So remember, I’ve got a huge amount of absorption capacity just in my P&L for any losses that are materializing, and our reserve levels for the portfolio are well above where the severity of losses to date have been. So we feel we feel like we’re going to work through this, as we said, over the next few quarters and begin to peak at the loss levels.
Bruce Van Saun: Yes. And I just – maybe, John, you can add to this, but in terms of where do we go from here – you can see that the coverage ratio on office remains high, and it’s gone from 10.2 reserves to 10.6, but that rate of increase is slowing and so we’ve been taking the full charge off through the P&L and holding the reserve at high levels. At some point, we’ll be able to start drawing down on that reserve. I don’t want to make the call on that. But just take note that, that build is starting to slow. And so I don’t know if it’s maybe later this year or beginning of next year. But we will eventually get to a point where we can start drawing down on those reserves, which will be good for P&L.
John Woods: Yes, I agree with all that, I’d just add a point or two. So what’s built into the 10 you’ll see it in some of our slide materials is an expectation of a 71% decline in property values. And that’s what drives this 10.6% reserve for remaining losses.
Bruce Van Saun: Which is more severe than anything we’ve seen historically, including the great financial recession by a wide margin.
John Woods: Exactly. And I think we should also mention that just given what we put behind us, implies another 6% of losses that we put behind us. So we’ve got 10.6 in the reserve. We’ve charged off about 6. So you’re up over 16% in terms of coverage, we feel pretty good about it, and that’s where we think the losses are going to play out. And as Bruce mentioned, we’ll charge-offs themselves, maybe they peak later this year or early next. But we think we’ve got the reserves covered.
Bruce Van Saun: Okay, next question.
Operator: Your next question will come from the line of Scott Siefers with Piper Sandler. Go ahead.
Scott Siefers: Good morning, everyone. Thanks for taking the questions. John, maybe just a thought on how much longer negative deposit migration continues. I think the prevailing wisdom is it’s slowing, but just curious to hear your updated thoughts on kind of when and why we might trough.
John Woods: Yes. I mean, we’ve been saying for a while that things have been decelerating. And I’d say our deposit performance this quarter has been – has been excellent in terms of – versus what we were expecting coming into the year. So again, deposit levels overall look good. DDA flows and low cost to high cost, migration overall, continuing to decelerate. And I think you can – we can point to, if you look at where we are, we were at around 21% of DDA at the end of last year at 12/31 and that flattened out. We were at 21% at 03/31. So DDA for us is stabilizing. And the – however, the low cost to high cost, again, decelerating and as it will continue to decelerate. And what we’ve been indicating is that that’s going to continue until you see the first cut out of the Fed, which is historically what we would expect.
But it’s getting to the point where it’s having a diminishing impact on net interest margin. And so when you elevate overall, the contribution that our deposit franchise is delivering for net interest margin trends is excellent. And we’re feeling very good about the trajectory, the DDA stability throughout the rest of ‘24 and getting back to growth because when you think about what’s idiosyncratic to us and the strategic initiatives that we’re launching, the private bank non-interest-bearing is accretive to the overall company. We’re at maybe around 30% or more. And so that’s dragging that number up. So I think we have some…
Bruce Van Saun: New York Metro offers another opportunity.
John Woods: And New York Metro as well as a really good point. So the combination of those strategic initiatives, we have some expectation of DDA flattening out and growing as you get into the latter part of the year. And that underpins the net interest margin quite nicely.
Bruce Van Saun: Yes. Maybe, Brandon, you can add some color.
Brendan Coughlin: Yes. Sure. We’ve been talking for a couple of years now around how – since so much of our deposit book comes through consumer that we believe that we’ve transformed the book to be pure like or better. And I would just reiterate that, that’s what we’re seeing. We were up modestly linked quarter on overall deposits in the consumer book with some benchmarking that we get from a variety of sources, we believe we were number one in our peer set linked order on DDA. So on a relative basis, we still have a lot of confidence that we’re outperforming peers and it’s demonstrating the franchise quality that we’ve built. When you look at the customer level, customer deposits have actually been quite stable around $31,000 per customer.
And the remixing of, as John pointed out, is pretty dramatically slowing. And I think that’s kind of indicating that the COVID burn down is beginning to really run its course. So there may be a little bit more, but we feel pretty good that we’re getting kind of the end of that behavioral cycle. We look at overall deposits on an inflation-adjusted basis, they’re back to basically pre COVID. So I think we’re kind of nearing the operating floors here for consumer. Given the strength of low-cost deposits that we have had relative to peers. The other implication is how we’re managing interest-bearing deposits. I do believe that we’ve peaked in the consumer segment in Q1 in our cost of funds. And why do I believe that we had $3 billion in CD rollover in March alone that were priced around 5%.
