Customers Bancorp, Inc

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp first quarter 2023 earnings webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. David Patty, Director of Communications, you may begin your conference.

Thank you, Rob. And good morning, everyone. Thank you for joining us for the Customer Bank Corp's earnings call for the first quarter of 2023. The presentation deck you will see during today's webcast has been posted on the investor page of the bank's website at www.customersbank.com. You can scroll to Q1 23 results and click Download Presentation. You can also download a PDF of the full press release at this spot. Our investor presentation includes important details that we will walk through on this morning's webcast. I encourage you to download and use the document. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our Form 10-K and 10-Q, for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the investor section of our website. At this time, it's my pleasure to introduce Customers Bank Corp Chair, Jay Sidhu.

Thank you, Dave. Good morning, ladies and gentlemen. Welcome to the Customers Bank Corp First Quarter 2023 Earnings Call. Joining me this morning are President and CEO of the bank, Sam Sidhu, Customers Bank Corp CFO, Carla Leibold, the Chief Credit Officer of Customers, Andy Bowman, and Customers Bank's CFO and head of corporate development for the holding company, Phil Watkins. In spite of a rather volatile period over the past several weeks, I'm pleased to share with you this morning that Customers Bank Corp Inc. is in an even stronger position today than year-end 2022. I'd like to thank our team members who work tirelessly every single day to serve our clients, and execute superbly on our priorities. Turning to slide three, our presentation today will demonstrate our belief that we truly are a forward-thinking bank with strong risk management capabilities. We will cover six topics in our presentation for you this morning. I will just provide you with some highlights, and my colleagues will cover all of them in detail. First, in terms of quarterly performance, we comfortably beat street estimates and are well positioned to drive net interest margin expansion by about 20 basis points over the remainder of 2023. Second, we will discuss the continued strengthening of our franchise. We have a high-quality, diversified, loyal customer base and are hyper-focused on continuing to improve our deposit franchise in 2023 and beyond. Evidence of this can be seen by our stable deposit levels and peer-leading 81% insured deposit ratio, as well as a very meaningful increase in non-interest-bearing deposits coming from operating accounts during the quarter. As a result of our technology and service offerings, coupled with our decision not to pay up for volatile deposits, we were able to shift considerable amount of deposits from interest-pairing to non-interest-pairing and also acquired several new relationships from the failed banks. Next, on to our liquidity position, we believe it's among the best in class with $9.5 billion of immediate available liquidity, providing more than 270% coverage of uninsured deposits. Moving on to capital, we have a strong capital position and will discuss the ways in which we will continue to improve it over the course of 2023. We have a year-end goal of reaching 11% to perhaps 11.5% CET1 ratio and PCE ratio of approximately 7%, including AOCI impact. On the credit front, we have always been laser focused on maintaining superior credit quality, and for well over a year, we've been discussing with you a strategic shift of our loan portfolio into low to no credit risk verticals that are also variable rate in nature, with totally deemphasizing commercial real estate. Today, we have a healthy loan loss reserve in addition of north of 400% of non-performing loans. And lastly, we remain optimistic about the continued improvement in our balance sheet that should result in stronger levels of profitability this year and in the future, and my colleagues will give you the guidance for the future. Turning to slide four, let me also briefly share with you again our priorities. First, with a very high probability of a recession, we believe it's prudent to even shrink our balance sheet somewhat and reduce further our exposure to non-core loans such as consumer loans and even some low-margin commercial loans. This should improve further the credit profile of our entire loan portfolio. This will also result in higher capital ratios and eventually higher margins. And secondly, risk management is an absolute integral part and is part of our DNA. We are, for years now, we've been calling these four points of as our four critical success factors. First, never take our eye off credit risk, especially when times are good. Second, always focus on superior interest rate risk management and run different scenarios to deal with it. Third, must monitor liquidity daily and maintain robust liquidity under different stress scenarios. And lastly, Always focus on positive operating leverage with lower efficiency ratios each and every year. With that, I'd like to turn it over to Sam to cover some of these topics in more detail. Sam?

Thanks, Jay. Good morning, everyone. In the first quarter of 2023, we earned $1.55 in GAAP EPS on net income of $50.3 million. From a profitability perspective, our ROA was 1.03% and ROE was 16%. On slide six, you can see we generated $1.58 of core EPS on net income of $51.1 million. Our earnings were positively impacted by $9.6 million, or 30 cents of EPS, attributable to PPP, resulting in core EPS ex-PPP of $1.28. Importantly, given the successful, significant rundown of the PPP loan portfolio in the quarter, this will be the last quarter that we will be formally separating financial metrics adjusted for PPP. Our net interest margin in the quarter was $2.96. After backing out the positive impact of PPP, our net interest margin was 280. Our NIM was negatively impacted by holding conservatively higher cash balances, which Carla will provide additional commentary on further along in the presentation. From a balance sheet perspective, both our loans and deposits were relatively flat in the quarter. This was consistent with our disciplined approach of moderating loan growth and focusing on remixing our funding base into higher quality, lower cost deposits in 2023. The overall balance sheet did grow in the quarter by approximately 4%, attributable to these higher cash balances as we fortified the balance sheet with robust levels of liquidity. Credit remained benign with a flat level of NPAs at 15 basis points and NPLs of 32 million. As Jay mentioned, reserve levels remained robust at north of 400% of NPLs. Credit quality continues to be a strength of our company. Moving to slide seven on deposit franchise. Our focused efforts to improve our deposit franchise and the nimbleness of our balance sheet paid dividends during the recent market stress events. From February 28th to March 31st, total deposits were down about $150 million or less than 1%. In the first two months of the quarter, we had proactively run off some rate-sensitive deposits. In aggregate for the quarter, our total deposits ended down $430 million, or about 2%. Despite the industry headwinds, we experienced a meaningful, positive mixed shift from interest-bearing to non-interest-bearing DDAs, resulting in the addition of $1.6 billion of non-interest-bearing deposits by quarter end. This positive mix shift drove our spot cost of deposits down by 14 basis points quarter over quarter, despite the two rate hikes. Well positioning us for margin expansion going forward. At the end of the first quarter, we had approximately 81% of our deposits either insured or collateralized. This is second highest amongst regional bank peers and one of the highest in the industry overall. Clients that were focused on increasing their level of insured deposits with us were able to take advantage of our ICS suite product, which allowed us to reassure them. We set up a SWAT team that worked around the clock to help our clients open up accounts within hours of requests. I'm incredibly proud of the work the team put forth opening up several hundred accounts representing $900 million from March 10th to March 31st alone. In addition to the stability that insured deposits provide, for further stability, we have also been focused on ensuring a portion of our deposit base always has contractual term. At the end of the first quarter, about half of our deposits had term with a laddered maturity schedule over the next few years. Pivoting to the lending franchise on slide eight, we have executed on what we guided you towards in terms of our loan portfolio composition and growth. We continue to emphasize our low to no credit risk lending verticals, which have driven the vast majority of our growth for several quarters in mainly variable rate and shorter duration loans. This has positioned our balance sheet well, especially in the current environment from an interest rate risk and asset and liability management perspective. As I mentioned earlier, we have had minimal originations of fixed rate loans for investment since the second quarter of 2022. The focus on variable rate lending has resulted in our loan yield, excluding PPP, increasing by over 130 basis points over the last two quarters. As previously guided, the pace of our loan growth was intentionally slowed as we continued to focus on improving capital levels and profitability. We've prudently operated our balance sheet at about an 80% loan to deposit ratio for the last four quarters, ensuring that we have adequate liquidity given the uncertainty in both the stability and pricing of the deposit market. Moving to slide nine, as I mentioned earlier, I'm thrilled to announce that this will be the last quarter where PPP will be significant enough of our P&L that we will be providing financial metrics, including and excluding PPP. I'm sure the analysts listening in are just as grateful for their models and reports. PPP was a phenomenal program that enabled small businesses across the country to withstand the many challenges of the pandemic. Customers Bank is proud that we were able to assist both existing and many new clients of the bank across access much needed funds during the pandemic. Using our unique combination of technological expertise and SBA experience, Customers Bank was able to deliver for small businesses and our shareholders throughout this program. As a reminder, to recap, Customers Bank participated in over 350,000 PPP loans for over $10.3 billion, and associated origination fees from PPP generated about $350 million in pre-tax revenue for the bank, in addition to net interest income over the past few years. I want to personally again thank all of the Customers Bank employees that dedicated their time to ensuring PPP was a success for our clients, our shareholders, the bank, and the entire country. On slide 10, you can see our securities portfolio is truly best in class. Before I pass it over to Carla to walk us through more specifics around the financials, I want to provide some context as to how Customers Bank is positioned relative to regional banking peers from an interest rate risk perspective. Interest rate risk management is sometimes overlooked, but the events of the last month have reinforced the importance of remaining vigilant and disciplined. We have been proactively monitoring our interest rate risk position throughout the hike cycle. Without taking undue credit risk by repositioning to floating rate securities, we've generated approximately two times the yield on securities relative to regional bank peers. Even more importantly, we've been able to generate that return by taking on only one-third of the duration risk that regional bank peers have exposed themselves to. The graph on the left plots yield against duration. We are on the very top left of the graph, highlighting a high book yield of 4.9% and the shortest duration at just one and a half years. This is well above peers. Many of the challenge institutions covered in the recent news would have appeared in the very right bottom right of the graph with low yield and long duration. Said differently, our securities book is the best positioned of all regional banks and likely the banking industry. I want to thank the finance and treasury team led by our incredibly experienced treasurer, Dan Park, for always being forward-thinking and delivering these phenomenal results. As you can imagine, pointing out the strengths of our bond portfolio was an incredibly critical communication tool with clients last month. With that, I'd like to pass the presentation to Carla to provide additional details on the financials starting on slide 11.

Thanks, Sam, and good morning, everyone. The first quarter was an important inflection point for us from a net interest margin perspective. Excluding PPP, the spot yield on loans increased by 17 basis points between Q4 and Q1, while the spot cost of deposits decreased by 14 basis points over that same time period. The combined result of that repricing drove a 31 basis point improvement in our spot loan to deposit spread, increasing from 326 in Q4 to 357 in Q1. We expect this trend to continue throughout 2023, primarily due to the variable rate nature of our loan portfolio. and our strong core deposit pipeline, allowing us to reduce higher cost wholesale funds and benefiting overall deposit costs. Our net interest margin, excluding PPP, declined seven basis points in the first quarter from 287 to 280. Like most other banks across the country, we carried elevated cash balances during the quarter out of an abundance of caution which negatively impacted net interest margin by about six basis points. Absent these elevated cash balances, our net interest margin would have been roughly flat quarter over quarter. As we look forward for the remainder of the year, we see continued positive momentum in our net interest margin, which is expected to expand by 20 basis points to 3% or higher throughout 2023. Turning to slide 12, this slide highlights our disciplined expense management and best-in-class efficiency metrics. Despite significant balance sheet growth, we've more than doubled our asset size since 2018. Our core non-interest expenses have only increased 9% annually. In the past 12 months, our core non-interest expenses increased by only 8%. And for first quarter 2023, we've managed to further moderate expense growth to only 1%. On the right side of this page, you can see how our expenses stack up against our regional bank peers when comparing to the size of our balance sheet. Our business model has a tremendous amount of operating leverage that we will continue to extract and drive improving profitability. Our expense structure is an important component of our business model. Our limited physical infrastructure, especially our branch-light network, is critical to operating the business so efficiently. This non-interest expense savings enables us to pay a modestly higher rate on our deposits, as compared to competitors with a more robust retail branch network and still generate attractive profitability and returns for our shareholders. Finally, we should continue to see improvement in our non-interest expense to average assets ratio over time for two key reasons. First, we've built a highly scalable infrastructure at Customers Bank that will allow us to operate a larger balance sheet with similar expenses when the time is right to resume balance sheet growth. And second, our steadfast focus on positive operating leverage is ingrained in our DNA. Our revenues over time should grow about two times faster than expenses. On slide 13, we've provided detail on our robust liquidity position. Year over year, we've increased our immediately available liquidity by 154%, with a $4.2 billion increase between Q4 and Q1. The higher levels of cash carried in the first quarter were financed predominantly by an increase in federal home loan bank borrowings. We also have $6.5 billion of committed capacity from the Federal Reserve Bank through a combination of the discount window, and the bank term funding program. We have no borrowings outstanding from the Federal Reserve. We will continue to monitor market conditions to determine the appropriate levels of cash to retain for the remainder of 2023. we have also structured 1.1 billion of federal home loan bank borrowings as callable, providing us the flexibility to pay down these borrowings with core deposit growth. The right side of this page provides a comparison of our 9.4 billion of immediately available liquidity to our $3.5 billion of uninsured deposits adjusted for affiliate and collateralized deposits. This ratio demonstrates our ability to cover more than 2.7 times our uninsured deposits with on and off balance sheet immediately available liquidity. This exemplifies the stability of our funding base. As you can see this level is by far the best among our regional bank peers. Moving to the next page. Slide 14 really showcases consistent tangible book value accretion despite AOCI headwinds. Tangible book value per share increased by about $2 during Q1 and ended the quarter just under $41. Since the end of 2018, we have increased our tangible book value per share by 14% annually. Our current tangible book value per share is 1.8 times the year-end 2018 value. This increase has been accomplished entirely through organic capital generation. By contrast, the average multiple of current tangible book value per share relative to tangible book value per share at year-end 2018 for our regional bank peers is only 1.1 times. On slide 15, you can see our CET1 ratios continues to run in excess of our previously disclosed 9.5% target. The CET1 ratio for Q1 was flat over Q4 as we used 80% of our 50 million gap earnings to buy back approximately 1.4 million common shares pre-crisis. Our TCE ratio, excluding PPP, declined from 6.3% at year-end 2022 to 6% at the end of Q1 due to the increased size of the balance sheet. Importantly, this balance sheet growth was due to zero-risk, higher cash balances of $1.6 billion held solely to improve our liquidity position. Absent these higher cash balances, our TCE ratio would have improved to 6.5% at the end of Q1. I'll point out that the lack of incremental balance sheet risk is demonstrated by our stable CET1 ratio of 9.6% at the end of Q4 and Q1. Additionally, the common stock repurchase we did in Q1 impacted our TCE ratio by about 20 basis points, meaning our TCE ratio would have been around 6.7% at the end of Q1, adjusting for higher cash balances and common share repurchases. As we look ahead to the remainder of 2023, we anticipate building our CET1 ratio by roughly 150 to 200 basis points from the current level, targeting between 11 and 11.5%. This will be accomplished through retained earnings and balance sheet optimization. As an example, we have already informed certain non-strategic clients and partner banks that we will no longer be participating in in the refinancing of their lending facilities. We are prioritizing balance sheet capacity from a capital and liquidity perspective for clients who maintain the primary banking relationship with Customers Bank, the clients that have a holistic relationship with us across deposits and treasury management, in addition to a credit facility. We are pushing aggressively to reduce lending-only relationships that don't add franchise value. I will now pass the presentation off to Andy to provide an update on credit quality. Andy?

Thanks, Carla. And good morning, everyone. Moving to slide 16, credit quality remains strong as evidenced by NPLs of only 32 million or 21 basis points of total loans. NPAs to total assets of 15 basis points. Continued decline in total special mention and substandard loans in both dollars and as a percentage of total loans. And most importantly, as it represents a real-time assessment of portfolio performance, total 30 to 89-day delinquencies were a modest 38 basis points. Focusing on the commercial loan portfolio, given that it comprises nearly 85% of our total loan book, 30 to 89-day delinquencies were just 24 basis points. Net charge-offs were only 12 basis points, and NPLs totaled 12.4 million, or a mere 11 basis points, of total commercial loans. By remaining committed to our strategy of maintaining a loan book comprised predominantly of low credit risk lending verticals, maintaining our focus on strong underwriting standards inclusive of loan-level stress testing, Limiting exposure to high-risk credit segments, such as investment career office, which currently stands at only $165 million and possesses strong portfolio metrics, as well as industries that are heavily dependent upon discretionary spending, we're confident that our strong credit performance will continue. I'd like to move to slide 17. Continuing with the theme of loan portfolio remix away from higher credit risk verticals, we continue our efforts to de-risk our consumer installment loan book by continuously tightening credit standards as needed and reducing the size of the held for investment book by shifting to a more asset light fee generating banking as a service marketplace lending platform. This allows us to continue to lever our strong top-of-the-funnel origination platform to generate fee income while also reducing credit risk. Although pleased with how well our commercial and consumer portfolios have performed, we remain committed to first maintaining a strong reserve position as evidenced by 406% coverage of total NPLs, Second, adhering to our strong underwriting and portfolio management standards. And third, remaining committed to our low credit risk, predominantly variable rate portfolio strategy. I'd like to thank you for your time this morning, and I'd now like to turn the presentation back over to Sam.

Thank you, Andy. I wanted to provide a brief update on our expectations for 2023. Our top focus areas for the year remain, firstly, strengthening our balance sheet, secondly, improving our deposit franchise, third, maintaining industry-leading levels of liquidity, and fourth, significantly building our capital base. The left side of the page repeats the guidance that we provided to the street earlier in the year. Much of our guidance remains the same, but as you can see, we are fine-tuning our outlook modestly to the best of our ability, aligning to our four focus areas. First, we will now manage our balance sheet and thus loan book to flat to some decline throughout 2023. On the deposit side, we will focus on maintaining balances while improving and remixing the quality of our deposit base by replacing higher-cost deposits with core deposit growth from our current pipeline, which exceeds $2 billion today. This will be the primary driver of net interest margin expansion that we will generate throughout the year. Our core non-interest expense growth will be commensurately moderated to 5% to 7% annual growth. As Carla mentioned, our top priority in the current environment is to build upon our already robust capital ratios. We are committed and decisive on our path of achieving 11% to 11.5% CET1 by the end of this year, given the current environment. Consistent with this, while there are still approximately half a million shares remaining in our share repurchase authorization, while we did buy back a significant amount of shares this quarter, we are pausing repurchases in the near term as we first focus on materially improving our capital base. Thank you. We will now be happy to open up the line for questions.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from a line of Frank Chiraldi from Piper Sandler. Your line is open.

Good morning. I wondered if you guys could talk about, you know, the non-interest-bearing deposits that came in, the $1.5 billion plus, I guess that came in late in the quarter. Can you talk a little bit about, you know, is that CBIT related? And if so, what are the total deposits related to that business now?

Sure. Good morning, Frank. As you rightfully pointed out, we saw positive migration from our interest-bearing balances to non-interest-bearing deposits led by our tech enablement, specifically, as you called out, in our CBIT-related payment vertical. And really, the improvement in the quality and cost of our CBIT-related deposits was driven by API integrations and the resulting significant increase in the volume of payments. So that's what leads to the non-interest-bearing remix. To answer your follow-on question, our balances were essentially flat quarter over quarter in CBIT-related deposits at about $2.25 billion.

Okay. And just given, you know, it seems like If you're in this business and staying in the business and really seems like the strongest man left standing in the business in terms of banks, I guess, are you thinking about why not grow that more significantly and therefore drive deposit costs even lower here?

So our primary focus – remember, this is a payments business. So our primary focus was to meaningfully reduce customer concentration, add new clients, and add key anchor clients. This has always been a payments vertical as a broad strategy of a payments hub, whether that's wires, APH, ACH. Fedwire, eventually FedNow and CBIT. These are just different payment offerings we want to offer our corporate clients. With CBIT in particular, given the high velocity of money movement intrabank, it's prudent to keep a good significant portion of these deposits liquid. And as such, it doesn't really make sense to allocate a larger portion of our deposit base as they're not really fully investable.

Okay, so there's not necessarily a significant opportunity to bring in additional non-interest bearing balances. You know, I'm just thinking in the, you know, obviously blockchain initiative, but just in the, you know, crypto industry in general, just given Silvergate is liquidating, Signature liquidating. So is that not necessarily an opportunity? I guess I still don't fully understand that.

Yeah. Let me take a shot. Sorry, let me take a shot at this, Frank, also in addition. I think something Sam said, please, I want to reiterate. What we've learned is you do not want to have concentration risks in this environment. You know, the signature problems and Silicon Valley problems are very much related to lack of risk management liquidity as well as taking a huge amount of concentration risk. We have never taken concentration risk and we will not take concentration risk irrespective of how many big opportunities one sees in non-interest bearing deposits. The granular portfolio, quality of portfolio from diversified and huge number, large number of customers is prudent and it's consistent with our approach to a forward thinking bank that has DNA, in its DNA, strong risk management.

Okay. All right. Yeah, that certainly makes sense. And then just as a follow-up, sorry if I missed it, Sam, but in terms of root period end, you know, in April, did you talk about what deposit flows have looked like in April? And you talked about, I think Carla talked about the opportunity for, or the strong pipeline for core deposit growth. Is that mostly in the specialty lending vertical? You can share some color there.

Sure, absolutely. So firstly, you know, overall, as there's been increased stability in the banking industry in the month of April, this has led to strong momentum in our deposit base. So, for example, in the first few weeks of April across our mortgage warehouse, our fund finance and tech and venture businesses, FIG and digital bank, we saw inflows of several hundred million dollars in deposits. So as you as you rightfully pointed out, our deposit pipeline is strong. It's about two billion dollars. And, you know, we're winning high-quality deposit accounts that are in motion and in flight. And we're seeing very positive momentum on many of the tech-enabled deposit initiatives, as we called out. The benefit of the tech-enabled deposit relationships are we have an enhanced value proposition. We're providing technology. We're creating a sticky relationship. And these are at or below market rates.

Okay. I appreciate the call. Thanks.

And again, if you'd like to ask a question, it's star 1 on your telephone keypad. Your next question comes from the line of Peter Winter from D.A. Davidson. Your line is open.

Good morning. I was wondering, can you provide some guidance on net interest income? I'm thinking, just given this margin outlook, that the first quarter should really be a trough.

yes peter good morning so i can give you some color on that so you're right so we believe our margin has troughed we are expecting it to expand through the remainder of 2023 we are still in line with the guidance that we had previously given the 285 to 305 but we do expect to see our margin uh hit three percent or higher throughout the course of this year but i'm sorry i was looking i was

I was looking for the net interest income guidance. For the year, I'm just thinking first quarter is a trough.

Yeah, that's consistent.

Go ahead.

Yes. So consistent with going forward, our core net interest income, excluding PPP, we believe is troughed and should increase in line with the margin target that we gave you, Peter.

Peter, as you can see, there's a couple of moving parts here from growth in loans to decline in loans. So there's also some interest income movement that's going to progress as the year progresses. Our focus will have governors from a margin perspective, but we'll be a little bit dynamic in some of the loan balances.

And Peter, just as a reminder, there are two days less in the first quarter than future quarters. So that also has some incremental NII improvement.

Okay. Pete? Just on expenses, how much were expenses related to BMTX, BMXT this quarter? And would it be the same level in the second quarter? And is the contract still scheduled to end at the end of this quarter?

Yeah, so a couple of things on there. So first I'll talk about just the contractual arrangement with BMTX. So in our Form 10-K, we talked about keeping roughly half of those deposits, and the other half of the deposits are targeted to go to a new partner bank of BMTX. In the first quarter, we did amend those contracts. Our half of those deposits will stay with us for at least another two years. and we extended the other half going to the partner bank to June 30 of 2024. I will tell you that we did renegotiate those contracts at current market terms. In Q1, our expenses were roughly $7 million. Notably, I would say we are no longer paying the interchange make-hole that we were previously paying under the old contracts. From a guidance perspective, I think we've renegotiated to current market terms, so we're no longer giving the guidance ex-PPP. When you look at our core non-interest expense guidance, we were roughly three $305 million last year. We've put a 5% to 7% increase on that for 2023. That gets you to roughly $320 to $325. So if you look at non-interest expense at roughly $80 million per quarter, that seems like a good run rate to us.

And Can you just give an update on the provision expense? Are you still comfortable with kind of that 18 to 22 million range? And I'm just assuming there's really no more need to kind of build reserves from here, given the outlook on the deposit side.

Yeah, Peter, that's right. That sort of 18 to 22 million dollar range per quarter is in line with our forecast.

OK, thanks. And there are no further phone questions at this time. David, do we have any web questions?

Thank you, Rob. We have a question from Chris Crawford who asks, could you share some characteristics of the commercial real estate portfolio?

Sure, I can take that. Chris, appreciate the question and thank you for the question. It allows me to highlight, I think, really the strength of that underlying Cree portfolio. The predominant composition of that Cree portfolio is multifamily. That's approximately 67%, almost 70% of the entire underlying investment Cree portfolio. That portfolio is predominantly within our core market. Underwriting LTVs and current LTVs are in that 65% to 70% range. Debt service coverage ratio across the board continued to be strong, averaging north of 1.5 times coverage. On that perspective, the other key component that we keep a very close eye on, obviously, is the upcoming rate reset environment. The good news around that is the bulk of our portfolio does not come up for any type of a rate reset until north or beyond that of 2025. So from a timing perspective, we do not have a lot of the book coming up for a rate reset environment in the next 24 month period. which I think bodes well. We underwrite basically off of a forward-looking yield curve. And then we also do stress test, all underwriting at a 300 basis point assumed increase in interest rates. So overall, the book is performing well. As I noted before, our Cree office exposure is extremely limited. And I think in the deck there, we gave some highlights around the LTVs, which are around 58%. The DSCR around 180. So overall sound underwriting there as well. And from a retail exposure perspective, I think which is also important is that's gotten some news recently is we've only got about $170 million total in what would be 100% retail investment Cree as well. Portfolio metrics around that are very similar to the office book. So investment retail and investment office are two lines that we have never really actively played in. We've always been concerned about those lines. And I think as Sam reiterated earlier in the presentation, we actually have not done really any investment Cree business within the past six to nine months overall, just because of the uncertainty in the environment. So I hope that answers the question.

And we do have a phone question. We have a follow-up question from the line of Frank Chiraldi from Piper Sandler. Please go ahead. Your line is open.

Hi, guys. Just figured I'd ask another one while we're here. In terms of the CET1 ratio, just curious your thoughts. Obviously, you know, seems like a prudent time to be building capital. Is that sort of where you think the industry is going to, or is that more sort of a temporary level? so we get through some of this volatility. Just curious, you know, why the significant increase in the CET1 ratio by year end?

I think, Frank, it's prudent. I can't tell you how the rest of the industry is looking at things, but we are looking at things that higher capital ratios, stronger credit quality, better deposit franchises, very strong overall interest rate and liquidity risk management, is very, very prudent, and especially in the uncertain times of recession. And we have been talking, as you know, Frank, with you and your colleagues for the last well over a year now, that we believe it's imminent that we're going to hit a recessionary period. And now we are saying there's absolute certainty of hitting a recession. So with all of those in mind, We think it's very, very prudent, and I think management, based upon who the people we talk to, are thinking the same way, but we can't really speak for the industry.

Gotcha. Okay. Great. Thank you.

Thank you. And there are no further phone questions. Do we have any web questions?

We do have two more web questions. We'll take these and then we're closing questions. The first question comes from Stuart Epstein, who asks if there's been any thought to redeeming the high-yielding preferred stocks.

Yeah, not at this time.

Okay. And the second from Mark Hawes, an investor, who asks if there's anything that we can shed light on regarding employee talent acquisition issues. due to everything that's been going on in banking of recent months and our ability to attract talent.

Sure. Absolutely. Absolutely. You know, we have been very active in thinking about aligning with our focus areas of strengthening the balance sheet, improving our deposit franchise, increasing our liquidity to make sure that we are focused on finding some of the talent that's in motion from some of the banks that are either weakened or no longer with us. So as such, we've interviewed dozens and dozens of executives as well as some very large teams over the past couple of weeks with an acute focus on deposit gathering of sticky relationships that will eventually have credit needs.

Okay, that ends our question and answer period. Jay or Sam, any final closing comments?

Well, thank you very much, ladies and gentlemen, for taking the time to join us. We really appreciate your interest in customers. Have a good day.

this concludes today's conference call thank you for your participation you may now disconnect