Harris Simmons: We’ve seen this exact same process play out in previous cycles and in previous geographies, and you’ll see some great migration to criticized and classified, but because of the post-Great Recession underwriting which was about twice as much equity, no secondary or tertiary land, covenant packages that require very specific remedies as opposed to just coming to the table. One of the nice things about multifamily is, you might hit periods of rent concessions and slower lease up. But generally there’s cash flow and with the doubling of equity, it’s why we think we’ll see a path through the multifamily’s office.
Ben Gerlinger: Got you. That’s helpful color. And then when you just think about just kind of commercial real estate as a whole, I know you talked about some kind of looming problems to work through within the office. Is office kind of, I hate to use the phrase, the next shoe to drop, but is that where you’re likely to see the next incremental increase in criticized classified? Not necessarily charge off, but — or do you think it’s a little bit more uniform across all of CRE?
Harris Simmons: Well, it’s probably all CRE has been impacted by the increase in interest rates. And then some slowdown in the multifamily leasing. Office certainly has been challenged for some time coming out of the pandemic. And so, we’re — on the office side we have $1.9 billion. We’ve actually reduced that intentionally over the last 45 years. So we were kind of ahead of it even before the pandemic. And the other thing that we have is, we’re just — we’re never in the large CBD downtown trophy office properties that, say, New York City, it’s just not our markets, it’s not what we do. And so I think the office will continue to have some challenges from what we do have, but I think it will be manageable over the next — the near term.
Ben Gerlinger: Got you. That’s really helpful. Appreciate it. Thanks, everyone.
Operator: Thank you. Our next question comes from the line of Brian Foran with Autonomous. Please proceed with your questions.
Brian Foran: Harris, I wonder if I could just follow-up on the deposit insurance broken comment. Is it the level, the $250,000, or is it the lack of a separate system for operating accounts, or maybe you could just give that next level of detail of what the key change you would like to see is.
Harris Simmons: Well, yes. I mean, I’d start with the fact that the $250,000 which was last established — it was last changed in I think 2011. It’s not indexed for inflation, and so it’s lost about close to a third of its purchasing power, if you will, since it was last changed. So the real deposit insurance has come down by nearly a third since the last change. You have a world in which, I mean, [Dodd Frank] (ph) was largely intended to solve the too big to fail problem. We saw his SBB episode that too big to fail is still there. Not only is it there, it was basically given the stamp of approval by the Treasury Department and others during the crisis. You saw the flow of funds going from smaller banks to a very, very small handful of very large banks.
And it’s not because of capital, credit quality, et cetera, et cetera, it was because they’re de facto insured. And so, you have a very large portion of the nation’s deposits that are de facto insured. You have among those who are not too big to fail, you’ve probably got — half of those deposits are fully insured. And so we use kind of this liver, 20%, 25% of deposits out there that are not insured. But that’s where all the instability is coming from. And I’m not to suggest here during this call what the solution ought to be, but I’m a little disheartened that there hasn’t been more focus on it by policymakers to wait until the next crisis for it to rear its head again. And I simply think it ought to be something that everybody is focused on.
But in the absence of that, it’s important that we remain focused on developing the insured portion of that deposit base. It just becomes fundamentally important. It’s really why SVB is no longer here today, is because they didn’t have an insured deposit base.
Brian Foran: That was very helpful. Thank you. And then maybe just on the capital discussion, rounding that out, you were clear the common equity will increase and you gave the AOCI a burn down projection. The CET1 kind of in the 10.5%, is that kind of a good landing spot or do you see that increasing as well over the next year?
Harris Simmons: Well, I don’t think we’ll be doing other than probably covering the cost of employee stock grants, that kind of thing. And I don’t think we’re going to be in the stock buyback mode here for a while until we can see greater clarity and really understand that we’re going to be in solid shape crossing 100. I don’t know quite where that ratio is. It’s really going to depend on what loan growth looks like this year. But we’re focused on increasing the tangible common equity ratio, getting AOCI behind us, and we want to have strong capital here.
Brian Foran: Thank you. Very clear.
Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Shannon Drage for closing remarks.
Shannon Drage: Thank you, Daryl, and thank you to all for joining us today. If you have additional questions, please contact us at the email or phone number listed on our website. We look forward to connecting with you throughout the coming months. Thank you for your interest in Zions Bancorporation. This concludes our call.
Operator: Thank you. This does conclude today’s teleconference. You may disconnect at this time. Thank you for your participation. Enjoy the rest of your day.
