Q4 2020 Valley National Bancorp Earnings Call

[music].

Fourth quarter 2020 earnings conference call at this time, all participants on a 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 telephone please.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your first speaker today to Travis Lan head of Investor Relations. Thank you. Please go ahead.

Good morning, and welcome to valleys fourth quarter 2020 earnings conference call presenting on behalf of Valley today are president and CEO IRA Robbins, Chief Financial Officer, Mike Hagedorn, and Chief Banking Officer, Tom I'd answer it.

Before we begin I would like to make everyone aware that our quarterly earnings release and supporting documents can be found on our company website at valley Dot com when discussing our results we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release for reconciliations of these non-GAAP measures. Additionally, I would like to highlight slide two of our earnings presentation.

And remind you that comments made during this call may contain forward looking statements relating to valley National Bancorp, the banking industry and the impact of the COVID-19 pandemic Valley.

Valley encourages all participants to refer to our SEC filings, including those found on form 8-K, 10-Q, and 10-K for a complete discussion of forward looking statements with that I'll turn the call over to IRA Robbins.

Thank you Travis and welcome to all the participants on the call.

This morning, I'll update you on valley strong 'twenty 'twenty performance and discuss our longer term strategic vision, including the important role that technology will play in our future success.

Mike will then provide additional details on the financial results before opening the call to your questions.

In the fourth quarter of 2020, we reported net income of 105 million and earnings per share of <unk> 25 cents.

Exclusive of charges for debt extinguishment and severance adjusted net income was $113 million from.

For the second consecutive quarter. This represents the highest level of quarterly earnings in valleys entire history.

Our 2020 adjusted net income of 402 million was 23% higher than 2019, Despite 100 million dollar increase in our provision.

Despite a challenging backdrop. These exceptional financial results were achieved through the execution of our strategic priorities as we became more efficient.

<unk>, our revenue mix and generated substantial core deposit growth.

I am optimistic that last year's macro challenges are beginning to abate and.

And our strategic focus on positive operating leverage and growth will position us for future success in 2021.

With regard to the macro environment, a more comprehensive vaccine rollout is on the horizon, which will improve the economic outlook and present new growth opportunities for us.

With this backdrop, we expect to achieve mid single digit loan growth in 2021 exclusive of the effects of the P. P. P.

The yield curve has also steepen meaningfully in recent months driving an increase in our loan origination yields.

We continue to believe that we will outperform many of our peers from a net interest margin perspective in 'twenty and 'twenty one.

Despite ongoing economic pressure from the pandemic, our credit trends remained strong in 2020.

Inclusive of loans modified under the cares act active deferrals, where only 1.1% of loans at 12 31 2020.

And non accrual loans were only 0.58% of total loans.

Our net charge offs were a mere four basis points of average loans in the fourth quarter.

Our underwriting discipline and credit strength support are below peer allowance for credit losses, which stands at 1.17% of loans excluding P. P. P.

We are confident in our underwriting philosophy and the performance of our bars and are well positioned to manage the after effects of the pandemic from a credit perspective.

This improving backdrop sets the stage for another strong year in 2021.

I want to spend some time this morning discussing how our relationship base value proposition and technology strategy will help us drive improved operating leverage and strong organic growth in 2021 and beyond.

As you know.

COVID-19 has amplified the role of technology in the banking industry.

Valley has been well ahead of this trend and our experience in 2020 reinforces the emphasis that we placed on building best in class technology solutions over the last few years.

While the industry has concentrated on front end applications. We are hyper focused on enhancing our back office technology as well.

This unique approach will ensure that we have the infrastructure and agility to support the evolving needs of our customers.

And to execute on our growth initiatives.

Our success in PPP is a great example of why our differentiated strategy is so important.

In the early days of the program. We quickly stood up an internally developed end to end digital process built on our own technology infrastructure.

Our ability to execute and originate $2 $3 billion of PDP loans was a direct result of our technology strategy and the agile infrastructure we are building.

P. P. P. Also highlighted how we use technology to support not replace the human element of banking.

Each P. P. P bar was supported by a valley banker throughout this process.

Valley has always been a relationship focused banking institution.

Our customers value thoughtful advice from our knowledgeable bankers are differentiated high touch service and the comprehensive suite of financial solutions that we provide.

This customer focused value proposition supported by technology will help us attract new clients and drive growth going forward.

Our customers are on the only ones I recognize the momentum that we have built.

Over the last few years, we have reinvigorated and diversified our team and we are now a desired destination for top bankers across the industry.

People want to join our organization.

And we continue to bolster the team that will execute the next phase of our evolution.

This evolution will be supported by a sustainable technology infrastructure, enabling improved operating leverage and organic growth.

We continue to use technology to drive process improvement and support our relationship bankers as they service the diverse financial needs of our customers.

We are building a high performing agile organization with a strong corporate culture.

This will allow our organization to continue to adapt quickly to changing market conditions and will drive future success for all of our stakeholders.

I couldnt be more proud of what our team has accomplished to date and couldn't be more excited for what the future holds for valley.

With that I'd like to turn the call over to Mike Hagadorn for some additional financial highlights.

Thank you IRA turning to slide five you can see that Valley's reported net interest margin increased to 3.06% from 3.0% to 1% in the third quarter of 2020.

On a sequential basis, our cost of interest bearing liabilities improved by 11 basis points to six 9%.

Total interest expense declined by approximately 15% from the prior quarter and is down 56% from the fourth quarter of 2019.

This reflects continued reductions in interest bearing deposit costs and a significant non maturity deposit growth that we have experienced in recent quarters.

Earning asset yields declined four basis points as higher yielding loans continue to repay.

This repayment was partially offset by higher prepayment fees and PPP forgiveness income compared to the third quarter.

Our cash balance continued to increase from the quarter as a result of strong deposit inflows.

We estimate the additional cash weighed on our asset yield by two basis points as compared to the third quarter.

In mid December we deployed excess liquidity to repay $534 million.

Of higher cost <unk> advances.

These borrowings carried an average cost of $2 four 8% and the majority were set to mature in the third quarter of 2021.

All else equal we estimate this action would add seven basis points to our future net interest margin.

You can see more detail regarding the impact of PPP income on slide six.

We estimate that PPP income contributed one basis point to the margin during the quarter.

The sequential increase in PPP revenue is due to the accelerated forgiveness of approximately $125 million of PPP loans during the quarter.

To date, we have recognized PPP fees of $28 million.

On an additional $45 million of fees related to phase one and two originations will be recognized as remaining loans are forgiven or repaid.

As you are aware the SBA recently rolled out phase III of PPP.

We are now encouraged again with the origination volumes that our colleagues are processing in support of our local businesses.

Slide seven outlines our interest rate positioning in the remaining opportunity to reprice liabilities lower in 2021.

Over the next three quarters, we have over $4 billion.

Our retail Cds maturing at an average cost of 80 basis points.

Currently our highest CD offering rate is 35 basis points for five years.

There are additional opportunities to re price borrowings and brokered Cds lower as well.

To this point, we've been able to protect our net interest margin through funding cost reductions as a result of our repricing in liquidity deployment levers. We continue to believe that we will outperform peers from a net interest margin perspective going forward.

Slide eight illustrates the significant improvement in our funding profile that we achieved in 2020.

Total deposits increased more than 9% driven by a 37% increase in noninterest bearing deposits and a 25% increase in interest bearing transaction accounts.

CD balances declined 31% in the year.

This transformation is the result of both valley specific efforts, particularly with regards to cross selling new PPP customers and an industry wide liquidity increase.

We'll work hard to preserve this mix shift going forward.

The bottom left chart illustrates the significant downward trend in our interest bearing deposit cost over the last few quarters.

In the fourth quarter, our average cost of deposits was a mere 33 basis points.

This is valley is lowest quarterly deposit cost and at least the last 30 years.

Given this already low starting point deposit cost reductions beyond the CD repricing opportunity identified earlier are likely to be more incremental going forward.

One side effect of our recent deposit growth is continually elevated levels of liquidity.

Our cash balance increased to $1 3 billion from 1.0 billion in the third quarter.

This occurred despite our utilization of nearly $550 million of excess liquidity to prepay FHA advances as mentioned earlier.

As we strive to optimize our liquidity and our earnings we will continue to evaluate additional deployment opportunities on both sides of the balance sheet.

Slide nine details on our loan portfolio and origination trends over the last few quarters, despite higher loan fees and the previously mentioned PPP forgiveness average loan yields declined three basis points in the quarter.

On the positive side, our average origination rate increased nine basis points from the third quarter.

The steeper curve has also expanded loan spreads which reached their widest levels since the first quarter of 2019.

Excluding PPP total loans declined slightly during the quarter.

We generated $1 4 billion of new loans in the quarter up nearly 40% from the third quarter and on par with pre pandemic levels on.

On the commercial side strong originations were offset by the repayment of two large loans totaling approximately $150 million, where the borrowers businesses were sold.

We also saw stability in our consumer portfolios, which increased for the first time in four quarters.

Our pipelines remain robust and organic growth opportunities have returned to pre pandemic levels.

While activity has rebounded across our markets. We are particularly excited by opportunities in Florida, where we are dedicating additional resources to meet the increased demand.

Slide 10 illustrates the improvement in our loan deferrals since the onset of the pandemic.

At the end of the fourth quarter total deferrals had declined to $361 million or just over 1% of our loan portfolio.

Loan deferrals in our Covid exposed portfolios stand at two 3% down from seven 1% in the third quarter.

As a reminder, the majority of our commercial deferrals remain current with regards to interest payments.

Moving to slide 11, our noninterest income declined 5% from the third quarter swap fees declined 43% to $11 million, while deposit service charges and gain on sale income both improved.

Net residential mortgage gain on sale income increased approximately 19% sequentially, reflecting gain on sale margin expansion.

Residential loans sold were effectively in line with the third quarter at $295 million, while the gain on sale margin increased over 50 basis points to 435%.

For the year adjusted noninterest income increased over 30% and comprised 14% of our revenue.

We recognize that certain fee lines will ebb and flow with market conditions. However, we remain focused on growing diverse revenue streams and building differentiated businesses that our customers will value.

To that end, we recently announced the hiring of a municipal investment strategy team to further diversify our capital markets and correspondent banking businesses.

Slide 12 illustrates our expense trends throughout the year, our fourth quarter results included nearly $12 million of pre tax debt extinguishment and severance charges.

These charges reflect efforts to improve our positioning for 2021.

Adjusted expenses increased one 5% in the fourth quarter, partially related to a $1 4 million asset impairment charge and elevated telecom expenses.

We expect both of these items to normalize going forward.

For the year, our adjusted efficiency ratio was 47, 4% down from 53, 8% in 2019 and well below our 51% target.

On a year over year basis, we generated 26% revenue growth against an 11% increase in adjusted operating expenses.

Looking forward, we acknowledge that industry wide revenue headwinds are likely to build.

On the expense side easily identified excess costs have been largely rationalized we.

We have a modest tailwind from the branch closures that we mentioned last quarter and which occurred in December.

Our team is hard at work identifying additional process improvements that can help us preserve the strong operating leverage momentum that we have established.

Turning to slide 13, you can see our credit trends in the last five quarters, notably.

Notably on the top right non accruals declined to five 8% of loans from five 9% in the third quarter.

The sequential improvement was primarily driven by the C&I portfolio.

Net charge offs declined to $3 million, representing the lowest level since the third quarter of 2019.

This equated to just four basis points of loans versus 19 basis points in the prior quarter.

Despite the extremely low level of charge offs, our allowance for credit losses increased to 1.09% of loans from 1.0% to 3%.

We remain optimistic on our outlook for credit performance.

The quarter's reserve build is related to a few specific factors.

First we revised our New York City taxi medallion valuation to 82000 from 109000, which contributed to our specific reserve.

We also downgraded certain commercial credits in Covid exposed industries, including hospitality retail and dining.

We've been very selective lending to these industries and a focus on established borrowers with substantial liquidity and diverse sources of cash flow.

While the properties in these specific industries warranted downgrades, we remain confident in the overall performance of these borrowers.

Valleys credit strength has long been a distinguishing characteristic of our organization.

Our loss rates have historically lagged peers, which has enabled us to carry a below average reserve.

While continued economic uncertainty contributed to a modest reserve build this quarter, we still expect to outperform the industry on credit loss experience in any economic environment.

Slide 14 illustrates the consistent growth in our tangible book value and the ongoing improvement in our capital ratios.

Tangible book value has increased 8% in the last 12 months driven by our increased earnings power.

Our tangible common equity ratio increased to 747% from 732% in the third quarter.

We estimate that our $2 2 billion of PPP loans reduced our TCE to total asset ratio by approximately 43 basis points in the quarter.

On a year over year basis, we have also seen a significant improvement in our regulatory capital ratios.

We remain comfortable with our capital levels and believe that the consistent growth in our risk based ratios illustrate our improving ability to increase our capital levels on an organic basis.

With that I'll turn the call back over to IRA for some closing commentary.

Thanks, Mike.

I am extremely proud of the commitment and hard work of our team that contributed to valley as 2020 financial results and strategic achievements.

We are very excited about the opportunities that 2021 will offer and look forward to executing on our strategic priorities and driving continued success with.

With that I'd now like to turn the call back over to the operator to begin Q&A. Thank you.

On a Monday.

And then a question when it's co star one on your telephone on to a draw on your question press the pound key placed on bottle, we compile the Q&A roster.

First question on comes from the line of Frank Schiraldi from Piper Sandler.

May begin.

Good morning.

Frank.

On.

First question was on the loans.

You talked about the loan pipeline, having rebuilt to pre COVID-19 levels in the mid single digit growth.

Mike also mentioned.

Florida is the greater opportunity within that just wondering if you can speak.

Speak speak to a little more color on is it sort of Florida could be a high single digit growth in up north could be low single digits.

And then any expected change in mix in terms of loan type.

Hey, Frank It's Tom I had day answer.

Yes, the production on pipeline increased 15% and 30% respectively from the third quarter to the fourth quarter as Mike pointed out return to us to the pre pandemic levels, Florida represents 40% of our production today up from probably 30% a year ago, and we also experienced slightly better margins in the Florida market.

Our business in New York, New Jersey remains steady.

Pipelines continue to grow across the regions. It across all different types of loans that were involved in between C&I and CRE. Our business is primarily into the suburban markets not a big reliance on the Manhattan market by following our success and our growth in Florida, we've begun adding C&I teams are well look at the increase there.

C&I staff from Florida by 25% and we've already begun adding those people, Florida today represents about 28% of our commercial portfolio. We expect that to grow we expect C&I to complement our already strong our real estate business, but we expect growth in New York, New Jersey to continue on the same page.

It has in the past.

Also I will be adding a team of experienced C&I lenders in the Philadelphia market at some point during this year. We're actively recruiting two years ago, we moved into Philly with real estate lenders. We've had great success. It complements what we do up here the attributes of the market are very similar to the new Jersey market and it's contiguous.

And much easy easier for us to manage so we do expect that single digit growth to occur this year.

Florida will be in appointing component of that is always has been but we get steady growth in all our markets.

Okay.

And then if I could just sneak in one more on fee income initiatives.

Just thinking about.

The next couple of years, I guess, I mean noninterest income to revenues I guess could that ratio just given the strong year in 2020.

Could.

That ratio growing be more of a sort of a 2022 or 2023.

Result.

Wondering if you could talk a little bit about that thanks.

Yes. This is Mike you know keep in mind that.

Fee income as a percentage of total revenue.

Taking a little bit of a hit because we've had such great success with net interest income and so it's probably stronger than it looks as if on a percentage of revenue basis, just because of that but our commitment to.

Either starting new businesses, adding to what we already do in the fee income space, which Shouldnt get lost in the equation, that's definitely part of what we're doing.

One of our strategic priorities over the coming years is to increase that percentage that fees represent a total revenue and I think the.

Comment that I made regarding the municipal business, we started in the fourth quarter shows and demonstrates our commitment to do that.

Okay, Alright, great. Thank you.

Our next question that's fine.

Good day.

Alex Pollock from Jpmorgan.

Thanks, Good morning, Hi, good morning, everybody.

I wanted to start first on the efficiency ratio, so youre well below the 51% target for 2020, now you're well below that what's the target for 2021.

And moving forward more general.

We really haven't given a specific target as to where we think we're going to move the organization I think <unk> seen significant positive operating leverage we think theres still levers that we can pull Steve based on improvements in how we outline technology throughout the entire organization.

We continue down the path of looking at efficiencies across the entire branch platform and we think there's a lot of opportunities within the organization.

Getting to a stronger efficiency ratio, we think is going to be important as we continue on a lever and grow the organization.

As Mike mentioned, there is theres deaf on headwinds coming within them.

Net interest rate environment.

And we think we have a good opportunity to really mitigate some of those headwinds based on what we do on the efficiency side mhm and without giving a number.

As we look forward one of the things we enjoy today is our efficiency ratio is a differentiator for us vis vis our peers that is something that we expect to be continue to produce and we believe that that's actually really important to our future strategic success as you look at what's going on on the industry.

Okay. So if.

If we look on another way so if we look at the pre tax pre provision ROA, which you call. It on slide three.

We'd have to back out the PPP program impacts on let's say, we do that which I think we could do with the numbers you gave us so apples to apples how should we think about that trending through 2020, given the headwinds youre talking about IRA.

Look I think we look that that obviously there is some headwinds when you think about the PPP income coming off as you identified we think thats still going to be strong from the first half of 2021.

I think mortgage volume could potentially go down as well based on where we see interest rate environment, but we have a lot a lot going on within the organization. When we think about the organic growth as Tom mentioned, we're expanding our lending staff, 25% in our Florida footprint.

We are going down to Philadelphia, as well with a more concerted effort and we think that we can manage the expense base to not really see significant increase as a result of these strategic initiatives. So we think there is a lot of opportunity within the organization to really drive revenue growth throughout the entire footprint and we think that we will have a positive impact as to how we think about the efficiency ratio is.

Move forward largely a function on what we're doing on the revenue side and we think we have the capacity based on the operating leverage not really have to increase expenses, yes got it if you just look at the.

I'll add to that real quickly. If you just look at the lending side I would direct your attention to slide nine one of the things. We're most are.

Encouraged by is the fact that our total loan book only went down three basis points on our net originations for the quarter were up nine I'm, not saying that's necessarily be ongoing.

Run rate, but its definitely encouraging and we're not seeing.

Remarkable reductions in loans at least on the portfolio as it sits right now on as I said, the new originations are higher when you flip to the liability side of the balance sheet one of the things thats going to help us on <unk> is going to be the continued improvement that we have an opportunity.

To re price our liability sources considerably lower with $4 billion in the next roughly three quarters at over 80 bps I would expect that those would all come on at least less than half of where they are coming off right now when they mature.

That's helpful.

My final question I wanted to ask you a big picture question.

So you guys had announced a fairly bold initiative and intend to transformation on the franchise as part of lift but it was it was really when you took over the CEO role.

Can you give us a sense where is the company now right. The new Valley are you, where you need to be from a client satisfaction view are you still working to change the culture or are you still heavily investing in the franchise where are we in this transformation.

Thank you and I think we made significant progress I think from where we were to where we're headed.

The investment in technology has been significant and you've seen that investment in technology without bringing up the overall expenses within the organization. So I think we've done a really good job of managing that investment there is a tremendous amount of opportunity still left when we think about what that technology investment has and what the positive operating leverages. The culture within the organization is something I've never.

Seen before in my 25 years here and I think as enviable to so many outsiders. We are a destination without question for bankers looking to come to an organization that has consistency that has empowerment and that really drives our agility as to how we think about moving moving forward.

Technology is going to continue to change in banking is going to continue to change I think three years ago, we started to talk about technology.

Technology and everyone looked at technology and said, Okay, we need a new front end or we need a new way to interact with our customers and we sat there and said wait.

<unk> is all about the infrastructure and the agility and we started to invest in the infrastructure not an individual core not not a front end technology. When it comes to a treasury a what type of infrastructure, we had to enable to have plug and play technology that enabled us to really be relevant as the environment changes.

And then we think about just even what you're thinking about from a physical transformation today everyone's looking at Covid, and saying Wow, we need to now begin to rethink what our our workspace looks like.

Two and a half years ago, we saw at our corporate office buildings here and we began to think about at that point that the physical environment was going to change over the last five years, we've closed over over 50 branches with an understanding that delivery channels, we're changing with any COVID-19 to begin to tell us that the environment was changing and that customer behavior is changing this is our vision. This was our.

Understanding of what was happening within the environment and it's going to continue to change and we think we're building an agile workforce that will be first to adapt to many of these changes and deliver outsized performance.

I remember three years ago, when we sat there and laid out these efficiency targets no. One thought that we would get to them right and we will surpass them and I think the street will be pleased I think with where we're headed and we continue to deliver outsized performance.

Okay terrific. Thanks for all the color.

Thank you and what net.

One from question Darwin.

Our next question on kind of a line of Matthew Breese from Stephens you may begin.

Hey, good morning.

Just following up on on the expense discussion.

Clearly theres been a lot of worked on in the technology a deal at least from what I've seen paying dividend.

But philosophically speaking should we expect expenses from here to mostly stabilized we see revenues without added cost is that at least philosophically the way to think about it or is there is there is there actual room to bring down the absolute level of expenses.

I think as we said in our as I said in my prepared remarks, I think the low hanging fruit part of it is done there is we're never done and our ability to get more efficient or bring down expenses. So we will always be trying to find places to do that however, we do have to admit that as we've said we're going to be growing.

The business, we're going to be adding new teams of bankers and so to the extent that they produce the revenue that offsets it and continues to show the positive operating leverage that we have historically shown on this quarter, we showed two and a half X operating leverage.

Got to keep our eyes on both sides of it but I.

I don't think we're done necessarily on the expense side.

Okay and then the other one from me.

I Couldnt help but ask in your in your 10-Q, you mentioned on implementing our new deposits service for businesses in the cannabis industry.

Can you better frame for us that business, what's on the balance sheet are ready in the overall market as it currently stands and the opportunity whether it's deposits loans fees.

I'll, let Tom address it in a couple of seconds, but I think this is happening.

We're burying our heads in the sand that we think that this isn't going to really impact us from my perspective, it's better to come in with an approach as to how we want to handle that empty well thought out as opposed to letting the market dictate what that strategy is we've had an ability over the last year to really define who we wanted a partner with from an infrastructure perspective.

Back to make sure we had the right checks and balances in place to make sure. We had the right AML processes in place and we can take the partner that we wanted to really deal with as we begin to grow this.

When this becomes legal in more widespread throughout the entire banking industry. I think people are going to take shortcuts and how they look at garner.

Garnering this type of business and in my mind, it's much better to be proactive in addressing something then being reactive and I think that was our approach here.

That sizable at this point, we picked a couple of reputable partners as to how we want to grow.

And we think it'll it'll continue to pay some dividends, but it's not moving the needle on anything yet.

At this point, Thomas or something like that yes, Matt its Ed.

It's a deposit focused opportunity for us we're going to onboard slowly within the states, we do business, where it's legalized we have one multi state company that we've begun on boarding in both.

New Jersey, and Florida will continue to add.

Other entities as we kind of get a little more comfortable about go a slow pace and making sure. We're doing all the right AML BSA work and we're verifying as we go along but as IRA said, it's not going to move the needle this year, but ultimately it could be impactful.

Matt just one thing I would add I think in my mind reflects where the organization is headed I think to many organizations look to Covid and look to this environment looked at that environment and say, what we need to now react we've a very strong understanding a very strong belief as to where the industry is headed not just covered but banking in general and we better be damn well proactive in how we address that.

And make sure that we have the right infrastructure and agility.

On our own without somebody telling us that we need to put this in place.

Understood last one from me.

Clearly theres a lot of energy from.

From you on the rest of the management team on what you can do internally.

Is M&A a priority here or do you think you have enough internally to get where you need to be without any can you prioritize where M&A stands for us.

Okay.

We have amazing strategic initiatives within this organization, we've hired the most amazing tremendous people as well and I couldnt be more excited about where we're headed there.

There is new businesses that we're beginning to get into from an organic perspective.

That's a clear understanding that we need to continue to diversify the revenue stream look at opportunities as to how we create consisting growth from deposits and <unk>.

Loan perspective that may be in looking at different expanded strategies and geographies as Tom was talking about earlier and we need to make sure that we're looking at that positive operating leverage. So if there's opportunities from a perspective that makes sense that don't distract us that don't reallocate a tremendous amount of resources is something we would definitely enter entertain that said if it doesn't happen.

We're absolutely comfortable I think the most important thing is is we have a clear understanding of who we are.

I had it on what we want to be we also have a clear understanding that there are things that could potentially accelerate that and if it makes sense from an allocation of resources perspective than the other day to our shareholders to go down the path of looking at it from a diligence perspective.

That said it has to align with our strategic initiatives and if it doesn't it's not something we're going to focus on.

Got it okay.

Well I appreciate you taking my questions. Thank you. Thank.

Thanks, Matt Thanks, Matt.

Thank you.

Our last question on base from the line of Chris O'connell from K VW maybe.

You may begin.

Good morning.

Good morning, So I just wanted to start off with.

You guys mentioned the strength in the Florida franchise and allocating some additional strategic resources towards those efforts.

If you could just kind of like expand upon.

On the efforts that you are having there and I'm, assuming it's primarily on the residential mortgage side as well as the deposit gathering side.

No no it's primarily on the C&I side as you know our real estate business in Florida is very strong we have an active C&I business will be expanding C&I lenders in all of our major markets go on your Miami, all the way up through Orlando Jacksonville on over across the tampered down to Naples does it.

C&I emphasis in Florida, and I also want to say, we're doing similar in New York. We just we just don't need as many New York, where you have a vibrant C&I business up here in New York, and New Jersey, and we'll be expanding that to complement that already strong real estate business. So it's a it's a C&I focus it will fill in real estate lenders here on there in the markets we need them.

Chris Florida is a massively growing dry market, obviously as you see the demographic shift.

We obviously have a very strong residential mortgage program throughout our entire footprint. If you look at the footprint. We average about 50 50, this quarter and what was refinanced well what was home purchase.

You look up in the New Jersey market, that's about 35% of that was refinanced its the exact opposite in Florida from most of the originations are based on home purchases. There was a growing economy down down in Florida, a lot of the loan growth that we see up here is definitely from a.

A focus of us from a risk relationship perspective, but also taking business from other banks. There is real organic growth that's happening in Florida, and we think there's a real opportunity to continue to differentiate ourselves and put some additional growth on by allocating the resources down there just to expand on what IRA said on the consumer side.

The Florida purchase market is 60% and refinances 40, and as I reported that it's the flip side when you get up here in New York New Jersey.

And more importantly in a very short period of time, you know a couple of years, we built a consumer business between Florida, Alabama to almost $1 $2 billion. So when you look at the Florida contribution it's not just the commercial at 28% of the portfolio. It's also a growing consumer business and again, it's a lot of conforming, it's a lot of prime and Super Prime.

Indirect auto business, that's coming out of there.

Got it that's great color. Thanks.

And as you're kind of thinking longer term or from from <unk>.

<unk> strategic perspective at Florida.

So you guys have gone there down there in the past with acquisitions, but it's been a while.

Would you consider.

M&A down there.

In that area as well.

I think we would definitely consider M&A in that marketplace, but let me be clear sort of what our constraints are right. So the constraint certainly revolves around what our strategic initiatives are.

Not going to be concentrated with one of those strategic initiatives is something we don't want to do and we don't want allocate resources, but let me also talk about tangible book value right and it's something that I've been pretty attuned to as to how we think about growth and what that franchise value is.

And we are absolutely not go into further dilute our shareholders to significant degree just to continue to grow down in Florida marketplace. We think we have a good foothold and there's organic growth that we can do down there if its tangible book value dilutive. It has to make sense. It has to be very very short from an earn back perspective, and something we think that we can really leverage.

And if it doesn't make sense from a tangible book value perspective, then we're not doing it we diluted our shareholders.

Inefficient amount back in 2014 and somebody of that deals that we did we are not doing that again.

Understood. Thank you.

And then just a couple of cleanup items.

For the mortgage banking.

2020, obviously, particularly strong.

Year.

How do you see that demand.

Coming into the game mind going forward.

Yes.

The demand and the production. This year was very strong for us probably up 30% from 2019, the refinance market has held up so far this quarter, we don't expect it to hold up for the full year at the same pace. The purchase market is strong the migration into the suburbs and the purchase market is holding is doing.

Well also so it's really hard to say I mean, we are focused on conforming business. So I don't expect growth in the portfolio, but I do expect that we will continue to manage and take advantage of the refinance market wallet share.

Great. That's all I had thank you.

Thanks, Chris Thanks.

Thank you.

And I have no further questions in the queue.

It's on the call back over to IRA Robbins for any closing remarks.

We just wanted to say thank you for taking the time to join US today. Thank you for your interest in Valley and we look forward to generating significant positive operating results as we continue to move forward into 2021. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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