Chris McGratty: Great. Thank you.
Curt Farmer: Thank you, Chris.
Operator: Thank you. Next question is coming from Manan Gosalia from Morgan Stanley. Your line is now live.
Curt Farmer: Manan, good morning.
Manan Gosalia: Hey, good morning. I wanted to follow up on your comments on AOCI. I mean, I think you noted that you haven’t added any swaps in the books this year, given that the 10 year is up, another 50 basis points this quarter. How are you thinking about managing AOCI risk here?
Jim Herzog: Well, at this point, we don’t feel like we have to do anything synthetically to manage it. We’re okay with where we’re at based on the burn-off that we see over the next couple of years, and really more importantly, the burn-off over the next five years as we potentially become a Category IV bank. And so, at this point in time, we are comfortable with where we’re at. We do think that as we move closer towards Category IV, we will consider modifying our strategies to maybe shorten the duration of the securities, whether that be with what we purchase or doing something synthetically. But for the time being, we don’t feel compelled to do anything. We’re comfortable with the burnout that we see over the next few years.
Manan Gosalia: Got it. So, as — there’s clearly some volatility on the long end of the curve. Does it make sense to use the same DV01 for AOCI that you saw this quarter and then apply to changes in the 10-year in future quarters to figure out the AOCI risk there?
Jim Herzog: I think that’s a pretty good proxy. Yeah, you can see a little bit of movement one way or the other, but I think it’s a good proxy for future rate changes.
Manan Gosalia: Got it. And then maybe finally, just on the — I think you mentioned a 37% [pull-to-par] (ph) on unrealized losses over the next couple of years. How is that impacted by the rate environment?
Jim Herzog: Well, that 37% considers the curve as it stands today, so not just spot rates, but where the curve is. So, to the extent, the entire curve shifts up or down, that will have an impact on that burn-off. But for now, this obviously contemplates the entire spectrum of the curve.
Manan Gosalia: In the sense that if the curve moves higher, then the pull-to-par will be longer, and if it moves lower, then the pull-to-power will be sooner?
Jim Herzog: That’s right. And we do have a sensitivity on that on Slide 14 in the bottom right, so you can see what 100 bp movement would do one way or the other.
Manan Gosalia: Got it. All right, thank you.
Jim Herzog: Thank you, Manan.
Operator: Thank you. Next question today is coming from Brody Preston from UBS. Your line is now live.
Curt Farmer: Good morning, Brody.
Brody Preston: Hey, good morning, everyone. I just wanted to ask, could you give us a reminder, I think it was the GEAR Up initiative that you had in the past, could you remind me what the — if you happen to know what the total kind of, I guess, expenses you kind of took out of the run rate or kind of like — I’m just trying to remember what you did in the past.
Curt Farmer: Yeah, Brody, I would not go back through all that detail with you. I might just say that in general, that GEAR Up was a combination of expenses, but also some revenue enhancement opportunities that we focused on. Some of that was around capability. Some of it was around pricing strategies, et cetera. And it was not just a single year impact. It was an impact that we — a program we put in place to improve overall efficiency, and what was — at that point a very low rate environment. So, if you’re looking at sort of applicability to today, I mean we’re a bigger company in terms of our overall revenue base as an organization and our expense base as well. And so, we’re going to think about this in a thoughtful way on a go-forward if you’re kind of driving to sort of what expense reductions we might look at and look at things that really minimize anything associated with revenue and customers and really try to focus on areas real estate, sort of our technology spend that we might be more careful with, vacancy rates in terms of headcount, et cetera, and we’ll have more to potentially share as we get into the outlook for 2024.
Brody Preston: Got it. Okay, thank you for that. I wanted to ask a couple of questions to Melinda. Melinda, you said — you talked a little bit about the multi-family and the migration there, that the sponsors have kind of stepped up to cover any shortfalls. When you say shortfalls, do you mean like the multi-family properties that are falling below 1 debt service coverage ratio?
Melinda Chausse: It could be. They are in the process of being leased up and so they’re behind schedule. But the biggest driver right now in the multi-family space in terms of any kind of a shortfall is really because of the rising rate environment. The majority of the loans are floating rates, so they’ve been absorbing the rate increase of 500 basis points over the last four, five quarters. And so there could be a shortfall in an interest reserve that we require during the construction phase or a debt service coverage during the lease up phase as those are going into stabilization.
Brody Preston: Got it. Are there any markets that you look at across your footprint and say maybe there’s new supply coming on that might exacerbate any of these issues? Like any that come to mind in particular?
