Q2 2023 Valley National Bancorp Earnings Call
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Operator 2: Good day. Thank you for standing by. Welcome to the Valley National Bancorp Q2 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one 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. Please go ahead.
Yeah.
Good day, and thank you for standing by and welcome to the Valley National Bank Second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.
Session, you will need to press star one one on your telephone and you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please.
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. Please go ahead.
Travis Lan: Good morning, welcome to Valley's Q2 2023 earnings conference call. Presenting on behalf of Valley today are CEO Ira Robbins, President Tom Iadanza, and Chief Financial Officer Mike Hagedorn. Before we begin, I would like to make everyone aware that our quarterly earnings release and supporting documents can be found on our company website at valley.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. 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.
Good morning, and welcome to valleys second quarter 2023 earnings conference call presenting on behalf of Valley today are CEO , IRA Robbins, President 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 got 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 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.
Travis Lan: 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 results to differ from those statements. With that, I'll turn the call over to Ira Robbins.
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 results to differ from those statements with that I will turn the call over to IRA Robbins.
Ira Robbins: Thank you, Travis. In Q2 2023, Valley reported net income of $139 million and earnings per share of $0.27. Exclusive of non-core items, adjusted net income and EPS were $147 million and $0.28 respectively. The quarterly results were highlighted by strong and stable asset quality metrics, consistent loan activity, improved deposit generation, and solid non-interest income growth. The interest rate environment continues to create cyclical pressures for traditional spread banks like Valley. We have conservatively positioned our balance sheet in a neutral manner, which is both prudent and generates largely stable net interest income in varying interest rate environments. The current inverted curve pressures this approach. Yet over the long run, we believe it is appropriate. We firmly believe franchise value is not created by taking interest rate positions, but rather by increasing clients and diversifying the balance sheet.
Thank you Travis.
In the second quarter of 2023 Valley reported net income of $139 million and earnings per share of <unk> 27.
Exclusive of noncore items, adjusted net income and EPS were 147 million and 28, respectively.
The quarterly results were highlighted by strong and stable asset quality metrics consistent loan activity improved deposit generation and solid noninterest income growth.
The interest rate environment continues to create cyclical pressures for traditional spread banks like valley.
Okay.
We are concerned we positioned our balance sheet in a neutral manner, which is both prudent and generates largely stable net interest income and varying interest rate environments.
The current inverted curve pressures gets approach yet over the long run we believe it is appropriate.
We firmly believe franchise value is not created by taking interest rate positions.
Rather by increasing clients and diversifying the balance sheet.
Ira Robbins: The current cyclical pressure with the inverted curve will ultimately normalize, and the recent client growth realized by Valley will generate significant value. Outside of the cyclical variables impacting profitability, the banking environment has recently undergone structural changes related to the movement of money. These changing trends will have long-term implications to the banking environment. Our investment in technology over the last few years, both from a client and internal operating perspective, coupled with the diversity of our balance sheet, will mitigate some of these structural changes and ultimately position Valley to capitalize on the evolutionary changes in which clients interact with their financial institutions. During my tenure, we have focused on consistent tangible book value growth as a key driver of long-term shareholder value.
The current cyclical pressure with the inverted curve will ultimately normalize.
And the recent client growth realized by valley will generate significant value.
Outside of the cyclical variables impacting profitability the banking environment has recently undergone structural changes related to the amount of money.
These changing trends will have long term implications to the banking environment.
Our investment in technology over the last few years, but from a client and internal operating perspective coupled.
Coupled with the diversity of our balance sheet will mitigate some of the structural changes and ultimately position valley to capitalize on the evolutionary changes in which clients interact with their financial institution.
During my tenure, we have focused on consistent tangible book value growth as a key driver of long term shareholder value.
Ira Robbins: While recent market disruption has overshadowed these efforts, I am extremely proud of the near 50% increase in tangible book value over the last five years. In fact, when adjusting for the common cash dividend paid, we have generated over 90% growth in tangible book value since March of 2018. As the market returns to valuing banks on fundamentals, our consistent tangible book value growth will continue to be differentiating as we move forward. In an effort to offset certain cyclical revenue headwinds, we began to implement a cost-saving exercise in late June. We remain focused on sustainable long-term growth but acknowledge that we need to flexibly respond to near-term pressures. Our identified saves will primarily come from lower headcount, more efficient third-party consulting and service usage, and specific technology saves.
While recent market disruption has overshadowed these efforts I am extremely proud have been near 50% increase in tangible book value over the last five years.
In fact, when adjusting for the common cash dividend paid we have generated over 90% growth in tangible book value since March of 2018.
As the market return to value in banks on fundamentals are consistent tangible book value growth will continue to be differentiating as we move forward.
In an effort to offset certain cyclical revenue headwinds, we began to implement a cost saving exercise in late June .
We remain focused on sustainable long term growth.
Acknowledged that we need to flexibly respond to near term pressures.
Alright, <unk> phase will primarily come from lower head count more efficient third party consulting and service usage and specific technology saves.
Ira Robbins: These opportunities are expected to generate more than $40 million of annual pre-tax savings and will be realized over the next four quarters. Culturally, we are reinvigorating the attention to detail, which drove our efficiency improvement from the high 60% range in the beginning of my tenure to the low 50% range in late 2022. Consistent with our history, we will continue to position ourselves to capitalize on the dislocation around us. We anticipate that there will be significant growth opportunities as the environment stabilizes and the yield curve ultimately normalizes. Valley is a strong and vibrant institution operating in great markets. I remain extremely confident in our ability to execute, and I'm incredibly excited for what the future holds for our company. With that, I would turn the call over to Tom and Mike to discuss the quarter's growth and financial results.
These opportunities are expected to generate more than $40 million of annual pre tax savings and will be realized over the next four quarters.
Culturally we are reinvigorating the attention to detail, which drove our efficiency improvement in the high 60% range in the beginning of my tenure.
The low 50% range in late 2022.
Consistent with our history, we will continue to position ourselves to capitalize on the dislocation around us.
We anticipate that there will be significant growth opportunities as the environment stabilizes in the yield curve ultimately normalizes.
He has a strong and vibrant institution operating in great markets.
I remain extremely confident in our ability to execute and I'm incredibly excited for what the future holds for our company.
With that I will turn the call over to Tom and Mike to discuss the quarter's growth and financial results.
Tom Iadanza: Thank you, Ira. Slide four illustrates the $2 billion growth in our total deposits during the quarter, which reflects the ongoing shift to higher-cost products. The overwhelming majority of non-interest-bearing deposit runoff occurred by mid-May. Since then, both non-interest-bearing and interest-bearing transaction balances have been materially unchanged. The quarter's growth reflects accelerated CD generation, which pressured our deposit beta and weighed on our net interest margin. Slide five provides more detail on the continued diversity of our deposit portfolio. Many of our specialty verticals continue to perform well as we saw solid growth within our online channel and our national deposit to private banking areas. Through greater utilization of insurance products like ICS, we have continued to reduce our adjusted uninsured deposit exposure. Adjusted uninsured deposit balances declined to $12 billion with 24% of total deposits and are now covered more than 200% by on-balance-sheet cash and available liquidity.
Thank you IRA.
Slide four illustrates the $2 billion growth in our total deposits during the quarter, which reflects the ongoing shift to higher cost products.
The overwhelming majority of noninterest bearing deposit run off occurred by mid May since then both noninterest bearing and interest bearing transaction balances have been materially unchanged.
<unk> growth reflects accelerated CD generation, which pressured our deposit beta and weighed on our net interest margin.
Slide five provides more detail on the continued diversity of our deposit portfolio.
Many of our specialty verticals continue to perform well as we saw solid growth within our online channel and our national deposits of private banking areas.
So greater utilization of insurance products like Ics, we have continued to reduce our adjusted uninsured deposit exposure.
Adjusted uninsured deposit balances declined to $12 billion or 24% of total deposits and are now covered more than 200% by on balance sheet cash and available liquidity.
Tom Iadanza: Slide six further illustrates the diversity and granularity of our deposit base. No commercial industry accounts for more than 10% of our deposits. Our government portfolio remains diversified across our footprint and is fully collateralized relative to state collateral requirements. Turning to slide seven, you can see an overview of our loan growth and portfolio composition. Annualized loan growth slowed to 10% from 16% in Q1, while origination yields continue to climb. We have worked through the majority of the strong pipeline that existed coming into the year and anticipate mid-single-digit annualized growth for the remainder of 2023. We will continue to be selective on the lending side and generally supportive of compelling projects led by our high-quality and tenured customer base. Slide eight further illustrates the diversity of our commercial real estate portfolio by collateral type and geography.
Slide six further illustrates the diversity and granularity of our deposit base.
No commercial industry accounts for more than 10% of our deposits.
Our government portfolio remains diversified across our footprint and it's fully collateralized relative to state collateral requirements.
Turning to slide seven you can see an overview of our loan growth and portfolio composition.
Annualized loan growth slowed to 10% from 60% in the first quarter, while origination yields continue to decline.
We have worked through the majority of the strong pipeline that existed coming into the year and anticipate mid single digit annualized growth for the remainder of 2023.
We will continue to be selective on the lending side and generally supportive of compelling projects led by our high quality and tenured customer base.
Slide eight further illustrates the diversity of our commercial real estate portfolio by collateral type and geography.
Tom Iadanza: 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 LTV and debt service coverage ratio remained at 58% and 1.8 times respectively. 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 adequacy of our past underwriting discipline. Slide nine provides additional detail on our granular office portfolio. Loan to values declined during the quarter, and our office portfolio remains well-positioned with a low average loan size. With that, I will turn the call over to Mike Hagedorn to provide additional insight on the quarter's financials.
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 LTV and debt service coverage ratio remained at 58% and one eight times respectively.
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 adequacy of our past underwriting discipline.
Slide nine provides additional detail on our granular office portfolio.
Loan to values declined during the quarter and our office portfolio remains well positioned with a low average loan size.
With that I will turn the call over to Mike Hagedorn to provide additional insight on the quarter's financials.
Mike Hagedorn: Thank you, Tom. Slide 10 illustrates Valley's recent quarterly net interest income and margin trends. The sequential $16 million decline in net interest income was approximately half of the reduction experienced in Q1 of the year. While asset yields continue to improve, deposit mix shift in H1 of the quarter and continued pricing competition drove funding costs higher. Our fully tax-equivalent net interest margin declined 22 basis points versus 41 basis points in Q1 of 2023. We estimate that our elevated average cash position in Q2 weighed on the absolute margin by approximately eight basis points. As you saw on slide four, our cumulative deposit beta increased to 47% in the quarter. During the quarter, we enhanced our efforts to extend duration on the funding side.
Thank you Tom Slide.
Slide 10 illustrates valleys recent quarterly net interest income and margin trends the sequential of $16 million decline in net interest income was approximately half of the reduction experienced in the first quarter of the year.
While asset yields continue to improve deposit mix shift in the first half of the quarter and continued pricing competition drove funding costs higher.
Our fully tax equivalent net interest margin declined 22 basis points versus 41 basis points in the first quarter of 2023.
We estimate that our elevated average cash position in the second quarter weighed on the absolute margin by approximately eight basis points.
As you saw on slide four our cumulative deposit beta increased to 47% in the quarter.
During the quarter, we enhanced our efforts to extend duration on the funding side.
Mike Hagedorn: To this end, we added approximately $1 billion of CDs beyond 9 months and put on incremental FHLB funding out 3 years. We will continue to focus on prudent balance sheet management and further enhancing our maturity ladder as opportunities present themselves. While non-interest deposit balances have been stable since mid-May, as total deposits grow, we anticipate that the contribution of non-interest deposits will decline into the low 20% range. Through the cycle, betas now appear likely to peak out at the mid 50% range by year-end. As a result of these factors, we anticipate that our 2023 full-year net interest income growth will be in the low single-digit percent range. We are seeing initial signs of stabilization in net interest income and margin and increasingly expect that we are approaching a trough. Moving to slide 11.
To this end we added approximately 1 billion of Cds beyond nine months and put on incremental FHL be funding out three years.
We will continue to focus on prudent balance sheet management and further enhancing our maturity ladder as opportunities present themselves.
While noninterest deposit balances have been stable since mid may as total deposits grow we anticipate that the contribution of noninterest deposits will decline into the low 20% range.
Through the cycle beta is now appear likely to peak out at the mid 50% range by year end.
As a result of these factors, we anticipate that our 2023 full year net interest income growth will be in the low single digit percent range.
We are seeing initial signs of stabilization and net interest income and margin and increasingly expect but we are approaching a trough.
Mike Hagedorn: We generated over $60 million of non-interest income for the quarter as compared to $54 million in Q1. We saw strong growth in a variety of non-interest businesses during the quarter. Capital markets revenue increased $6 million, primarily due to stronger swap activity. We also saw growth in our wealth management and insurance lines and a modest rebound in gain on sale revenue. While we continue to diversify our revenue sources, we are pleased that stronger fee income results helped to slow revenue compression as compared to Q1. On slide 12, you can see that our non-interest expenses were approximately $283 million for the quarter or approximately $267 million on an adjusted basis. The increase in adjusted expenses from Q1 was largely related to a higher FDIC assessment and consulting costs. Expenses in other categories were generally well controlled.
Moving to slide 11, we generated over $60 million of noninterest income for the quarter as compared to $54 million in the first quarter.
We saw strong growth in a variety of noninterest businesses during the quarter.
Capital markets revenue increased $6 million, primarily due to stronger swap activity.
We also saw growth in our wealth management and insurance lines and a modest rebound in gain on sale revenue.
While we continue to diversify our revenue sources. We are pleased that stronger fee income results helped to slow revenue compression as compared to the first quarter.
On.
Slide 12, you can see that our noninterest expenses were approximately $283 million for the quarter or approximately $267 million on an adjusted basis.
The increase in adjusted expenses from the first quarter was largely related to a higher FDIC assessment and consulting costs.
Expenses in other categories were generally well controlled.
Mike Hagedorn: As Ira mentioned, we have identified over $40 million of annualized expense opportunities, which we have begun to execute on. During the quarter, we took approximately $11 million of restructuring charges, primarily in the form of severance associated with these efforts. While these saves will take time to materialize, we expect that they will help to offset potential revenue pressure and more regular expense growth over the next few quarters. We expect that just less than half of the annualized saves will be in our run rate by the end of the year, with the rest of the saves to be achieved by the midpoint of 2024. These expense efforts should help to get efficiency back on track, and we will continue to focus on opportunities beyond the $40 million that we have already identified.
As IRA mentioned, we have identified over $40 million of annualized expense opportunities, which we have begun to execute on.
During the quarter, we took approximately $11 million of restructuring charges, primarily in the form of severance associated with these efforts.
While these saves will take time to materialize, we expect that they will help to offset potential revenue pressure and more regular expense growth over the next few quarters.
We expect that just less than half of the annualized saves will be in our run rate by the end of the year with the rest of the saves to be achieved by the midpoint of 2024.
These expense efforts should help to get efficiency back on track and we will continue to focus on opportunities beyond the $40 million that we have already identified.
Mike Hagedorn: Coming into the year, we set a 2023 expense growth guide of between 10.5% and 12.5%. We continue to feel this is a reasonable level and believe these initiatives could bring us towards the lower end of that range. Turning to slide 13, you can see our asset quality trends for the last five quarters. Non-accrual loans were effectively flat at 0.51% of total loans, and early-stage delinquencies declined by nearly 40% from the linked quarter. Q2 net charge-offs were normalized as well, with nearly 50% coming from a single fully reserved construction loan charge-off. We have proactively addressed discrete problem credits in the last few quarters, and the data we see continues to indicate asset quality strength in the near term. On slide 14, you can see that tangible book value increased approximately 1.8% for the quarter.
Coming into the year, we set a 2023 expense growth guide of between 10, 5% and 12, 5%.
We continue to feel this is a reasonable level and believe these initiatives could bring us towards the lower end of that range.
Turning to slide 13, you can see our asset quality trends for the last five quarters.
Nonaccrual loans were effectively flat at five 1% of total loans and early stage delinquencies declined by nearly 40% from the linked quarter.
Second quarter net charge offs were normalized as well with nearly 50% coming from a single fully reserved construction loan charge offs.
We are proactively address discrete problem credits in the last few quarters and the data we see continues to indicate asset quality strength in the near term.
On Slide 14, you can see that tangible book value increased approximately one 8% for the quarter.
Mike Hagedorn: This was the result of our retained earnings, which was partially offset by a modest increase in the OCI impact associated with our available for sale securities portfolio. Tangible common equity to tangible assets rebounded to 7.24% during the quarter as we repaid maturing short-term debt with excess cash. We estimate that our remaining excess cash position at 30 June weighed on our TCE to TA ratio by approximately 12 basis points. For Q2, our CET1 and Tier 1 ratios were effectively flat. Our total risk-based ratio declined somewhat as a result of a partial disallowance of a legacy subordinated debt instrument. With that, I'll turn the call back to the operator to begin Q&A. Thank you.
This was the result of our retained earnings which was partially offset by a modest increase in the OCI impact associated with our available for sale securities portfolio.
Tangible common equity to tangible assets rebounded to 724% during the quarter as we repaid maturing short term debt with excess cash.
We estimate that our remaining excess cash position at June 30th weighed on our TCE to Ta ratio by approximately 12 basis points.
For the second quarter, our CET, one and tier one ratios were effectively flat.
Our total risk based ratio declined somewhat as a result of a partial disallowance of the legacy subordinated debt instruments.
With that I'll turn the call back to the operator to begin Q&A. Thank you.
Operator 2: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster. Our first question comes from the line of Michael Perito with KBW. Your line is open.
Thank you at this time, we will conduct a question and answer session.
Reminder, to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Or withdraw your question. Please press star one again, one moment will be compile the Q&A roster.
Our first question comes from the line of Michael Perito with <unk>. Your line is open.
Michael Perito: Hey, guys. Thanks for taking my questions this morning.
Hey, guys. Thanks for taking my questions. This morning.
Mike Hagedorn: Thanks, Michael.
Michael Perito: I wanted to start on just a couple clarification questions around some of the guidance you guys just provided. I guess first on the OpEx side. Mike, basically it sounds like less than 50% contribution of the $40 million is expected to maybe put you at the low end of the 10% to 12% range. Can you just remind us that that's off of the adjusted expense number, not the GAAP number, correct? Would you generally agree with that summary?
Thanks.
I wanted to I wanted to start on just a couple clarification questions around some of the guidance you guys. Just provided I guess first on on the.
On the Opex side, so so Mike basically it sounds like less than 50% contribution of the $40 million yet is it expected to kind of maybe put you at the low end of the 10% to 12% range.
Can you just remind us that that's off of kind of the adjusted expense number not the GAAP number correct and would you generally agree with that summary.
Travis Lan: Yeah, that's accurate. Mike, this is Travis. The base in 2022 was our reported expenses less merger charges, and then that 10 and a half% to 12 and a half% growth was based on that. Again, ex merger charges for 2023 comparison.
Yes, that's accurate Mike This is Travis so the base in 2022 was our reported expenses less merger charges and then that 10 five to 12, 5% growth was based on that and again ex merger charges for 2023 comparison.
Michael Perito: Perfect. Are you guys expecting any other noise in the FDIC insurance premium line moving forward here? Just what are your expectations around that at this point?
Perfect and then are you guys expecting any other noise in the FDIC insurance premium line moving forward here what are your expectations around that.
At this point.
Travis Lan: Yeah, Mike, it's Travis again. In our initial analysis of the potential special assessment associated with the first two bank failures, the number looks to be in the $40 million range. Obviously that's for us and based on our assessment base. That's a preliminary analysis still to be confirmed.
Yes, Mike, it's Jonathan and so in our initial analysis of the potential special assessment associated with the first two bank failures.
The number looks to be in the $40 million range, obviously, that's for us and based on our assessment base. That's our preliminary analysis is still to be confirmed.
Michael Perito: Right. That's Q1 2024 until the end of 2025, correct?
Right and Thats.
124 until the end of 'twenty five correct.
Travis Lan: That's correct. It plays out over eight periods. I think just going back with the accounting folks this morning, I think you may accrue for it all day one. Still need to confirm that as well.
Scott plays out over eight periods I think I was just going back to the accounting folks. This morning, I think you may accrue for it all a one.
Michael Perito: Okay. All right, perfect. Thanks. Then just around the NII outlook. It sounds like there's expected to be maybe another step lower in the Q3 and then some stabilization. Does that kind of jive also in terms of that NII dollar guide you gave, Mike? Does that jive also maybe with kind of what you're expecting at this point in trajectory of NIM? Is there another step lower here and then based on where the curve is today and the movement yesterday, that your hope would be, especially with the growth taking maybe a few hundred basis points step back on a net basis to stabilize as well, or are there other factors over the H2 of the year we should be thinking about?
Still need to confirm that as well.
Alright perfect. Thanks.
And then just around.
The NII outlook, so I mean, it sounds like there is expected to be.
Yes, maybe another step lower in the third quarter and then some stabilization I mean does that kind of Jive also in terms of the NII dollars Guide you gave Mike but does that Jive also maybe with kind of what you're expecting at this point the trajectory of NIM I mean is there another step lower here and then.
Based on where the curve is today and the movement yesterday that your hope would be.
Especially with the growth taking maybe a few hundred basis points step back on a net basis to stabilize as well or are there other factors over the back half of the year, we should be thinking about.
Mike Hagedorn: Based on our modeling right now and the use of the implied forward curve, the forecast implies a flat NII. I think it's going to be flattish heading into Q3, give or take a few basis points either way. Also, it's important to remember, as we mentioned, that when you take the excess cash off, you get back to an adjusted NIM of 302. I think as we work that cash down in Q3, you'll also see that help increase the NIM a little bit.
Yes, so based on our modeling right now in the use of the implied forward curve.
The forecast implies a flat NII. So I think it's going to be flattish heading into third quarter give or take a few basis points either way and then also it is important to remember.
As we mentioned that when you take the excess cash after you get back to an adjusted NIM of 302, So I think as we work that cash down in the third quarter. You also see that that help increase the NIM a little bit.
Michael Perito: Perfect. I'll just do one more and then I'm sure others have questions as well. Ira, maybe just would love your thoughts around, you guys were able to do a couple really productive M&A transactions leading into this current environment over the last handful of years. Obviously right now the M&A outlook is a little challenged, I imagine at some point there will be some opportunities. I'm just curious, at your current size with everything going on in the market, what are your just updated thoughts generally on the M&A opportunity for Valley longer term? Understanding it's not probably something that's on the near term agenda, just would love your thoughts there.
Perfect.
And then I'll, just do one more and I'm sure others have questions as well, but just IRA maybe just would love your thoughts around you guys were able to do a couple.
Really productive M&A transactions.
Leaning into this current environment over the last handful of years, obviously right now the M&A outlook is a little challenge, but but I imagine at some point there will there will be some.
Some opportunities and I am just curious that your current size with everything going on in the market.
What are you just updated thoughts generally on the M&A opportunity for valley longer term understanding it's not probably something that's on the near term agenda, but just would love your thoughts there.
Ira Robbins: Thanks. It's definitely not something that we're focused on from a prioritization perspective. I think organically there's a lot of excitement within the organization based on some of the verticals that we've done and just the pure capabilities that we've established over the last few years. Definitely inwardly focused at this point in time. That said, I think as we think about M&A, there are definitely going to be opportunities for us to continue to grow from a strategic perspective. Anytime we see something that fits within the financial discipline that we're focused on that could accelerate some of the strategic objectives that we're looking at, we would definitely be open to it. Right now, I think the interest rate environment creates a bit more challenges when it comes to that, though.
Thanks, Ian stepping not something that we're focused on from a prioritization perspective, I think organically, there's a lot of excitement within the organization based on some of the verticals that we've done and just the the peer capabilities that we've established over the last few years. So definitely inwardly focused at this point in time that said I think as we think about M&A there are definitely going to be opera.
<unk> for us to continue to grow from a strategic perspective, and anytime you see something that fits within the financial discipline that we're focused on that could accelerate some of the strategic objectives that we are looking at leverage F&D open to it right now I think the interest rate environment creates a bit more challenging when it comes to that though.
Michael Perito: Perfect. That makes sense. Thank you guys for all the color this morning. I appreciate it.
Perfect that makes sense. Thank you guys for all the color. This morning I appreciate it.
Ira Robbins: Thank you.
Thank you.
Operator 2: One moment for our next question. Our next question comes from the line of Matthew Breese with Stephens. The line is open.
One moment for our next question.
Our next question comes from the line of Matthew Breese with Stephens. Your line is open.
Matthew Breese: Good morning, everybody.
Mike Hagedorn: Morning, Matt. Welcome back.
Good morning, everybody.
Matthew Breese: Hey, Mike, just on the normalized liquidity commentary, what are you kind of defining as normalized liquidity, and how soon do you get there?
Good morning, Matt.
Hey, Mike just on the normalized liquidity commentary.
What are your kind of defining as normalized liquidity and how soon do you get there.
Mike Hagedorn: I think it's roughly in the range of about a half a billion dollars when we're in a normal environment. Obviously, when you compare us to peers, you saw in Q1 a significant build. You saw that retain some of that build throughout Q2. I think somewhere in that mid-ish half a billion dollars is probably normal go forward for us in what would be considered a normal economy.
Yes, I think it's roughly in the range of about a half a billion dollars when we're in a normal environment.
Obviously, when you compare us to peers you saw in the first quarter.
Significant build you saw that retain some of that build throughout the second quarter, but I think somewhere in that.
<unk> have a $1 billion is probably normal go forward for us.
What would be considered a normal economy.
Matthew Breese: Okay. Can you provide a little bit more color on perhaps when your model shows a normal economy?
Okay.
Can you provide a little bit more color on perhaps when Youre your model shows a normal economy.
Mike Hagedorn: Yeah, I think we're headed that direction right now. I think our belief right now as we model forward, especially for NII around further Fed rate increases, is that this increase that happened yesterday is the last one. That normalizes the economy going forward. There are some adjustments, obviously, to unemployment and GDP in there. Overall, I think we're starting to get there. It's the beginning of it, is the best way of saying it.
I think we're headed that direction right now I think.
Our belief right now as we model forward, especially for NII around further fed rate increases is that this increase that happened yesterday as the last one so that normalizes.
Economy going forward there are some adjustments, obviously, the unemployment and GDP in there, but overall I think we're starting to get there at the beginning of it is the best way of saying it okay.
Matthew Breese: Okay. I appreciate all the commentary on demand deposits remaining stable after mid-May. How did the NIM progress through the quarter, and did you start to see similar signs of stability towards the end of the quarter?
I.
The commentary on demand deposits remaining stable.
After mid May.
How does the NIM progressed through the quarter and did you start to see similar signs of stability towards the end of the quarter.
Travis Lan: Matt, this is Travis. On a monthly basis, the margin was generally flat throughout the quarter. We ended June at 294, which was the quarterly number as well. I'd say that there was a little bit more excess liquidity throughout the quarter as opposed to the June margin. Cash adjusted, maybe June was down somewhat. There are clearly signs of stabilization is pretty consistent. As you said, demand deposits were generally flat over the last two or three months. That's kind of continued. Our model conservatively projects more compression from non-interest deposit outflows, but that's not really what we've experienced so far.
Matt This is Travis so on a monthly basis. The margin was generally flat throughout the quarter. We ended June at 294.
Was the quarterly number as well I would say that there is a little bit more excess liquidity throughout the quarter as opposed to the June margins. So cash adjusted maybe June was down somewhat and there are clearly signs of stabilization.
It's pretty consistent if you said I mean demand deposits were generally flat over last two or three months.
That's kind of continued so our model conservatively projects more compression from noninterest deposit outflows, but.
That's not really what we've experienced so far.
Matthew Breese: Accretable yield, was that a similar kind of $9 million number for the quarter?
And Accretable yield was that like a similar kind of $9 million number for the quarter.
Travis Lan: Yeah. All in purchased accounting income declined $2 million from Q1.
All in purchase accounting income declined $2 million from the first quarter.
Matthew Breese: Okay. $7 million?
Okay, so $7 million.
Travis Lan: Yep.
Mike Hagedorn: Correct.
Matthew Breese: The last one for me. Fee income, a lot of items went your way this quarter. Maybe just a little bit of help there what the guidance looks like for the next couple of quarters. I was surprised to see how strong commercial swap fees were. Maybe just some insight as to what happened underneath the hood there.
Yes, correct.
And then the last one from me.
Fee income a lot of items went your way this quarter.
Maybe maybe just a little bit of help there with the guidance looks like for the next couple of quarters and I was surprised to see how strong commercial swap fees were.
Maybe just some insight as to what happened underneath the hood there.
Tom Iadanza: Sure. Hey, Matt, it's Tom. Yeah, the fees were strong for the quarter. Swaps, it's just a bigger demand on the swap front from our customer base. We expect for the next two quarters to report in the mid-50s on the fee income. We'll offset some of it through our newly-- the tax credit business has a seasonal uptick in Q4, and we've been doing a lot more FX and trade finance through the products we receive from Leumi.
Sure Hey, Matt its Tom.
Yes, the fees were strong for the quarter swaps, just a bigger demand on the swap front.
Our customer base and we expect that for the next two quarters to report in the mid fifties on the fee income.
Offset some of it through our newly the tax credit business has a seasonal uptick in the fourth quarter and we've been doing a lot more FX in trade finance.
Through the products, we receive from Miami.
Matthew Breese: Great. I will leave it there. I appreciate you taking my questions. Thank you.
Great.
I will leave it there I appreciate taking my questions. Thank you.
Thanks, Matt.
Operator 2: One moment for our next question. Our next question comes from the line of Steven Alexopoulos from JPMorgan. Your line is open.
One moment for our next question.
Our next question comes from the line of Stephen I'll OXXO.
Alexa Bliss sorry from Jpmorgan Your line is open.
Steven Alexopoulos: Hey, good morning, everyone.
Mike Hagedorn: Morning, Steve.
Hey, good morning, everyone.
Steven Alexopoulos: I want to start on the non-interest-bearing deposits. The outflows accelerated a bit this quarter. I think you were calling for mid-25-ish% by year-end. You're there already. I think now you're saying down to low 20% range. Could you take us behind the scenes in terms of why that's coming in even lower than you guys expected? Are companies just optimizing to a lower level of operating balance?
Good morning, Steve.
I wanted to start on the noninterest bearing deposits. The outflow has accelerated a bit this quarter. I think you were calling for mid 25% by year end Youre. There already I think now you are saying down to low 20% range.
Could you take us behind the scenes in terms of why that's coming in even lower than you guys expected a company just optimizing to a lower level of operating balance.
Mike Hagedorn: Yeah, I think there are two main points to consider there, Steve. First, we're starting to see, and we're continuing to see, consumers utilize their checking accounts for purchases and some of our commercial treasury optimization from a customer's standpoint as they manage their cash balances more precisely. The other thing that is important to note that over the long-term history of Valley, the average non-interest bearing as a percent of total deposits has only been 24%. We're not that far off of what the average is for a longer period of time. That obviously incorporates a lot of different economic environments.
Yes, I think there are two main points to consider there Steve.
First we are starting to see and we're continuing to see consumers utilize their checking accounts for purchases.
Some of our commercial treasury.
<unk> from our customers' standpoint, as they manage their cash balances more precisely.
The thing that is important to note that over the long term history of valley. The average non interest bearing as a percent of total deposits has only been 24%. So we're not that far off of what the average is.
For a longer period of time that I havent seen incorporates a lot of different economic environments.
Steven Alexopoulos: Got it. Okay. That's helpful. I'm curious, the original guidance on the efficiency ratio is around 50% for the full year. You're clearly running above that, taking the NII guide down now. What's a more reasonable target for the efficiency ratio for this year?
Got it okay.
That's helpful and I am curious the original guidance on the efficiency ratio was around 50%.
Full year, clearly you're running above that taken the NII guide that down now so what's a more reasonable target for the efficiency ratio for this year.
Mike Hagedorn: Yeah, I think for the full year in the lower 50s with the help of the $40 million annualized expense saves that we announced. Again, obviously not all those are going to be realized on the income statement in 2023, but I think it will help us get to the lower 50% range.
Yes, I think for the full year in the lower <unk> with the help of the 40 or $40 million annualized expense saves that we announced but again, obviously not all those are going to be realized on the income statement in 'twenty, three but I think it will help us get to the lower 50% range.
Steven Alexopoulos: Got it. Okay. Final question. The loan growth was pretty strong and you had quite a bit of growth in commercial real estate. It's an area we're not seeing many banks grow. Give some color on what you're seeing there, why you feel comfortable taking on more commercial real estate here. Thanks.
Got it Okay, and then final question.
The loan growth was pretty strong and you had quite a bit of growth in commercial real estate scenario, we're not seeing many banks grow give some color on what youre seeing there why you feel comfortable taking on more commercial real estate here. Thanks.
Tom Iadanza: Hey, Steve, it's Tom. Our focus has really been on servicing our long-term existing customers. That commercial real estate growth, 84% came from our customer base. Still very granular. The metrics of a debt service coverage over 1.8 times, which is consistent with our historical underwriting and loans of values in the 60% range. We're bringing them on to existing customers, solid projects with the same credit metrics and underwriting standards that we have always used. You will see 11% quarterly annualized growth in C&I, and that's been consistent for the past several quarters. We continue to drive our C&I business, which gives us deposit and additional fee opportunities while servicing those strong long-term real estate customers.
Sure Hey, Steve its Tom.
Our focus has really been on servicing our long term existing customers that commercial real estate growth, 84% came from our customer base still very granular the metrics debt service coverage over one eight times, which is consistent with our historical underwriting and loan to values.
And the 60% range, so we're bringing them onto existing customers solid projects with the same credit metrics underwriting standards that we have always used.
You will see 11% quarterly annualized growth in C&I and that's been consistent for the past several quarters. So we continue to drive our C&I business, which gives us a deposit and additional fee opportunities while service, saying no strong long term real estate customers.
Steven Alexopoulos: Got it. Then this mid-single-digit loan growth for the rest of the year. I haven't worked out the math yet. How does that change? The prior outlook was seven to nine for the full year.
Got it and then.
Single digit loan growth for the rest of the year I haven't worked out the math yet how does that change the prior outlook was 7% to nine for the full year.
Tom Iadanza: We should be at the higher end of that seven to nine range.
We should be.
Higher end of that 7% to nine range.
Steven Alexopoulos: Got it. Okay. Thanks for taking my questions.
Got it okay. Thanks for taking my questions.
Mike Hagedorn: Thanks, Steve.
Thanks, Steve.
Operator 2: One moment for our next question. Our next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is open.
One moment for our next question.
Our next question comes from the line of Manan <unk> with Morgan Stanley . Your line is open.
Manan Gosalia: Hey, good morning. I just wanted to follow up on the last set of questions on NIB deposits. I think you said that NIB deposits have been stable since mid-May. Yet you're saying that your guidance bakes in further outflows as clients optimize their cash. I'm just trying to square the two. Are you being more conservative or is that based on any conversations you're having with clients maybe where ECR rates are going or even any flows that you've seen quarter to date in Q3?
Hey, good morning, I just wanted to follow up on the last set of questions on Niv deposits.
I think you said that an IV deposits have been stable since mid may.
And yet youre, saying that your guidance bakes in further outflows as clients optimize their cash so I'm just trying to square the two.
You're being more conservative or is that based on any conversations youre, having with clients, maybe why ECR rates are going.
Even any flows that you've seen quarter to date and that's retail.
Mike Hagedorn: Yeah. It's none of those things. It's really what you started out with that we're being a little more conservative on our estimate right now as we take a look at have we reached the absolute bottom of customers rotating into interest-bearing products, and we don't think we're quite there yet.
Yes, it's none of those things certainly what you started out with that we're being a little more conservative on our estimate right now as we take a look at and we reached the absolute bottom of customers rotating into interest bearing products and we don't think we're quite there yet.
Manan Gosalia: Got it. I think last quarter you had mentioned that the deposits were coming in around like $250 towards the end of the quarter. Can you tell us what the number is for June?
Got it and I think last quarter, you had mentioned that.
Is that sort of coming in.
Around 250.
Towards the end of the quarter can you tell us what was it.
<unk> four for June .
Tom Iadanza: Yeah. June, we generated new customer deposits at a blended rate of 377.
Yes mid June we generated new deposits, new customer deposits at a blended rate of $3 77.
Manan Gosalia: All right. Perfect. Then just a question from me on loans. Some of your peers have announced loan sales during the quarter, particularly in commercial real estate. Is that an opportunity that you're looking at or you could look at in the future?
Alright perfect.
And just a question for me on <unk>.
<unk>.
Some of your peers have announced add on sales during the quarter, particularly in commercial real estate.
Is that an opportunity that youre looking at or you could look at it in the future.
Tom Iadanza: Yeah. At this point, we're not looking at that. We're comfortable with our return and risk requirements within our portfolio. That said, if something compelling comes along, that's the right economics and allows us to redeploy into higher value capital opportunities, we would certainly look at it.
Yes at this point, we're not looking at that we're comfortable with our return and risk requirements within our portfolio that said if something compelling comes along thats. The right economics and allows us to redeploy into higher value capital opportunities, we would certainly look at it.
Manan Gosalia: Great. Thank you.
Great. Thank you.
Operator 2: One moment for our next question. Our next question comes from the line of Steve Moss with Raymond James. Your line is open.
One moment for our next question.
Our next question comes from the line of Steve Moss with Raymond James Your line is open.
Steve Moss: Good morning.
Mike Hagedorn: Morning, Steve.
Good morning.
Tom Iadanza: Morning, Steve.
Morning, Steve.
Steve Moss: Maybe just on loan yields, I'm just curious where is loan pricing these days in terms of just what is the total add-on yield? I know you guys typically talk in spreads. Just kind of curious as to are you in the sevens for loan pricing these days, or just how to think about that?
Maybe just on loan yields.
I'm, just curious where is loan pricing. These days in terms of just what is the total add on yields I know you guys typically cochrane spreads, but just kind of curious as to are you in the sevens for loan pricing. These days or just how to think about that.
Tom Iadanza: Yeah. Hey, Steve, the loan yields for the quarter was around 7.35%. For June, it was just about 7.7%. We have been consistently receiving spreads in the mid-3s for the past several quarters. The new business, new production we're putting on is coming at a higher spread than historical levels.
Yes.
Steve.
Our loan yields for the quarter was around 735% for June It was just about seven seven we've been consistently receiving spreads in the mid threes for the past several quarters, the new business new production, we're putting on it's coming at a higher spread than historical levels.
Steve Moss: In terms of the cumulative deposit beta, I think I heard mid-50s earlier. It kind of sounds like you guys think the margin maybe troughs here or maybe deposit costs peak in Q4, I should say, and stabilize for 2024. Is kind of how you guys are thinking about it right now? Just want to make sure I heard that correctly.
Okay great.
And then in terms of.
Our cumulative deposit beta I think I heard mid fifties earlier.
It kind of sounds like you guys think the margin maybe troughs here or maybe deposit costs peak in the fourth quarter I should say.
And stabilized for 'twenty 'twenty horse kind, how you guys are thinking about right now just want to make sure I heard that correctly.
Mike Hagedorn: Yeah, I think that's a fair assumption. Also we've been seeing this, but we started to see in Q2 a very nice ramp-up in the generation of new accounts. As an example, new depository accounts were at the highest level they've been in the prior 6 quarters in Q2 2023. I think you have the migration of non-interest bearing to interest bearing, which is going to impact your beta. You also have the ability to add new deposits as well. Those incremental new deposits probably come on a little higher cost. The engine that we've created obviously shows, as I mentioned, that we're at the highest level in the last 18 months.
Yes, I think Thats a fair assumption.
Also we're starting to see we've been seeing this but we started to see in the second quarter, a very nice ramp up in the generation of new accounts. So as an example.
New depository accounts were at the highest level they've been in the prior six quarters in two quarter or second quarter of 'twenty three.
So I think you have.
<unk> of noninterest bearing to interest bearing which is going to impact. Your beta you also have the ability to add new deposits as well those incremental new deposits probably come on a little higher cost, but the engine that we've created obviously shows as I mentioned that we are at the highest level in the last 18 months what are the things I think that impacts.
Ira Robbins: Steve, one of the other things I think that impacts that is the decline in some of the projected loan growth. We were growing 17% in Q1, 10% this Q2. As we guide towards the mid-single digits for the next two quarters, the demand for deposits are going to decline within the organization as well. That should have a significant impact on what those forward-looking betas look like.
That is the decline in some of the projected loan loan growth, we were growing 17% in the first quarter at 10% This last quarter and as we guide towards the mid the mid single digits. After the next two quarters.
The demand for deposits are gone to decline within the organization as well so that should have a significant impact on what goes forward looking data look like.
Steve Moss: Okay. Appreciate all that. Maybe just one more thing in terms of dynamic of slowing loan growth here. How much do you think is customer conservatism versus wider spreads here going forward? Just kind of any sense you have for the economy and how customers are.
Okay. Appreciate all that and maybe just one more thing in terms of the dynamic of slowing loan growth here.
How much do you think is customer conservatism versus.
Wider spreads here going forward.
Any extent the FERC for the economy.
Tom Iadanza: Yeah. Steve, it's really both are a factor. Certainly, the widening spreads has had customers re-look at the value of the projects, and many are holding off and pausing until they see where the interest rate environment levels out at. From the cautious standpoint, we're not seeing as much. Certainly C&I companies are managing their inventory tighter than they had been, but we're not seeing the same level of cautiousness.
Our customers are.
Yes, Steve it's really.
Both are a factor certainly the widening spreads as has had customers re look at the value of the projects and many are holding off and pausing until they see what the interest rate environment level.
A levels out add from the cautious standpoint, we're not seeing as much certainly C&I companies are managing their inventory tighter than they had been but we're not we're not seeing the same level of cautiousness.
Steve Moss: Okay, great. Thank you very much.
Okay, great. Thank you very much.
Ira Robbins: Thanks.
Operator 2: One moment for our next question. Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Your line is open.
Thanks.
One moment for our next question.
Our next question comes from the line of Jon <unk> with RBC capital markets. Your line is open.
Jon Arfstrom: Thanks. Good morning, guys.
Ira Robbins: Morning, Jon.
Good morning, guys.
Jon Arfstrom: Hey, just a few follow-ups. I think most of my questions have been answered. Just back on the margin. Bigger picture, are you guys optimistic on the margin beyond Q3? Is it returning to normal? It feels that way. I thought I'd ask it.
Hi, John .
Just a few follow ups I think most of my questions have been answered, but just back on the margin.
Bigger picture you guys are optimistic on the margin beyond the third quarter is it is it returning to normal it feels that way but.
Ira Robbins: I think one of the interesting things is how we look at the margin. You go back over a 2-year period, the volatility in our margin has been about a 22% number versus about 30% for the peers. I think, in an inverted curve, which are cyclical, these things happen. For us, there's definitely margin compression. I don't anticipate operating in an inverted curve for the rest of my career. Just like I don't think the rest of the management team does either. The margin will ultimately rebound and come back up to a more normalized level. When that happens, I think the franchise value of the organization is going to increase dramatically. We're opening up more accounts today than we've ever opened before. We're in amazing individual vertical business lines that we weren't in before, and the balance sheet's obviously shifted.
I thought I'd ask it.
Yes, I think one of the interesting things is how we look at the margin and you go back over a two year period.
The volatility in our margin it's been about a 22% number versus about 30% of the peers. So I think in an inverted curve, which are cyclical these things happen.
<unk> staffing margin compression I don't anticipate operating in an inverted curve for the rest of my career I just think about the rest of the management team does either so the margin will automate rebound and come back up to more normalized level.
And when that happens I think.
Franchise value of the organization is going to increase dramatically, we're opening up more accounts today than we've ever opened before.
An amazing individual vertical business lines that we werent in before and the balance sheets, obviously shifted.
Ira Robbins: Three, four, five years ago, 17% of this balance sheet was in residential mortgages. You look at the concentration that we have in C&I today and the diversification even within the CRE portfolio, it's a very different balance sheet. We believe that there'll be definitely some benefit coming forward as the interest rate environment normalizes.
345 years ago, 17% as balance sheet was in residential mortgages you look at the concentration of them haven't C&I today and the diversification even within the <unk> portfolio. It's a very different balance sheet and we believe that there will be definitely some benefit coming coming forward as the interest rate environment normalizes.
Jon Arfstrom: Yeah. Okay. control what you can, right?
Okay. So control what you can right.
Ira Robbins: Yep.
Jon Arfstrom: Yeah. Okay. Mike, on slide 12, there's a comment about the last bullet, additional variable expense opportunities. What's an example of that, and what's the potential magnitude there?
Yes, yes, okay.
Mike on Slide 12, there was a comment about the last bullet additional variable expense opportunities.
What's an example of that and what's the potential magnitude there.
Mike Hagedorn: Sure. It's some of the usage things, right, that we have discretion over. A good example of that could be consulting costs. It could be the additional usage of contracts because we're going to go through a core conversion in Q4 that might spill off, and we might have some additional savings there as well. It's also attitudinal. It's having an organization that looks at cost and with a critical eye and tries to eliminate everything that we don't really need to do.
Sure. It's some of the usage things right that we have discretion over good example that could be consulting costs.
It could be the additional usage of contracts because we're going to go through our core conversion in the fourth quarter that might spill off than we might have some additional savings there as well, but it's also added two knowledge, having an organization that looks at cost and with a critical eye and tries to eliminate everything that we don't really need.
To do.
Jon Arfstrom: Okay. I guess the last one on the allowance. Did you guys change your qualitative thinking at all in terms of your reserve levels? I am just curious, a gut check on, do you expect a worsening economy? Do you feel like a worsening economy is already inflected in your reserves? Just give me some thoughts on that. Thanks.
Okay.
And then I guess the last one on.
The allowance, but did you guys change your qualitative.
Thinking at all in terms of your reserve levels I'm just curious.
Do you expect a worsening economy.
You feel like a worsening economy is already reflected in your reserves just give me some thoughts on that thanks.
Mike Hagedorn: I'll start off here. This is Mike, and then our Chief Credit Officer is here as well. I'll have him fill in where I get this wrong. I think the first thing to note on this is we did migrate the weightings on Moody's. That's the first thing to kind of take into account. We went to a slightly higher percentage, 10% more on the baseline, and we reduced S4, which is that more severe recessionary. Why did we do that? As Moody's refines their estimates each quarter, the baseline started to capture more of the, if you will, negative both GDP and unemployment numbers. We've always been conservative in our weightings, I think, relative to our peers on this. As we've taken a look at their numbers, it became pretty apparent that the baseline would capture more of that.
I'll start off here. This is Mike and then our Chief Credit Officer is here as well so I'll have him fill in where I get this wrong, but.
I think the first thing to note on this is we did migrate the weightings on Moody's that's the first thing to kind of take into account and we went to.
A slightly higher percentage, 10% more on the baseline and we reduced S. Four which is that more severe recessionary why did we do that as Moody's.
Defines their estimates each quarter the baseline started to capture more of the if you will negative.
Both GDP and unemployment numbers and so we've always been conservative in our weightings I think relative to our peers on this but as we've taken a look at their numbers it became pretty apparent that the baseline would capture more of that so we did make that change which has some bearing on allowance and the seasonal model and then I'll turn it over to Mark Wright.
Mike Hagedorn: We did make that change, which has some bearing on allowance in the CECL model. I'll turn it over to Mark.
Mark Saeger: Right. This is Mark Saeger. Yeah, Mike, that's absolutely accurate. We had been holding at the 50/30/20, with 30 and 20 on the two downside scenarios based off of a continued migration to a slightly more negative conservative outlook on Moody's baseline. We did back that off. That being said, that was not a material change in the overall weighting because our movement of the 10% was offset by the more negative outlook on the baseline. We view that as modest. We did not impose any additional qualitative overlays on the ALLL for this quarter as we did not see any material weaknesses in portfolio that warranted qualitative adjustments upwards. We are looking at performance of portfolio in the future to see if that may be necessary, but the performance of portfolio continues to be exceptionally strong and does not warrant any qualitative overlays.
Alright this is mark.
Figure, yes, thats absolutely accurate.
We had been holding at the.
<unk> hundred 30, <unk> with 30% and 20 on the two downside scenarios based off of a continued migration to a slightly more negative conservative outlook on Moody's baseline. We did back that all that being said that was not a material change in the.
The overall weighting because our movement of the 10% was offset by the more negative outlook on the base side and so we view that that is modest.
We did not impose any additional qualitative overlays on the.
The a triple oil for this quarter as we did not see any any material weaknesses and portfolio that warranted qualitative adjustments upwards.
Looking at performance of portfolio in the future to see is that that may be.
<unk>, but the performance of portfolio continues to be exceptionally strong and does not warrant any qualitative overlays.
Jon Arfstrom: Yep. Okay. Interesting comment on the baseline being almost approaching S4. That's a good comment. Thanks, guys. I appreciate it.
Okay.
The interesting comment on the baseline being almost approaching us for so thats a good comment. So thanks guys I appreciate it.
Mike Hagedorn: Thanks, Jon.
Thanks Darren.
Operator 2: That concludes the question and answer session. At this time, I would like to turn it back to Ira Robbins for closing remarks.
That concludes the question and answer session. At this time I would like to turn it back to IRA Robbins for closing remarks.
Ira Robbins: Just want to say thank you to everyone for taking the time to listen to the call today.
Just wanted to say, thank you to everyone for taking the time to listen to the call today.
Operator 2: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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