Q2 2022 Valley National Bancorp Earnings Call
[music].
Good day and thank you for standing by welcome for Q2 2020 to Valley National Bancorp 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 to ask a question during this session.
You'll need to press star one one on your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Travis Lan you may begin.
Good morning, and welcome to valleys second quarter 2022 earnings conference call presenting on behalf of Valley today are CEO IRA Robbins President Thomas <unk>.
And Chief Financial Officer, Mike Hagadorn.
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 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.
Remind you that comments made during this call may contain forward looking statements relating to valley National Bancorp and the banking industry.
Sally 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 will turn the call over to IRA Robbins.
Thank you Travis.
And welcome to those of you on the call.
A few comments to make this morning, and then we'll ask Todd to provide insight on exceptional growth results that were achieved on both sides of the balance sheet this quarter Michael.
Mike will then discuss our financial results in more detail.
In the second quarter of 2022 Valley reported net income of $96 million earnings per share of <unk> 18.
And an annualized Roe of 17%.
Exclusive of non core charges, including the provision expense mainly associated with bank Lee in these non PCI loans.
Adjusted net income EPS.
And ROA.
Were $166 million 32.
And 125% respectively.
These exceptional results reflect significant organic loan and deposit growth and our ability to manage deposit betas and then generally supportive interest rate environment.
With the bank Leumi transaction behind us and integration efforts well underway.
Like to take a moment to put values recent transformation into context.
Beginning on slide four of our deck, we compare this quarters key financial metrics against the fourth quarter of 2019.
This comparison highlights the tangible progress that has been made in the last two and a half years.
We have executed on our strategic and tactical initiatives.
From a big picture perspective, we have driven sustainable balance sheet growth.
Diversified and enhanced our funding base.
Established new noninterest revenue channels.
And benefited from disciplined and strategic M&A.
Okay.
We have grown organic loans and deposits I, just below 10% on an annualized basis over the last two and a half years.
While COVID-19 weighed on the 2020 results.
These growth rates have accelerated more recently.
We've achieved this growth by providing exceptional service and advice to our existing clients.
And proactively identifying growth opportunities in specific markets and business segments.
Once these opportunities have been identified we have dedicated the appropriate resources from a challenge.
<unk> and technology perspective to ensure that we capture the available growth.
As growth has accelerated we have been careful to preserve the stringent underwriting standards that have supported our long standing track record of below peer credit losses.
While we haven't materially altered our underwriting standards, our allowance for credit losses, as a percentage of loans remains well above the day one reserve that was established on the adoption of seasonal.
Meanwhile, neither our earnings nor capital had benefited from the reserve release that have recently been common across the industry.
Still we have preserved our tangible common equity to tangible asset ratio at seven 5% without a dilutive capital raise while supporting the strong growth.
Turning to slide five you can see that our growth has also been extremely profitable.
Quarterly adjusted net income has increased approximately $75 million between the fourth quarter of 2019.
And the second quarter of 2022.
We are a much more profitable organization today.
As a result of strong growth in those spread based and noninterest income.
Our adjusted ROA during the quarter of $1 two 5%.
Represents a nearly 25 basis point increase since the fourth quarter of 2019.
Yeah.
We recognize that our future operating performance would drive the trajectory of our valuation.
That said, we provide the snapshot is proof of our ability to execute in challenging times.
Over the last two and a half years, our tangible common equity and annualized earnings power has increased approximately $1 $2 billion and $300 million respectively.
On a per share basis tangible book value and adjusted earnings per share have increased 15% and 33%.
We are proud of this performance and confident that our ability to execute will drive success in the next phase of our evolution.
Finally.
While our preference is not to revisit our stated guidance on a quarterly basis, we have attempted to be as transparent as possible given the backdrop of an extremely volatile economic and interest rate environment.
With a full quarter of <unk> results.
We thought it would be most helpful to provide combined guidance for the remainder of the year.
Using the second quarter's loan balance as a starting point, we now anticipate between 8% and 10% annualized loan growth for the second half of 2022.
We anticipate preserving our loan to deposit ratio of around 100% give or take.
Based on these dynamics and the June 30th forward rate curve, we would anticipate generating aggregate net interest income of around $900 million in the second half of the year.
Finally, we expect to achieve an efficiency ratio of below 50% for the second half of 2022 as well.
With that.
I will turn the call over to Tom I'd like to discuss the quarter's growth and financial results.
Thank you IRA on.
On slide seven you can see a summary of the quarter's exceptional loan growth.
For the quarter total loans increased approximately $8 2 billion, excluding approximately $5 9 billion of loans acquired from bank Leumi on April one hour.
Our combined organization generated nearly $2 3 billion net growth during the quarter.
For legacy Valley, approximately 70% of the quarter's commercial originations were from existing customers.
Loan growth was split approximately 60 40 between our northern and southern regions.
Growth was also well diversified across asset classes with residential real estate and consumer contributing a proportional increase to the quarter's results.
We anticipate that residential and consumer activity will slow meaningfully for the remainder of the year.
C&I loans grew nearly 50% during the quarter or 9% excluding loans acquired from <unk>.
Meanwhile, CRE loans grew 19% during the quarter or 4% excluding loans acquired from <unk>.
While our pipeline remains strong at approximately $4 9 billion, which includes nearly $1 billion for legacy Bank Leumi lenders underwriting standards have begun to tighten as rates have risen.
The strong first half results position us to meaningfully exceed the full year of 2022 growth guidance that we presented previously.
Finally on this slide you can see that origination yields increased approximately 76 basis points during the quarter.
As you would expect origination yields increased each month as rates moved higher.
We anticipate that origination yields will continue to ascend as the fed raises rates.
Turning to slide eight we are pleased that deposit growth is also very strong during the quarter.
Total deposits increased nearly $8 3 billion with approximately $7 billion of that coming from bank Leumi balances acquired on April one.
Organic deposit growth trends were strong during the quarter and benefited from activity in our niche national deposits and cannabis segments.
Traditional commercial checking account growth remained strong and contributed to the increase in noninterest bearing deposits during the quarter.
We acknowledge that rapidly higher interest rates have created pressure in certain segments of our deposit business.
However, we have strategically built and acquired differentiated funding verticals for exactly this type of environment.
We are pleased with the deposit story and our ability to manage low betas across the portfolio to this point.
We continue to focus meaningful time and energy to the deposit gathering side of our business to ensure that deposit betas outperformed our prior experience.
With that I will turn the call over to Mike Hagadorn to provide more insight on the quarter's financials.
Thank you Tom.
Slide nine illustrates valleys recent net interest income and margin trends.
Net interest income increased over $101 million from the linked quarter approximately.
Approximately $65 million of this increase was from bank Leumi resources.
The remaining organic increase was the result of strong organic loan growth and the impact of higher interest rates on our asset sensitive balance sheet.
Our reported net interest margin increased 27 basis points to 343% from the first quarter of 2022.
Exclusive of the linked quarter impact of PPP loans, the margin expansion was closer to 31 basis points.
The linked quarter net interest margin increase also reflected a 33 basis point increase in earning asset yields driven by the repricing of our adjustable loans and higher yields on new originations.
Inclusive of the benefit from higher noninterest bearing deposit balances valleys total cost of funds increased a modest six basis points in the quarter.
We are very pleased with our ability to manage funding beta so far.
As Tom mentioned, though we are cognizant of competitive pressures around us and acknowledged that funding costs remain in focus for the remainder of the year.
Moving to slide 10, we generated over $58 million of noninterest income for the quarter as compared to $39 million in the first quarter.
The increase was primarily the result of the bank, leaving the acquisition, which enhanced wealth management and loan fees and foreign exchange revenue.
From an organic perspective, the anticipated reduction in commercial loan swap revenue was largely offset by an increase in gains on mortgage loan sales.
It is likely that gain on sale revenue will decline from current levels, but we're very excited about the growth opportunities that exist in other noninterest income areas, including those contributed by bank Levy.
We're very pleased with the noninterest income growth we have achieved in the last few years and we remain focused on maintaining our momentum.
On slide 11, you can see that our noninterest expenses were approximately $300 million for the quarter or $242 million on an adjusted basis.
The linked quarter increase in adjusted expenses.
Primarily the result of bank Levy and higher intangible amortization costs associated with the transaction.
Legacy Valley expense growth was relatively muted.
The quarters strong revenue growth helped drive our efficiency ratio to 58% from 53, 2% in the first quarter.
As I remember <unk> earlier, we anticipate generating an efficiency ratio around 50% for the second half of the year.
Turning to slide 12, you can see our credit trends for the last five quarters.
Our allowance for credit losses, as a percent of total loans increased to 113% at June 30 from 1.07% at March 31.
This level of reserve coverage remains well above the 0.89% day, one reserve we established upon the adoption of seasonal.
Neither our earnings and our capital levels have benefited from recent reserve releases, which differentiates us from many of our peers.
For the fourth consecutive quarter, we recognized de Minimis non PCV net charge offs totaling just $2 million.
Approximately $70 million of the $82 million linked quarter increase in non accrual loans were for loans acquired from bank Leumi.
Reported non accrual loans increased two zero point, 72% from 0.65% of total loans and remained well within our recent historical range.
On Slide 13, you can see that tangible book value declined approximately two 8% for the quarter.
This was mainly the result of the acquisition of Bank lending me and the negative OCI impact associated with our available for sale securities portfolio.
Relative to peers. This OCI headwind remains manageable as a result of our relatively small securities portfolio and modest exposure, which reflects our continued focus on tangible book value preservation.
Tangible common equity to tangible assets declined to seven 5% from 8.0% in the prior quarter, primarily as a result of our organic loan growth.
Our risk based regulatory ratios declined at a somewhat faster pace as the average risk rating for our loan portfolio ticked up as a result of the growth composition.
With that I will turn the call back to the operator to begin Q&A. Thank you.
And thank you.
Yeah.
As a reminder to ask a question you will need to press star one on your telephone please standby will compile the Q&A roster.
And one more for questions.
And our first question comes from Michael Perito from K BW. Your line is now open.
Okay.
Hey, guys good morning good.
Wondering Mike good morning, Mike.
Not not to be nitpicky, but just to clarify I heard two different things, Steve the efficiency guide.
Is it below 50 or at 50 for the back half of the year and then maybe just a step below that can you give us any.
Commentary youre willing to share about kind of the dollar expense run rate from here.
On a core basis, and whether there's maybe some things that could impact that up or down as we look to the back half of the year.
So I'll give that they have.
Data <unk> is below 50% as to where we think the efficiency ratio will be for the second half of the year and then maybe Michael talk a little bit about sort of what the focus is on the non interest expense figure sure. Thanks IRA.
From an efficiency perspective, we're fairly confident in our guide given our outlook for revenue growth and.
And we will expect to lag expense growth and drive positive operating leverage through the second half of 'twenty two.
And keep in mind that quarterly expense growth was entirely. The result of the addition of bank loan <unk> operations and higher intangible amortization costs, which were up $7 million over Q1.
So legacy Valley expenses were effectively flat in the quarter.
Is there any kind.
Kind of movement in some of them like the deal closing in.
Whether that I'm sure you guys flagged a lot of it in that $55 million of one time, but was there anything else that we should be mindful of that that could normalize or maybe elevated or or nothing comes to mind.
Yes, Mike This is Travis so there is some additional integration costs associated with <unk>, which are kind of the ongoing investments we needed to make in their ongoing business things like rewiring their officers and other things those costs in the quarter were relatively minimal, but those will decline over time and I think if you think about the trajectory of expenses from here.
<unk>.
There is some I would say inflation based increase that we anticipate to offset the majority of further cost saves and efficiencies on the balance side.
Got it okay, and so no change to the.
The cost savings expectations for that.
Dollar amount or timing standpoint at this at this time.
Sure.
No.
Okay, great. Thanks.
Thanks for that and then on the deposit side.
I appreciate the comments about trying to keep the beta lower it sounds like some of the deposit niches are going to be really critical to that was curious if you guys are willing to maybe provide some micro updates on a handful of those the venture banking I know I think you guys had discussed last quarter has some good growth obviously that market had a much more volatile second quarter I'm, just curious kind of worst.
Those deposit niches stand today, and which opportunities you think can be the most material near term.
Yes, Michael it's Tom so.
Some highlights there.
Tech business.
Deposits are up 67% since we announced the deal and 32% year to date. So we are seeing that continued growth there.
More importantly, now equally importantly, our relationship driven strategy of driving our commercial deposits is working those deposits are up over 300 million for the quarter that combined with our HOA cannabis the national deposit business all of which are growing in double digit percentages are contributing to our.
Our ability to fund our loan growth.
And it has.
The kind of cost of those.
Those niches has it been as resilient kind of as you would've expected or.
Obviously there.
Competitors looking for lower cost deposit growth I mean are you seeing any change in that or do you still feel like there is some room for for market share taking in several of those targeted niches.
I'll answer a portion of that IRA will chime in here on that commercially driven relationship part 61% of that growth is noninterest bearing we expect that to continue.
If you want to think we've made a real concerted effort over the last four and a half years to really focus on diversifying the funding book that we have so at certain segments of the deposit book become more beta sensitive we have alternatives to raise deposits from other niche cabin categories. Some of the cannabis business, obviously has a very low cost basis, and even as Tom mentioned.
On the Tech business and it was one thing where we acquired bank Lee Amaze International Tech business, but we've organically decided to grow the domestic piece of it as well. So we think we have enough different alternatives even from our retail funding perspective that provides us a pretty good segment and pretty good outlets to continue to raise the deposits that we need to support.
The act of loan growth, we have at a manageable rate from a funding perspective that we think will be much less than where we were last time around.
Great. Thank.
Thank you and then just last from me and I'll step back just on the kind of go forward provision and credit environment here.
Loan growth, obviously going to continue with the guide that you guys provided.
At least as it stands today, what type of kind of reserve reallocating against incremental loan growth and is it.
The unemployment rate still one of the bigger drivers of the seasonal model here in the Moody's forecast or is there anything else, we should be mindful of as we try to think about how that will trend into what's obviously a pretty uncertain.
Six to 12 months.
Yes, I'll take a crack at this.
Valley now stands at 113% in the median for banks is now 115%. So just like Iris comments earlier regarding the change in deposit funding or funding in general how its not the valley of old you can see the allowances also that same way.
The bias if you will in provisioning if all things were to stay equal, which they are probably not going to in the economy, but if they did.
I would say the bias is towards even smaller provisions and here's why.
Most of the loss history that would have been more negative than the current is dropping off right. This is the 2020.
Pandemic related loss. So the loss history is the largest driver of the model now having said that considering the loan growth that we've put up we're going to continue to keep pace based on that loss history with any loan growth that we continue to book.
Great.
I appreciate the color guys. Thanks for taking my questions.
Thank you.
Thank you and one moment for our next question.
And our next question comes from Steven Alexopoulos from Jpmorgan.
Okay.
Your line is open.
Hello, Steve are you on mute.
Hello, Steven.
Yeah.
One moment please.
And one moment for our next question.
And our next question comes from Frank Schiraldi from Piper Sandler Your line is now open.
Good morning.
Good morning, Frank.
Just wanted to follow up on the on the deposit side actually and I'm not sure if I missed this but in terms of.
Cannabis business.
We're.
Balances at this point and I think you've talked about maybe double digit growth. Just wondering where you think you can ramp that up since I assume it's still pretty early and building out that business, where you think you can ramp that up call. It by year end.
Hey, Frank Thanks for the question and we really haven't provided much guidance with regards to specific deposits and I think what I keep it that way at this point I will tell you. The number of accounts have continued to grow dramatically were up 40%.
A number of accounts from where we were previously.
Which is.
A pretty big effort when you think about the growing industry that we have here, we know bank seven of the top 10 Multistate operators were in 25 states and we're continue to be very excited about the opportunities associated with the canvas business.
Okay and then.
Maybe if you can provide us on the tech the niche tech business.
Or just protect business in terms of.
I think Tom you gave since the deal was announced.
<unk>.
At the beginning of the year I was just wondering if you have.
After close how thats trended has it been pretty much stable.
Stable with that.
Year to date number or has it accelerated or.
Any sort of color on just the second quarter there.
Yes, sure it's been stable to up.
Since the close in.
Keep in mind the business as deposit driven it was really focused on the Israeli venture firms, we have staffed and added people and brought in.
<unk> been up to not just Israeli venture firms. So we expect to see that business to continue to grow.
Okay, just so I understand when you said stable to up Youre talking about.
In line with the growth rate you gave prior or Youre, just saying balances were in general were stable to up in the quarter balances in general Okay got.
Gotcha.
Okay.
That's all I had thank you.
Thanks, Brian .
Thank you.
And one moment for questions.
And our next question comes from Matthew Breese from Stephens. Your line is now open.
Hey, good morning, everybody.
I wanted to go to the organic loan growth guide for the back half of the year, the 8% to 10% could you just talk a little bit about the composition of the pipeline and the composition of that 8% to 10% expected growth.
Yes, I'll leave it there sure Okay, Hey, Matt its Tom.
First half we benefited from the strong residential consumer growth, yes that was about 20% of our organic growth. We expect the second half those levels to be negligible. It's just not going to it's not going to grow on the commercial side our pipeline remains strong however.
Dealing with the rapidly changing interest rate environment as well as potential economic slowdown so that's likely to reduce our pull through and our work in process pipeline.
We do believe that we have solid growth opportunities across all our markets, which we've seen in the first half of the year. So that should support the loan growth guidance that we provided for the second half.
And I just wanted to point out in this growth we have never compromise our credit standards, we're still a very diverse graduate granular production shop.
Along those lines I wanted to.
Maybe get some color on how the underwriting has changed or how you've adapted to the current environment, which seems like a little bit more.
Tenuous and are you asking more of your borrowers in terms of additional equity or more recourse or personal guarantees when it comes to <unk>.
Originating loans I'm curious there.
Yes, it's all the above and keep in mind that 70% of our business is repeat business with long time valued strong existing customers that have been through the cycle. So there is a level of capability and credibility that they have built that being said, we stressed loans at a much higher interest rate, which we began several.
Once again, we stress high risk industries on a regular basis and constantly look at as the portfolio on the consumer side, we changed our requirements on FICO on loan to value our average loan to value on our real estate related allowances in the sixties for the most part we have.
Always take it a much more conservative approach with regards to cap rates than others and if you look at the book of business. It reflects that because it is very diversified by type by region and all our average production our average loan and real estate was $4 8 million for this past quarter and C&I was about.
$1 million on average for each block. So we will maintain those standards. We're looking at constantly adjusting FICO scores on the consumer side and loan to values on the commercial side.
Got it okay.
And then turning to the NIM could you provide what the purchase accounting benefits were the flow through the NIM this quarter and the expectations on that over the next year.
Sure. This is Mike I'll give you the recon because we anticipated. This question would be asked so in Q1 that number was $5 million that obviously excluded lay omi in Q2, it was $15 million, but of that 15 million to $5 million of that was related to payoffs.
So the run rate for Q3, we would expect to be about $12 $5 million.
Okay.
And a year from now what is that expected to be just so I have my kind of cadence of decline rate.
I think it would be about the same okay.
I did want to just fee income a little bit I get the sense of swap fees could be a bit volatile curious overall, if this kind of $58 5 million dollar run rate is a good one.
Or you think you can grow off that.
Yes, I think we believe that that is a fairly good go forward run rate you got to consider that swap fees are going to be impacted by.
General interest rate environment, and I think that will probably get tougher as people look at the individual coverage of their own debt service, but we'll see how that pans out Tom's comments earlier.
Regarding raising mortgage is probably going to be.
Challenged as well, but what's exciting about the change here is the bank Levy, we brought in some opportunities for us to kind of counter weight or balance out.
Some of those other items and so I think we feel right now that.
Mid 50 to 60 per quarter is reasonable.
Okay, and then last one.
When we announced or when you announced the lumi, it's one of those things, where we built on the cost saves, but none on the revenue synergies.
Now that you are fully integrated could you just talk a little bit about those revenue synergies.
Where are you most excited to grow the business.
Yes, it's Matt again.
Sorry about that I forgot who I was for a second there I think just to remind you when.
When we entered into the transaction, we retained all of the customer facing frontline people that also includes the credit people the administrative side of anyone that touch the customer was retained as part of this so we have effectively seen a relatively seamless.
The adjustment on the commercial side and Thats evidenced by the 24%.
Commercial loan growth in the quarter. So that is all operating positively we identified a small group of healthcare loans that we wanted to exit in Laguna had begun that exit strategy.
During this transition those are the only customers that we have lost in any material way since we started this I think.
The balance sheet and they came into this with a pretty robust pipeline and the balance sheet that we now have together gives them the ability to retain customers that previously had to go to other banks because they were popped out at Le Omi.
And that should continue the tech piece is an exciting piece for US. We gave you the numbers on that that grows we're staffed there we've added staff and all of the markets Chicago and Florida on the <unk> side will continue to Opportunistically add staff there.
The greatest opportunity continues to be not only on the VC tech piece, but on the consumer pace. There has been a regular flow of referrals from the valley to the late <unk> private bank side and from Luiz Lamy side to the valley consumer side that that has been probably on a similar or larger scale than we had anticipated and.
Flow of business from Laramie in Israel for their international clients as well as for their participation and our real estate loans that we originate here that continues on the pace that we expected.
I think Matt some of the other stuff that we've looked at is really what liamine didn't offer to some of their customer base that really valley as a full service commercial bank is able to really do.
We have a very strong consumer set product as well that we're able to opportunity of their customers. So we've seen a lot of referrals on the residential side as well as the retail deposit side as well I was just having a branch network as well as having a strong international group there as well for us. So we think theres boundless opportunities, we've seen significant referrals across the.
<unk> already.
<unk> network as well as having a strong international group there as well for US. So we think there is boundless opera <unk> opportunities, we've seen significant referrals across the organizations already and like you said, while we didn't model in any of the revenue synergies synergies. We are already beginning to see a lot of them.
Great. That's all I had thank you for taking my questions.
Thank you.
And one moment for questions.
And our next question comes from David Bishop from Hovde Group. Your line is now open.
Yes, good morning, gentlemen.
Hey, David how are you.
Good good Hey quick question.
In terms of the loan growth of any investments in the preamble, but.
From a legacy basis just curious.
The southern markets some of the newer markets. There this year and maybe the outlook for growth into the second half of the year in 2023.
Sure, It's Tom again, David on the.
On the segments or the regions. The other production is 60% north of 40% South that's that's been growing in the South we grew loan growth at a south is that as that an accelerated pace to the north is growing at around 25%. If you remember back in 2020, we bid.
Again, bringing in a team of people and all of the major markets in the South we bought in 15 lenders, mostly C&I they produce about 20% of our organic growth in this last six months and 90% of what they produce in this past quarter with C&I related. So it's we're seeing faster growth in the <unk>.
But very solid stable growth up north with their strong customer base that we have here.
And is it safe to assume that C&I customers off theyre, bringing in commercial deposits as well with these relationships.
Absolutely and we referred to that earlier that that $300 million growth in quarter to quarter and most of that 60 plus percentage of noninterest bearing.
And you're seeing that in both north and south of that growth in deposits.
Okay got it got it and then maybe just one final question now that the acquisition is behind you.
Share buybacks does that entered into the playbook.
Enter into the second half.
I think we built such a wonderful organic engine here that any incremental capital. We have we think we can put back into the business and give the shareholder a much better return.
Got it appreciate the color.
Thank you.
And one moment for questions.
Okay.
And our next question comes from Steven <unk> from J P. Morgan Your line is now open.
Hello, Steven.
Okay.
And one moment for questions.
And our next question comes from Jon <unk> from RBC capital markets. Your line is now open.
Hi, good morning, guys.
Hey, John how are you good.
I think I think the phone lines are down at Jpmorgan that must be it.
Yeah.
Feel bad for the Guy.
You may have just answered this on the bishops question, but you talked about 70% of growth from existing clients.
Is that the story with the other 30% that's the southern markets and the new hires or is there something else to call out there.
It's it's 70% of our business are the people who have done business with us in the past, 30% would be a customer that is brand new to the bank that 30% is spread out but it's more it's larger in the south.
Got it.
Question on margin momentum.
Don't need to pin you down on a number but just longer term thinking.
And it kind of goes to the deposit base comments.
How long does it take a hike a rate hike to fully cycle through your earning asset yields.
I think one of the easier way to handle that John is approximately 40% of our loan book is tied to prime LIBOR. So for so that would be the stuff to reprice the quickest.
It's a direct answer to your question, but I think that's kind of where you start and then just also point out like the pace with which your origination yields rose throughout the quarter.
So origination yields had increased to four 5% by the time, we got to June they were closer to 310 in February So if you think.
<unk>.
Four five months whatever it is origination yields are up 140 basis points in that time fed funds has gone up 150 basis points. So that we're able to pass through the borrowers relatively quickly and then again with the remaining 40% of the loans tied to prime LIBOR silver.
That component is very sensitive as well.
Okay. That's helpful.
Just with your deposit base strength, just feels like there's a lot of momentum.
Coming in your margin so that's good.
I think definitely and John just to follow up on that right. Obviously, there is a lot of strength there, but I think from an industry perspective matches valley right, there's going to be a lag here and there's going to be deposit pressure that that really begins to hit many banks and thats going to happen, whether it's two more quarters from now or whether it's sooner it's.
It's definitely going to impact the overall industry, which is why one of the things we've done over the last few years has really tried to diversify the funding base that we have and not just have it from a retail or a broker business that habit in a multitude of different segments. So we think there's going to be pressure on the deposit side at some point based on where interest rates have gone we do believe.
There is a multitude of different funding sources here that can be positive on that funding data.
Yes, I agree with that.
Most of your peers didn't have the kind of deposit growth you have sort of its quarterly on a relative basis I think you.
You look better.
And then John just following up on that.
Seen deposit growth just through July already more than outpace where we are on June loan growth. So that trend that we showed for the second quarter has already continued through the month of July .
And our total funding beta for the second quarter was one third of what we modeled.
So we still have a long ways to go to make up just what we're modeling.
And then just one very big picture.
Your credit numbers look good.
We have some cautionary comments.
<unk> fulfilled throughout your answers on Q&A.
There's a lot of cross currents and are you guys seeing anything that bothers you at this point from an economic point of view I know you are trying to be cautious, but just curious if theres anything you would.
Carlo and flag that might be bothering you.
And we're not experiencing any underlying areas of credit concern, we're not really seeing the stress of the weakness in the customer base and remembering we've got a long history with many of our customers that we do this business with.
But we are cautious we are underwriting.
Differently stressing at a much higher cap rate than we had in the past and as we talked about before we do portfolio reviews on a constant basis and really focus on the high risk industries in that.
Alright, Thank you guys I appreciate it and nice job.
Thanks, Jon Thank you.
And thank you and I'm showing no further questions I would now like to turn the call back over to IRA Robbins for closing remarks.
Thank you very much and thank you for the interest in and valid today, we obviously generated very strong performance and we are excited about the opportunities that continue to move into the second half of 2022. Thank you.
This concludes today's call. Thank you for participating you may now disconnect.
Yes.
We will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Yes.
Okay.
[music].
Okay.
[music].
Yes.
[music].
Yes.
Okay.
Yes.
Yes.
[music].
[music].
[music].
[music].