Q1 2021 Valley National Bancorp Earnings Call

Ladies and gentlemen, your conference calls could you just talk momentarily. Please continue to stand by and thank you for your patience.

[music].

Okay.

Yeah.

Good day and thank you for standing by welcome to the Valley National Bancorp first quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session and ask a question. During this session you'll need to press star one on your telephone.

And please be advised that today's conference may be recorded I would now like to hand, the conference over to your speaker today, and Travis Lan Investor Relations. Please go ahead.

Thank you good morning, and welcome to Valley's first quarter, 2020 One 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 Danza.

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.

And 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 and the banking industry.

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

Thank you Travis and.

And welcome to other participants on the call.

This morning, I will provide detailed thoughts on the unique growth opportunities available to us at valley.

And update you on our corporate social responsibility efforts.

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

And the first quarter of 2021, we reported net income of $116 million and earnings per share of 28 cents.

For the third consecutive quarter. This represents the highest level of quarterly earnings and valleys entire history.

Return on average assets was 1.1, and 4%, reflecting net interest margin expansion stay.

Stable expenses, and a lower provision for loan losses.

Looking forward, we expect fee income to rebound continued net interest margin strength and strong loan growth.

This should drive further positive operating leverage strong financial performance and shareholder value overtime.

On last quarters call I mentioned, our expectation for mid single digit non P. P. P lone growth in 2020 one.

And the first quarter, we generated 3.4% annualized growth and non P. P P loans.

This growth was well diversified from an asset class and geographic perspective.

On the commercial side non multifamily Cree and CNI were strong contributors and auto loans increased nicely and the consumer portfolio.

However, the net growth numbers don't tell the whole story.

And the first quarter of 2021 valley originated over $1.6 billion of non Triple P loans.

This represents the single highest quarter for loan originations in our history.

Our commercial loan pipeline now stands above $3 billion, which is also the highest level and our history.

These statistics represent and what we can control.

We can build commercial and retail relationships and drive meaningful activity by providing premier service.

We have less control over the pace of pay offs, which remain elevated and have weighed on our net loan growth.

Still we feel very well positioned to achieve our loan growth goals through the course of the year.

We mentioned on our fourth quarter call that we're increasing our C&I lending staff and Florida by 25% or approximately 15 individuals'.

12 of those 15 lenders are now on board with half focused on middle market and the other half on business banking.

We have also added eight new C&I lenders in the northeast spread across our middle market business banking and health care segments.

We will continue to selectively augment our lending team to ensure we are positioned to capitalize on growth opportunities throughout all of our markets.

Our talent is supported by the technology tools that enable nimble responsiveness and Premier service.

From a balance sheet perspective, we have the capital and deposit funding to support the loan growth that we expect to achieve as the economy continues to rebound.

Geographically, we saw more than 50% of our commercial loan growth come out of Florida during the quarter.

Activity has been particularly strong and Palm Beach, Broward County, Jacksonville, and Orlando, where previous hires attractive from larger competitors are paying dividends and theirs.

And there is real momentum here that will continue to be supplemented by the additional hires I referenced earlier.

We have strategically built our loan portfolio and lending team that is well diversified across asset classes and geographies.

Our significant market presence and stable northeast markets is supplemented by a robust commercial lending operation and more growth oriented Florida markets.

Future growth is expected to remain well balanced between these markets.

We believe this differentiated approach sets us apart from many of our regional peers and will ensure a consistent pull growth opportunities remains available to us.

With that said I also want to mention some important strides we have made as corporate citizens.

During 2020, we continue to promote social and economic Justice.

And we emphasized inclusion among our associates and communities by expanding our diversity equity and inclusion initiatives and partnering with local justice focused organizations.

Our communities and we May have a hard on what we do.

And 2020, our employees volunteered almost 7000 hours other time and as an organization, we gave nearly $4 million to local charities.

We've also developed and new community lending group that will focus on serving the unique needs of under representative firms across all of our markets.

We are proud to have received and outstanding community Reinvestment Act rating from the OCC.

And 2020, we also established and ESG Council to further our approach to environmental social and governance issues.

Our ESG Council will guide our efforts to practice sound ESG stewardship with respect to our employees shareholders customers and overall society.

We will also use ESG best practices to mitigate the risk presented by these issues as we pursue our long term strategic initiatives.

For more details on these efforts and our recent successes I welcome you to view, our 2020 corporate social responsibility report on our website.

We understand the importance of these issues and we will continue to devote time and resources to ensuring we fulfill our potential as a well respected and leading corporate citizen.

As you can tell theres plenty going on at Valley.

We're constantly evolving to meet the changing needs of our markets and our diverse constituents.

We continue to generate strong net interest margin performance and diverse loan growth opportunities we.

We are very excited for the rest of the year and confident we will continue to drive strong financial performance and shareholder value.

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

Thank you IRA turning to slide for you can see that Valley's reported net interest margin increased to three one and 4% from 3.06% and the fourth quarter of 2020.

The majority of this increase was related to accelerated triple P loan forgiveness.

However, net interest margin would have still increased one basis point sequentially absent the effects of Triple T.

This stability reflects continued earning asset mix shift as average cash balances declined and average loans increased modestly.

Importantly, much of the quarter's loan growth occurred in March.

The impact on average balances and earnings will begin to emerge in the second quarter.

We continue to actively manage the funding side of the balance sheet and drove another nine basis point reduction and our interest bearing liability costs during the quarter.

This reflects lower deposit rates and a full quarter's benefit from the FHA Ob borrowings prepayment that we executed in the fourth quarter.

As is typical the first quarter's day count also had a modest negative impact on the reported margin.

During the quarter, we utilized excess liquidity to fund the runoff of higher cost broker deposits.

This trend continued into April and our average cash balance continues to decline.

With strong loan originations and select liability repricing opportunities our net interest income should grow as the year progresses absent the impact of PPP forgiveness volatility.

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

We estimate the Pvp contributed eight basis points to the margin versus one basis point in the fourth quarter.

As you can see on the bottom left we have an additional 600 million and forgiveness requests pending approval by the SBA.

All in approximately 57% of our round one into originations have now received or requested forgiveness.

Through March 31, and 2021, we have recognized approximately $49 million of Triple P loan fee income since the inception of the program.

I will speak to the results of our round three triple P origination shortly.

From an income perspective, however, as of March 31.

On an additional $57 million of Triple P loan fees will be recognized as outstanding loans are forgiven or repaid.

Slide six outlines our interest rate positioning and the remaining opportunity to reprice liabilities over the next four quarters.

We have over $3 billion of retail Cds set to mature and the next two quarters at an average rate of around 57 basis points.

We expect the majority of these funds will be retained and lower cost Cds or transaction accounts at rates closer to 25 basis points.

We also have additional opportunities on the borrowing side, including the pending maturity of $500 million of higher cost borrowings early in the third quarter of 2021.

As a result of active balance sheet management and significant deposit growth. Our net interest margin has been extremely resilient over the last few years.

We remain modestly asset sensitive and expect to continue to outperform peers from a net interest margin perspective going forward.

Slide seven illustrates the ongoing improvement and our funding profile total.

Total deposits increased another 2% during the quarter fueled by a 9% increase and noninterest bearing balances and a 7% increase and other transaction balances.

Continuing on our recent experience CD balances declined 19% during the quarter.

A portion of this runoff was and brokered balances.

These dynamics contributed to the sequential five basis point reduction in deposit costs.

From a total deposit growth perspective, we have benefited from successful cross sell deposit products into our commercial customer base.

Our exceptional deposit growth positions us to fund the future loan originations that will result from our strong pipeline.

We continue to build out and deposit products and services to further diversify our growth channels too.

To this and we recently revamped our online account opening process and expect to add new digital deposit products and the coming months.

Page eight provides an overview of the recent acceleration of online and mobile banking adoption among our customer base.

We continue to assess the performance of our physical delivery channels and look for opportunities to further enhance efficiency and our physical delivery.

As a reminder, and 2020, we rolled out a pilot program to provide banking services to businesses and multistate operators and the cannabis space.

We took a differentiated approach of combining industry, leading risk management with a value enhancing offerings for our commercial customers.

As we exited our pilot phase we are positioned to capitalize on growth and the cannabis space as legislative support continues to build momentum.

We will update you on our progress as this business becomes material.

Slide nine details our loan portfolio and origination trends over the last few quarters.

Average loan yields were effectively flat during the quarter benefiting from elevated income from Triple T forgiveness.

As I remember and we originated a record $1 6 billion of non triple P loans during the quarter.

While origination activity has been robust in recent months elevated payoffs continue to weigh on net loan growth.

The pace of future loan pay offs is uncertain, but we remain encouraged by our strong and diverse lending pipeline.

The right side of page 10 lays out the details around our round three triple P activity.

We originated over $850 million of new Triple P loans over the last few months.

The average loan size and round three is lower than our previous experience.

Contributed to a higher average processing fee of 4%.

And round three we continue to focus on minority and women owned businesses.

In total the Triple <unk> experience has been extremely rewarding for valley.

We filled the need and our local communities and executed at a very high level.

Our NPS scores related to triple P have been extremely high and the level of differentiated service that we were able to provide has increased demand for other products and services.

Moving to slide 11, we generated noninterest income of $31 million for the quarter.

The reduction was driven by lower swap and residential mortgage gain on sale income.

We expect swap income to rebound to high single digits and the second quarter of 2021 with steady improvement from those levels for the remainder of the year.

Gain on sale income should also improve to a high single digit level, but could decline from that point, given the expectation of slowing refinance activity as the year progresses.

As we said on our previous call, we do recognize that certain fee lines will ebb and flow with market conditions.

However, enhancing fee income remains a strategic focus of our company.

We continue to explore less cyclical opportunities to develop business lines that will contribute to greater consistency and revenue diversity.

On Slide 12, you can see that our adjusted expenses were stable and the first quarter and $157 million.

The quarter included over 700000 and expenses associated with seasonal snow removal.

Our adjusted efficiency ratio ticked up to 48, 6% from 47% and the fourth quarter with the increase reflecting the reduction and fee income during the quarter.

We remain focused on relative to expense control and positive operating leverage.

Since the first quarter of 2020, our revenue has grown and nearly two times the pace of expenses.

This trend is consistent over a longer horizon as well.

Over the last five years, our quarterly revenue has increased and an annual rate of 14%, which is more than two times the pace of annual expense growth and the same period.

Looking forward, we continue to explore opportunities to generate positive operating leverage and are building the talent and infrastructure to leverage our strong balance sheet with a focus on organic loan growth.

As this growth is realized we will continue to drive towards industry, leading efficiency levels.

Turning to slide 13, you can see our credit trends for the past five quarters.

During the quarter, we maintained our allowance for credit losses at one one and 7% of non PPP loans.

We recognize that renewed economic optimism is driven negative provision and reserve releases across the industry.

While we share this optimism our first quarter seasonal model remained partially weighted to recessionary scenarios.

We revisit our model each quarter and given the economic tailwind is beginning to emerge as well as the successful piece of vaccine rollout and is possible that we increase the moody's baseline weight and going forward.

All else equal this could lower our future reserve levels.

Our non accrual loan balances continue to hover around 60 basis points of loans give or take.

Accruing past dues declined to 53 million from $99 million and the prior quarter.

This represents the lowest absolute level of accruing past students since the second quarter of 2018.

While we remain conservative by nature, our borrowers have been extraordinarily resilient throughout the pandemic.

During the quarter, our active deferrals declined to $284 million or <unk>, 9% of total loans versus one 1% and the fourth quarter.

Additional detail on deferrals can be found in the appendix.

As we have reiterated throughout the crisis Valley historical credit strength remains a distinguishing characteristic of our organization.

As a result, we expect to outperform the industry on credit loss experience in any economic environment.

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

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

Our tangible common equity ratio increased to seven 5% from 747% and the fourth quarter and.

Adjusting for our $2 4 billion of PPP loans tangible common equity would have been above 8%.

On a year over year basis, we've also seen a significant improvement and our regulatory capital ratios, which gave us the flexibility to redeem $60 million and subordinated debt on April one.

This tranche had been acquired from USA and carried a 625% cost.

All else equal this would lower our total risk based capital ratio by approximately 20 basis points.

We expect to offset the majority of this impact with retained earnings during the second quarter.

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

Thanks, Mike.

This quarter was highlighted by the continuation of our strong performance trends.

Our net interest margin has been extremely resilient, reflecting our active balance sheet management and loan and deposit tail winds.

We continue to control expenses and drive positive operating leverage.

Our capital levels are robust and we are positioned to drive significant organic growth on both sides of the balance sheet across our entire franchise.

This strong and consistent performance is the result of the performance oriented culture that we have developed over the last few years.

There was a real momentum here at valley, while we continue to evolve and refine our approach we are committed to remaining a high performing institution for the benefit of all of our stakeholders.

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

Thank you, ladies and gentlemen, if you'd like to ask a question at this time. Please press the sport and the one key on your Touchtone telephone to withdraw your question press the talent and team.

Please standby, while we compile the Q&A roster.

And our first question coming from the line of.

Steven Alexopoulos with Jpmorgan Your line is open.

Hey, good morning, everybody.

Good morning.

And I wanted to start on online competition.

We've been told for years that with customers now being able to move money more easily that could go on line check rates that banks like yourself would have to pay closer to market rates for deposits and you're telling us that you're 57 basis points Cds are going to be retained somewhere on the 25 basis point range, which is well below what on.

<unk> players such as <unk>. So my question is are you as you move those rates down are you seeing customers move balances out of the banks to chime and other players that are just paying more for our customers staying with you.

And we're definitely seeing and customer retention and Steve we're actually seeing customer growth and when we look at unit. Other accounts I know, there's been a surge in deposits across the entire industry and we're focused on growth and household growth and what are our customer experience looks like but on individual units and were up seven 5% linked quarter on an annualized basis and <unk>.

Unit of personal accounts were up eight 5% on an annualized basis and business accounts and year over year, we're up 8% as well. So we've seen a real positive trend continue across both business and consumer accounts.

Our NPS scores within the online banking channel is actually better than what we get within the branches. So I think it's a combination that having.

Terrific online banking experience as well as that relationship focused within the branches.

We tend to see a lot of our customers want the ability to bank on line.

Want the safety and security to know that there is somebody that they have the ability to connect with so I think it's a combination of our comprehensive strategy and added an individual one and we're seeing real core growth and our organization and its a focus I think on that customer experience.

Got you Okay, that's helpful and.

And IRA on customer sentiment.

Guys are on a very unique position because you have exposure to the northeast and Florida right. We know, Florida is much more open than New York and New Jersey. Today can you contrast for us business sentiment amongst your customers and the northeast first Florida, and maybe talk about what difference you're seeing in terms of them building on pipelines here.

Sure Hey, Stephen It's Tom I'd answer I think.

As IRA pointed out early and the presentation.

40% of our production on the commercial side is coming out of Florida, and about 50% of our growth is coming out of Florida, we still exhibit very stable growth and production in the northeast again across all quarters of of our business, where more suburban debt. We are Manhattan based tier we are seeing.

Higher C&I growth today, and the north east because that's been our focus for the last for years here and we're starting to see that C&I growth in the south and the Florida, Alabama markets as we add staff down their pipelines are now for the most part I would say.

It's 40% of the pipeline is Florida based on the commercial side 60 is still New York, New Jersey, and more importantly are equally important is on the consumer.

We're now 50, 50 and refinance to purchase but we are seeing about a 30% increase and the purchase Porsche and down in Florida over the last quarter. So we're starting to take advantage of that migration down on both a business and consumer side okay.

But Tom I'm trying to understand and are you seeing a big difference and customer behaviors and Florida today versus the northeast.

Hi.

From the standpoint of customers building inventory customers.

Building, whether it's a real estate project very similar youre seeing a bit more activity in Florida and different <unk>.

Other categories.

It's still retail you're still doing office down there you're still doing a lot of multifamily. It is slower up here on that bill debt is in Florida, and it's slow up here on a C&I inventory build than it is in Florida. So there is more activity in Florida.

Okay and then.

And final question.

For you IRA it's clearer M&A and the northeast certainly park Percolated do you think that you can be competitive in your markets with roughly $40 billion of assets or do you think you need to join many of these other banks that are jumping up to that 60, 70 $80 billion asset threshold.

Thanks for the question.

Look I think there's varying reasons as to why each organization looks at M&A and we have real strong organic growth that's taken place and our organization. We're focused on relationship banking model leveraged by technology and not the other way around and as a result, and I think being focus from a strategic perspective, we do have the ability with where we are today.

And to deliver outsized performance on an organic perspective.

That said I think theres always opportunities when we look at M&A and are there.

Institutions, both bank and non bank that potentially would be accretive and help us accelerate some of the individual strategic objectives that we've outlined so to answer your question directly I think we are of and opportunistic size definitely to continue to grow the organization.

But that said I think if there is an opportunity to continue to grow the.

Layering and some M&A, it's something that we would be open to as well.

Okay terrific. Thanks for taking my questions. Thanks, Tim.

And our.

Next question is coming from day one on.

Thanks for Bobby with Piper Sandler Your line is now open.

Good morning.

On the.

The IRA.

IRA I think you I think you reiterated mid single digit.

Loan growth.

But just wanted to make.

And make sure that was the messaging and then any bias one way or the other in terms of.

That growth rate for the full year, just given how strong originations or even to start the year.

Yeah, Hey, Frank It's Tom again, I think the single digit growth given where our pipeline is today and that $3 billion range, which is probably 25% above the pre pandemic levels.

Gives us confidence that we'll we'll meet that that level yes.

And the caution is the pull through will be lower there's much more competition much more loosening of terms one of the important components of us hitting our gross numbers not to compromise our credit standards and our underwriting standards, which we did not we are still a very diverse growing and all regions all product types.

C&I real estate and still very granular average real estate allowance still and up $4 million range average C&I loan is still at $1 million range, we're going to maintain those those standards.

And the impact of <unk>.

Every bank being very hungry for loans might prevent us from from hitting.

Pulling through that full $3 billion that we're talking about Additionally, we have taken advantage of the aggressiveness and a market we exited about $150 million of New York City multifamily loans that we acquired for the Euro Tani acquisition non relationship lower yielding.

And you all moved out of that and still replace and grow that that three 4%.

Okay. Thanks, and then just just lastly for me on.

It seems like you've got and as much deposits and the doors and want.

How do we think about I know, it's a small piece of the overall franchise.

But if I think about the Alabama portion of the footprint.

How could that change over time.

And you retain that how does the strategy there.

First of all you know what is the strategy now and how could that change.

Change over the near term.

And let me just maybe address the question first so so maybe I would disagree a bit I don't think it's easy to get the type of deposits that we want today I think anyone can grow deposits based on on.

And on sort of surge deposits and based on not real relationships those are transaction type deposits.

Our growth and households are growth and relationships with some of that we focused on and I think when we looked at even from a PDP perspective, we could have absolutely done more PDP, we could have absolutely been on every single leader board when it came to PPP, but it would have been inconsistent with our focus from a strategic perspective, and making sure that we were relationship first and how we looked at growing the.

Overall franchise sales from our perspective.

The individual liabilities side of the balance sheet growth and households, the growth and profitability of those individual relationships that jives franchise value.

Put it putting up unbelievable deposit numbers when their transaction and really don't really drive franchise value from our perspective I.

I think as that layers and tap the Alabama I think we look at it from a more holistic perspective and are they additive to the organization. When we think by stable funding base as their franchise value that comes out of that and today. The answer is yes, and we continuously reassess every single geography every single product we have within the organization to sit there and say is this the best.

Use of our capital is this the best use of our resources and is it providing the best franchise value to the overall organization.

Okay alright, thank you.

Thanks Ryan.

Yes.

And our next speak on next question coming from the line up exactly in line with Stephens. Your line is now open.

Good morning, Zach question on covering for Matt Breese, how are you guys done and.

And that for an exact.

Alright, and just have two quick kind of model cleanup questions.

First on the NIM do you guys from.

And the trajectory for the rest of the year do you guys see the NIM, having room to run higher.

This is Mike I'll take a stab at that one when you look at the sequential change from fourth quarter to first quarter of <unk>.

And eight basis points to two largest increases that drove that were and the impact of triple T and the impact of our interest bearing liability cost reduction both of which we think are going to be robust going into the second quarter and I would say that the letter the interest bearing liabilities will continue into third and fourth quarter and you can see that.

And our.

The other thing is the number of days was a negative drag on that sequential comparison, and that's obviously going to improve and the second quarter. So what I'm, telling you is I think margin could actually.

As stated margin could actually be better than $3 14.

And the second quarter and then once all of the the majority if not all but the majority of those triple P fees that are enhancing margin.

Are taken through the income statement, you will see a reduction and margin for that reason alone, but we still have these other.

And.

Movers that we're working on and not the least of which is our interest bearing deposit costs, which we still have more room.

Great. Thank you and then on expenses.

Harvard <unk> 7 million.

Good quarterly run rate.

Yes, we feel pretty good that the adjusted expenses that we've put out 157 is a fairly decent ongoing run rate.

Great. Thanks for taking my questions.

Yep. Thanks, Ed.

Okay.

Our next question coming from the line up Ken.

Ken Zerbe with Morgan Stanley. Your line is now open.

Yes.

And I was hoping for in terms of the ACL ratio and.

And the press release, you guys mentioned that and it looks like you did reserves related to certain commercial real estate loans can you just talk a little bit about that specifically how meaningful was that.

And it was a was a single low and I think you were referring to that we moved into our non accrual category is pretty small relative to the size of the portfolio.

Yeah.

Yes, the biggest mover on our seasonal reserve was clearly the.

Weightings that we put on the Moody's estimates so just to be real clear about the 60%.

On the baseline, which had previously been 30%, 30% on the S. Three which is a recessionary scenario, which had been previously 50% and 10% on S for which is a prolonged slump within those components and the and the Moody's estimates.

Because of the way it works, it's less focused on the GDP number honestly, but more focused on the Q3 number because of the difference in view three unemployment each one of those scenarios and.

And so what our comments were meant to say is we really felt that was prudent going into the quarter thinking about the pace of the vaccine rollout there was a ton of uncertainty about its side effects was the economic rebound actually driven by fundamentals or was it being driven by a lot of government money. That's just sloshing around in the economy.

So taking everything into its totality, we thought that was the best approach and Thats that resulted in us taking some measure of provision of $9 million and the first quarter. So and our comments, we said all things being equal we would expect that number to be somewhat reduced I'm, not saying that is actually going to negative but.

Absent loan growth, that's higher than what we're projecting which will also drive a higher level of provisioning.

I think the bias would be towards a lower number.

Got it okay that makes sense and then just in terms of mortgage banking, obviously, it felt looks like and you expect to rebound and that next quarter can you just explain exactly what.

And what did happen with mortgage banking this quarter to drive the lower revenues.

So our estimates were think of it this way, we're basically a fair value shop. So our entire balance sheet is done using the fair value and conventions and when you look at the the way that works from an accounting perspective at the end of the quarter, you're recording a number the fair value of what you think the next quarter and production is going to.

And that's a function of interest rates, so because the level of production has.

And then somewhat challenged by the length of days and it's taken to close mortgages and get them to the GSC, which typically were around 60 61 62 days stretched out to 90 based upon.

CE counts and just the sheer level of refinance activity.

A reduction in rates from the fourth quarter to the first quarter resulted in net fair value adjustment going down.

That production is still there and it's going to be delivered and that's what's going to drive the second number for the second quarter number back up so in totality. If you look over the entire period of time all the revenue will be the same it's just a matter of which quarter. It gets recognized in.

I know this is a guidance. Thanks I appreciate the question, but hopefully that explains it.

And it does.

It helps alright, thank you very much.

And Ken.

Our next question coming from the line of David <unk> with Wedbush Securities. Your line is now open.

Hi, Thanks, a couple of questions a follow up on the fee income similar to your discussion around the gain on sale and the dynamics around that on swap income.

Also guided to a rebound and the second quarter and that kind of stabilizing I was just curious what what drives the variability and swap income from quarter to quarter is it a certain type of loan debt you originate or is it based on the level of interest rate and interest rate movements that drives customers to hedge.

And that movement.

Yes.

Essentially both I think we produced more C&I and the first quarter and that tends to be shorter term floating.

Did the same appropriate amount of on.

Fixed rate, but the fixed rate had shortened and term to closer to five year than longer term horizon, so and so typically five year and under.

Not swap and customers have an exit strategy on the assets. So it really depends on the mix of the assets looking at what's in our pipeline is why we believe it will come back to traditional slightly higher levels and the upcoming quarter.

Got it debt that's helpful. And then shifting gears you spoke a little bit about the cannabis business.

Business can you frame the opportunity how big it is and discuss how much of it is on the lending side versus the deposit side.

And Doug I think as anyone would.

Tests right now the opportunity is tremendous really depends on on how quickly. The government goes ahead and and puts through different legislation for us. It was really more of a risk management focus and how we wanted to be proactive in addressing it as opposed to reactive we spent well over a year.

Putting together our risk management practices in place that made us comfortable and that we'd be able to.

Manage this risk appropriately as well as grow it we've been very selective as to the companies that we've targeted to do business with so right now it's really on the deposit side, we're just beginning to.

Target a little bit on some of the lending side.

But we think overall that the industry is something that would drive performance and valley.

Well above peers, and we think we're gonna be firsthand.

From any size perspective.

Great and geographically is that more and more on the Florida market.

No right now, it's largely and our new Jersey footprint.

Our look and obviously to grow it into the other geographies that we currently have physical locations and.

Great. Thanks, very much thank you.

And our next question coming from the line of Michael Perito with <unk>. Your line is open.

Okay.

Hey, guys. Thanks for taking my questions I appreciate it thanks.

Thanks, Mike.

Obviously allowed we've been asked and answered at this point I wanted to expand maybe on <unk> on slide eight for a minute here.

Ah <unk>.

<unk> or the relaunch of the deposit account online opening process I was wondering if you could maybe give us a little bit more color in terms of how much of your deposit accounts or incremental deposit accounts are being opened online today, and and where do you think that could trend with kind of this new platform or hoping it could trend and maybe just expand a little on kind of the economic impact of that right and in terms of.

And kind of the efficiencies that can be gained more of your account opening moves online versus in store presumably.

Yes.

Yes.

We will give you.

I think we owe it to the street to give a little more of a clarity on and then update and we'll put together with a more detailed slides next quarter on some of that but we're seeing monumental growth within the.

For the digital channel today.

On a on a linked quarter basis versus where we were before both in volume as well as in unit other accounts.

That said.

Really spearheaded with with a gentleman by name and Stuart Cooks, who works for us and new online.

Account opening platform.

And that I would rival against anyone within the industry I think it's three minutes Tom.

And it's three minutes for this includes all of the compliance checks to apply online.

Ben and funds within two days it will it will appear there.

We're using it now for a single.

Online account, but it will expand into several accounts and ultimately be the account opening process used across our our footprint.

And.

With the drive in more mobile users online users and less transactions being done at the branch and allow our branches to be more focused on guidance and consulting type services, especially with regards to a lot of the activity, we're seeing and our mortgage.

And our residential mortgage product.

And Mike It's Travis when we said in the prepared remarks that it was recently revamped we mean that.

Very honestly like its over the last couple of weeks, which is why we don't we didn't put any real statistics and the debt, but as you go forward as IRA said, we'll put more clarity around that in terms of numbers.

That's great.

Understood and so.

Is it fair to assume that Thats just on the consumer account online opening side at this point.

Guess, what Tom's point looking to expand that to other things like business for the future or is it both consumer and business online at this point.

At this point it's consumer.

It'll be fully activated on our consumer accounts, probably over the next two quarters and then but by the end of the year will be both consumer and commercial.

Mike I think the one important thing here is the way that we structured this enables us to really lever. This as a platform from growth across all different product types throughout the entire organization. So it's not dependent upon a third party to make changes we have the ability and house.

Really begin to drive a lot of this and we think this is a growth platform for us and once again I think it's consistent with the technology strategy that we put forth to make sure we own the ability to drive that customer experience as opposed to a third party owning that ability to drive the customer experience to very differentiated model from what many of our peers are doing where they're just layering in what the third party.

Whoever that may be to sit there and let them control what that experience looks like so we think it will be differentiated we think it will contribute to the growth we have within the entire organization and as Tom mentioned, it's going to help us from an efficiency perspective, as we think about what the.

The physical experience should look like for many of our customers.

And Mike I'll, just I'll finish this up by saying that from Q1 of 'twenty to Q1 of 'twenty, one business checking accounts increased eight 2% and our personal checking accounts increased four 1% and that includes both online and in person openings, we'll figure out away and the future to break that out for you because I think thats what.

You are asking but it goes back to what IRA said earlier debt.

A lot of thanks for just trying to fight to keep that even and they are probably losing ground and what's happening here is we're actually net positive very nicely and net positive account growth.

On a unit basis on online we were up 56% linked quarter.

For Q versus where we were first quarter. So so so pretty big numbers and.

I think we'll do a pretty decent job next quarter, giving you a little bit more details I think it is something that's a big driver here for us.

No that would be great. Because you obviously the big guys are disclosing like over 50% of accounts are online and that's not exactly clear what's on that number but obviously, it's a good proxy for the consumer market place or at least price. So I mean, I think it's pretty relevant to to have this platform and so I. Appreciate you expand the color there and then just lastly, I apologize if I missed this earlier, but just wondering if you could just I know.

And you talked about credit a little bit, but just expand a little on the provision expenses, specifically right I mean, it seems like record pipeline for loan growth can accelerate as the year progresses here, but hopefully the credit conditions continue to improve I mean, any thoughts on that dynamic and how that could balance out and your provision line going forward.

Yes, as you as you point out the question was asked and I hope it was answered earlier, but I'll try to do it again, just two real quick I'm, sorry, if I was kind of jumping back and forth, Arizona No trouble. The biggest movement is the choice of the Moody's models for us so 60% baseline, 30% S three and 10% as for.

For mostly driven by our decision on the first quarter around uncertainty around the pace of the vaccine Rollouts combined with is it a real fundamental economic rebound or is it more about government money and so because of that we stuck to a little more I would say tilted towards a little more recessionary forecast and so on my car.

And it's earlier were all else being equal and keeping pace with loan growth. So obviously the way. This works is when you add new loans youre going to have to keep pace with whatever category, there and but assuming that that's not the largest driver I would expect the bias would be for us to take less and provision.

Moving forward all other things being equal.

Got it so I mean, obviously, it's way more complicated than that but growing and for the ACL.

As conditions improve but your loan balances hopefully expand.

Yes, that's a tricky thing because I've seen that and a couple of People's write ups.

And that actually how Cecil works you don't.

And then.

Yes and over.

And so on occasion, but.

But I guess, maybe said another way not targeting at this point.

The way Youre balancing and the volume forecast.

Dramatic.

Economic related reserve release at this particular point and time.

Yes, I think as I said earlier, it's going to be driven by the Moody's scenarios that we pick and and as Moody's changes the numbers for both GDP and you three unemployment and their models as well.

Okay.

Thank you guys I really appreciate all the color on the call for that thanks.

Thank you.

And I'm showing no further questions at this time I would like to turn the call back over to IRA.

Robin for closing remarks.

I just want to thank everyone for taking the time to think about valley today, and we look forward to delivering another quarter of asking and performance and second quarter. Thank you.

Okay.

Ladies and gentlemen, and that does conclude our conference for today. Thank you for your participation you may now disconnect.

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