2024 and a 22% full-year tax rate. We enter 2024 having taken prudent balance sheet actions as we become a Category IV bank. Importantly, the bank has its solid foundation in place and a proven track record across business cycles. We believe we are positioned well to navigate our growth and development as an organization and deliver for customers. And we are confident that it will enable us to deliver long-term value for stockholders. Finally, I would like to say a special thank you for all of our teammates. We have a fantastic team and as always, we deeply appreciate their dedication and commitment to our clients, customers, and communities. With that, we will be happy to answer any questions you may have. Operator, please open up the line for questions.

Our first question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

Good morning.

Good morning, Ebrahim.

Good morning. I guess maybe if we can start on credits. Obviously, you took a huge reserve build this quarter. Just talk to us in terms of your expectations around losses going forward. So one, what's the reserve build at the end of the fourth quarter cover and what that implies for future reserve build through the course of 2024? And then give us a sense relative to the charge-offs you took in the fourth quarter, 22 basis points, where do you see credit losses migrating next year and if you expect any losses to come from the multi-family book? Thanks.

Hi, Ebrahim. I appreciate the question. Let me just give you a general view of the fourth quarter and the process on where we came in at. Obviously, we looked at the marketplace, we look at the office perspective and the general office weaknesses throughout the country. We really did a deep dive in the office portfolio as well as thinking through payment shock and interest rate shock given the rise of interest rates that we've experienced over the past few quarters, in particular, the impact to our customers in respect to repricing. We took into account that perspective and clearly had significant addition to our reserve build, where a lot of that reserve build went into the office, in particular, I believe the number one from 200 basis points reserve going from Q3 to 800 basis points reserve in particular for office. So given that we gave out the statistics on the actual performance of the portfolio, there hasn't been a whole lot of change in respect to the NPAs and delinquencies. However, we had moved some of these loans into a status of criticized positions because of the nature of looking – thinking about the office sector and the reserve build-out with the anticipation of office still having difficulties within the marketplace. That being said, 800 basis points, I believe, gets us very close to in line with our current peer group, which is a new peer group Category IV banks that I indicated in my previous remarks. And we're confident that we continue to look at the portfolio in significant detail as we are now benchmarking ourselves into a marketplace that has changed. No question has changed, and we're focusing on payment shock, interest rate shock, and the developments in the commercial space. If you want to meet, John, if you want to add some more comments back to the ACL and the application there as well.

Sure, Tom. And besides the office portion of the ACL build. The other item that Tom mentioned earlier is around the multifamily loan portfolio and the repricing risk in that portfolio, as we see our loans continue to hit their option date and reprice higher, we want to make sure that that risk is captured in the qualitative factors as well this quarter. So we were able to do that and increase the reserve on multi as well. So we saw increases specifically in office and CRE and multi when you look at a coverage ratio from an ACL perspective.

Right. But do you expect that the coverage and the pressure on multi translating into losses on that portfolio?

On the multi-family portfolio, we have not seen significant losses in multi-family with the exception, of course, of the one loan that Tom mentioned, the multi-family co-op loan, which goes up to the multi-family category. And historically, if you look back at what we've had with higher levels of substandard throughout the financial crisis throughout the pandemic, those – just the rise in substandard loans does not lead directly to specific losses. So we're still very comfortable in the quality of the multi-family portfolio. We're not seeing anything on the early stage delinquency side yet either. We did see a little pop in 30 to 89, but a lot of those loans, we had about $60 million that cleared right after 12/31 in the first couple of weeks of January. So we're not seeing any significant trends in the multi-family portfolio besides the repricing risk that we spoke about.

Hey, Ebrahim, in addition to that comment I would add that when you think about how we looked at the forward curve, when we looked at the interest rate environment as of the fourth quarter, we did not take into account changes in future interest rates when we shot cash flow, both the payment shock and interest rate shock. So we believe that's pretty cumulative in the event of a potential Fed pivot. But we're assuming that rates stay where they are, and we roll that out for a year and what is the impact on future borrowers that have to go into year six, and it will go into an IO structure into amortizing structure, and we shock them. That put a lot of those loans closer to a one-for-one debt service coverage ratio in some cases, slightly below on a pro forma basis, and that will be a substandard view of the asset, although they are in performance status. And as you all know, last year, we had an abundance of customers take the SOFR option when SOFR was much lower. And obviously, they ran through that. They're waiting on the sidelines. They feel very strongly that they are going to exercise their ability to lock in longer-term financing when rates move the other way. So they're sitting on the sideline, staying in the bank, SOFR pluses spread, and we'll make the decisions when there's a possibility of a rate change. That's what we're hearing from our customer base.

Got it. And maybe, John, just on the net interest margin. So fourth quarter is at 2.82%. Just give us the trajectory of the 2.40% to – like what do you expect the NIM to reset in the first quarter? And then what – is that guidance still hold if we get three or four rate cuts during the year?

Yes. Yes. On your second question, yes, the guidance would still hold with three rate cuts throughout the year. And if you look at the full year 2.40% to 2.50% margin, we're comfortable with that for the first quarter as well, probably a little closer in the first quarter to the lower end of that spectrum, but we're comfortable with the guide both for the year and for the first quarter.

Got it. I'll hop out. Thank you.

Your next question comes from the line of Steven Alexopoulos with J.P. Morgan. Please go ahead.

Hey, good morning, everybody. So I want to follow up on net interest income. So you guys gave us most of the components for the 2024 guide without net interest income. You probably noticed your stock trading at $7 premarket, which I think is a 20 or 25 year low. And it's because all of us are running the math on earning asset levels, applying the NIM guide and you get earnings that are down like 40% if you do that. Is that what you guys are guiding to for 2024?

So the guide we gave, when you look at net interest margin, you see where the loans come down and with deposits increasing that is not exactly where the totals we're seeing from down 40%. I'm not quite sure exactly how you came up with that number, but you got to look at some of the security builds as well and the cash on the balance sheet. So when you put all that together, from an earnings perspective, that sounds much lower than what we would have anticipated that you'd be coming out with.

Steven, it's Tom. I would also add to John's commentary that we are solving for Reg YY, it's a substantial cash build in the billions of dollars. I think our guide has an additional $7.5 billion on top of 12/31 numbers for 2024. And that's going to really impact until that we right-size our position on liquidity where we need to be as a Category IV bank have a negative impact on the margin in the short term. Over the long term, we hope to normalize our cash positions as we right-size our businesses and focus on relationship lending, where deposit base comes from the relationship and looking at that lines of businesses that are deposit rich, not deposit starved. That's the journey as we go into this Category IV peer group. And clearly, this is impacting 2024 for sure.

Yes. And there will be pressure, no doubt as we transition from loans to lower-yielding securities or cash. So that absolutely you'll see in that guide on the net interest margin. That's the transition that's going to happen in 2024, and then we'll see that start to change as we can continue to grow the portfolio in 2025 and beyond.

And maybe just one on office here. I mean obviously a big driver of the reserve build. As you guys stress test that portfolio. Does this is a – do we think about this as a true open the office reserve allocation? Or should we expect further reserve build off this level?

So we did really, as Tom mentioned earlier, a really deep dive on the office portfolio and really took into account some of the more recent appraisals we’re seeing and what we’re seeing in that sector, and really tried to capture that risk in that portfolio. So the 800% coverage – that 800 basis points of coverage that we have there, we’re comfortable with right now. We still have two loans that are the same loans we talked about in the third quarter that are sitting in nonaccrual. We haven’t seen any other significant trends from a delinquency perspective yet in that portfolio. So, we’re comfortable with where we are now. We’ll continue to revisit it, of course, as we get additional appraisals in for properties that have been rated, that have been criticized. But as of now, we’re comfortable with where that is and – at an 8% coverage ratio. I think we’ve captured a lot of the risk in that portfolio that we’ve seen so far.

Okay. Thank you.

Your next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead.

Hey, good morning. On the capital side, can you talk a little bit more about how we should think about RWA migration from here? So, I know you’re bringing your loans down as we move through 2024, but at the same time as some of these criticized assets move into NPLs, is there another push on RWAs? Is there another denominator effect for capital that we should be thinking about next year?

Yes, I mean as if not accruals do increase, then yes, we will go to 150% from an RWA perspective. But the big benefit that we’re seeing from an RWA reduction is the actual loan portfolio reducing, because the additions on the asset side and cash and securities, as we mentioned earlier, are at 0% when we’re looking at cash. Of course, Ginnie Securities at 0% and to a much lesser extent in Fannie and Freddie’s at 20%. So that’s the major items in the RWA walk, as you mentioned. It’s the offset between any changes that we’re estimating in nonaccrual compared to that – more significant loan decline and RWA decline from the loan portfolio since there’s no pickup on the security side there.

Got it. Thank you.

Your next question comes from the line of David Smith with Autonomous Research. Please go ahead.

Good morning. Do the actions you’re taking to tighten up from a regulatory perspective affect the pace of the private banking build at all or the earnbacks you’re expecting there?

So obviously we are highly regulated and we’re focused on has prudential standards, but in respect to Signature and the teams that we built, they’re doing a phenomenal job, as indicated in my prepared remarks. They’ve had a great year. They really had stability for March. We’re very excited about the stability and more importantly, they had growth, $1.5 billion net growth. And the teams are geared up. The First Republic teams started onboarding and focusing on relationship and white glove service. Reggie Davis, if you want to expand on some of the initiatives that we have working with the teams.

Yes, and I actually want to speak more to the banking group because the private bank consists of the legacy First Republic teams and legacy Signature teams. But we’re now under one envelope. So kind of want to talk about success and some of the progress that we've made in 2023. We've essentially taken four distinct teams and created one highly focused banking organization. And as Tom mentioned earlier, we created a single brand and we launched that brand internally in mid-year. And that's something that teams have really rallied around. I think the brand represents the current capabilities and future aspirations of the combined company. We've also completed a restructuring of the banking group in total. So the new structure has some synergies, quite frankly, between the four legacy institutions taking advantage of each other's strengths. And part of creating that new structure was reducing the number of client coverage models from 10 to three. So now we operate as the private bank, the commercial banking group, and the consumer banking group. And as a result of that, and I think Tom mentioned this, we've discontinued operations in several legacy businesses to further focus on relationship banking. And so the translation of that is if we're going to use our balance sheet, we're going to use it to get deposits. And so we've combined – also combined two separate branch teams from legacy Flagstar and NYCB under one leadership structure. We’ve introduced common routines, common client engagement models, common tools across the entire network. And we’ve also accelerated onto a common platform with common AI tools across the entire branch network. We’ve also combined our retail investment business into one platform, one structure under one leader. And then we’ve also combined our wealth management organization with a clear mandate around teaming up with both the commercial bank and the private bank for greater relationship experience. And so the legacy First Republic teams and Signature teams are under one leader. And together they comprise the private banking group. And as Tom said, their performance has really been stellar this year. They’ve recaptured all of the deposits that we lost in March and April timeframe, which is about $1.5 billion and $1.6 billion. In addition, the DDA portion of that book has been rock solid at $11 billion. And that's essentially unchanged because that represents the operating accounts that are very much reflective of the relationship nature of those deposits. And then also our retail bank only lost 3% of the deposits in March and April timeframe. And quite frankly, we've captured all of that back as well. So those two businesses, the private bank and the retail bank are deposit engines for the company. And I might add from a Signature perspective, we haven't lost any teams and the addition of the Signature book has actually helped us from a mixed perspective in our deposit book, it shifted it from a 39% pre-Signature to 25% CDs, which is actually more in line with our peers. So we feel really good. Our deposits actually grew up 5% quarter-over-quarter, and that's a lot to do with the growth embedded in our retail bank and in the legacy Signature book. And we expect that to continue, quite frankly, we're starting to see more and more momentum and more success as those teams are part of our larger organization. So all good news stories.

Okay. So not looking to really take your foot off the gas there yet.

I think the reality is it's deposit, deposit, deposit. We have a great opportunity with experienced bankers that are welcomed here. And the energy, as Reggie indicated, and that long-winded answer, which is a lot of positive momentum, there's a lot of positive momentum, the conversion happening in a few weeks from now. We're excited about that one platform, one bank, one brand. But what's exciting about is that they're focusing on their white-glove service, what they do, it's not really a lending model here. This is about deposit opportunity to service the client and specifically in the middle market position.

Your next question comes from the line of Brody Preston with UBS. Please go ahead.

Hey, good morning. I wanted just to ask within the deposit book, how much of the increase in CDs was brokered CDs this quarter and then the uptick in the wholesale borrowings? I'm assuming that's all FHLB. What's the remaining capacity that you have for FHLB borrowings at this point?

So from a FHLB borrowing perspective, we have as of 12/31 significant capacity to borrow and we'll use that to continue to build our liquidity here in the first quarter to, as we mentioned earlier, prepare for Reg YY. So we're very comfortable with the on-balance sheet liquidity and the contingent liquidity we have behind that. From the broker deposit question, broker deposits were up about $1 billion. Broker CDs were up about $1 billion quarter-over-quarter.

Yes, the rest came from the retail network. We actually raised about $2 billion over about two months. And I mean, again, that reflects the strength of our retail franchise. About 72% of that were new to bank and about 28% were existing relationships and we're able to cross-sell about 15% on checking accounts. And that's going to set us up for next year in terms of converting some of those single product new clients into DDA accounts, relationship accounts. And so it's not only, it's good for the balance sheet, obviously, but long term it also will add to a cheaper funding base. We feel really good about that, about 6,700 new clients.

Okay, great. And then just on the deposit front again, I guess 32.7% of the deposits are uninsured. But you also have escrows down this quarter for seasonality. I guess, I wanted to ask, is the 32.7% uninsured a good read on what percent of the deposit base is institutional clients at this point? If not, what percent of the deposit base is institutional clients? And then secondarily we saw at least one other bank that went through some stress on the deposit front earlier this year, sign NDAs with some of its larger depositors. Do you guys consider doing anything like that, moving forward with some of your larger depositors so that they can feel good about the health of the balance sheet?

Yeah. When you look at some of those uninsured deposits, they're not all institutional by any stretch; there are customers in there, there's businesses in there so that's not the escrow or entirely large balance institutional deposits. If you look at the organizations we had some of those balances from a 15c3 and that type of money, those types of business institutional type accounts. We don't have a lot of those deposits at all anymore. I mean, that deposit base that's uninsured is primarily business-type deposits and operating accounts.

Got it. Thank you, guys.

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

Hey, good morning.

Good morning.

Hey. So understanding some of the actions to take in this quarter, the course correct is $100 billion – over $100 billion bank versus some of your similar-sized peers. Are there additional capital-related actions to be considered apart from CET1? So I'm looking at total risk-based capital, 11.8%, your peers are at 13.5%. Should we be considering any sort of need for additional sub-debt to kind of get you to that peer range and if so, when?

So Matt. I do appreciate the question. I will tell you that between forward guide, along with the dividend adjustment and our targets for CET1, we're focusing on that specific area in respect to building capital. Obviously, we're waiting for the new rules on Basel III that that will come out and it will apply to us as a Category 4 bank over time, but no question. The adjustment on our distribution to shareholders, along with building out the business and running a run rate based on our guidance is where we're focused on the capital build. So clearly that's going to put us slightly below the payload but with the expectation of building capital over time and accreting capital going forward.

Okay. And again understanding that this quarter you took some actions to course correct. Could you give us some balance sheet mix targets once you're done in terms of cash to assets, securities to assets, so where you would like to be and by when?

Yeah. Well the main issue and thought process that we're talking through with this quarter on balance sheet liquidity is just preparing for Reg YY. So if you look at where we were at 12/31 at 18%, with the peers at 25, we're going to be in that range. We'll be above 18%. So we're going to get to that 22%, 23% range and get closer and closer to peers. As you know, our securities portfolio has historically been very small on a percentage basis to total assets. And that securities portfolio is really the main liquidity buffer that we need to keep in place here going forward. That's why when we look at that portfolio, it'll be significantly skewed towards zero and 20% risk-weighted assets, high-quality liquid assets in order to ensure that we can meet our on-balance sheet liquidity demands and regulations. So I'd say that we'll be much closer to that 25% range of our peers over time, and we'll get there in the first and the second quarter.

And when you measure security, are we talking security to assets or total assets because I'm looking at 9% in...

Total assets?

Okay. So 9% securities assets today, that's going to near triple by next quarter?

No. Get add cash in there as well, right. So I'm looking at cash and securities as a combined basis as a percentage of total assets, right, and that's how we manage. That's how we manage on balance sheet liquidity. Normally, that'll be more in the securities portfolio. Given the build-up here, it's starting in cash and over time we'll be putting that out in the securities portfolio.

I think it's fair to say that the guide has most of these assets sitting in liquidity in the form of cash.

Correct.

And you assume that the lion's share of whatever you need to do here will be completed by the end of the first quarter. It's not going to drag out throughout the whole year?

That's right. That is correct.

Okay. And then going back to the CRE Concentration, so when you look at the CRE Concentration versus peers. Is it still appropriate to exclude multifamily giving different pricing risk? And do the regulators look at it that way? I know for a decade after decade, rent-regulated multifamily has been virtually risk-free. But post-2019, the rent law changes is a new paradigm. The release and your commentary, you're discussing repricing credit risk here, it feels like the CRE Concentration including multifamily is the right one to look at with all due respect?

It's a fair point. As you know, we're not going to speak specifically of our regulatory conversations, but clearly we understand our business very well. We also have a focus on looking at CRE Concentration as a much lesser number as we focus on relationship banking. That is the mission of the new Flagstar. We are going to bank customers that have deposits at the bank and have full relationship deposits. We have an opportunity here to significantly take advantage of market conditions and reduce our concentration, putting it into higher-yielding loans, higher-margin businesses over time. With the focus on its relationship deposit lending, that is a meaningful statement as we have no activity in the marketplace. If you go back to history, when we were doing $8 billion, $9 billion a year in originations, we were running flat at 4% to 5% at best to stay flat. So when the market does react to changes in interest rates and customers look for refinancing, we have a golden opportunity here to take low-yielding coupons off the book, reduce our concentration materially here and move that into high-yielding assets. And obviously, focus on our liquidity expectations, because having a lower compensating balance to the asset is not the focus of the new Flagstar. It's going to be well balanced towards relationship deposit lending that is the focus of the institution on a combined basis going forward. And we think that given the activity last year, as I indicated, was 90% down, there's no activity in the market. Although the customer activity that we speak to, they're waiting on the sidelines and they're going to react when they feel confident the next five years to 10 years of financing point that’s why I indicated taking fixed-rate loans, some are going to the agency now, but the agency has a huge appetite. And when the customer feels prudent that it's time to lock in the next five to ten years of financing, they will make that decision and we will work with our customers for balance sheet purposes. And if it's not a true customer relationship, that will be a significant reduction in the luxury concentration.

Okay. Over time, I mean, there's a lot of peer comp going on this quarter. Over time, the CRE concentration needs to get to peer levels.

It’s a huge business model of ours. We have a great tracker, we have great customers. They have lots of relationships on the deposit side who are obviously uniquely different. That’s who we are. And that goes back to our roots. But ultimately we’re a new company. We’re as commercial bank evolving from a monoline swift. We’re excited about the lines of businesses we have. We’re excited about the opportunity of the mortgage and ecosystem. We’re excited about what Reggie Davis is doing with his lines of businesses. And we have choices and it’s going to be based on a return on equity model, which is very different in history, where it was driven off of a monoline business, which was multifamily CRE. So, we’re going to reallocate those resources, take advantage of market conditions and work with our customers. We feel very strongly that just by the mere fact that the coupon was coming off the lows, we have an opportunity to move a lot of assets at low coupon to make our balance sheet stronger and earnings profile better.

Our final question will come from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead.

Hey, thanks for sneaking me in. Just two questions. Two important questions, I think. There’s some confusion on this, but did the dividend reduction have anything to do with your outlook for credit? Or was it more about looking peer-like and adjusting for the new earnings run rate?

Great question. Let me be crystal clear on this. This is laser-focused on looking at the company’s long-term plan and being part of a new category for banking institutions and having a capital position as we grow it into a level that we’re in our peer group. And clearly the dividend significantly increases that capital position in 2024 and beyond. When you take all of the factors that we talked about between forward guidance and dividend adjustment, we get our CET1 to double digits. That is primarily focused on the rationale there, as well as thinking about the future growth of this company as a Category IV bank. And there’s no question that this was a difficult decision as a firm, but clearly necessary as we reestablish our capital allocation story.

So really not it’s more about the latter. It’s not about your outlook for credit, is what you’re saying?

Yes.

Okay. Tangible book value, a little over $10, maybe a simpleton question, but do you expect tangible book value to grow in 2024?

Yes, we do.

With that, I’ll turn the call back over to Thomas Cangemi for any closing remarks.

Thank you again for taking the time to join us this morning. If you’re interested in NYCB, we look forward to speaking with you in April regarding the first quarter 2024 results.

Thank you all for joining today’s meeting. You may now disconnect.