Valley National Bancorp Q1 2023 Earnings Call
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Yeah.
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Good day and thank you for standing by welcome to the Valley National Bancorp Q1, 2023 earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message message advising you to raise your hand.
Or withdraw your question. Please press star one again, 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 head of Investor Relations.
<unk> the floor is yours.
Good morning, and welcome to Valley's first quarter 2023 earnings conference call presenting on behalf of Valley today are CEO IRA Robbins, President, Tom <unk>, and Chief Financial Officer, Mike Hagadorn.
Four 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 <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 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 and the factors that could cause actual.
Our results to differ from those statements with that I'll turn the call over to IRA Robbins.
Thank you Travis.
And welcome to those of you on the call.
This morning, I will discuss valley's response to recent events and then we'll ask Tom to provide insight on the quarter as loan and deposit results.
Mike will then discuss the financial results in more detail.
In the first quarter of 2023 Valley reported net income of $147 million earnings per share of <unk> 28.
And an annualized ROA of 098 percent.
Exclusive of noncore items, adjusted net income EPS and ROE were $155 million 30.
And one <unk> respectively.
This quarter's financial performance was negatively impacted by seasonal factors related to net interest income and operating expenses.
Net interest margin compression, partially related to conserve liquidity build and other operating leverage headwinds.
That said I am extremely proud of the strength exhibited by our balance sheet in this recent period of stress.
To be clear, we entered the turmoil from a position of balance sheet and capital strength.
Our extremely diverse and granular deposit base contributed to our structurally low uninsured deposit balances.
To put it our funding stability during the quarter.
Our business niches and geographic footprint have positioned us well to benefit from recent disruption.
And the last three weeks of March we opened over 7000, new deposit accounts, which represented a full quarter's worth of account acquisitions in normal times.
These accounts continue to fund and new customer flows remained strong.
From a capital perspective, we continue to benefit from our modest securities portfolio and associated OCI impact.
These characteristics as well as our strong underwriting track record have clearly differentiated value during this period of stress.
As always during the recent bank failure crisis, our teams were proactive consistent and direct and their client communications.
This high touch approach to further differentiate our organization and is indicative of the Premier service oriented culture that we've built.
We have also set apart as one of the top risk managers and the entire banking space.
Stakeholders tend to focus on our track record of strong credit quality, but we are equally proud of the other components of our enterprise risk culture for.
For example, our interest rate risk and liquidity risk management positively differentiated value during the crisis.
As a result of our strong risk management approach and confidence in our balance sheet, we were able to bid on the farmers Silicon Valley Bank.
Restructure of sophisticated and thoughtful proposal that was strategically and financially compelling for valley.
While our disciplined bid came up just short in the end, we are prepared and positioned to explore future opportunities that may emerge.
Valley fills a void in the current banking landscape. Today is there are only a handful of commercial banks our size in the entire country.
The niche client we serve is strong and our opportunities will only expand exponentially as the banking industry further evolves.
Over the last 95 years, our organization has successfully navigated a variety of diverse crisis.
While we remain confident in our risk management approach strategic vision and collective path forward. We are laser focused on diversity and granularity on both sides of the balance sheet and will not sacrifice the high credit standards, which which has set us apart throughout our history.
We continue to provide industry, leading service and expertise to assist our clients and communities and achieving their financial goals.
We believe that this long term approach will drive shareholder value over time.
With that I will turn the call over to Tom and Mike to discuss of course growth and financial results.
Thank you IRA.
Slide five illustrates our stable deposit balances for the quarter.
We are very pleased with the performance of our deposit base over the last few months.
Precious experienced following the closure of Silicon Valley and signature where generally contained to a few large corporate relationships, which we have been actively managing as rates increased.
Our technology banking business performed extremely well during the crisis and experienced only a modest decline in total balances.
This team contributed to a significant amount of the new account openings had IRA mentioned earlier.
The combination of run off and lower cost customer balances and the continued utilization of higher cost fully FDIC insured indirect deposits drove costs higher during the quarter.
In general Betas remain in line with our projected path for the year.
Slide six highlights the diversity of our deposit portfolio.
Roughly two thirds of our deposits come from our stable branch network.
Just less than 20% of our deposits are from specialized verticals like our online channel International and technology private banking and cannabis segments.
The diversity of available sources of funding continues to provide significant opportunity for valley to capitalize on disruption across the industry.
Our uninsured deposit exposure compares favorably to peers and we continue to utilize a variety of tools to reduce this further.
Most importantly, our robust cash and available liquidity provides significant coverage in excess of our uninsured balances.
Slide seven further illustrates the diversity and granularity of our deposit base.
Our commercial deposits are spread across our extensive geographic footprint and a variety of industries.
This diversity has been critical and defending our deposit base and should continue to provide discrete growth opportunities going forward.
You can also see some statistics on the depth and breadth of our client base.
Over 600000 deposit customers with an average tenure beyond 10 years.
Our granular deposit base has an average account size below $60000.
Turning to the loan portfolio on slide eight.
You can see an overview of the portfolio growth and composition.
While quarterly originations continue to decline.
Net loan growth remains elevated as payoff activity is depressed.
Our portfolio is extremely diverse across geographies and asset classes and both the origination and portfolio yields continue to increase.
Slide nine illustrates the diversity of our commercial real estate portfolio by collateral type and geography.
As a reminder, we have an extremely granular loan portfolio with an average loan size of roughly $5 million.
From a metric perspective, our weighted average loan to value is 58% and a weighted average debt service coverage is approximately one eight times.
We believe these metrics compare favorably to peers as we have consistently and conservatively underwritten to higher cap rates.
Our experience with recent refinancing activity has been positive given the existing cushion we had baked into past underwriting.
Slide 10 provides additional detail on our modest and granular office portfolio.
Our office portfolio, including Health care office comprises a modest 11% of commercial real estate.
This includes approximately $600 million of owner occupied office.
Our portfolio is geographically geographically diverse with only immaterial exposure to Manhattan.
The credit metrics on this portfolio are extremely strong and we have not experienced any losses in our recent history.
Important the portfolio is largely multi tenant with a very small average loan size of $2 $2 million.
We understand the concerns over office collateral in general, but believe our portfolio is positioned to perform well.
We have utilized slide 11 at various times in the past.
We believe this illustrates the ultimate manifestation of our strong and consistent credit culture.
Both ordinary times and in periods of stress valleys credit losses have been well below industry levels. We anticipate this will continue going forward.
With that I will turn the call over to Mike Hagedorn, one to provide additional insight on the quarter's financials.
Thank you Tom Slide.
Slide 12 illustrates valleys recent quarterly net interest income and margin trends.
Net interest income declined approximately $30 million from the linked quarter.
We estimate that $8 $5 million of the reduction was related to the combined impacts of the lower day count in the quarter and the drag of excess liquidity added in March.
The remaining pressure as the result of continued deposit mix shift into higher cost products and increasing deposit costs, reflecting competitive dynamics.
Our fully tax equivalent net interest margin declined 41 basis points to three 6% from the fourth quarter of 2022.
Approximately 16 basis points of the sequential reduction was associated with day count and the drag of excess liquidity in March.
Remaining compression is largely the result of higher costs associated with incremental funding.
As you saw on slide five cumulative deposit beta increased to 41% in the quarter from 34% in the fourth quarter.
While asset yields are expected to reprice higher.
The funding cost dynamic will likely result in net interest margin continuing to decline throughout the year absent the impacts of day count and excess liquidity.
We anticipate that our 2023 net interest income growth will now be closer to 10% to 12% from the 16% to 18% range provided previously.
Moving to slide 13, we generated $54 3 million of noninterest income for the quarter as compared to $52 8 million in the fourth quarter.
This sequential growth was primarily the result of higher capital markets revenue and other income, which offset seasonally lower income from wealth Trust and insurance.
On slide 14, you can see that our noninterest expenses were approximately $272 million for the quarter were approximately $264 million on an adjusted basis.
The increase in adjusted expenses from the fourth quarter were largely related to seasonally elevated payroll taxes expenses and the higher FDIC assessment.
Expenses in other categories were well controlled and declined modestly from the fourth quarter.
As a result of seasonal factors associated with day, count and elevated payroll taxes, our first quarter efficiency ratio traditionally represents the high watermark for the year.
We're not currently revising our guided growth rate for noninterest expenses. However, our revised net interest income growth guidance will negatively impact our efficiency ratio expectations.
While efficiency will improve throughout the year, we believe a full year estimate around 50% is more reasonable.
Turning to slide 15, you can see our asset quality trends for the last five quarters.
The first quarter of 2023 elevated net charge offs for the result of the further write down of our C&I loan discussed last quarter and a single development project.
These credits were each substantially reserved for and proactively address.
Underlying credit metrics remained strong our allowance for credit losses declined to 95% of loans from 1.0% to 3% in the fourth quarter.
The sequential decline was largely the result of substantial preexisting specific reserves associated with the quarter's charge offs.
As a reminder, our allowance coverage ratio of <unk>, 95% is still higher than our day, one seasonal ratio of eight 9%.
As a percent of nonaccrual loans the allowance for loan losses increased to 181% at March 31, 2023 from 170% at December 31 2022.
In response to recent environmental turmoil, we added disclosure around our securities portfolio on page 16.
In aggregate securities represent a modest 8% of our total assets are.
Our portfolio is conservatively managed for ongoing liquidity and is not a profitability tool.
On Slide 17, you can see that tangible book value increased approximately two 6% for the quarter.
This was the result of our retained earnings and a modest improvement in the OCI impact associated with our available for sale securities portfolio.
Tangible common equity to tangible assets declined to six 2% during the quarter the sequential.
The reduction is primarily a result of excess liquidity held at March 31.
If our cash position has remained stable from December 31, 2022, our tangible common equity ratio would've been approximately 738%.
Our risk based capital ratios were relatively stable during the quarter.
As you can see given our modest securities portfolio OCI would only have a minor impact on our regulatory ratios all else equal.
With that I'll turn the call back to the operator to begin Q&A. Thank you.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one.
One again, please standby, while we compile the Q&A roster.
Our first question comes from Steve Moss with Raymond James.
Steve the floor is yours.
Good morning.
Maybe just starting off.
Maybe just starting off with loan growth here, you saw strong loan growth in the quarter.
Just kind of curious as to how youre thinking about the dynamic there and loan pricing as well.
Hey, Dave It's Tom I'd answer as you saw we had a 50% annualized growth.
Want to point out our balance to harvest and granular wise, we're still averaging below $10 million of our cream portfolio originations and about $1 million on our C&I originations, it's balanced by region. It's balanced by type is balanced and a very.
A diverse way by size and such as as I've mentioned, we previously gave a range of 7% to 9% for the year. We think we'll be at the high end or slightly above that range at the end of 2023.
We have a very strong customer base, a very loyal customer base, 70% of our business comes from that customer base. It's relationship driven it's priced at a relationship way we are opportunistically raising spreads wherever we can across the board.
Okay in terms of raising spreads just kind of curious.
Yes.
If youre raising spreads relative to whatever index.
How are you guys thinking about that it was still pretty tight marginal funding cost around 5%. These days or just kind of any help you can give with that dynamic.
Yes, sure, yes keep in mind with the diversity of the types of loans, we do the spreads will vary.
We have a very active profitability model, which we use again, it's relationship driven this spreads will vary based on the risk and type of allowance. So it's really hard to give you a figure on that spread.
I will tell you on average <unk> and probably got over 50 basis points.
Okay.
Helpful. And then maybe just one for me on credit you did have an increase in delinquencies here in C&I and CRE in the 30 to 89 day bucket kind of curious if you could give some color around those those projects in.
How are you guys thinking about reserve ratio going forward.
Yes, Steve I think you're referring to the performing.
Non accruals are performing accruals, there that bucket slightly picked up our non accruals went down to 50 basis points from 57 that performing accrual one slightly up but that's a function of one customer that is fully secured by cash surrender value of life insurance at about $21 million you would take that out that bucket also declined.
That's in a process of getting brought card.
Okay. That's helpful.
I appreciate all the color here and I'll step back thanks.
Thanks, Steve.
Please standby for our next caller.
Our next call comes from Shang from Frank <unk> with Piper Sandler Frank the floor is yours.
Franken year ending picture.
Can you talk a little bit about the opportunity to fund that growth talk about where youre brokered balances are now on the deposit side. It seems like brokerage seems like a reasonable alternative in this environment for funding but.
Are you limited in the room, there in terms of bringing that higher or how do you think about.
Funding in general here.
Let me start just with I think how you think about funding overall and then I think Tom obviously youll see to.
And some of Odyssey demands model, along with respect to what that is.
The incorrect to think every incremental dollar on the cost comes in here at 5% during the quarter, we raised over $600 million.
What I would deem as core funding.
Non specific brokered and the cost of that was a blended 250% and we had a very strong funding vehicles across the entire organization based on the diversity and granularity that we have when you think about some of the incremental funding costs. Obviously allow that you should see that the 14, 7% annualized loan growth, perhaps the impact of the data and that Tom referenced.
We anticipate that really declining a little bit which will definitely.
The impact of cloud that they need when it comes to some of the wholesale funding in the environment today.
Just to add to that practice.
<unk>, 70% of our new business comes from our existing customer base, we have consistently supported them in all economic cycles at all times. We will continue to do that we are experiencing a decline in our originations that you as you have seen on probably slide eight if I recall, but more.
Our pipeline of approved to be closed loans is down 30%. Since Q4. So we are seeing that reduction in loan demand and as part of that our customers are choosing not to move forward on projects and reducing that pull through of our work in process piece.
Yes, and one other component when you look at the deposit side. If you go back three years, we didn't have the ditches and deposit verticals that we have today, so that $8 5 billion of deposits that came from someone else specialty programs that we've referenced in that slide.
Alright, okay.
So in terms of the some of the verticals you mentioned.
The technology deposits, which still I guess, a relatively small piece of the overall pie.
I think Tom you said they were down modestly.
But you also talked about opportunity on that side. So are those in.
Account openings. So I was wondering if you could just talk about the opportunity specifically with a couple of names that have.
The signature of the world in Silicon Valley the opportunity there in the near term.
To drive.
Both loan and deposit growth and then specifically on the technology side or are those deposit balances now actually up from where they were or can you give a little bit more clarification there.
And I think it's something we've been focused on having a diverse and granular deposit base that we have some good even commenting on and driving across the entire organization for the last nine years.
As Tom mentioned that $8 5 billion that we're referencing on slide six.
Zero of that existed five years ago.
Average cost of that $2, one 7% today. So I think we've done a very good job of being able to originate.
Turning to deposit growth based on different initiatives that we've initiated over the last few years, which I think is now coming to fruition and I think one of the things that you don't see here at al and some of the off balance sheet platforms that we've been able to create as well.
About $1 billion, one $9 billion move from our balance sheet into treasury accounts on our platform.
Since October one of last year historically.
Those would've been deposits that would have left the balance sheet at some point as the inverted curve begins to change now. This is obviously an expectation that those are going to payback to deposit bank. So we feel really good about the positioning event and all the work we've done over the last five years in creating not just diversity from a balance sheet perspective.
<unk> and a balance sheet perspective.
Those deposits that you see on slide six.
Five there is still significant opportunity for continued growth in that and I think during the quarter, we saw 18% growth in the Canada business and.
And we continue to see.
Passion of technology accounts across the entire platform.
That technology buckets, a little bit interesting there's obviously.
Some chunkier deposits in there.
And some of the deposits.
EBIT flow based on unique activities within those individual clients and one of the clients are very large percentage that actually went public.
And as a result of that we lost some of those deposits during the quarter. So it is a very very sticky deposit base over 60% of the technology deposits are noninterest bearing here at valley, which I think is different from a lot of other organizations as well. So we're really excited about the continued opportunities for growth in these segments.
Okay and then just lastly, just point of clarification from the deck when you guys mentioned on.
The page six slide six.
The 31% uninsured.
Positive number.
Is that inclusive.
The fully collateralized deposits are those.
Are those in that uninsured number.
Four six.
Yes, they are.
Okay, great. Thank you.
Our next question is coming from David Bishop with Hadoop Group, David you have the floor.
Yes, good morning.
Hey, good morning, guys.
Good morning, the earnings release notes that some of the short term funding that you guys added during the quarter has rolled out I'm just curious how.
How much has already been paid out or redeemed since the quarter end.
This is Mike as you can see from the.
The earnings release.
Peak and I'm talking about from three nine to $3 31 at the peak during that time it was in excess of $6 billion.
And as we sit today, our cash and cash equivalents at the fed.
Our reserve or any other cash balance is at one 5 billion. So it is remarkably come down.
Just to be clear about this this was done specifically for an abundance of caution given the environment that existed post March nine.
Got it then.
In terms of the disclosures regarding deposits.
<unk>.
Did a lot of customers take advantage of sort of the policy.
<unk>.
I'm just curious what you saw in terms of flows there.
Yeah, so prior to.
March 9th we had just a little over $200 million.
And that program, whether that be reciprocal or one ways.
Cyclical balance as we sit today is $1 4 billion and if you put the one ways and there was $1 6 billion. So there hasnt been usage, but I would say probably not as much as you would think once again it goes back to high risk comments about the resiliency and the opportunities that we have in those various verticals to make that difference.
Hey, David It's Tom again.
As a point of reference as an example, we were proactive in discussing a variety of verticals to ensure our customer deposits and.
Some of our very largest commercial deposit customers chose not to based on our confidence and faith in valley.
Got it and then one final question I think.
You noted in the preamble payoffs were down to zero. This quarter just curious what they were this quarter versus last.
Yes.
<unk> been pretty consistent these last few quarters, keeping in mind that the higher interest rates really not that any type of refinance.
So they really haven't deviated in the last two or three quarters.
Okay.
Great. Thank you.
Thanks, David.
Our next question comes from Manon Ghazaliyah.
Of Morgan Stanley . Please go ahead with your question.
Hi, good morning.
Good morning.
Yes, I wanted to follow up on the last question, where you mentioned that cash balances are back down to one another $1 billion or so.
Based on that I guess, how should we think about the NIM trajectory embedded within within your guidance. So you noted that.
16 basis points of the decline in NIM was related to day count and excess liquidity. So is a good starting point for the second quarter about 330 or so of NIM.
<unk>.
And then how should we think about the.
The decline in NIM that you saw last quarter. The core decline of about 25 basis points should we expect that to slow as we go through the year.
This is Mike I'll take the first stab at this first I want to point out that the one 5 billion that we have an excess liquidity on the balance sheet as we sit today I think the bias clearly so that will be for that to go lower as we see the crisis.
The immediate impact of the crisis Abates and in my prepared remarks, as you rightly pointed out the <unk>.
16 basis points against the margin would put it at $3 32 for the quarter, but I think it's important as you look forward March liquidity adjusted margin was only $3 two 5%. So we're already starting to see some of that compression and essentially that compression is coming from two places on our continued rotation out of noninterest bearing.
And to interest bearing accounts as Tom alluded to and I are both our mix of clients tend to be savvy.
At very liquid customers and so they can take advantage of the fact that they don't need to hold as much in noninterest bearing.
And then the second reason is the inverted curve is causing increased deposit competition, especially on the short end of the curve and also we're competing against government securities with our clients as well so on a more savvy ones are moving into treasuries.
The good news on that side is there still staying within the valley family to do that so and in a different interest rate environment. We expect some of those deposits are those securities to rotate back into deposits.
Got it as you think about the mix of.
<unk> departure.
Deposit balances, how should we think about that going into year end.
Yes, right now we expect the trough I can't tell you what quarter I think it's going to happen and but we expect the trough to be somewhere in the mid <unk>. So we do expect continued rotation.
Got it and.
Maybe just a quick follow up there.
In terms of maturity.
Of Cds.
On your books.
Call that you were putting on longer dated Cds, a while back.
How should we think about the maturities coming up over the next couple of quarters or so.
Now we have actually not been putting on at least the last year longer dated Cds, we've been actually we put some specials on in 'twenty two.
We're roughly 18 months at the high end and Youll see all of that come through in the latter half of this year early 'twenty four.
Got it very helpful. Thank you.
Okay. Thanks.
Okay.
Please standby as we get our next question.
Okay.
Our next question comes from Tim Sweitzer with K B W.
Okay. Thank you and you have the floor.
Thank you I'm on for Mike Perito.
Could you talk about your various deposit niches ever get fired on all of that and across the various industries and categories, yet and which ones you think could be the strongest over the rest of the year and possibly as we enter into 2024.
Okay.
I think obviously in there we mentioned a bunch of them and that diversity is really important ourselves. It's not just specialized niches that are focused on one individual site.
One individual excuse me of US a lot of individuals out there that really comprise that thinking about the technology.
<unk> itself with the pioneer the obviously, there's been a significant amount of disruption in the industry, especially with that we opened up over 7000 accounts in the last three days of the first quarter.
Another metric as we opened up 4500 business accounts in this.
Fourth quarter fee in the first quarter of 2023.
Thats equal to what we would have done six months back in 2022 significant amount of activity across the entire footprint of alley.
And I think there is an opportunity to continue to expand some of the specialized base.
When we were able to grow 600 million of deposits in the first quarter at a blended rate of $2 50. It does reflect the overall diversity I think the funding cost on an incremental basis will come down a little bit as we think about slumming funding loan growth and so I think a 41% deposit data on accumulative basis, where we are today.
Based on having loan growth at the levels. We have are really reflect a lot of organic deposit growth.
A bit hard to see when you try to sort of measured versus a lot of our peers that haven't really generated the same type of loan growth that we have so we do believe that that data will continue to perform that and will probably improve on a relative basis as the loan growth really subsides a little bit.
Okay and on the loan growth my guesses notices given you're still kind of maintain guidance there, but as you heard from customers any signs of <unk>.
Slowing investment or loan demand get just out there with the uncertainty I'm wondering if people are starting to become a little bit more cautious what your discussions are like.
Yes.
Mentioned earlier customers has certainly slowed down and their desire to start projects, they're going to wait to see what happens to the interest rate market over the next 12 to 24 months.
That's what's created at 30% reduction in our yet to be closed bucket of our pipeline a lot of it is self induced by the customer base more so than it is by us.
<unk>, we're not seeing.
Any deterioration in credit quality of what we are seeing is just a wait and see by the customers.
Okay and has the environment caused you guys to tightening lending standards at all.
I didn't get that question I'm sorry.
Has the environment caused due to tightening your lending standards at all.
Yes, we have again, a very conservative underwriting standards to begin with but we'd look to tighten, especially in certain buckets of our portfolio that we consistently do that.
Throughout every cycle.
Okay. That's all for me thank you.
Thanks, Dan.
Okay.
Our next question comes from Matt Breezy, Matthew Breese with Stephens.
Matt go ahead with your question good morning, everybody.
Good morning, Matt.
In past quarters, we've discussed the outlook for deposit betas through cycle in the past you provided somewhat of a range.
At this stage is it safe to say that the Cumulus deposit beta will end up being closer to the higher end, 40% to 50% is that has that kind of how you see this all playing out.
Yes. This is Mike.
I really think that the through the cycle cumulative deposit beta will be around 50%.
I think Matt right.
<unk>, obviously been in banking for a long time, just like what you've seen you can go back to sort of pass environments and seeing what happens.
But obviously data is in different environments are really a function of what the alternative external variables are as well and right. Now we are in an inverted curve that inverted curve downward pressure betas until the conversion changes so as Mike mentioned chat as mentioned as I'm sure a lot of others are seeing today most of our competition today isn't peer banks that are sitting around.
Corner and most of the competition sits in the treasury yields today based on where they are so that deposit beta is going to stay elevated I believe Atlantic Brian This inverted curve, but once we get back to a sort of a normalized carbon in normalized environment.
Deposit betas will really come back down.
This is Mike again, and you can see that in our.
Our public disclosure that the cost of deposits was around $1 96 for the quarter, but for the month of March it was to one 4%.
And we're originating new core deposits around $2 50, so back to the comment that I think IRA made earlier around don't think that every incremental dollar is being funded by something in the brokerage space, which is closer to five because we also have a promo rate right now on our internet at $4, Hawaii. So the blended rate will come down but the <unk>.
Beta is definitely going to go up as I said earlier due to the competition that we're seeing in the marketplace for deposits, especially post March time.
And how have deposit flows gone post quarter end has the mix shift continued in our balances up or down X brokered.
The ship has actually been pretty good at a couple of really good examples of that would be.
Our tech business is IRA pointed out early on 10% of our tech deposits were gone only half of those however are made up of one customer unrelated to the crisis and not only at 5% reduction in March So we feel pretty good about where that is relative to the overall industry another bright spot.
It would be that our branch deposits, even when you consider the fact that people are making tax payments.
Our branch deposits held in very well in a post March science environment. So.
Flows the flows havent slowed the closer so good we opened as an example.
<unk> mentioned this in his prepared remarks 7000, new accounts just in the month of March. So the flows have been good, but obviously, we have 15% growth and loans youre going to have a higher percentage of that being funded by broker just because of the sheer number or the average of those balance sheet increases.
Have you seen any.
Any customers or hiring opportunities stemming from from signature and dislocation of some of the other nearby banks.
Hey, Matt its Tom.
We're always going to be opportunistic to add teams of people as long as it.
Follows our relationship driven strategy in our credit standards. So the short answer to that is yes, we do see opportunities.
Okay.
Alright, and then last one from me just on new commercial real estate loans, either those involved in a transaction or resetting.
Into a new kind of five or seven year fixed rate.
What is what is the ultimate change in value, particularly on commercial real estate office that Youre seeing appraisals come in.
Particularly for loans.
Covid.
Sure. Yes, we are seeing across the board increase in cap rates as you would expect more so in the office.
And retail industry.
<unk> seen a multifamily and industrial.
Not major office players, especially in Manhattan, we have $260 million of Manhattan office.
So where the NOI is are down so we would expect thats going to drive the value is more so that the cap rates have app increase to drive those values, but we have not seen any material deterioration as a matter of fact, we only have one office loan on non accrual that is $315000.
I think one of the things you really look at that as being what our day one underwriting was as an example multifamily for us.
The cap rates were $5 four 2% right and when you look at sort of where the environment's been on that sort of reflects how we underwrite day one so.
So I think some of the changes that others are seeing based on changes in interest rates and cap rates.
It really is going to have less of an impact on us.
I think maybe just going back to an earlier question that Tim might have asked.
One of our clients Julien, we're very fortunate to have a very strong knowledgeable client base has been in the business for a very long time and they are really the first line of defense here and that was with a client the other day, they actually walked away from a $3 million deposit that they had on the on our project.
I think about the economics, just didn't work out now and there are other opportunities that are going to happen. So.
Our client they didn't just get into that real estate market 345 years ago <unk> been in for a very long time at various dude and I think it's going to be a lot of ability.
For us to help support them as they continue to look at opportunities that are going to come about in this economic environment and Matt just a final point on this our average weighted average loan to value on our real estate portfolio was 58% on our office portfolio is 54%. So there is tremendous cushion in our previous underwriting standards.
<unk> had mentioned.
Great I appreciate it that's all I had thanks for taking my questions.
Thanks, Matt.
Yeah.
Our next question comes from John as strong.
With RBC capital markets RBC John .
Go ahead with your question Hey, good morning.
Mike I was hey, good morning, Mike I was writing fast can you go over the efficiency ratio guide again.
What's your thinking on overall expense growth.
Sure. So as a reminder, if you were to go back to first quarter of 'twenty. Two you would also see an efficiency ratio that started with a 53 to the left of the decimal place so for us to be at 53 of the first quarter based on the seasonality of some of our expenses.
That being the largest portion of it being the various payroll taxes associated with compensation related expenses. It is not unusual and I also want to point out the second thing that is.
A large impact on the expense side, which is the increase in FDIC assessment rates that increase that two basis point annual increase in rate drove a $2 $3 million increase in our expenses as well so when you back those out.
As we've said in the past our long term goal is to have it below 50%.
Efficiency ratio when you back those out and you consider the NIM compression that we've talked about previously it seems reasonable to think that the bias right now might be slightly over 50% for the remainder of 'twenty three.
Alright.
Okay. So you are saying for the remainder of 2003 from here.
Yes, so what I'm, saying is 50.
<unk> 53 is seasonally high and I think that something over 50 wouldn't be that terminated I'm not talking about 53 by the way, we're talking 50 to $51 52.
Okay.
Okay.
How about the fee piece of the equation.
Any drivers there anything to call out in terms of your expectations there.
Yes, two things I think are really important one I hope it doesn't get lost in everything else is going on our fee income was actually pretty good first quarter.
It was up over the fourth quarter and when you look at the drivers of that the swap and the FX business. The FX business came to us from Illumina, where selling the valley legacy customer base into that those were strong and then the one negative that's in there that will come back is there some seasonality to help that lean recognizes.
Their revenue and we expect that to come back in the second quarter. So I feel pretty good about fee income okay.
Okay.
Thank you for that and then IRA you you brought up a bit on SBB.
And you talked about how you are open to opportunities.
That would've been a bigger deal, but what what might what might make sense for you guys are you seeing any more or less.
And the way of opportunities to do something strategic.
So I would say I think thats going to be a lot of opportunities available to us and I think R&D for function of the granularity and diversity that we have today within our balance sheet. We've identified a couple of core strategic initiatives for the last three or four years. One of them is focused on diversity. One of them is focused on continuing to build sort of specialized business lines across the organization.
<unk> reduced some of the concentration increase to help expand some of the alternative funding sources as well as continuing to identify.
Our noninterest income sources, so I do believe it's going to be opportunities out there for us.
<unk>.
For us it really has two aligned from a strategic perspective.
And I think Thats really critical we have a lot of internal and organic opportunities that really tremendous to us and it's in it's incremental for us to really go ahead and look at something else.
So I do think there's going to be other opportunities I think we will be able to look at them.
And I think we'll be very disciplined like we were on the sdd EBIT. It has to make both strategic sense for us as well as economic sense for US one of the things that I've been focused on for the last five years is making sure that our tangible book value growth and I think absent that I'm very very proud of when you think on a relative basis, we've done much better than our peers and tangible book value growth over that last.
Five year sales.
Is that something that sort of remains.
Okay. Okay, alright, thank you I appreciate it.
Thanks, John .
Yes.
That concludes our Q&A I would now like to turn it back over to IRA Robbins for closing remarks.
Thank you everyone for taking the time to join us today.
See you next quarter.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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