Q1 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Valley National Bank Corp. earnings Conference call. At this time, all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your tell.
The phone if they require any further assistance. Please press star zero I would not only thing in the conference over to your Speaker Mr. Travis Lan director of Investor Relations. Please go ahead.
Good morning, and welcome to valleys first quarter 2020, <unk> earnings Conference call.
I think on behalf of valley today are president and CEO, I Robinson, Chief Financial Officer, Mike Hagadorn, and Chief Banking Officer, Tom I Danza.
Before we begin I'd like to make everyone aware that our first quarter earnings release and supporting documents can be found in our company website at Valley Dotcom.
When discussing our results we refer to non-GAAP measures, which mean exclude certain items from reported results.
Please refer to today's earnings release reconciliations of these non-GAAP measures.
Additionally, we like the highlights by two of earnings presentation.
Thank you that comments made during this call may contain forward looking statements relating to valley National Bank core banking industry and the impact of the Kobin 19th and Dennis.
Valley encourages all participants to refer to our FCC filings, including those found on form 8-K 10-Q in 10-K right complete discussion of forward looking statements with that I'll turn the call over to Iraq.
Thank you Travis.
Good morning, and welcome to those of you that have joined the call today.
On behalf of the Valley team, we hope that you when your family's remain safe and healthy during this challenging time.
This morning.
I will update you on efforts that we have taken to support our employees clients and communities in Mexico, The 19 pandemic.
Mike will then offer details on the financial result.
See so implementation and our recent liquidity initiatives before opening the call it to your question.
The global Health crisis brought on by the spread of Cobra 19 has quickly changed our world in many ways.
For the first time, our management team is hosting this quarterly call remotely.
This is consistent with our business continuity plan as well as a social distancing guidelines and work from home procedures that have become the norm.
[noise] Coben 19 has also brought significant in rapid changes to the operating environment for our company.
The last few years, we have message our ongoing technology transformation.
And how did the significant strength.
Diversity adept at our management team.
Over the last two months. These forces have come together and driven valley Swift and decisive crisis response.
Our agile technology enabled a quick and effective work from home transition for 93% of our non retail employees.
Further we leveraged our technology platform to create an efficient digital application process for the S.P. A's.
Paycheck protection program.
Each of a highlight in more detail momentarily.
In February in early March our finance and Treasury teams were quick to lower deposit cost in response to declining interest rates.
These efforts were made possible by an engaged in flexible response from our deposit operations team and branch network and helped to offset earning asset yield pressure and insulate our net interest margin during the quarter.
While we were well ahead of our local competitors in our deposit repricing actions.
We still saw strong growth this quarter in our noninterest bearing transaction and saving balances, which speaks to the underlying strength of our entire deposit franchise.
These actions position us well from a margin perspective entry the second quarter.
Our experienced management team also quickly identify potential industry wide liquidity stress is.
Enacted to fortify our liquidity position.
These actions in so many others in the last few months directly validate our strategic technology focus and our longer term effort to deepen and diversify our management team.
Further I believe the current environment, coupled with our success over the last couple of months reinforces the strategic vision that we have outlined.
One, which encompasses leading technology infrastructure to support the human element of banking.
Thanks like valley are meaningful meaningful to our economy meaningful to our communities.
We provide a differentiated customer experience with blends technology with lie bankers.
It's not difficult to look to the future and understand the value of having a motivated and knowledgeable team supported by leading edge technology to drive relationship banking.
Before I turn the call over to Mike.
I want to highlight a few of our other key responses to the cobot 19 environment.
With regard to our employees I previously mentioned that 93% of our non retail employees have been unable to work remotely.
This is required to coordinate a distribution of laptops other hardware and remote support.
Valley has also paid $1.8 million in special bonuses to our hourly in part time employees.
And agreed to cover 100% of out of pocket medical costs associated with the code and 19 virus.
From an operations perspective, approximately 36% of our branches are currently closed.
With the rest offering either drive up service or lobby service by appointment.
We quickly adopted a rotation of staffing model in our branches, which has helped us manage health risk and maximize our ability to consistently serve our clients.
There are three other key initiatives that I would like to discuss which illustrates our team's dedication to servicing our clients and he is unprecedented times.
We are helping our commercial in small business clients take advantage of the various government support programs available to them.
Most notably the Paycheck protection program, where PPP.
A detailed so this program emerged we mobilized to develop an online application solution.
This easy application process for customers and helped US effectively managed alone submission process to the FDA.
By the time the initial phase of the P.P. was exhausted a few weeks ago Valley had originated over 5000, SBK approved loans totaling $1.6 billion a volume.
To put the success in perspective, our 1.6 billion a volume is more than two and a half times the amount of P.P.P. originations that would be expected based on valleys asset size.
Our median originated loan size was approximately $100000 and roughly one third of all of our applications were for those below $50000.
This gives us a sense of our efforts to assist the smaller companies most at risk in the current environment.
We continue to work with our most challenged commercial and retail clients on for bearing solutions.
As of April 26, we had approved for Barents request on nearly 2600 commercial loans covering $2.6 billion.
As you can see on slide five excluding taxi medallion deferrals, 97% of the proved commercial deferral balance were for pass rate alone.
We've also approved over 3600 consumer forbearance request for nearly $450 million a principal balances.
Well, we continue to work with our Atlas borrowers.
The inflow for Barents request has noticeably slowed in recent weeks.
Earlier this month, we probably launched our community recovery CD program.
This online only city opportunity forward, social distancing efforts and provides an attractive rate to new and existing deposit customers.
Valleys donating 50 basis points of deposits raised under this program back to those in our communities most directly impacted by Cobot 19.
We believe this is the first deposit promotion of its kind we have currently raised nearly $45 million in deposits under this program equating to a direct donation of $225000 back to our local communities.
We look forward to for their marketing this program across our entire footprint and driving additional financial support back into our communities.
In addition to the community recovery CD, we have committed to invest $2 million in New Jersey community Capitals Garden State relief fund to further support New Jersey small businesses.
We've also donated $200000 to food brings in a footprint, which I provided over 2 million meals to those in need.
Throughout this presentation, we will provide additional information on our exposure to industries potentially impacted by the virus and thoughts on the other potential implications to our businesses and mitigating efforts, we have taken to address those impacts head on.
Transitioning now the financial results.
In the first quarter of 2020 Valley reported net income of 87 million and earnings per share of 21 cents.
These results include approximately 1 million of after tax merger expenses related to the acquisition of Orange County.
And over 2 million of infrequent expenses associated with values response to cobot 19.
On a pre provision basis results reflect continued progress on our stated goals of consistent growth and improved operating efficiency.
On a year over year basis, we generated 24% growth in adjusted revenue.
Against only 11% increase in adjusted expenses.
Exceptional progress on these funds has mitigated in the quarter by a larger provision, reflecting the impact of cold it on the economic outlook.
Well, Mike will provide additional details we recognize a $35 million provision in the quarter.
Of which roughly 50% was related to incorporating a weaker economic forecast into our reserve methodology you got the ended the quarter.
Even with this significant provision our adjusted earnings per share decreased only modestly from the first quarter of 2019.
Overall, we are proud of our Kobin 19 response, and our first quarter achievements.
Despite the challenges of the current environment, we will continue to operate the bank and the conservative manner that investors have come to expect and that has served us so well over our history.
Our credit losses in the prior crisis were lower than our peers as a result of a strong credit culture and prudent approach to underwriting.
While our geography has expanded since the last crisis, our conservative lending philosophy remains unchanged.
We operate in resilient demographic markets that we expect will be quick to bounce back as the environment normalizes.
With this in mind, we will continue to manage items under our control and position ourselves for sustainability and success as we emerged from these challenging times.
Now I'd like to turn the call over to Mike Hagadorn for some additional financial highlights during the quarter.
Thank you IRA turning to slide seven highlighting our quarterly net interest income and margin trends valleys reported net interest margin increased to 3.07% from 2.96% in the fourth quarter 2019.
First quarters margin includes nine basis points of benefit from higher accretion on purchase credit deteriorated loans that resulted from the implementation of Cecil.
Exclusive of this interest margin on an adjusted basis was 2.98% up two basis points sequentially.
This is a continuation of the upward trend experienced in the fourth quarter 2019 and reflects our success in quickly reducing non maturity deposit cost has benchmark interest rates declined in the quarter.
On the deposit side, we continue experienced customer rotation out of Cds and into noninterest and transaction accounts.
Going forward, we believe that Theres additional name to reprice Cds and wholesale funding sources lower as these liabilities mature.
Opportunity is outlined on slide eight.
Earlier I remember in certain initiatives that we undertook during the quarter to build liquidity and ensure we have the balance sheet resources necessary to respond to our customers needs. During these uncertain times.
In the last two weeks of March we added 1.4 billion of FHLB advances with a weighted average term a 4.5 much.
By utilizing swaps on a portion of the advances the all in cost of these advances will be roughly 20 basis points.
Subsequent to quarter end, we added an additional 400 million of short term FHLB advances in over 1.4 billion in brokerage Cds with a weighted average term of 8.5 months and a weighted average cost of 1.2%.
As a result of our liquidity actions quarter in cash and equivalents exceed $1 billion.
While this excess liquidity may produce a modest near term drag on our net interest margin. We firmly believe that these efforts are prudent given the uncertain environment be currently face.
Slide 12 illustrates this reduction in non maturity deposit costs that we drug in March.
CD rates also trended lower in the quarter and as you saw from the 12 month forward maturity schedule on slide eight additional opportunities exist to reprice retail Cds and wholesale funding costs lower should the current rate environment persist.
On the asset side as you would expect we continue to see yields under pressure.
During the quarter reported loan yields declined seven basis points. Despite a 10 basis point benefit from accelerated P.C.D. loan accretion.
Origination yields declined 17 basis points from the for fourth quarter 2019, as a result with the significant reduction in benchmark rates in the second half of the first quarter.
Despite this pressure new origination spreads increased to 12 basis points in the quarter and her up nearly 30 basis points in the last six months.
Moving on our noninterest income increased 9% from the link fourth quarter, driven primarily by a 4 million dollar increase in swap fees.
Despite strong sequential growth adjusted fee income was 13.5% of adjusted operating revenue during the quarter slightly below the prior quarters, 13.8% level.
This decline in the ratio is largely a product of strong net interest income growth, partially attributable to a full quarters impacts from the acquisition of Oritani.
Swap fees were approximately 14 million during the quarter as we originated back to back swaps on approximately 505 million of notional loans up from 400 million in the prior quarter.
Going forward, we would expect swap fees to return to a lower level, reflecting less overall activity.
Our net residential mortgage gain on sale income declined 13% sequentially as the volume of loans sold declined to approximately 200 million from 300 million in the fourth quarter 2019.
On a positive note gain on sale margin increased more than 50 basis points to 2.46%, which partially mitigated the volume decline.
Slide nine provides an overview of our quarterly operating expenses and the significant progress we've made on the efficiency front.
Our reported expenses decreased approximately 40 million from the prior quarter.
This quarter's reported figure includes $1.3 million merger related expenses compared to approximately 47 million of infrequent expenses in the prior quarter.
Pre tax amortization of tax credit investments was roughly 3 million for the first quarter 2020 down from 4 million in the prior quarter.
Our adjusted expenses exclusive tax credit amortization in previously mentioned infrequent items were 151 million up 6 million or approximately 4% from the previous quarter.
Roughly one third of the sequential expense increase is due to 2 million of Tobin related special bonus and cleaning costs accrued during the quarter.
As the order timing systems conversion occurred in mid February we expect full synergies to be recognized in the second quarter.
Last quarter, we told you that we were on track to achieve our adjusted efficiency goal below 51% during 2020.
As you can see we hit that Mark this quarter with an adjusted efficiency ratio of 49.3%.
As I remember opened on a year over year basis, we have generated 24% revenue growth with only an 11% increase in adjusted operating expenses.
While the cobot operating environment is uncertain, our management team remains focused on efficiently allocating personnel and financial resources to business lines and products that provide the greatest returns on our expense base.
Total loans increased 10% on an annualized basis to $30.4 billion.
Growth was strongest in our commercial categories with CRT and Cnine, increasing 11% in 14% annualized.
As one would expect given the environment, we did see commercial line utilization, which includes construction tick up to 46% at the ended the quarter from 44% in the fourth quarter 2019.
Most significant increase was noted in our Florida markets.
Since the ended the quarter line utilization has been relatively stable.
Meanwhile, our non mortgage consumer portfolio declined 3% on an annualized basis as both home equity and automobile balances Phil.
From a timing perspective growth accelerated throughout the quarter and peaked at an annualized rate of 16% in March loan originations in the first quarter totaled approximately 1.4 billion up 11% from the first quarter of 2019.
Since the ended the quarter Kobin related economic shutdowns in our markets have slowed both new originations and unexpected pay downs.
As traditional origination activity has slowed we have diverted resources to managing the demands of the paycheck protection program.
We received approximately 13000 loan requests under the PPP and under the first phase of the program, we originated 5100 loans totaling $1.6 billion.
Our median loan size was approximately a $100000 our expectation is that a large amount between 80 and 85% of loans made under this program will be forgiven in off our balance sheet in the near term.
The remainder could remain on balance sheet for two years as a reminder loans originated under this program are fully guaranteed by the government.
While the loans carry a modest 1% yield the S.P.A. will pay lenders processing fees of between one and 5% per loan based on the size of featured originated loan.
These fees will accrete through interest income over the life of each loan.
Value originated 1.6 billion of SPD approved loans and the initial phase of this program and has generated approximately $47 million an expected processing fees from the Sta.
This was an extremely successful initiative for valley and reflected the dedication and efforts at a significant portion of our team.
The overwhelming majority of our borrowers under this program had a pre existing valley relationship.
However, in select instances, we leveraged our PPP strength to service new clients in many cases these new clients brought significant deposit relationships to valley.
On slide 11, we detail are outstanding loans to industries, which have primary or secondary pandemic exposure.
Proximately 2 billion or 7% of our loans Arda industries that have primary exposure to the pandemic.
These include non essential doctor in surgery centers, the hospitality in food services industries and retail companies.
You will note that 95% of our loans of new segments are currently rated pass under our credit methodology, and we approved deferral requests on approximately 20% of these loans.
We also have identified our exposure to industries, such as manufacturing and education, which may be less impacted by the virus.
Again, you'll note the overwhelming majority of these credits or pass rated indicating strong positioning prior to the covert outbreak.
While total deposits declined modestly in the quarter underlying trends were strong as customers rotated out of Cds and into noninterest in transaction accounts.
Noninterest bearing deposits increased 14% sequentially on an annualized basis to comprise 24% of total deposits up from 23% in the fourth quarter of 29 team.
Similarly interest bearing non CD deposits rose, 23% on an annualized basis.
As a result of the quarter strong loan growth our loan to deposit ratio increased to 104.9% from 101.8% at the end of the fourth quarter.
While total Cds declined 1.2 billion from December 31st approximately 75% of that was due to the roll off of brokered Cds, which we opted to replace with lower cost FHLB advances.
Overall retail deposit retention has been favorable today.
As mentioned subsequent to quarter and inconsistent with or multi phased liquidity plan, we added $1.4 billion brokered Cds at favorable terms.
For the quarter interest bearing deposit costs fell 19 basis points to 1.40%.
This improvement reflects our decision to aggressively manage non maturity deposit costs lower as interest rates fell.
However, as deposit cost reductions occurred late in the quarter. It may be more useful to point out that in April our funding costs are trending approximately 50 basis points lower than the first quarter.
Largely as a result of connecting our liquidity plan total borrowings increased by 1.7 billion in the quarter with the majority of that growth coming late in the quarter.
Specifically in the last two weeks of the quarter. We added 1.4 billion of FHLB advances with a weighted average maturity of 4.5 months.
As a result of utilizing swaps on a portion of the advances the net cost to this 1.4 billion is just 20 basis points.
This quarter, we have approximately 2 billion of Cds at a weighted average cost of 2.1% and 2.5 billion of brokered Cds at a weighted average cost of 1.7% expected to mature.
Assuming market rates remain relatively stable, we would expect an additional repricing benefit from these maturities even as we continue to ladder out or funding sources to remain relatively neutral from an interest rate risk position.
Slide 13 of our presentation details our Cecil implementation.
Our allowance for credit losses increased nearly 130 million between December 31st and March 31st with the increase coming in two phases on January one or allowance for credit losses increased by 100 million as a result of day one Cecil adjustments. This was comprised of 38 million for non P.C.D. loans.
And unfunded commitments and 62 million for acquired PCD loans.
Exclusive of the PCB reclassification the transition from incurred loss methodology to life of loan loss methodology added approximately 13 basis points to our reserve.
Then during the quarter, we saw an additional $30 million reserve build which increased our allowance inclusive of PCB, 2.96% of loans.
This reflects a 34.7 million dollar provision and 4.8 million of net charge offs.
Roughly 6 million of the quarters provision was related to lower valuations on taxi medallion loans. Another 50% was due to the incorporation of updated economic forecasts from Moodys inclusive of the effects of covert 19 into our multi scenarios Cecil model as well as a conservative re waiting towards.
Moody's recession scenarios.
In general are economic forecasts assume a steep drop in GDP in the second quarter 2020 on a relatively gradual you are l. shaped recovery, taking several quarters.
From an unemployment perspective, our forecast generally assumes double digit unemployment for the next few quarters.
Future provisioning activity will be largely dependent on the degree the economic outcomes track our expectations.
Slide 14 provides an insight into the quarters credit metrics on a reported basis, our nonaccrual loans more than doubled to 206 million, 4.68% of total loans.
Roughly 65% of the sequential increase.
Accounting for $74 million was due to the reclassification of acquired P.C.I. loan pools to individual P.C.D. loans with related loan reserves under the seasonal methodology.
An additional 33% of the nonperforming asset increase was due to the transition of 37 million or previously accruing taxi medallion loans to nonaccrual status during the quarter.
Exclusive of these two items non accrual loans would have been unchanged at 0.31%.
You can see the growth in our capital ratios and tangible book value on slide 15.
Our tangible common equity ratio declined to 7.3% from 7.5% at December 30, Onest, but remain significantly higher than 6.6% a year ago.
The reduction from December is primarily a result of strong asset growth in our excess liquidity position.
We estimate that our excess liquidity dragged on our tangible common equity ratio by approximately 11 basis points.
Recall that the tangible common equity ratio was also impacted by about 28 million as result of the non PCD portion of our day, one Cecil adjustments.
We believe that we have sufficient capital to support our growth opportunities and to absorb additional provisions should or economic outlook deteriorate further.
Turning on the timing of PPP loan forgiveness, we could see further tangible equity capital ratio declines in the second quarter.
All else equal we estimate that each 500 million of PPP loans remaining on the balance sheet would temporarily reduce our tangible common equity ratio by 10 basis points.
However, we expect the majority of these loans to be forgiven in the near term and there will be no impact to regulatory ratios.
Last quarter, we provided 2020 guidance for key elements of our business on an annualized basis, our first quarter results exceeded our guidance for loan growth noninterest income growth and efficiency, putting us on track for a very strong year.
However, with the backdrop of this global health crisis, we have decided to eliminate our guidance. While we continue to learn more each day about the potential impact of this global health crisis on the banking industry and valley, specifically, there simply too much uncertainty to confidently provide financial guidance to our analysts and investors.
With that I'll now turn the call back over to Iraq for some closing commentary.
Thanks, Mike.
Obviously, our prepared remarks this quarter are somewhat different from what we have provided in the past.
These are unique in challenging times.
However, I would like to reiterate that on all fronts.
Values response to the crisis has been swift and decisive.
And early outcomes have been positive.
All largely reflective of his strong leadership team we have assembled.
I firmly believe in times like this our ability to be agile.
Proactive in our focus.
That fast enough strategy and can limit to valley wont combination being unbelievable differentiator for valley and our shareholders.
We will continue to operate with a sense of urgency and navigate the uncertain future within I could have future and the unbridled opportunities now available.
With that I like to turn the call back over to the operator to begin culinary. Thank you.
Thank you as a reminder to ask a question you want me to press Star one on your telephone.
Yes. Thank you please limit yourself to one question and one follow up question. You May then returned to the Q.
Well John your question press the pound.
Please standby, while we compiled the culinary roster.
Our first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Good morning, guys.
Right.
Just on the I Wonder if you could talk a little bit about.
Your your provisioning your thoughts on provisioning going for it sounds like you've captured sort of a lot of what the models spitting out right. Now currently in terms of this first quarter provision, but is there another leg up in your mind later in the year when you start to see some of these quantitative Soc.
There's form.
In terms of you know if it's whether it's increased npis or ultimately.
<unk> increased charge offs. Thanks.
Hi, Frank It's Mike I'll take a stab at this one you know the seasonal models, regardless of who has them are primarily dependent upon the loss history. So these are probability of default and then loss given default models. So the the loss history that you have built into your model is gonna be the primary driver.
Of what your future view your life of loss loan would be however, I do want to point out.
Hopefully talked about this in my prepared remarks.
We made a change late in the quarter to look at a more severe scenario as more and more information was coming out.
Related to Cove it.
And so we use a blended model of various economic.
Forecasts from Moody's to come up with that economic forecast and the in that change resulted in.
GDP reductions of 24% in the second quarter and you three unemployment, 12.5%, which we think right now that that should cover as we see it today the loan losses.
Maybe just following up a bit on that Frank if we were to use the Moody's model as a mid April.
Only seen about a five and a half million dollar increase in one that reserve number number was I think we're pretty aggressive.
Back to your point regarding the quantitative metrics I think that's the challenge for all of us in looking at what's that.
Look look like today.
We're not going to know until third quarter on so many of these loans come off of deferral.
To what the impacted to some of this quantitative metrics that Mike talked about before.
Right.
Okay and then just.
Follow up.
In terms of as you guys doing you know your internal stress testing when you look at your severely adverse scenario.
Anything you can share with us in terms of how comfortable you are with what sort of.
Capital cushion you're left with after losses in that scenario and how comfortable you are.
You know with the with the dividend in this scenario like that thanks.
Sure. So if you look backwards at the 2018 severely adverse.
Scenario, we believe based upon that that our 0.96% reserve would cover approximately 0.87 times the cumulative severe loss rate.
From our looking at other.
People that have reported so far we think their numbers are closer to point fivex or 0.6 X. So we think we're in a pretty good position there.
I would say ultimately the Moody's as three which would be the more so now we're significantly adverse scenario.
<unk> 0.91, so on a relative basis, we feel pretty good about where we came out.
Okay, and I looked at the dividend in terms of Oh, and those scenarios I would assume given.
Where are you come out that the dividends as part of that stress testing.
Yes, absolutely and we run obviously as Mike alluded to a lot of different stress tests over the years a lot of them based on the severely adverse scenario that we provided by the FRB as well as our own internal stress test.
Focused on some of the other variables that we think drive performance within the organization.
Right now when we look at the stress performances, we think we have sufficient capital I'll just highlight last year. At this time, we were sitting at 663 as it's easy to T. A you know today, we're sitting at 730 31, our tier one leverage ratio went from 758, a 24 tier one risk based went to 930 ton I 95, you go back.
When we started back in 2007 ish timeframe.
Only sitting at a Tc of 6% when we entered the last major recession. So I think as an organization where in a much stronger position than we were previously.
Thank you. Our next question will come from Steven Alexopoulos with JP Morgan. Please go ahead.
Good morning. This is Alex allow on for Steve.
Right.
Our first question on NIM, so with pressure coming on.
On the earning asset yield side, how do you think about how much deposit costs can offset this and what do you think about the trajectory of a net interest income and NIM into the next quarter.
So first I would say that we're working hard to protect our NIM and we have some tailwinds I think that make us a little unique right now in the space first as you see on page on slide.
Number eight you can see the repricing that we have that's going to occur in the second quarter for both our originated CD book as well as the brokered CD book.
When you look at that and combine it with the non maturity and in fact, frankly, all other deposit repricing that we did and we did that early when the fed reduced rates than we were fairly aggressive.
And as I said in my prepared remarks, we went from a total cost on the non maturity side of 1.0 for another 50 basis points down. We think we are doing is about as good a job there as we can to protecting them well admitting clearly that on the earning asset side. You know yields are going to go down, but also we put floors and to kind of protect.
The NIM there as well.
Thanks for that and then just on your slide 11, where do you give colby exposures by loan segments are you mentioned that there are 70% that are secured by real estate in this breakdown in this table are there any segments that have a larger exposure to those not secured by real estate.
And can you give some color on credit quality if there is.
Yes sure. This is Tom I a downside.
Looking at those high risk and I'll, just pick the hotel and hospitality as the first one.
45% of our portfolio has requested has been approved for deferments, 100% about portfolio is secured by real estate within origination loan to value of 59%.
When you kind of go down each and every one of these.
The only one that probably has a low percentage that retail trade, which represents auto dealerships 50 little over 50% of that portfolio is real estate secured the balances floor plan, but in general it's not a big portion of the deferment, it's not a big portion of our overall portfolio in the rest.
The Ron space very similar trend to the hotel space pretty much a 100% secured by real estate loan to value more in the 65% in each of these categories. We carry personal guarantees. So we believe it's fairly well protected but there's still uncertainty as to when they come out in Florida They get.
The Governor announced that he is going allow restaurants to open shortly but with a lower occupancy then they would be normally permitted to have.
Thank you. Our next question will come from Matthew Breese with Stephens. Please go ahead.
Hey, good morning.
Hey, Matt.
Just going back to the reserve is there any is there any on amortized marks that you have and and could you quantify that.
Well there there are 6.3 billion of P.C.D. loans remaining in the Mark on that is 87 million over eight years other than that no.
So okay. He thinks about that that's going to we think that's going to level off obviously, we don't control those loans prepay and you'd accelerate.
But no we think that's going to level off and should we think about that 87 million combined with the allowance as it stands today.
You certainly could if you want to and obviously doesn't go through allowance that goes through interest income and then finds its way hopefully the retained earnings but you could it doesn't come into our calculations on that so when you look at how we're thinking about it when you look at allergies, and Pts and what we think we need to reserve that $87 million is.
It is definitely not not a component of it.
Okay.
Okay.
And then can you talk a little bit about what happened with the you'd be early stage delinquencies this quarter commercial real estate, especially what happened why the increase can you give us some color on the larger credits and relationships that you referenced.
Sure It's Tom again.
Was about 48 million dollar increase in the commercial real estate.
20 million of that was administrative current for payments with alone had make sure. It all of that has been renewed and is now walk past due the remaining balance which is the mix of low loan to value loans that are chronically late in that 30, 60 day bucket, but they pay they stay within those buckets.
And our loan to value on on those is probably sub 40%.
And there is no large no single large exposure within that category, It's a group of smaller loans.
Thank you.
Got you go ahead Sir.
There was a residential piece in there and he is about 18 million nine of that is current for payment now and removed any other with deferments requested prior to the ended the quarter, but we didn't process until April.
Thank you. Our next question comes from Collyn Gilbert with KBW. Please go ahead.
Thanks, Good morning, everyone.
Just to touch on the the reserves and you know you're seeing so outlook and kind of Mike as you indicated so much of what drives that piece of model is your historic loss rates.
And overall, when you give that 91% or so of of your reserve now accounts for that Moody's up three forecast that's really impressive I think I guess my question is just how are you quantifying the change in the book right I know IRA and I know the culture at Valley like you guys are so committed to your conservative underwriting standards, but the reality.
It is is the books changed right you've moved into different geography, a lot of the gross or you know you've accelerated your growth over the last couple of years. So you could argue late cycle you know asset adds just.
Walk us through that how you're thinking about that you know the change in the portfolio today relative to what it was pre and post crisis.
Let me just started not turned over to to make and Tom Yes look we're definitely acknowledging we are in some some different geography is and what we were in prior but keep in mind. When we went into Florida, we are pretty selective about the banks that weve looked to merge with and then even further selective as to the assets that we put on if you recall in the CNL transaction.
And we we actually throughout or not throughout but let run off about 15% of the book just because we wasn't asset classes that we weren't comfortable with we have the specific assets credit philosophy within this organization and that does not change irrespective of what geography that we're in.
The borrowers that we'd love to those are the people that are the ones that are supporting the individual loans, it's not a transaction what the bar as exposure is when it comes to contingent <unk> ability is what their liquidity looks like these are all core philosophy is that we have within the entire organization that we propelled across the entire geography that were in I think we've been in some of these joggers for four.
Long enough time that the book represents.
How we lend who we are not necessarily what a traditional experience what had been for some other lenders in these markets.
Mike and Tom has some some of it.
Coming into this earning season, we knew that people were going to have a difficulty and when I say people I mean on the analysts side. We're gonna have difficulty trying to look at what does a 0.96% allowance coverage ratio at valley. What does that mean, you look at it across the universe of other midsize banks I would just point you to the fact that are.
I went as a percent of loans increased 75% from fourth quarter to first quarter and by our estimation or peer group. When he was up 50% why is there a 25% differential two things mostly driving this one the fact that we used a pretty severe moody's economic forecast a combination.
Several of their forecasts and then maybe more importantly to your question. Colin We also use a we should talk about this earlier, we use a qualitative overlay on top of the model as well to account for things that aren't accounted for in the history in the portfolio one of those being a the Florida portfolio. As an example, so we put on that.
Additional loss history for the industry, because we don't have it ourselves to increase our reserves as well.
Just to add a little bit to that Collyn. When you look at the metrics of our portfolio. The original concentration by region by loan type by size, we're still very granular our production in the first quarter. Our average real estate loan is less than 3 million on our average the and I loan is less than 1 million.
So we continue to do the same things that we've always done.
Looking at it over 50% of our businesses generated from a long term valued customers and the balance it comes from new customers that we actively been soliciting for years and enroll well known to people within the bank. So so it is about relationship banking. It is about knowing and it is about being very granular and how.
Proceed and how we do our business.
Okay. That's great additional color and then just my one follow up to that would be and you sort of touched on that but just so we look at younger slide 11, where you go through the expose loan segment, obviously, how how Florida and New Jersey, New Yorker behaving through this you know pandemic are very different.
Just curious as to if you have kind of the geographic split.
Between what's up in these markets versus what's in Florida in terms of your loan exposures and then also to where you're seeing deferral requests.
Sure. The deferral quest is is it pretty much along the lines of the percentage of portfolio. We have in each market, we're not seeing any higher in any one of the regions.
Our hotel portfolio, which I described earlier being you know real estate secured lower loan to value going into this is for the most parts more Florida related than New York, New Jersey related as is our restaurant portfolio, which again I described as a reliant on real estate at a 65% loan to value.
Other than that its is just first as you would expect within the region.
Thank you. Our next question comes from Stephens, along with RBC capital markets.
Hi.
Good morning, yet.
Just going on on that regional break out do you guys. How have the breakout of whats actually in New York City itself for that code that exposure.
Yes.
We have a broken out by location.
And by type the largest exposure in New York City or that we're realizing our ambulatory centers, we don't have a big restaurant or hotel exposure in New York City, if any at all I touched monthly ambulatory centers, which is a relatively small dollar amount I I think it's in the 90 million range.
Well, we have those in the Manhattan market, Yes, we break it into three.
80% of it is affiliated with large hospital systems, what necessary Caribbean cancer treatment or knee replacement and 20% is broken into elective surgery.
When you look at that the the hospital.
Affiliations will be fine and they'll come back the necessary care will be finding they'll come back the caused Medicare will take a little bit longer to come back each of that that portfolio is secure that portfolio carries guarantees.
From this say hospital systems as well as the physicians that all in on the latter category.
But we haven't really seen much in office, we haven't really seen much in multifamily coming out of the Manhattan market.
Great. That's a appreciate the color that and then.
Your Cetone ratio just declined a little bit it was that just purely the adoption of Cecil.
I think that was a little bit of the adoption of c., so but keep in mind also we put on additional liquidity during the period.
And the additional liquidity had a negative impact as well during that first quarter.
Great. Thanks Irene.
Yes. Thank you.
Thank you Sir our next question will come from David She ever Reni with Wedbush Securities.
Hi, Thanks, a couple of questions starting with the discussion on NIM. It was mentioned earlier in the call about how the deposit inflows positions valley well for for the second quarter and then later on it was mentioned about how the excess liquidity that's coming on the balance sheet could pressure NIM in the.
Second quarter, and then Furthermore April funding costs being down 50 basis points is certainly a good thing so long way of saying are you willing to disclose how much when we look at April.
The earning asset yields are you able to disclose how much the earning asset yield is expected to come down thus far in April.
I'm not at this point, obviously, because we're disclosing first quarter results, but clearly the pressure of.
Just rates coming down generally are putting pressure on our earning asset yields and as we said we have a lot of cash built up you might ask why did we do that.
Early on in this crisis, we decided that putting on some amount of liquidity was just prudent because it was so uncertain as to where this was going to go and keep in mind that was before things like the triple P. liquidity facility even existed so one of the things that we feel preleasing pretty strong about is we have the ability right now to fund all of our.
Triple P. loans with the liquidity, we've built up without even using any of the government's facilities. Now we may do that I'm, not saying, we wouldn't use it I'm, just saying that our liquidity build put us in a position where we had options.
That's helpful. Thanks, and then my follow up is on expenses, you mentioned about how the full synergies from or a tiny should be achieved in the second quarter with the conversion the systems conversion in the first quarter can you remind us how much in Ics.
And savings you're expecting to get from that.
I will have to get back to with an exact number I can give you one of the main components of it that I think you would probably care to know about.
For Tony salary expense for the month of December remember, we only had them for about one month in the fourth quarter was 1.3 million and so on a quarterly basis that would be 3.9.
But the Oritani salary expense in the first quarter was only 1.8, so that's roughly 54% and I know on a total basis.
Our total cost savings right now we're running around 70% just in the first quarter. So we're almost all the way there and we'll get the rest of that in the second quarter and just to add.
To fight between or a tiny in Bali nine branches to the close through the integration and merger and those branches weren't closed until March.
Thank you keep in mind those those numbers weren't even in the forecast a cost saves that we provided so we've already well achieved many of the cost saves are actually all the cost save that we identified when we announced the the merger I think to Toms and Mikes point, the economic benefit is gonna be much more recognized in the second core.
Other than what it is in the first quarter.
I'm showing no further questions in queue at this time I would now like to turn the call back over to management for any further remarks.
But we want to thank you for taking the time to listen and I know our prepared comments were a little bit longer than what they usually are I know the document to be provided is a little bit longer as well, but we wanted to make sure that there was transparency with the entire investor community as to what's going on in our organization and it you have a.
A clear look through as to what's happening here I want to thank God, Travis Lan, who recently joined us for putting together a lot of the information.
Rick Kramer for all your health as well so thank you very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect and have a wonderful day.
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