Q3 2022 Valley National Bancorp Earnings Call
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Good morning, and welcome to Valley's third quarter 2022 earnings conference call presenting on behalf of Valley today are CEO IRA Robbins, President Danza, 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.
And on our company website at <unk> 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 really.
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.
Welcome to those of you on the call today.
I have a few comments to make this morning, and then we have Tom to provide insight on the quarters loan and deposit results.
Mike will then discuss the financial results in more detail.
In the third quarter of 2022.
Reported net income of $178 million.
Earnings per share of 34 cents and an annualized ROA of 130%.
Exclusive of noncore charges, adjusted net income EPS, and ROE were $182 million 35 and.
And 1.32% respectively.
These exceptional results reflect the benefits of our asset sensitive balance sheet and our consistently strong credit results.
As you are aware valley has undergone a meaningful evolution over the last few years.
Expanding in terms of the size and capability, we have uniquely positioned ourselves as one of the premier service oriented commercial banks in the entire country.
From a size perspective, we sit in an incredibly strong position with only a handful of nationwide peers.
Our customers have access to the robust suite of products and services. They would find at a large bank, but with valleys exceptional responsiveness and high touch approach.
This combination has accelerated our brand awareness.
And enabled us to selectively add top level talent and desirable clients.
This unique approach also positions us to capitalize on market disruption that may occur as a result of future economic volatility.
While we remain selective with regards to how and when we grow we believe that times of stress can create exceptional customer acquisition opportunities as the pool of banks that looked like valley continue to shrink we're prepared to maintain our momentum and maximize our competitive advantages.
One of values distinguishing characteristics is our positioning with some of the country's most attractive commercial markets, including Metro New York, Florida and California.
We believe these markets will weather economic downturns.
<unk> unique opportunities for diversified loan and deposit growth.
Our results this quarter reflect the benefits of our diversified business model and the economic strength of our targeted markets of operations.
Before I turn the call over to Tom I wanted to briefly update you on the guidance we had previously provided.
On page four of the deck, we compare selective third quarter results to last quarter's guidance.
While we are not formally adjusting our near term guidance, we believe that the loan growth and net interest income is likely to exceed our prior expectations.
Meanwhile, the guidance for efficiency ratio and tax rates remain unchanged.
With that I will turn the call over to Tom and Mike to discuss this quarter's growth and financial results.
Thank you IRA slide five illustrates the quarter's 15% annualized loan growth, which was below the mid 20% organic growth rate from the second quarter.
While loan origination slowed during the third quarter net growth is above the high end of our anticipated range as a result of two key factors.
First as interest rates have increased faster than anticipated payoffs have slowed dramatically.
Second contributions from the residential and consumer portfolios exceeded expectations, partially as a result of cross sell to legacy <unk> customers.
On the commercial side, our growth remains well diversified across asset classes and geographies.
We have selectively tightened underwriting standards, which led to lower loan to values and higher debt service coverages on originations during the quarter.
We also continue to see a significant amount of loan production to repeat customers. These borrowers are sophisticated and well known as a valley and come back to us time, and again to benefit from our responsiveness and strong execution.
As IRA mentioned, we have continued to add talented commercial bankers across our footprint.
This is consistent with our proven ability to enhance our franchise, particularly in times of disruption around us.
These efforts should help us offset a broader slowdown in demand and be additive to our loan and deposit production in 2023 and beyond.
Finally on slide five you can see the 113 basis point increase in average new origination yields to 521% during the quarter.
As you would expect origination yields increased each month as market rates moved higher.
This is a positive indicators that we are able to pass through higher rates to our borrowers and we anticipate that origination yields will continue to ascend.
Turning to slide six you can see that deposits grew at an annualized rate of approximately 13% during the quarter.
As we have previously discussed we have devoted.
Significant resources to diversifying our deposit gathering channels over the last few years.
While certain of our funding sources have become more competitive and we have been able to tap other customer segments and business lines to fund our loan growth.
As an example, we have seen private banking customers take advantage of higher rates by redeploying deposits into the Treasury securities market.
To offset this to support growth, we rolled out retail CD promotions over the summer, which generated over $1 billion of new deposits.
These promotions were times in advance of fed hikes and have added duration at rates that are extremely attractive in retrospect.
We continue to focus on the deposit side and acknowledged that each fed hike brings more pricing and competition.
Our tactically managing our business lines to ensure that we generate deposits in the most cost effective manner to support our loan growth.
With that I will turn the call over to Mike Hagadorn to provide more insight on the quarter's financials.
Thank you Tom Slide seven illustrates valleys recent quarterly net interest income and margin trends.
Interest income increased over $35 million or over 8% from the linked quarter.
The increase reflects continued loan growth and the benefits of our asset sensitive balance sheet in a rising interest rate environment.
These factors more than offset a sequential reduction in triple P income and PCB accretion, which fell to $8 5 million and $12 1 million in the second quarter.
This was primarily the result of slower acquired loan payoffs.
Our third quarter fully tax equivalent net interest margin increased 17 basis points to 360% from the second quarter of 2022.
Asset yields expanded 54 basis points during the quarter, which more than offset a 40 basis point increase in total funding costs.
The asset yield increase was driven by both the repricing of our floating rate loans and a significant increase in the yields on newly originated loans.
As you saw on slide six we calculate a cumulative year to date deposit beta of approximately 20%.
This is running better than modeled so far but as Tom noted, we acknowledged as the competitive landscape and are working hard to ensure this trend continues.
Using the implied forward curve at September 30, we anticipate net interest margin will increase further in both the fourth quarter of 2022, and the first quarter of 2023.
Net interest margin results beyond that point will be more dependent on our ability to acutely manage future deposit betas.
Moving to slide eight we generated over $56 $2 million of noninterest income for the quarter as compared to $58 5 million in the second quarter.
The reduction was driven by lower gain on sale income, resulting from a decline in conforming residential loan production.
Swap another market based revenues were generally stable during the quarter.
On the swap side, we anticipate that revenue could revert from $11 million this quarter to the high single digit level in the fourth quarter should loan origination activity decline further on.
On slide nine you can see that our total noninterest expenses were approximately $262 million for the quarter were approximately $254 million on an adjusted basis.
The quarter's adjusted expenses included $2 million charitable contribution and higher incentive compensation accruals related to our strong financial performance.
Outside of these discrete costs additional expense increases generally reflects the inflationary environment and the competitive talent market.
The quarters strong revenue growth helped drive our efficiency ratio to 49, 8% from the second quarter's 58% level.
As IRA said, we remain confident in our previous sub 50% efficiency ratio guidance for the second half of 2022.
Turning to slide 10, you can see our asset quality trends for the last five quarters, our allowance for credit losses as a percentage of total loans declined to 110% at September 30 from 113% at June 30.
We assessed our portfolio and the hurricane Ian and determined there was no significant impact to our required reserves at September 30.
We continue to support our impacted customers and employees as they recover from the storm.
As a reminder, our reserve coverage remains well above the eight 9% day, one reserve we established upon the adoption of seasonal into 2020.
Neither our earnings and our capital levels have benefited from reserve releases, which differentiates us from many of our peers.
During the quarter, we experienced the positive resolution of certain non accrual credits. This resulted in nearly $6 million of net recoveries and a sequential reduction in non accrual loans as compared to June 30.
Relative to non accrual loans the reserve increased to 162% from 150% at June 30.
On Slide 11, you can see the tangible book value increased approximately 2% for the quarter. This was the result of our strong earnings and a modest negative OCI impact associated with our available for sale securities portfolio.
Relative to peers or OCI headwind remains manageable as a result of our smaller securities portfolio and modest <unk> exposure, which reflects our continued focus on tangible book value preservation tangible common equity to tangible assets declined slightly as a result of our loan growth our tier one ratios were stable during.
The quarter and total risk based increased as a result of our successful subordinated debt offering in September .
With that I will turn the call back to the operator to begin Q&A. Thank you.
The floor is now open for your questions to ask a question at this time. Please press star one on your telephone keypad, we will take a moment to render our roster.
Okay.
Our first question comes from Michael Perito from <unk>. Please proceed.
Hey, guys. Good morning, Thanks for taking my questions. Good morning.
Yes.
I wanted to start on the deposit side I guess, you kind of have a.
Taylor tapes here right, obviously in the quarter itself. The betas were pretty reasonable, yes, you had a nice NIM expansion, but obviously the gist.
Just on a dollar basis the mix of growth was very CD brokered CD heavy.
The rate hikes were a little later in the quarter. So I guess I'm just curious as we look to next quarter here.
How do you guys expect a mix of deposit growth to trend I mean is it going to continue to be very CD brokered CD happy is there room for other kind of verticals or areas to contribute more than I guess theres a follow up to that I mean, depending on what your answer there I mean can betas accelerate pretty meaningfully next quarter. Do you think there is still room to kind of keep those at reasonable rates or how are you guys.
Thinking about that dynamic.
Hey, Michael it's Tom.
We have over these past few years built a number of verticals that are growing at rates that are a little bit higher than what our traditional core deposits are growing and thats. The those are the HOA cannabis national deposit groups as well as an emphasis on our valley direct products.
We will continue to see growth in those areas that will outpace traditional core.
Equally important is that our relationship driven commercial model results in net increases in business accounts, each and every quarter those accounts tend to be 61% noninterest bearing deposits. We will continue to focus we don't have a reliance on any single niche will continue to focus on these niches the averaged a pause.
<unk> costs total deposit cost for September was 73 basis points I'll, just remind everyone. Our loan yields for let's say months of September we're approaching 6%. So we have a number of levers a number of verticals that will continue to push.
And as it relates to the betas Mike.
Our modeling on a forward basis shows that we're going to have margin expansion in may our expectation is that we'll have margin expansion in both the fourth quarter and in the first quarter of 'twenty three.
Our modeling also includes a very wide range of deposit betas for those incremental costs and even with that we're still showing net interest income growth.
Full year 'twenty two to full year 'twenty three so we feel pretty good about where we sit right now.
Just want to clarify on Toms comment on the loan origination yields approaching 6% on the origination side.
All helpful guys. Thanks, Thanks for running through that I guess.
Follow up then I mean why.
Well I guess is it the range of outcomes that keeps the NII guide for from changing here I mean, it sounds like just based on what you laid out it would be reasonably confident statement to say that you'll be above that $900 million, but obviously you guys didnt formally changed that so is that just on <unk>.
Certainty over the next three months or is there any other dynamic that we should be thinking about as we model kind of the near term NII trajectory.
And Mike This is Travis so there's confidence that the NII is going to continue to grow in the fourth quarter I mean, as Mike said the margins and we anticipate the margin will go higher in the fourth quarter and again in the first quarter.
We will continue to expand we just didn't formally update the guidance because there was only one quarter.
I think everyone can be waiting to see what the 2023 guidance looks like in January .
So it was more of a formality than anything else, but as you saw I mean, we are on pace with the fourth quarter with the third quarter NII to be ahead of that $900 million guide and we're growing from there.
Perfect.
What I figured I just wanted to double check and then just just lastly, maybe a question for Mike any thoughts I mean at the efficiency ratio guidance is unchanged you guys were just under 50% this quarter.
Quarter on quarter, though the expense rate stepped up a bit I mean, just anything you'd flag out there and as you guys continue to invest to grow the business and the diversity of the business I mean.
<unk>.
Any initial budgeting thoughts on growth rate on the Opex side for next year.
Even if it's just kind of qualitative commentary.
Hey, Michael This is IRA I think just high level and now we're really focused on generating positive operating leverage if you see for the quarter. We were at one six times, which we think is really trending in the right direction for us and consistent with where we've been over the last few a few years of how we think about growth and balancing that with the expenses across the entire Oregon organization.
As Tom mentioned, though we think there is going to be significant opportunity for us based on the economic environment. We hired 20, plus frontline bankers last year on the commercial side and we've done the same thing so far this year. So the expense guide.
As you see the expenses increase for.
For us it's really in relation to what we're seeing on the asset side of the balance sheet as well, we try not to manage any one individual component of the financial statements.
Independently, but rather much more so in the aggregate and we're really seeing the benefits of that today.
Great.
I'll, let someone else come in but thank you guys for taking my questions I appreciate it. Thanks.
Our next question comes from Frank Schiraldi from Piper Sandler. Please proceed.
Thanks, Good morning, Alright.
Alright, good morning, Frank.
I'm wondering if.
Just a follow up on the deposit.
Storyline.
I don't know you might mention but I would I would think.
It's fair to assume that.
Just given the environment.
Bank Leumi.
Technology focused deposits would have been down.
<unk> over quarter.
And if that's the case just wondering your thoughts there on trend.
And those perhaps are stabilized, which would lead to less dependence on CD growth.
And <unk>.
On the <unk>.
Venture Tech side at Leoni.
The deposits were stable for the quarter, we do expect a little bit more volatility going into the fourth quarter, but we.
We're optimistic and we're very proud of the long term prospects of that business, we expect it to be a long term deposit growth opportunity for us.
Frank This is Travis interestingly be acquired lending business, where we saw the most pressure on the deposit side within the private banking area and Tom mentioned that in his prepared remarks, but folks that were sitting there with deposits and no yield our alternatives for multiple years, and then turnaround and get treasuries in the 4% area, we saw them take deposits out and invest in the treasury market, which they do too.
Our broker dealer, so we preserve the customer relationship and get benefit economically there, but that's actually the area.
The pressure candidly across the organization from a deposit perspective.
Got you okay.
And are you still seeing kind of that story play out here in the fourth quarter.
I think there'll be near term volatility.
And in those portfolios as rates rise and such.
But again long term, it's still a very important.
Solid business for us.
Yeah, and I would just add to that that even though youll see the rotation out of noninterest bearing which many of the peers have experienced as well the stability of the other verticals that we built have really weathered the storm for us on that rotation and that goes back to <unk> comments in the wealth space as well that money that was at zero.
The longer Sleepy and it's going to start earning some rate of interest. The thing. We're most excited about is through the cycle right now for total deposits. Our beta is only 20% so I'm not saying, it's going to be 20% in the fourth quarter. Please don't don't make that jump.
But 20% through the cycle right now considering the history of our company when we had a different balance sheet mix I think is pretty dug on good performance at this point.
Well thinking about the CD promotions I think they were.
Correct me, if I'm wrong, but sort of.
Got it.
<unk> time early in the earlier in the third quarter.
Kind of curious if you could talk about is there any sort of similar promotions going on.
Currently.
And then kind of what's the pricing there that youre seeing.
Yes, we have a promotion now for 19 months three 5% on the CD and we're seeing a lot of positive activity began a little over a week ago. We also have a valley direct product a high yield savings at around three 1% and in the last quarter. We opened up over 1000, new accounts. There. So we are seeing traction at rates.
That gives us a little more duration of that and that will be attractive rates.
And Frank as a reminder to your comment around what we've done opportunistically before fed increases we've raised over $1 billion on two other CD promotions at rates less than two 5%.
So thats one of those things, it's really been helping to buoy, our overall deposit beta.
Great. Okay, and then if I could sneak in one last one on the expense side as well.
I was wondering sort of as we look at the fourth quarter I know you provided.
Your guide and under 50% here, we're very confident in terms of the efficiency ratio just wondering if there is.
Any reason to think some of those accruals in the quarter might've been a little bit frontloaded.
Is there.
I guess, the three Q, a pretty good run rate expectation.
All else equal for as we go into the fourth quarter here.
I appreciate the question I'm going to direct everybody's attention on the call to slide nine in the in the deck as a reminder, the.
Adjusted expenses of 254 million for the quarter and if you back out the $2 million that we talked about for the charitable contribution, which obviously, we don't expect that to continue in the fourth quarter.
You start to look at the other increases and the good news I think from from our perspective. It goes back to the comments that Tom made earlier about hiring new producers within our company the.
The majority of that cost increases in salary and compensation related lines. So to the extent that there's recessionary pressure, there, which I think everybody is experiencing I think it's fair to say that that's right I think a kind of base rate going forward at least for the fourth quarter expenses is $250 million.
And then you can build your growth on top of that relative to a sub 50% efficiency ratio.
Yeah.
Great. Okay. Thank you.
Thanks, Brian .
Okay.
Our next question comes from Dave Bishop from how hub group. Please proceed.
Hey, good morning, gentlemen, how are you.
David how are you.
Good good Hey, I was just curious.
The <unk> acquisition behind you just the appetite for share buybacks here.
I think there is so much opportunity for us to really continue the growth trajectory of the organization and I think the best use of our capital is to continue to leverage it into the balance sheet and provide.
Capital for the loan originations internally, so I think that's probably more likely than share repurchase at this point.
Got it and then.
Overall credit looks fine, but any color you guys can provide on that would be the broad in the early stage delinquencies, but the construction and commercial real estate credits.
Yes, there was a single construction loan that moved into the non accrual bucket. It's the collateral is fine we have guarantees on it we don't expect that any loss there in total our non accruals declined from 72 basis points to 65 and that was all due to a positive resolution of some older.
Yellow is that we had on the books with primarily full repayment on each of them.
Got it thanks.
Okay.
Our next question comes from Steven Alexopoulos from Jpmorgan. Please proceed.
Hey, good morning, everyone. This morning.
I'd like to start and dive a little deeper into the noninterest bearing deposit outflows in the quarter.
Look prior to the pandemic you were about mid 20% mix of noninterest bearing now thats about mid Thirty's, where do you see this level normalizing two and could we go below 30%.
As a reminder, in September of 'twenty, one I believe we were around 34% give or take 32% sorry.
And we peaked in the prior quarter at just under 37% now we're at 34, so we feel pretty good about the retention that we've seen here.
Think what your what Youre seeing in our numbers and you're probably seeing in other banks numbers is at some point on the interest rate cycle, especially in this cycle. There is a place where people are no longer going to leave as much in noninterest bearing as they did before so it's about effective use of their capital mostly relates back to the commercial space. So we.
We feel pretty good about how we've been able to hold our own in that space, but in any event. If some of that money moves to us we're not losing those accounts. So as Tom mentioned earlier, our account account basis in the commercial space has gone up.
I think just from a more broad perspective, Steve and the composition of the balance sheet has changed dramatically since then.
Much of our focus on the commercial deposit versus the consumer deposits and hygiene in those those carry higher noninterest bearing deposits from an operating account in payroll account perspective, as well as just a shift in bringing in late and wet there.
Funding base look like as well so I don't anticipate that at all going back down to those levels.
Okay. So so can we read into this that you think you could maintain about mid 30 is about where you are now so the mix doesn't change that much moving forward.
I think theres a lot of pressure externally you saw $200 million flow out of the banking space. So I think there is going to be some pressure I think the diversified funding mix that we've created here is really providing us the ability to continue that growth without having to look to the borrowings market marketplace.
That said I think the beta is it going to be much less than what they were last time.
Steve If you look at it we had 20% impact in beta this quarter, just because of the growth that we put on.
So I think on a core basis.
As Tom was referring to.
We are getting the real benefit of the diversified funding, but in other retail branches are doing well.
All across the individual geographies and the focus on the commercial customer versus maybe the Cree customer.
Is really supporting balances.
Well, our commercial customers, who can give us between 25% and 35% balances that come along with that growth. If you look back to when we had.
I think as you were referencing earlier when we were in the mid <unk>, 60% of the balance sheet.
Does.
Miss you may at.
60% of the balance sheet.
Now is sitting with a fixed and 40% on the adjustable side and that was really switched from wherever we're before so we've seen significant leasing significant so I get that wrong. So you get around the other way right, 60% is adjustable 40% is fixed and within the adjustable portion.
40% of that would reprice in the next three months so that message that we had a total portfolio, yes, so that massive shift in asset base reflects the change in the deposit composition as well they really comes along with that sale.
On a macro basis, it's a much more sense, it's a much more asset sensitive balance sheet and the funding structure looks looks looks much better as well.
IRA if we put this together what should we assume for the through the cycle deposit beta.
For you guys.
I wanted to give guidance on that specific but I think it is going to be much better than what we were historically Steve.
Okay, we won't give guidance, but I will say that Steven.
On the low end of our modeling at 27% beta to the high end in our modeling of 87, and we have all kinds of points in between there.
Our net interest income still grows on a year over year basis.
So we feel we feel very confident right now that we're going to continue to grow margin in the fourth quarter and the first quarter as we said in our prepared remarks gets a little murkier after that.
But on a net interest income perspective, the numbers look solid.
Okay.
And then one final one for me just given the inverted curve and rising deposit costs, how should we think about.
Holding residential mortgage loans beyond this year.
Should we expect that to continue.
No. It's David just pointed referenced we're only holding jumbo mortgages in portfolio. It was a small portion of conforming that closed two late in the third quarter about $20 million.
To be sold in the third quarter there'll be sold in the fourth quarter. So we continue to only hold jumbos not conforming.
Okay. Thanks for taking my questions. Thanks.
Thanks, David.
Yeah.
Our next question comes from Matthew Breese from Stephens, Inc. Please proceed.
Good morning.
I was hoping for a little bit more guidance on accretable yield that came down this quarter to $8 5 million I'm just curious what we should be using on a run rate basis there.
Yes, Matt this is Travis so we earned $12 million last quarter $8 $5 million. This quarter. The reduction is because payoff slowed dramatically.
Anywhere in that range is reasonable if you want to take the midpoint I think thats fine.
With where rates are maybe use the $8 5 million for the next few quarters, but I don't anticipate that it would move significantly lower than this.
Okay.
And then thinking back historically values operated more or less kind of interest rate neutral position.
Curious over time.
To go back to that kind of interest rate position.
Perhaps lock in some of these margin gains you've had more recently or do you expect to maintain the asset sensitive position.
Yes, Mike Thanks for the question, Matt Yes, we we are currently exploring some options to lock in some of that is.
As you said in the interest income or is some of that margin that we gained during this upward rate environment. So we are looking at that and I do think over time, you would see us migrate back to a.
Somewhat more neutral.
Balance sheet position.
Okay, and then just tying two thoughts together right you had mentioned NIM expansion through the early part of <unk>.
23, plus perhaps locking some of this in.
To the extent, we see some NIM pressure on the back of the fed stopping hikes.
To what extent might we see that pressure or do you expect it to be more of a stabilizing point versus real pressure.
Yeah, Matt This is Travis so I mean, our margins at $3 60, this quarter right we're up from.
$3 15, or so two quarters your guidance that significant increase in the last few quarters, we're going to grow for another two quarters, although likelihood I think a slower pace than what you've seen so far but then even when you see the pressure right. I think we all believe that we're going to see our margin even out somewhere well above kind of that low 3% level.
So maybe it's not the 360 area that we would ultimately level out following the.
Conclusion of the fed hikes, but I think the margins going to stabilize at a higher level than what <unk> seen historically for this company.
Inventory did you did you provide or was there a number in there like a $3 50 or $3 60 number you think it will stable out step stabilize that I was just using this quarter $3 six seems like the reference points are going to grow or two more quarters and then at some point. If you see the pressure I mean, I think you are going to normalize in this kind of mid 3% level.
Got it okay.
Yeah.
Last one for me just on fee income any sort of guidance. There I know, there's a number of different business lines now kind of <unk>.
Working.
Curious if that kind of $55 $56 million range is a good one going forward.
Yes, we feel pretty good about that range right now I mean, obviously the resi mortgage business is going to continue to be challenged as it was in the quarter.
But yes, we think thats probably in the ballpark.
Great. Okay. That's all I had thanks for taking my questions. Thanks, Matt.
Yeah.
Our next question comes from John are strong.
From RBC capital markets. Please proceed.
Okay.
Thanks, Good morning, everyone. Good morning, good morning.
Just a couple of follow ups.
However, a question for you and your early early in your prepared comments I think you used the term times of stress.
Give you opportunities to grow does this does this feel like a time of stress.
For you.
Like you've got some opportunities to grow but help us understand that word stress.
And I think it's beginning to feel like it you are seeing definitely some contraction in GDP overall.
I think theres still an inflationary pressures that are being addressed by the fed but you look at the balance sheets right in and people are migrating deposits outside of traditional financial banks, which is impacting obviously the ability to fund.
But that said I think for US specifically the credit quality is holding up I keep on going back to what our performance was in the beginning of Covid. We had a significantly 30 plus billion dollars balance sheet, and we only had a modest $540 million of our loans during that time period.
It really demonstrates to me the way that we underwrote day, one and the ability of our borrowers to continue to perform in a challenging economic environment. So for us I feel really really good about opportunities to continue to grow opportunities support our customers and to add new customers for others that would be a bit concerned.
Okay.
That's helpful and then.
On your loan growth pace.
Help us understand just kind of environmental versus market share gains you still had a good growth.
Growth quarter, and I know, we've talked a little bit last quarter about some of your new markets, but.
Is the environment healthy and is providing opportunities are these market share gains and just help us think through how you view 2023.
At this time.
Yeah sure.
Yes.
Well, what we're most proud of is that our growth is very balanced across regions types of businesses type.
Types of product types of collateral we continue with that balanced profit, we're seeing accelerated growth in our newer Florida market more so than the stable markets up here in the Midwest that were seeing growth in California.
We entered new markets, Philadelphia, Nashville, Atlanta, We continue continue to see opportunities there and growth. There. We have added the IRA mentioned, we added 25 front end people, including three in our venture business two in New York one in Palo Alto. So we're getting lift through these added people.
So the new markets that we're entering in staffing into those new markets, but I just want to stress we have done this without compromising any credit standards, we've tightened our underwriting standards, our weighted average loan to value is around 60% on our new production our weighted average debt service coverage is over one.
On the C&I side, it's even higher at over two times on net debt service coverage.
<unk> calculation that we have and 70% overall of our business is to our existing customer base on the construction side, it's closer to 80% to existing customer base or the balance of that growth utilizing our existing customers like <unk> and the Westchester bank are benefiting from a much larger balance sheet at <unk>.
Growth is 70 is 30% annualized and 75% is coming from existing customer base will continue to see the benefit of that.
But we'll guide you on our guidance is 8% to 10% growth for the fourth quarter and high single digits for 2023.
Okay. That's that's helpful.
And then Mike just one for you.
You've got a lot of questions on deposits on growth, obviously, but any any cap on your loan to deposit ratio. When you guys think through you've operated above 100% in the past, but how do you think about the loan to deposit ratio or is that just.
Not a concern or limitation for you. Thanks.
We don't provide specific guidance, but I think that when you look at us relative to the midsized bank peers in the $50 billion to $100 billion range I think it's advantageous for us to the extent we can do this in a cost effective way and also not turn away any growth. So one of the things we want to make sure that we never do is.
Be in a position, where we can't fund the good loan growth that Tom's team puts on day in and day out so that typically means that we'd like to keep it at 100 or less.
Came up a little bit above 100, it's been much higher historically.
A little bit above 100, I think would be okay, but.
There is not a goal to necessarily keep it there, but assuming we can do it cost effectively we'd like to be less than 100.
Okay, alright, thanks for the help I appreciate it thanks John .
Our next question comes from Michael Perito from K B W. Please.
Please proceed.
Hey, guys. Thanks, sorry, just one last quick follow up just the tax rate Mike has been creeping up a little bit just wondering if you could just give us a little.
Guidance, there on where you think that will shake out in the fourth quarter and maybe initial range for next year would be helpful. Thank you.
Yes, we think that the 27, 7% is the same rate that it will be.
So you should use in your models for the fourth quarter remember there are some things throughout the year. The way taxes are collected et cetera that can give it some kind of seasonality. So it tends to be lighter in the first half and then accelerated a little bit in the second half so thats, what youre, saying.
At this point no.
Expectations for major changes year on year in terms of like any tax credit or Muni bond purchase just anything dramatic or no no.
Okay.
Thank you guys. Thanks, Thanks, Mike.
Okay.
That does conclude today's questions I will now turn the call over to IRA Robbins for closing remarks.
Just want to once again, thank everyone for joining today. Thank our employees for such an unbelievable performance this quarter and we look forward to talking to you next quarter. Thank you and MSA.
Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.
Okay.
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Sure.