Q3 2023 Valley National Bancorp Earnings Call
Okay.
Speaker 1: transcript
Speaker 1: Good day and thank you for standing by. Welcome to the third quarter 2023 Valley National Bank Corp. Earning 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Good day and thank you for standing by welcome to the third quarter 2023 Valley National Bancorp, earning 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.
Ask a question during the session you will need to press star 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.
Speaker 1: transcript
Speaker 1: To withdraw your question, please press star 1 once again.
Speaker 1: transcript
Speaker 1: please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Travis Land, Head of Investor Relations. Please go ahead.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your first speaker today, Travis Lan head of Investor Relations. Please go ahead.
Speaker 2: transcript
Speaker 2: Good morning and welcome to Valley's third quarter 2023 earnings conference call. Presenting on behalf of Valley today, our CEO , Ira Robbins, President Tom Ayadanza, and Chief Financial Officer Mike Haggadorn. 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 .
Good morning, and welcome to Valley's third 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.
At Valley Dot Com when discussing our results we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release for reconciliation of these non-GAAP measures.
Speaker 2: transcript
Speaker 2: Additionally, I would like to highlight slide two of Ernie's presentation and remind you that comments made during this call may contain forward-looking statements relating to Valley National Bank Corp. and the banking industry. Valley encourages all participants to refer to our SEC filings, including those found on Forms 8K, 10Q, and 10K, 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.
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 results to differ from there.
Statements with that I'll turn the call over to IRA Robbins.
Speaker 3: transcript
Speaker 3: Thank you, Travis. In the third quarter of 2023, Valley reported net income of $141 million and earnings per share of $0.27.
Thank you Travis.
The third quarter of 2023.
We reported net income of $141 million and earnings per share of <unk> 27.
Speaker 3: transcript
Speaker 3: Exclusive of non-core items, adjusted net income and UPS were 136 million and 26 cents respective.
Inclusive of noncore items, adjusted net income and EPS were 136 million and 26 cents respectively.
Speaker 3: transcript
Speaker 3: A quarterly results highlighted by an ecaptial growth, sound-efficlody metrics, improved core deposits of those, and solid expense control.
Our quarterly results were highlighted by organic capital growth.
Sound asset quality metrics improved core deposit flows and solid expense control.
Speaker 3: transcript
Speaker 3: The current interest rate environment reflected on the inverted curve has challenged traditional banking models, and we have not been insulated from these pressures.
The current interest rate environment reflective of an inverted curve has challenge traditional banking models.
And we have not been insulated from these pressures.
Speaker 3: transcript
Speaker 3: That said, while the duration of the current inversion has exceeded original expectations and is anticipated to continue for the foreseeable future, we do not intend to change our foundational business model. Our net interest income declined at a much lower pace than in recent quarters, and we believe that NAI is near the bottom of its decline, all else equal.
That said, while the duration of the current conversion has exceeded our original expectations.
Anticipated to continue for the foreseeable future, we do not intend to change our foundational business model.
Our net interest income declined at a much slower pace than in recent quarters, and we believe that NII at the bottom of that decline all else equal.
Speaker 3: transcript
Speaker 3: While the external environment remains fluid, our focus on executing our strategic initiatives remains that bad.
While the external environment remains fluid and our focus on executing our strategic initiatives remain steadfast.
Speaker 3: transcript
Speaker 3: One of our strategic efforts in the last few years has been to transform our core operating environment throughout flexibility in integrating unique delivery channels.
One of our strategic efforts over the last few years has been to transform our core operating environment to allow flexibility and integrating a unique delivery channels.
Speaker 3: transcript
Speaker 3: enhancing fintech integrations, and positioning the bank for scalability without the traditional technology expense.
Enhancing fintech integrations and positioning the bank for scalability without the traditional technology expense hurdles.
Speaker 3: transcript
Speaker 3: I'm pleased to report that during the first weekend of October , our team worked tirelessly to conclude the transformational conversion of our core operating.
I am pleased to report that during the first weekend of October our team worked tirelessly to complete the transformation of conversion of our core operating system.
Speaker 3: transcript
Speaker 3: This was a massive undertaking which required months of planning, development, and time.
This was a massive undertaking and it requires months of planning development and testing.
Speaker 3: transcript
Speaker 3: Values are operating on a single system with bespoke delivery channels, and I couldn't be prouder of our disciplined ability to execute on this project.
That is now operating on a single system, Stoke delivery channels, and I couldnt be prouder of our discipline and ability to execute on this project.
Speaker 3: transcript
Speaker 3: which I reiterate, was done in the face of an extremely challenging operating environment.
Which I reiterate was done in the face of an extremely challenging operating environment.
Speaker 3: transcript
Speaker 3: This technology conversion is a natural progression of a cultural evolution that has occurred over the last few years.
This technology conversion is a natural progression of our cultural evolution that has occurred over the last few years.
Speaker 3: transcript
Speaker 3: We have collectively developed a growth oriented mindset, which has been happening in our recent financial results.
We have collectively developed a growth oriented mindset, which has been evident in our recent financial results.
Speaker 3: transcript
Speaker 3: To support this mindset, we continuously strengthen and develop our capabilities to bring us more in line with the largest players in our industry.
To support this mindset, we continuously strengthen and develop our capabilities to bring us more in line with the largest players in our industry.
Speaker 3: transcript
Speaker 3: Our bankers now have a more robust infrastructure and we expect to see significant opportunities to leverage these new technologies and drive additional growth as the environment normalizes.
Our bankers now have a more robust infrastructure and we expect to see significant opportunities to leverage these new technologies and drive additional growth as the environment normalizes.
Speaker 3: transcript
Speaker 3: Our successful conversion was yet another example of our discipline and proven ability to execute.
Our successful conversion was yet another example of our disciplined and proven ability to execute.
Speaker 3: transcript
Speaker 3: As we enter 2024, we anticipate generating both expense efficiencies and revenue scale resulting from our common core platform.
As we enter 2024, we anticipate generating expense efficiencies and revenue scale, resulting from a common core platform.
Speaker 3: transcript
Speaker 3: As we move to a cloud-based infrastructure, we're not burdened with the massive hardware costs and to be associated with type of technology.
We have moved to a cloud based infrastructure, we're not burdened with the massive hardware cost rates typically associated with hybrid technology investments.
Speaker 3: transcript
Speaker 3: We are more nimble today than we were a month ago, and the opportunities ahead of us remain significant.
More nimble today than they were a month ago and the opportunities ahead of us remain significant.
Speaker 3: transcript
Speaker 3: With that, I will turn the call over to Tom and Mike to the state that the course wrote and financial results.
With that I will turn the call over to Tom I'd like to discuss the quarters growth and financial results.
Thank you IRA.
Speaker 4: transcript
Speaker 4: Slide four illustrates approximately 300 million of total deposit growth during the quarter. We experience strong growth in interest-bearing transaction account and retail CDs, which are set non-interest-bearing deposit declines and indirect CD mature.
Slide four illustrates the approximately $300 million of total deposit growth during the quarter.
We experienced strong growth in interest bearing transaction account and retail Cds, which offset noninterest bearing deposits decline and indirect CD maturities.
Speaker 4: transcript
Speaker 4: The pace of non-interest bearing deposit runoff has flowed but mixed shift to interest bearing products has continued to weigh in our total deposit cost.
The pace of noninterest bearing deposit run off has flowed but mix shift to interest bearing products has continued to weigh on our total deposit cost.
Speaker 4: transcript
Speaker 4: Flights five provides more detail on the continued diversity of our deposit portfolio.
Slide five provides more detail on the continued diversity of our deposit portfolio.
Speaker 4: transcript
Speaker 4: During the quarter, we benefited from stability in our branch-based deposits and strong growth in our specialized verticals.
During the quarter, we benefited from stability in our branch based deposits and strong growth in our specialized verticals.
Speaker 4: transcript
Speaker 4: inflows were particularly strong in our national deposits business and through our online channel.
Inflows were particularly strong in our national deposit business and through our online channel.
Speaker 4: transcript
Speaker 4: These dynamics enabled us to pay off some maturing indirect CDs during the
These dynamics enabled us to pay off some maturing indirect Cds during the quarter.
Speaker 4: transcript
Speaker 4: We also continue to reduce our adjusted uninsured deposit exposure and have significant coverage with cash and high quality liquidity.
We also continued to reduce our adjusted uninsured deposit exposure and have significant coverage with cash and high quality liquidity.
Speaker 4: transcript
Speaker 4: Flight 6 further illustrates the diversity and granularity of our deposit base.
Slide six further illustrates the diversity and granularity of our deposit base.
Speaker 4: transcript
Speaker 4: No single commercial industry accounts for more than 7% of our deposits.
No single commercial industry accounts for more than 7% of our deposits.
Speaker 4: transcript
Speaker 4: Our government portfolio remains diversified across our footprint and is fully collateralized relative to state collateral required.
Our government portfolio remains diversified across our footprint and it's fully collateralized relative to state collateral requirements.
Speaker 4: transcript
Speaker 4: Now turning to slide seven, you can see an overview of our loan growth and portfolio composition.
Now turning to slide seven you can see an overview of our loan growth and portfolio composition.
Speaker 4: transcript
Speaker 4: Annualized loan growth on a year-to-date basis has slowed consistently as the year has progressed.
Annualized loan growth on a year to date basis has slowed consistently as the year has progressed.
Speaker 4: transcript
Originations declined meaningfully during the quarter as we require wider spreads on new loans.
Speaker 4: transcript
Speaker 4: These efforts continue to result in higher new origination yields.
These efforts continue to result in higher new origination yields.
Speaker 4: transcript
Speaker 4: Blight 8 breaks down the diversity of our commercial real estate portfolio by collateral type NG.
Slide eight breaks down the diversity of our commercial real estate portfolio by collateral type and geography.
Speaker 4: transcript
Speaker 4: As a reminder, we have an extremely granular loan portfolio with an average loan size of roughly $5 million.
As a reminder, we have an extremely granular loan portfolio with an average loan size of roughly $5 million.
Speaker 4: transcript
Speaker 4: From a metric perspective, our weighted average LTV remains at 58%.
From a metric perspective, our weighted average LTV remains at 58%.
Speaker 4: transcript
Speaker 4: As interest rates have increased, that service coverage ratios have declined somewhat to 1.7 times.
As interest rates have increased debt service coverage ratios have declined somewhat to one seven times.
Speaker 4: transcript
Speaker 4: We continue to closely monitor pools of maturing and resetting loans and believe that our borrowers are well-positioned to absorb the pass-through of higher rates.
We continue to closely monitor pools of maturing and resetting loans and believe that our borrowers are well positioned to absorb the pass through of higher rates.
Speaker 4: transcript
Speaker 4: This reflects consistent underwriting discipline at conservative cap rates and significant stress testing efforts at origination.
This reflects consistent underwriting discipline and conservative cap rates and significant stress testing efforts at origination.
Speaker 4: transcript
Speaker 4: The following slide illustrates the continued strong metrics and granular composition of our diverse office portfolio.
The following slide illustrates the continued strong metrics and granular composition of our diverse office portfolio.
Speaker 4: transcript
Speaker 4: With that, I will turn the call over to Mike Hagedorn to provide additional insight on the quarter's finance.
With that I will turn the call over to Mike Hagadorn to provide additional insight on the quarter's financials.
Speaker 5: transcript
Speaker 5: Thanks Tom. Slide 10 illustrates Valley's recent quarterly net interest income and margin trend.
Thanks, Tom.
Slide 10 illustrates valleys recent quarterly net interest income and margin trends.
Speaker 5: transcript
Speaker 5: The sequential $7 million decline in interest income was less than half of the reduction experienced in the second quarter of the year.
The sequential $7 million decline in net interest income was less than half of the reduction experienced in the second quarter of the year.
Speaker 5: transcript
Speaker 5: While asset yields continue to improve, continued price and competition and mixed shift drove funding costs higher.
While asset yields continue to improve continued pricing competition and mix shift drove funding costs higher.
Speaker 5: transcript
Speaker 5: On the second quarter call, we indicated that we were observing signs of netacristened come stabilization.
On the second quarter call. We indicated that we were observing signs of net interest income stabilization.
Speaker 5: transcript
Speaker 5: During the quarter, monthly net interest income was generally stable and higher than the June level.
During the quarter monthly net interest income was generally stable and higher than the June level.
Speaker 5: transcript
Speaker 5: Our fully tax-equivalent net interest margin declined a modest three basis points on a linked quarter basis versus 22 basis points in the second quarter of 2023 and has been generally stable over the last few months.
Our fully tax equivalent net interest margin declined a modest three basis points on a linked quarter basis versus 22 basis points in the second quarter of 2023 and has been generally stable over the last few months.
Speaker 5: transcript
Speaker 5: All else equal, we expect fourth quarter net interest income to be relatively in line with the third quarter level.
All else equal, we expect fourth quarter net interest income to be relatively in line with the third quarter level.
Speaker 5: transcript
Speaker 5: By the end of the quarter, our liquidity position has been effectively normalized.
By the end of the quarter, our liquidity position has been effectively normalized.
Speaker 5: transcript
Speaker 5: Absent abnormal environmental factors, we expect cash to remain generally consistent with third quarter levels.
Absent abnormal environmental factors, we expect cash to remain generally consistent with third quarter levels.
Speaker 5: transcript
Speaker 5: Moving to slide 11, we generated nearly $59 million of non-interest income for the quarter as compared to $60 million in the second quarter.
Moving to slide 11, we generated nearly $59 million of noninterest income for the quarter as compared to $60 million in the second quarter.
Speaker 5: transcript
Speaker 5: Exclusive of approximately $6 million of non-core items, adjusted non-interest income was closer to $52 million for the quarter.
Exclusive of approximately $6 million of noncore items, adjusted noninterest income was closer to $52 million for the quarter.
Speaker 5: transcript
Speaker 5: The decline was primarily related to lower capital markets fees associated with our slower loan growth.
The decline was primarily related to lower capital markets fees associated with our slower loan growth.
Other business lines were generally stable.
Speaker 5: transcript
Speaker 5: On slide 12, you can see that our non-interest expenses were approximately 267 million for the quarter or approximately 264 million on an adjusted basis.
On slide 12, you can see that our noninterest expenses were approximately $267 million for the quarter or approximately $264 million on an adjusted basis.
Speaker 5: transcript
Speaker 5: Adjusted expenses declined from the prior quarter despite an increase in certain technology costs partially associated with our successful core conversion.
Adjusted expenses declined from the prior quarter, despite an increase in certain technology costs, partially associated with our successful core conversion.
Speaker 5: transcript
Speaker 5: Specifically, we began to see the benefits of recent headcount reductions about midway through the quarter.
Specifically, we began to see the benefits of recent headcount reductions about midway through the quarter.
Speaker 5: transcript
Speaker 5: FDIC assessment costs and outside consulting fees also declined on a sequential basis.
FDIC assessment costs and outside consulting fees also declined on a sequential basis.
Speaker 5: transcript
Speaker 5: We continue to execute on previously identified efforts to slow future expense growth.
We continue to execute on previously identified efforts to slow future expense growth.
Speaker 5: transcript
Speaker 5: Legacy Valley and Layumi have now joined on a common core.
Legacy Valley and Leoni have now joined on a common core.
Speaker 5: transcript
Speaker 5: After a certain adjustment period, we expect the core conversion to result in the next wave of previously announced cost savings early in the new year.
After a certain adjustment period, we expect the core conversion to result in the next wave of previously announced cost savings early in the new year.
Speaker 5: transcript
Speaker 5: To reiterate, our focus is on controlling expenses in the face of revenue pressures, which have resulted from the inverted yield.
To reiterate our focus is on controlling expenses in the face of revenue pressures, which have resulted from the inverted yield curve.
Speaker 5: transcript
Speaker 5: Turning to slide 13, you can see our asset quality trends for the last five quarters.
Turning to slide 13, you can see our asset quality trends for the last five quarters.
Speaker 5: transcript
Speaker 5: Nana Cruel loans have been effectively flat for the last three quarters.
Non accrual loans had been effectively flat for the last three quarters.
Speaker 5: transcript
Speaker 5: Early stage delinquencies ticked up during the quarter but remain well below the average level of the last 12 months.
Early stage delinquencies ticked up during the quarter, but remained well below the average level of the last 12 months.
Speaker 5: transcript
Speaker 5: Third quarter net charge-offs declined somewhat from recent levels.
Third quarter net charge offs declined somewhat from recent levels.
Speaker 5: transcript
Speaker 5: On slide 14 you can see that tangible book value increased to approximately 1.4% for the quarter and is up nearly 10% from a year ago.
On slide 14, you can see that tangible book value increased approximately one 4% for the quarter and is up nearly 10% from a year ago.
Speaker 5: transcript
Speaker 5: Our balance sheet positioning has enabled us to avoid the significant challenges that other peers have faced related to the OCI impact associated with available for sale security.
Our balance sheet positioning has enabled us to avoid the significant challenges that other peers have faced related to the OCI impact associated with available for sale securities.
Speaker 5: transcript
Speaker 5: We manage all risk areas prudently and are proud in our ability to insulate tangible capital from this head.
We manage all risk areas prudently and are proud and our ability to insulate tangible capital from this headwind.
Speaker 5: transcript
Speaker 5: Tangible common equity to tangible assets increased to 7.4% during the quarter as a result of our normalized cash position.
Tangible common equity to tangible assets increased to seven 4% during the quarter as a result of our normalized cash position.
Speaker 5: transcript
Speaker 5: As loan growth slowed, our risk-based regulatory capital ratios have increased between 16 and 18 basis points as compared to the second quarter.
As loan growth slowed our risk based regulatory capital ratios have increased between 16, and 18 basis points as compared to the second quarter of 2023.
Speaker 5: transcript
Speaker 5: We continue to prioritize organic capital growth in this challenging environment and are prudently managing our balance sheet to incrementally strengthen our position.
We continue to prioritize organic capital growth in this challenging environment and are prudently managing our balance sheet to incrementally strengthen our position.
Speaker 5: transcript
Speaker 5: With that, I'll turn the call back to the operator to begin Q&A.
With that I'll turn the call back to the operator to begin Q&A. Thank you.
Speaker 1: transcript
Speaker 1: 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 1-1 on your telephone. And wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
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.
Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker 1: transcript
Speaker 1: Our first question comes from Frank Scheroldy with Piper Sandler. Please go ahead. More.
Our first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Good morning.
Just on <unk>.
Speaker 4: transcript
Speaker 4: to turn the trajectory of NII's flash in them. I mean, you talked about the hopeful trough here. In a higher for longer scenario, just thinking out into 2024, do you think there's...
Just on the trajectory of NII slashing them I mean, you talked about.
The hopeful trough year.
And are higher for longer scenario.
Just thinking out into 2024 do you think there is.
Speaker 4: transcript
Speaker 4: some stabilization in them and then you get a reversal from there so you get a little bit of a trajectory upwards or is it more sort of like in higher for longer sort of bouncing along the bottom for a period of time just just wondering your general thoughts there
Some stabilization in NIM and then you get a reversal from there. So you get a little bit of a trajectory upwards or is it more sort of like.
Higher for longer sort of bouncing along the bottom for a period of time.
Wondering your general thoughts there.
Speaker 5: transcript
Speaker 5: Hi Frank, it's Mike. You know, I think that when you look at the trajectory of NEM in 2023, as we said in our prepared remarks, we've been in that mid-290s to low-290 range since April . And when you look at the cost of deposits, you'll notice that from fourth quarter to first quarter, they were up 60 basis points.
Hi, Frank its Mike.
I think that when you look at the trajectory of NIM in 2023, as we said in our prepared remarks, we've been in that mid to high <unk> to low to 90 rigs since April and when you look at the cost of deposits, you'll notice that from fourth quarter to first quarter. They were up 60 basis points.
Speaker 5: transcript
Speaker 5: from first quarter of 23 to second quarter of 23, they were up 49, and they were up 49 into third quarter as well. So we're starting to see a normalization both in the cost, but also in the NEM.
From first quarter 'twenty three the second quarter of $23 49, and they were up 49 in the third quarter as well. So we're starting to see a normalization both in the cost but also in it now.
Speaker 5: transcript
Speaker 5: In a higher-for-longer rate environment, I think a couple things would happen that would, all things being equal, result in a slightly higher NII and slightly higher NIM. The first of those, and it's been true for all of 2023, the biggest driver of the compression on our NIM has been the rotation out of non-interest-bearing and into interest-bearing product. So I would think in a higher-for-longer environment, there's some place, some equilibrium that we see a plateau in.
And are higher for longer rate environment, I think a couple of things would happen that would.
All things being equal resolve and a slightly higher NII and slightly higher now the first of those is.
Been true for all of 2023, the biggest driver there.
The compression on our NIM has been the rotation out of noninterest bearing and into interest bearing products.
So I would think in a higher for longer environment Theres. Some place some equilibrium that we see a plateau of that.
Speaker 6: transcript
Speaker 6: You know, second, you got to keep in mind that we've had a very large liquidity bill, both at the end of the first quarter and throughout the second quarter, as a result of all the chaos that was created with the bank failures earlier this year, that is completely off our balance sheet as of 930.
Second you got to keep in mind that we've had a very large liquidity bill.
At the end of the first quarter and throughout the second quarter as a result of all the chaos that was created with the bank failures earlier. This year that is completely off our balance sheet as of 930.
Speaker 6: transcript
Speaker 6: And then when you go forward and you kind of think about the positive stabilizing, I think the thing that will drive, at least in our current modeling, the thing that will drive a NIM expansion and NII increases is going to be the repricing on our assets, or any assets, but more specifically low.
And then when you go forward and you kind of think about deposits.
Stabilizing I think the thing that will drive at least in our current modeling the thing that will drive NIM expansion in NII increases is going to be the repricing on our assets, earning assets, but more specifically loans.
Speaker 6: transcript
Speaker 6: And as we look at our modeling, we know what our fixed rate book repricing is along with the repricing opportunities that we have throughout 2024 in the adjustable rate book. So we would expect that to be the main driver of any of them.
As we look at our modeling.
We know our fixed.
Fixed rate book repricing is along with the repricing opportunities that we have throughout 2020 for the adjustable rate book. So we would expect that to be the main driver of NIM expansion next year.
Speaker 4: transcript
Speaker 4: Great. Appreciate all the color, Mike. And then just as a follow up to that, in terms of the brokerage balance, it looks like you guys have had some really good success raising customer deposits. And so you let these roll off. I guess you expect that to continue. And if so, as you look out at the, you know, the tape maturization table, when do you expect or how quickly do you expect brokerage balances to kind of, um, uh,
Okay. Great appreciate all the color, Mike and then just as a follow up to that in terms of the brokered balances. It looks like you guys have had some really good success.
Raising customer deposits.
And so you've got these roll off.
I guess do you expect that to continue.
And if so as you look out.
The maturation payable when do you expect or how quickly do you expect brokered balances to kind of.
Speaker 6: transcript
Speaker 6: Yes, our current thinking and our current modeling is that we will see further reduction in our brokerage balances and that's certainly one of our goals.
Paul here.
Yes, so our current thinking and our current modeling is that we will see further reduction in our brokered balances and that's certainly one of our goals.
Speaker 6: transcript
Speaker 6: But I want to make sure everybody understands how we've been using Brokered. We've been using Brokered throughout 23 to fill the gaps, especially earlier in the year when we had much higher loan growth, to fill the gaps on the balance sheet expansion while also paying very close attention that we're not repricing the back book of our deposit, our core deposit base.
I want to I want to make sure everybody understands how we may be using brokers, we've been using brokered dropped 23 to fill the gaps, especially earlier in the year, we had much higher loan growth to fill the gaps on the balance sheet expansion. While also paying very close attention that were not repricing the backbone of our <unk>.
Our core deposit base.
Speaker 6: transcript
Speaker 6: And the second thing that we've done is we've used that in the stop GAAP measures , we've used both duration and rate in that portfolio to help manage our NIM and NII. And so I know they have a bad connotation sometimes. They've been very effective and the market has been excellent for us to use that in certain certain times and certain circumstances and will vary the fact.
The second thing that we've done is we've used that as a stopGAAP measures we've used both duration and rates in that portfolio to help manage our NIM and NII.
So while I know they have a bad connotation some time.
<unk> been a very effective.
Market has been excellent for us to use that and certainly certain times in certain circumstances, and we're very effectively.
Speaker 4: transcript
Speaker 4: And just last, last thing on that front, in terms of, as you look at the indirect market versus what you're able to get directly from customers here, is there much of a difference in terms of pricing in terms of new broker versus new direct.
Okay.
Last lastly on that front in terms of as you look at the indirect market versus what youre able to get directly from customers here.
Is there much of a difference in terms of pricing in terms of new new brokered versus new direct.
Speaker 6: transcript
Speaker 6: Yeah, the inversion of the curve probably is the biggest impact on that. If you're talking about exactly the same duration, I would say the incremental cost of deposits is fairly close to one another. So there may be 10 basis point difference, but it's not that remarkably different. So I think, again, I go back to my previous comments is you want to use that for both rate and duration. But in the case that you're asking about, you probably want to manage the duration in this inverted curve.
Yes, the inversion of the curve probably has the biggest impact on that I think youre talking about is exactly the same duration.
The incremental cost of deposits is fairly close to one another so there may be 10 basis point difference, but it's not that remarkably different.
So I think again I'll go back to my previous comments as you want to use that for both rate and duration, but in the case that you are asking about I want to manage duration and this inverted curve.
Speaker 7: transcript
Speaker 7: Frank this guy, I would just add to that, when we think about the incremental piece of deposit, as Link alluded to earlier, there was to begin to demand for us to put some of the same remnant deposits on base on the little growth we were seeing, and that obviously ratcheted up the incremental cost of some of these deposits. As we now have scaled back some of the little growth the demand for this appropriate deposits and higher cost CDs actually come a bit down.
Is that right.
Add to that.
Think about the incremental piece of that.
Earlier, there was significant demand for us to put some of the same.
Based on the loan growth we were seeing.
Incremental cost us at least.
As we have scaled back some of the loan growth the demand for those broker deposits in higher cost Cds actually come.
Yes.
A bit down.
And we're still originating.
I think as we spoke about last time on the call.
Speaker 7: transcript
Speaker 7: for this quarter, we're around 378, 388ish, so also on a blended basis, in marginal deposits are coming.
Overall, our partner originations for this quarter were around 373 ish.
Awesome.
Ended basis marginal deposits much cheaper.
Speaker 8: transcript
Speaker 8: And as we can tell, the low growth, we definitely anticipate some expansion on margin based on that incremental loan that's coming on to our folks. Great. Okay. I appreciate all the color, guys.
And as you can tell.
Currently anticipates expansion.
On market based on that.
Unknown Executive: Good day, and thank you for standing by.
Unknown Executive: Welcome to the third quarter, 2023, Valley National Bancorp earning 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.
Thanks.
Great. Okay I appreciate all the color guys.
Thank you.
One moment for our next question.
Our next question comes from Matthew Breese with Stephens. Please go ahead.
Hey, good morning, everybody.
Unknown Executive: I would now like to hand the conference over to your first speaker today.
Travis Lan: Travis Lan, head of investor relations. Please go ahead.
Maybe just sticking with the NIM.
Speaker 9: transcript
Speaker 9: Can you provide what the monthly name was across the quarter and is the September ?
Could you provide what the monthly NIM was across the quarter and is this September.
Travis Lan: Good morning, and welcome to Valley's third quarter, 2023, earnings conference call. Presenting on behalf of Valley today, our 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-gap measures which exclude certain items from reported results. Please refer to today's earnings release for reconciliation of these non-gap measures. Additionally, I would like to highlight two of earnings presentation and remind you that comments made during this call may contain forward-looking statements relating to Valley National Bank Corp and the banking industry.
Speaker 9: transcript
Speaker 9: The September NIM, a good launch point into fourth quarter about where it could shake out for the fourth quarter.
The September NIM, a good launch point into fourth quarter about where it could shake out for <unk> for the fourth quarter.
Speaker 2: transcript
Speaker 2: And Matt, this is Travis, just on a monthly basis, July was 291, August 292, and September 291, so when we say it was pretty stable throughout the quarter, I mean, we really mean it. So, you can use September and the quarter with the same number, but yeah, it's a good launch point.
And Matt. This is Travis just on a monthly basis July 291 August to September to 91, so when we say it was pretty stable throughout the quarter and we really mean it.
<unk> ended the quarter with the same number of occupied.
Speaker 2: transcript
Speaker 2: And then I was hoping also for some additional color on near-term, long growth outlook. And maybe perhaps when you would feel comfortable, re-accelerating.
Thank you.
Travis Lan: Valley encourages all participants to refer to our FEC filings, including those found on forms 8K, 10Q, and 10K for a complete discussion of forward-looking statements, and the factors that could cause actual results to differ from those statements.
And then I was hoping also or some additional color on near term loan growth outlook.
And maybe perhaps when you would feel comfortable reaccelerate re accelerating loan growth.
Speaker 4: transcript
Speaker 4: Hey, Matt, it's Tom. You know, the long growth, the fact of slowing it down, really customer related, the uncertainty of the rate market as well as widening spreads has slowed down their action.
Hey, Matt.
Yes, the loan growth. The fact is slowing it down and really customer related the uncertainty of the rate market as well as widening spreads have slowed down their activity we saw.
IRA Robbins: With that, I'll turn the call over to Ira Robbins. Thank you, Travis. In the third quarter of 2023, Valley reported net income of $141 million and earnings per share of 27 cents. Exclusive of non-core items, adjusted net income and DPS were 136 million and 26 cents respectively. Our quarterly results are highlighted by organic capital growth, sound as a quality metrics, improved core deposit flows, and solid expense control. The current interest rate environment, we selected them and invert occurred, has challenged traditional banking models, and we have not been insulated from these pressures.
Speaker 4: transcript
Speaker 4: We still serve it to those values real estate customers When they needed and we continue to grow that what's all that I'll just add a much slower base I just want to point out our C and I for it's probably on his growth 12 percent over the last year So our focus is really good on that relationship driven C and I peace We're still getting higher percent growth in the Florida market and stable growth here in the North
Total service those valued real estate customers when.
When they need it and we continue to grow that portfolio just at a much lower base I just wanted to point out our C&I portfolio has grown 12% over the last year. So our focus is realistic on that relationship driven C&I piece, we're still getting higher percent profit in the Florida market and stable growth here in the north.
Speaker 4: transcript
Speaker 4: I would expect that growth in the fourth quarter to be in a similar fashion to the third quarter and will be in that range of seven to nine percent.
I would expect that.
For the fourth quarter to be in a similar fashion to the third quarter and we will be in that range of 7% to 9% for the year.
Speaker 2: transcript
Speaker 2: Great. Okay. And then, Ira, you know.
IRA Robbins: That said, while the duration of the current inversion has exceeded original expectations, that is anticipated to continue for the foreseeable future, we do not intend to change our foundational business model. Our net interest income declined at a much lower pace than in recent quarters, and we believe that an AI is near the bottom of the decline, all else equal. While the external environment remains fluid, our focus on executing our strategic initiatives remains that best.
Great Okay.
And then IRA.
Speaker 9: transcript
Speaker 9: just acknowledging yours and Valley's relationship with Bank Leumi and first just wishing everybody on your end and on Leumi's end the best as they deal with the horrific events over in Israel. In light of that, I was curious if events overseas will have, and because of the partnership, any impact on your bank balance sheet or private client group in any way. Thank you.
Just acknowledging yours and valleys relationship with bank Leumi in first.
Wishing everybody on year end, and then layer on visa and the best as they deal with the horrific events over in Israel in light of that I was curious if events overseas will have and because of the partnership any impact on your bank balance sheet or private client group in any way.
IRA Robbins: One of our strategic efforts in the last few years has been to transform our core operating environment throughout flexibility in integrating unique delivery channels, enhancing fintech integrations, and positioning the bank for scalability without the traditional technology expense hurdles.
Thank you very much I appreciate that.
Speaker 7: transcript
Speaker 7: and client, it's been a very difficult time. You know, that said, you know, thankfully the opposite is the significant part for us on the participation side. We have
And clients it's been.
In a very difficult time.
Ed.
No.
And in the half year.
Our partner for us on the participation side, we haven't seen any.
Speaker 7: transcript
Speaker 7: corruption as of yet. We continue to anticipate business as usual. So that's definitely difficult for a lot of people. We still think we're going to continue to...
<unk> as of yet.
IRA Robbins: I'm pleased to report that during the first weekend of October, our team worked tirelessly to complete the transformational conversion of our core operating system. This was a massive undertaking that required months of planning, development, and testing. Values are operating on a single system with bestowed delivery channels and I couldn't be prouder of our disability to execute on this project. Which I reiterate was done in the phase of an extremely challenging operating environment.
We continue to anticipate business as usual.
Cell salvage.
Typical for a lot of people.
We still think we're going to continue to move forward.
Speaker 4: transcript
Speaker 4: Yeah, it's time. Just gonna give you a little context.
Add to that.
Yes.
It's Tom just kind of give you a little context here.
Speaker 4: transcript
Speaker 4: The only direct loan exposure we have is to hide net worth US citizens and secure it by state of Israel, bonds and the very original portfolio. Otherwise we help finance domestic subsidies of Israeli companies, but it's all done here in the US, US-based and entity.
The only direct loan exposure, we have is to high net worth U S citizens and secured by the state of Israel bonds is a very very small portfolio otherwise, we help finance domestic subsidiaries, our Israeli companies, but it's all done here in the U S U S based entities.
IRA Robbins: Department. This technology conversion is the natural progression of a cultural evolution that has occurred over the last few years. We have collectively developed a growth oriented mindset, which has been evident in our recent financial results. To support this mindset, we continuously strengthen and develop our capabilities to bring us more in line with the largest players in our industry. Our bankers now have a more robust infrastructure and we expect to see significant opportunities to leverage these new technologies and drive additional growth as the environment normalizes.
Speaker 4: transcript
Speaker 4: The back and forth and flow of business slow down really based on natural economic conditions, but it's business as usual and working with them on partnered transactions.
The back end quarter, Florida business slowed down really based on.
Economic conditions, but it's business as usual and working with them on partnered transactions.
Speaker 9: transcript
Speaker 9: And then could you give us some update as to where we are in the previously mentioned cost saving plan? I believe it was like $40 million identified. Last week, we spoke, it was expected to progress over even four quarters. How is execution matching up versus planning? Is there anything else you've uncovered as you've kind of looked into this in terms of additional cost saving?
Got it okay.
And then could you give us some update as to where we are in the previously mentioned cost saving plan I believe it was like $40 million identified.
Last week, we spoke it was expected to progress over four quarters.
IRA Robbins: Our successful conversion was yet another example of our discipline and proven ability to execute. As we enter 2024, we anticipate generating those expensive efficiencies and revenue scale resulting from our common core platform. As we move to a cloud-based infrastructure, we're not burdened with the massive hardware costs and typically associated with type of technology investments. We are more nimble today than we were a month ago. And the opportunities ahead of us remain significant.
Execution matching up versus planning and is there anything else you've uncovered as you've kind of looked into this in terms of additional cost saves.
Speaker 10: transcript
Speaker 10: Yeah, Matt, it's Travis. In the quarter, I'd say you probably got 20 to 25% of, you know, on an annualized basis, what we had anticipated. I don't expect much incrementally in the 4th quarter post conversion. We're keeping this 14's stacked up and running. But then, as we get into the 1st, half of 2024, I think that's where you get the next wave, which will come from a combination of 3rd party vendors and some additional resource efficiencies.
Yes, Matt it's Travis in the quarter I would say you probably got 20% 25%.
On an annualized basis, what we had anticipated I don't expect much incrementally in the fourth quarter post conversion, we're keeping his fourteens staffed up and running.
IRA Robbins: With that, I will turn the call over to Tom and Mike to respect the growth and financial results.
And as we get into the first half of 2024, I think that's where you get the next wave.
Tom Iadanza: Thank you, Ira. Slide four illustrates approximately 300 million of total deposit growth during the quarter. We experience strong growth in interest bearing transaction account and retail CDs, which are set non-interest bearing deposit declines and indirect CD maturities. The pace of non-interest bearing deposit runoff has flowed but mixed shift to interest bearing products has continued to weigh an hour total deposit cost. Slide five provides more detail on the continued diversity of our deposit portfolio.
It'll come from a combination of third party vendors and some additional.
Resource.
Speaker 10: transcript
Speaker 10: So, I don't anticipate much in the 4th quarter, but again, once you get to the 1st half of 2024, I think that's where you see the bulk of what's what's remaining. We are still looking, you know, obviously post conversion at opportunities that we hadn't previously identified. And so we'll continue to dig there.
Efficiencies.
I don't anticipate much in the fourth quarter and again once again in the first half of 'twenty 'twenty four to SAIC and the bulk of what's remaining we are still looking obviously post conversion at opportunities that we hadn't previously identified.
So we'll continue to dig in there.
Speaker 9: transcript
Speaker 9: And we should be thinking of this expense plan as one that slows down the natural pickup and expenses versus one that you know dollar for dollar lowers the run rate. Correct.
Okay, and we should be thinking of this as expense plan is one that slows down the natural.
Pickup in expenses versus one that dollar for dollar lowers the run rate correct.
Speaker 10: transcript
Speaker 10: That's correct. So I mean, if you think in this is just high level and I don't mean for these to be numbers to take away, but in a story, we've run kind of high single digits from an operating expense growth perspective as a growth company. You know, there are obviously headwinds from an inflation perspective, FDIC costs, regulatory perspective on top of that. And then we're just trying to work our way back in the kind of admit, single digit expense growth level based on these initiatives.
Yes, that's correct. So I mean, if you think this is just high level and I don't mean for these to be numbers to takeaway, but historically, we've run kind of high single digits from an operating expense growth perspective, as a growth company and they are obviously headwinds from an inflation perspective, FDIC costs regulatory perspective.
Tom Iadanza: During the quarter, we benefited from stability in our branch-based deposits and strong growth in our specialized verticals. Inflows were particularly strong in our national deposits business and through our online channel. These dynamics enabled us to pay off some maturing indirect CDs during the quarter. We also continued to reduce our adjusted uninsured deposit exposure and has significant coverage with cash and high quality liquidity. Slide six further illustrates the diversity and granularity of our deposit base. No single commercial industry accounts from more than 7% of our deposits. Our government portfolio remains diversified across our footprint and is fully collateralized relative to state collateral requirements.
On top of that and then we're just trying to work our way back into kind of that mid.
Single digit expense growth level based on these.
These initiatives.
Speaker 9: transcript
Speaker 9: Great. Last one for me is just.
Great.
Last one for me is just.
Speaker 9: transcript
Speaker 9: I don't know if you have one or not, but could you just comment, if you do, on syndicated loan exposure, what's the size of that book, how is it performing, or any other metrics we should be aware of there?
I don't know if you have one or not but could you just comment if you do on syndicated loan exposure, what's the size of that book how is it performing.
Any other metrics you should be aware of there.
Speaker 4: transcript
Speaker 4: get sure that it's time again. The portfolio is about $1.4 billion. It's spread over a number of loans. When I've each L.T. land there is, we don't really have leverage transactions in there. They're mostly cloth deals with a small group of banks, direct contact, relationships with any of the borrowers and roll in more.
Yes, sure Matt its Tom again, the portfolio is about $1 4 billion spread over a number of allowance.
Chelsea lenders, we don't really have leveraged transactions in there, they're mostly club deals with a small our book banks direct contacts relationships with any of the borrowers enroll in market.
Tom Iadanza: Now turning to slide seven, you can see an overview of our long growth and portfolio composition. Annualized long growth on a year-to-day basis has slowed consistently as the year has progressed. Originations decline meaningfully during the quarter as we require wider spreads on new loans. These efforts continue to result in higher new origination yields. Slide eight breaks down 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.
Speaker 4: transcript
Speaker 4: Perfect. I appreciate it. Go ahead. Thank you. And we lead a lot of those transactions also. We're not participant where we tend to be the lead bank at over 50% of that.
Perfect I appreciate it that's all I had thank you.
We can give them that we leave a lot about transactions also were not participate where we tend to be the lead bank and over 50% of that.
Thank you one moment for our next question.
Speaker 1: transcript
Our next question comes from Michael Perito with <unk>. Please go ahead.
Okay.
Hey, guys. Thanks for taking my questions.
Speaker 11: transcript
Speaker 11: I apologize. I got on a couple minutes late, so you guys are just already, I apologize for asking again, but just taking into context all the commentary you guys have given around NII and the expense plan kind of execution, is it fair for us to be thinking about that the third quarter of 23 is as probably the peak in the efficiency ratio here and you guys.
Alright.
I apologize I got on a couple of minutes late so.
Tom Iadanza: Scholars. From a metric perspective, our weighted average LTV remains at 58%. As interest rates have increased, that service covers ratios have declined somewhat to 1.7 times. We continue to closely monitor pools of maturing and resetting loans and believe that our borrowers are well positioned to absorb the pass-through of higher rates. This reflects consistent underwriting discipline at conservative cap rates and significant stress testing efforts at origination.
Hey, guys. Congrats this is already.
Thats correct me again, but just taking into context, all the commentary you guys had given around NII would be expense plan.
Kind of execution is it fair for us to be thinking about that the third quarter of 2003.
Probably the peak and the efficiency ratio here you guys.
Speaker 11: transcript
Speaker 11: At this point, able to provide any kind of context around the type of year-on-year improvement you're hoping the expense plan can drive, assuming your NII projections kind of play out as you expect them today?
At this point able to provide any kind of context around the type of year on year improvement Youre, hoping the express drive assuming your NII projections kind of play out as you expect them today.
Speaker 6: transcript
Speaker 6: So I don't think there's any banks yet though that would say that third quarter would tend to be their peak. I think fourth quarter tends to be the peak for a lot of reasons, right? You have your expenses that.
So I don't think Theres any bank's CFO that would say that the third quarter of it tends to be their peak I think fourth quarter tends to be the peak for a lot of reasons right you have your <unk> expenses.
Tom Iadanza: The following slide illustrates the continued strong metrics and granular composition of our diverse office portfolio.
Speaker 6: transcript
Speaker 6: and I get pushed through. There's some bonus of global work sometimes in the fourth quarter. Their bike drive costs up. So I wouldn't necessarily agree with that it's third quarter, but I would point you back to Travis' comments right before that. If it's fourth quarter that's actually the peak, again, in the first half of 24, we expect to realize...
Michael Hagedorn: With that, I will turn the call over to Mike Hagedorn to provide additional insight on the quarter's financial. Thanks, Tom. Slide 10 illustrates Valley's recent quarterly net interest income and margin trends. The sequential $7 million decline in net interest income was less than half of the reduction experienced in the second quarter of the year. While asset yields continue to improve, continued pricing competition and mixed shift drove funding costs higher. On the second quarter call, we indicated that we were observing signs of net interest income stabilization.
Get pushed through.
There is some bonus accrual works, sometimes in the fourth quarter. The fact drive costs out so I wouldn't necessarily agree with but it's third quarter, but I would point you back to <unk> comments right before that if it's fourth quarter. That's actually the peak again in the first half of 'twenty four we expect to realize.
Speaker 6: transcript
Speaker 6: the vast majority, the remainder and the vast majority of our previously announced cost savings initiatives, which in turn would then drive down our fish.
The vast majority of the remainder of the vast majority of our previously announced cost savings initiatives, which in turn will drive down our efficiency ratio.
Speaker 11: transcript
Speaker 11: Got it. That's helpful. And then just a couple more quick ones on, you know, I think the kind of New York, New Jersey area of credit commercial real estate dynamics, you know, we probably.
Got it.
That's helpful. And then just a couple more quick ones on <unk>.
Michael Hagedorn: During the quarter, monthly net interest income was generally stable and higher than the June level. Our fully tax equivalent net interest margin declined a modest three basis points on a linked quarter basis versus 22 basis points in the second quarter of 2023 and has been generally stable over the last few months. All else equal, we expect fourth quarter net interest income to be relatively in nine with the third quarter level. By the end of the quarter, our liquidity position has been effectively normalized.
I think the kind of the New York, New Jersey area credit commercial real estate dynamics.
Speaker 11: transcript
Speaker 11: beat the dead horse on that for quite some time now. But just curious if you guys can maybe, you know, provide some context about updated demographics and trends you're seeing in the Florida and Alabama market. I mean, are there similar kind of supply and demand dynamics? Is there still kind of inflow of population growth? And just wondering kind of what the demographics are down there more recently.
Probably.
Beat the dead horse on that for quite some time now, but just curious if you guys could maybe.
I'll provide some context about updated demographics and trends youre seeing in the Florida, and Alabama market. I mean are there similar kind of supply and demand dynamics or is there still kind of inflow of population growth and just wondering kind of what the.
The demographics are down there more recently.
Speaker 4: transcript
Speaker 4: Sure, Michael. This is Tom.
Sure Michael This is Tom.
Speaker 4: transcript
Speaker 4: The impacts of slowing and higher interest rates are affecting them also. The metrics on the transactions we do aren't any different. There are below 60% loans of value, usually 1.6% or 100% that service coverage. So we're still generating transactions with those similar metrics. So we're still generating transactions with those similar metrics.
Yes, yes.
The impacts of slowing and higher interest rates are affecting them also the metrics on the transactions, we do aren't any different tariff below 60% loan to value, usually 1.6 or 7% debt service coverage. So we're still generating transactions, but those similar metrics we are seeing.
Michael Hagedorn: Absent abnormal environmental factors we expect cash to remain generally consistent with third quarter levels. Moving to slide 11, we generated nearly 59 million of non-interest income for the quarter as compared to 60 million in the second quarter. Exclusive of approximately $6 million of non-core items adjusted non-interest income was closer to $52 million for the quarter. The decline was primarily related to lower capital market speeds associated with our slower loan growth. Other business lines were generally stable.
Speaker 4: transcript
Speaker 4: We are seeing continued growth in those markets. The population migration has slowed, but there's still migration into that Florida market. Our consumer business is strong down there, but probably half of what was the earlier part of this year. It's still a growth market for us at all cases, but I'll continue to point that. We underwrite very conservatively in all markets.
<unk> continued growth in those markets. The population migration has slowed but there is still a migration into Florida market. Our consumer business is strong down there, but probably half of what it was the earlier part of this year, it's still a growth market for us in all cases, but.
Michael Hagedorn: On slide 12, you can see that our non-interest expenses were approximately 267 million for the quarter or approximately 264 million on an adjusted basis. Adjustive expenses declined from the prior quarter despite an increase in certain technology costs partially associated with our successful core conversion. Specifically, we began to see the benefits of recent head count reductions about midway through the quarter. FDIC assessment costs and outside consulting fees also declined on a sequential basis.
Senior fund that we underwrite very conservatively in all markets, we have floors on our cap rates in all markets. We track those cap rates were more suburban than urban we're not big players in the Miami market, where we're more spread around six or seven other major areas of <unk>.
Speaker 4: transcript
Speaker 4: We have floors that are cap rates in all markets. We track those cap rates. We're more suburban than urban. We're not big players in the Miami market. We're more spread around the six or seven other major areas of Florida.
Florida.
Speaker 11: transcript
Thanks, guys really helpful. And then just the last last one for me.
Just once again kind of taking into context. All your other commentary is it fair for us to be thinking about kind of the asset base to be pretty stable here for the next several quarters and then possibly some lift beyond that assuming the environment is.
Michael Hagedorn: We continue to execute on previously identified efforts to slow future expense growth. Legacy Valley and Layumi have now joined on a common core. After a certain adjustment period, we expect the core conversion to result in the next wave of previously announced cost savings early in the new year. To reiterate, our focus is on controlling expenses in the face of revenue pressures, which have resulted from the inverted yield curve.
<unk> kind of growth re accelerating is that.
Similar to how you guys are budgeting it or is there any kind of.
Anything that you would point to that could make a difference.
Speaker 12: transcript
Speaker 12: I think you have a generally right mic. I mean, I think, you know, end of the third quarter, our cash position was normalized. I think Tom references the growth that we anticipated in the fourth quarter and then kind of picking up maybe someone in 2024, but I don't think there's any type of significant other changes that you would see on the voucher. Thank you guys.
I think you have it generally right, Mike I mean, I think ended up.
Third quarter, our cash position was normalized I think Tom referenced the growth that we anticipate in the fourth quarter, and then kind of picking up maybe somewhat in 'twenty four but I don't think theres any type of significant other changes that you would see on the balance sheet.
Michael Hagedorn: Turning to slide 13, you can see our asset quality trends for the last five quarters, not a cruel loans have been effectively flat for the last three quarters. Early stage delinquencies ticked up during the quarter, but remained well below the average level of the last 12 months. Third quarter net charge-offs declined somewhat from recent levels.
Very good. Thank you guys I appreciate it.
Thank you.
Sure.
One moment for our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from John Arftrom with RBC Capital Markets. Please go ahead. Hey, thanks. Good morning, everyone.
Our next question comes from John Armstrong with RBC capital markets. Please go ahead, hey, thanks.
Thanks, Good morning, everyone.
Speaker 13: transcript
Speaker 13: Maybe a question for you, Mike, on slide 11, you show the fee income numbers and capital markets being down and you tied it to loan growth. What kind of expectations should we have for capital markets? And then also curious if there's any kind of expense offset, how much bottom line impact there is to lower capital markets fees.
Alright, John.
<unk>.
Michael Hagedorn: On slide 14, you can see that tangible book value increased to approximately 1.4% for the quarter and is up nearly 10% from a year ago. Our balance sheet positioning has enabled us to avoid the significant challenges that other peers have faced related to the OCI impact associated with available for sale securities. We manage all risk areas prudently and are proud in our ability to insulate tangible capital from this headwind. Tangible common equity to tangible assets increased to 7.4% during the quarter as a result of our normalized cash position. As loan growth slowed, our risk-based regulatory capital ratios have increased between 16 and 18 basis points as compared to the second quarter of 2023.
Maybe a question for you Mike.
Slide 11, you show the fee income numbers in capital markets being down.
And you tie that into loan growth, what kind of expectations should we have for capital markets. And then also curious if theres any kind of expense offset how much bottom line impact there is to lower capital markets fees.
Speaker 4: transcript
Speaker 4: Yeah, he's on his time. Yeah, the capital market for us is really good rigble by getting on sale in the consumer-ready space as well as swaps in the commercial space. We expect that to be flat going forward. We don't expect that any more.
Yeah, Hey, John It's Tom Yes on the capital markets for US has really been driven by gain on sale and the consumer ready space as well as swaps to the commercial space, we expect that to be flat going forward, we don't expect any lift there.
Speaker 4: transcript
Speaker 4: Okay. You know, we have another avenue to say we have a tax advisory business. We get to slide off taking the fourth quarter to get things closed by year end. We continue to build on our effects and trades and shows, you know, progress quarter to quarter, but we're expecting flat end.
Okay.
We have other avenues that we are protected by our advisory business, we get the slight uptick in the fourth quarter to get things closed by year end, we continue to build out our FX trades, which shows yes.
Progress quarter to quarter, but we're expecting flat into next year.
Michael Hagedorn: We continue to prioritize organic capital growth in this challenging environment and are prudently managing our balance sheet to incrementally strengthen our position.
Speaker 13: transcript
Speaker 13: Okay, okay, good. Credit looks great, but some of the accruing past dues are up sequentially. Anything to note there, anything that you're thinking about there that we should be aware of.
Okay. Okay. Good.
Credit looks great, but some of the accruing past dues are up sequentially.
Michael Hagedorn: With that, I'll turn the call back to the operator to begin Q&A. Thank you.
Anything to note there or anything that you are.
That youre thinking about there that we should be aware of.
Speaker 4: transcript
Speaker 4: No, no. I'm looking at really it's coming out of the consumer and resi buckets. On the consumer side, it's primarily our cash surrender value life insurance business. It's a matter of liquidating and collecting on there. So that's not going to be problematic from any potential loss standpoint. On the resi side, I just want to point out, our QQ levels were abnormally low. We are still below where we were a year ago at this point. We're about 99 million in the third quarter of 22 or 79 million in the third quarter of 23. So we're really gravitating to more normal levels. So no, we don't anticipate any.
No. It's really it's coming out of the consumer and read the buckets on the conservative side is primarily our cash surrender value of life insurance business, It's a matter of liquidating and collecting on there. So that is not going to be problematic from any potential loss standpoint on the resi side I just want to point out our Q2 levels. We're at.
Unknown Executive: At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. And wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Normally while we are still below where we were a year ago at this point, we're about $99 million.
Frank Schiraldi: Our first question comes from Frank Sheraldi with Piper Sandler. Please go ahead.
The third quarter up 22 were $79 million in the third quarter of 2003. So we are really gravitating to more normal levels. So now we don't anticipate any problems okay. Good.
Michael Hagedorn: Good morning. Just on the trajectory of NIIs last name. I mean, you talked about the hopeful trough here. In a higher for longer scenario, you know, just thinking out into 2024, do you think there's some stabilization in NIM and then you get a reversal from there so you get a little bit of a trajectory upwards or is it more sort of like in higher for longer sort of bouncing along the bottom for a period of time? Just wondering your general thoughts there.
Speaker 13: transcript
Speaker 13: Okay, good. And then, Mike, you referenced slide 4, that upper right chart with the deposit cost increases. And what do you think that looks like in a quarter or two? I mean, you referenced the 49 and 49 for the last two quarters, but is that curve bending at all from the 49?
And then.
Mike you referenced slide four the upper right chart with the deposit cost increases.
And.
What do you think that looks like in a quarter or two.
You referenced.
$49 49 for the last two quarters, but.
Is that curve bending at all from the <unk> 49.
Speaker 13: transcript
Speaker 13: If spending is ever so slight, I think you'll see the real bend and flexion point happen early next year, but you still see some migration. It's slowed considerably, but you still see some migration from non-interest bearing into interest bearing. From an incremental next dollar cost of deposit funding and more broadly, even liability funding, that is definitely stabilized in that mid-five-ish range. Okay. All right. Thank you very much.
It is expanding its ever so slight I think youll see the road bans inflection point happen early next year, but you still see some migration has slowed considerably but you still see some migration from noninterest bearing into interest bearing from a incremental next dollar cost of deposit funding and more broadly even.
Michael Hagedorn: Hi, Frank. It's Mike. You know, I think that when you look at the trajectory of NIM in 2023, as we said in our prepared remarks, we've been in that mid to 90s to low to 90 range since April. And when you look at the cost of deposits, you'll notice that from 4th quarter to 1st quarter, they were up 60 basis points from 1st quarter 23 to 2nd quarter 23, they were up 49 and they were up 49 into 3rd quarter as well.
Liability funding that is definitely stabilized and that mid five ish range.
Okay, Alright, thank you very much.
Thank you one moment for our next question.
Michael Hagedorn: So we're starting to see a normalization both in the cost but also in the NIM. In a higher-for-longer rate environment, I think a couple of things would happen that would all things being equal result in a slightly higher NII and slightly higher NIM. The first of those, and it's been true for all of 2023, the biggest driver of the compression on our NIM has been the rotation out of non-intersparing and inter-intersparing product.
Speaker 1: transcript
Speaker 1: Our next question comes from Manan Gozalia with Morgan Stanley . Please go ahead.
Michael Hagedorn: So I would think in a higher-for-longer environment, there's some place, some equilibrium that we see a plateau in that. You know, second, you got to keep in mind that we've had a very large liquidity bill, both at the end of the first quarter and throughout the second quarter, as a result of all the chaos that was created with the bank failures earlier this year, that is completely off our balance sheet as of 930.
Our next question comes from Manan <unk> with Morgan Stanley. Please go ahead.
Hey, good morning.
Speaker 14: transcript
Speaker 14: You spoke about getting higher yields on new origination.
Great.
You spoke about.
Getting higher yields on new originations.
Speaker 14: transcript
Speaker 14: and that fixed rate loan repricing will be one of the main drivers of NIMX expansion from here. Can you give us some more color on what level of...
Fixed rate loan repricing will be one of the main drivers.
Expansion from here.
Could you give us some more color on what level.
Speaker 14: transcript
Speaker 14: uh loans or repricing uh what level loans are repricing at over uh currently and uh you know if you could size the amount of fixed rate loans that are coming due uh over the next year or so yeah
Launder repricing.
What level laundry repricing at currently.
Currently.
If you could size the amount of fixed rate loans that are coming due over the next year or so.
Yes, it's Tom here.
Speaker 4: transcript
Speaker 4: give you some context. We repriced about $1.8 billion of loans for the first nine months of this year. The spread, it really depends on asset class, but the spreads are in the mid $350,000, around the $350,000 or so range. We expect that to continue.
Give you some context, we repriced about 1 billion of loans. After the first five months of this year the spreads it really depends on asset class, but the spreads are in the mid 350 around the $3 50, or so range, we expect that to continue.
Michael Hagedorn: And then when you go forward and you kind of think about deposits stabilizing, I think the thing that will drive, at least in our current modeling, the thing that will drive NIM expansion and NII increases, is going to be the repricing on our assets, earning assets but more specifically loans. And as we look at our modeling, we know what our fixed rate, both repricing is along with the repricing opportunities that we have throughout 2024 in the adjustable rate book.
Speaker 4: transcript
Speaker 4: Looking forward, there's probably another 600 million reprises over the next six months. We expect those friends to be the same. There's also a lot of renewing loans, low-devil mature. So it tends to be in that billion dollar or so range over the next six months.
Looking forward there is probably another $600 million re prices over the next six months, we expect those spreads to be saying, there's also a lot of renewing loans loans that will mature so it tends to be that $1 billion or so range over the next six months in total yes.
Michael Hagedorn: So we would expect that to be the main driver of any NIM expansion next year.
Speaker 10: transcript
Speaker 10: Yeah, I think that that number is a little bit overstated, right? So we have a little bit understated, excuse me. So we have a $20 billion fixed rate portfolio average life.
That number is a little bit overstated rates. So we had a little bit understand excuse me. So we have about $20 million fixed rate portfolio average life is extended to about five years. So if you do the math I mean, just assuming all else equal you'll get about $4 billion a year of fixed rate loans that come due and would ultimately reprice IRA and I think the run rate.
Speaker 10: transcript
Speaker 10: extended to about five years. So if you do the math, I mean, just assuming all else equal, you'll get about four billion a year of fixed rate loans that come due and would ultimately reprice higher. And I think the one other thing, if you look at
Michael Hagedorn: Okay, great. Appreciate all the color, Mike, and then just as a follow-up to that, in terms of the broker balances, you know, looks like you guys have some really good success raising customer deposits, and so you let these roll off. I guess you expect that to continue. And if so, as you look at the, you know, the tape maturization table, when do you expect or how quickly do you expect broker balances to kind of fall here?
Speaker 7: transcript
Speaker 7: I forget what slide it is, maybe the slide seven. You can look at the credit spreads, right? So if you go back to just three quarter of 22, and you look at where the new origination yield was versus where the index was, you're sitting around a 200 basis point spread.
If you look at.
We are excited maybe the slides and you can look at the.
The credit spreads right. So if you go back just three quarter of 2000 to a level where any of the origination yield was versus where the index was you're sitting about 200 basis points spread when we do the same math just today youre sitting at about 270 basis point spread so senior originations are coming on definitely at a higher spread and it's China.
Speaker 7: transcript
Speaker 7: to the same map just today. You're sitting at about 270 basis points spread. So, the new originations are coming on. Definitely had a higher spread. And as Travis and Tom both alluded to, the repricing is probably gonna come on at three to 400 basis points above where current rate is on today. So, the new originations are coming on.
Michael Hagedorn: Yes, our current thinking and our current modeling is that we will see further reduction in our broker balances, and that's certainly one of our goals. But I want to make sure, but it understands how we've been using broker. We've been using broker throughout 23 to fill the gaps, especially earlier in the year, we had much higher loan growth to fill the gaps on the balance sheet expansion, while also paying very close attention that we're not repricing the back quote of our deposit or core deposit base.
Both alluded to the repricing is paying a coupon at 3% to 400 basis points above where current rates are today on this so there is a significant pick up when you think about the $4 billion, plus or minus and looks better even next year.
Speaker 7: transcript
Speaker 7: So there's a significant pickup when you think about the $4 billion plus or minus.
Speaker 6: transcript
Speaker 6: This is Mike, I'll just add to what Ira said. So the simple average of new loan originations in the second quarter was 7.38%. And for the third quarter, it was 7.89%. And the last month, September , in that quarter finished just over 8%.
And this is Mike I'll, just add to what IRA said, so the simple average of new loan originations in the second quarter was 738% and for the third quarter. It was 789% in the last months September in that quarter finished just over 8%. So clearly we are seeing.
Michael Hagedorn: And the second thing that we've done is we've used that in the stop gap measures, we've used both duration and rate in that portfolio to help manage our NIM and NII. And so I know they have a bad connotation. Sometimes they've been very effective, and the market has been excellent for us to use that in certain, certain times in certain circumstances, and will very effectively. And just last thing on that front, in terms of, as you look at the indirect market versus what you're able to get directly from customers here, is there much of a difference in terms of pricing, in terms of new broker versus new direct?
Speaker 6: transcript
Speaker 6: So clearly we're seeing repricing on new loan originations, both from the spread increases that both Ira and Tom mentioned, and then also just because of the discipline that we have around here to make sure that we're getting paid for the risk we're taking.
The re pricing on new loan originations both from the spread increases that both IRA and Tom mentioned.
Then also just because of the discipline that we have around here to make sure that we're getting paid for the risk we're taking.
Speaker 7: transcript
Speaker 7: That can make just one family, I think this is an important piece right when we think about sort of auto overall.
And maybe just finally I think this is an important piece right. When we think about sort of our overall core portfolio and how we manage the balance sheet.
Speaker 7: transcript
Speaker 7: portfolio and how we've managed the balance sheet, you know, obviously based on sort of the sensitivity that we have, there was a decline in the NIM maybe earlier than what some of our peers were, but we do have a significant amount of tailwind coming from the assets that are going to be priced. So once we get into a more stable environment, whether it is higher for longer or just stable from where we are today, you know, there is that tailwind that's going to come from a significant amount of assets, and I think that will be a significant positive.
Obviously based on sort of the sensitivity that we have there was a decline in the NIM.
Maybe earlier than some of our peers, where we do have a significant amount of tailwind coming from the assets that are going to reprice and once we get into a more stable environment, whether it is higher for longer or just stable from where we are today there isn't that tailwind that's going to come from a significant amount of assets.
Michael Hagedorn: Yeah, the inversion of the curve probably is the biggest impact on that. If you're talking about exactly the same duration, I would say the incremental positive policy is fairly close to one another. So there may be 10 basis point difference, but it's not that remarkably different. So I think, again, I go back to my previous comments is you want to use that for both rate and duration, but in the case that you're asking about, you probably want to manage duration in this inverted curve.
I think that that will be a significant positive for us.
Yes.
Speaker 14: transcript
Speaker 14: That's very helpful. Maybe just on the flip side, on the funding side, the 360 or so pricing that you mentioned that deposits are coming on at right now, would you be able to provide a breakdown between CDs and savings accounts and what those are coming on at right now, and also if there is any update to your through-the-cycle deposit data guide of around mid-50s?
Okay.
That's very helpful. And then maybe just on the flip side on the funding side.
The 360, or so pricing that you mentioned that deposits are coming on it right now.
Would you be able to provide a break down between.
Michael Hagedorn: Frank Zahre, I would just add to that, you know, when we think about the incremental piece of deposit, there's length of a little bit too earlier, there was to begin to demand for us to put some of the same remnant deposits on based on the little growth we were seeing, and that obviously ratcheted up the incremental cost of some of these deposits. As we now scale back some of the little growth, the demand for the deposits and higher cost CDs have actually come, you know, a bit down.
Cds and savings accounts and what those are coming on at right now.
And also if there is any update to your.
Through the cycle deposit beta guide of around mid fifties.
Speaker 6: transcript
Speaker 6: So on regular savings accounts, you're probably in the mid-3-ish type category. But we also have a high-yield savings account out there in our direct channel, which is in the mid-5, maybe actually low-5.
So on a regular savings accounts here probably in the mid three ish type of category, but we also have a high yield savings account out there in our direct channel, which is in the mid fives, maybe actually low fives.
Michael Hagedorn: And we're still originating core deposits, I think it speaks both about that time on the call. The overall deposit of originations for this quarter were around $370, $380. So also on a blended basis, marginal deposits are coming in much cheaper than what the indirects are. And as we could tell the low growth, we definitely anticipate some expansion on market based on that information.
Speaker 6: transcript
Speaker 6: And while we don't have a new CD special, we haven't had a new one for a while, we're retaining anywhere from about 92% up of all maturing CDs.
While we don't have a new CD specials, we haven't had a new one for a while.
Michael Hagedorn: Great.
We're retaining anywhere from about 92% of all maturing Cds.
Michael Hagedorn: Okay. Appreciate all the color guys.
Speaker 6: transcript
Speaker 6: So I think that when you think that a shitter, they want to talk about the incremental cost of the next dollar of funding, it's going to be in that mid to low five range.
So I think that when you think of as I said earlier, when I talked about the incremental cost of the next dollar funding.
Unknown Executive: Thank you.
It's going to be in that mid to low five range, but you got to realize that it's in certain pockets within our deposit pricing, where we've had some growth that are a little more competitive and that's just for that incremental TD, that's coming on and I think the bigger pieces that we had our strongest quarter today as a new account opening.
Speaker 7: transcript
Speaker 7: But you've got to realize that it's in certain pockets within our deposit pricing where we've had some growth that are a little more competitive. And that's just for that incremental CD that's coming on. I think the bigger piece is, you know, we had our strongest quarter to date of new account opening. So I know you're seeing a mixed shift still continuing and average coming out of the non-interest bearing. The number of accounts in non-interest bearing continue to escalate significantly.
Unknown Executive: One moment for our next question.
Youre seeing a mix shift still continue with an average coming out of the noninterest interest bearing the number of accounts and non interest bearing continues to.
Matthew Breeze: Our next question comes from Matthew Breeze with Stevens. Please go ahead.
Speaker 7: transcript
Speaker 7: And we were able to grow both consumer and commercial. And just as an example, in the month of September , it was a blended commercial that came on with that rate of 248 for overall deposit base. So while Mike's correct in looking at some of those CDs and what the specials are, keep in mind, we're still originating and opening core accounts in this organization like we haven't ever historically before. And that will continue to have a positive impact on how we think about what those marginal funding costs are.
To escalate significantly and we were able to grow in both consumer and commercial and just as an example.
Matthew Breeze: Hey, good morning, everybody. Maybe just thinking with the name. Can you provide what the monthly name was across the quarter and is the September, the September name, a good launch point is the fourth quarter about where it could shake out for the fourth quarter.
On September <unk>.
Lending commercial that came out with that rate of $2 48 for overall deposit base. So while Mike's correct in looking at some of those <unk> and what the specials are and keep in mind, we are still originating and opening core accounts in this organization like we haven't ever historically.
Travis Lan: And Matt, this is Travis. Just on a monthly basis July the two ninety one, obviously two ninety two and September two ninety one. So when we say it was pretty stable throughout the quarter, I mean, we really need it. So you can use September and the quarter with the same number. But yes, the launch point. Thank you.
Before and that will have a casino or a positive impact on how we think about what those marginal funding cost are so the marginal funding cost that you saw a $363 70 ish for the quarter on that when it's something we anticipate to continue assuming interest rates stay at their current levels.
Speaker 7: transcript
Speaker 7: So, you know, the marginal funding cost that we saw of $360,000, $370,000-ish for the quarter on that blend is something we anticipate to continue as soon as we get to July .
Tom Iadanza: And then I was hoping also for some additional color on near term, long growth outlook. And maybe perhaps when you would feel comfortable, you know, reaccelerating long growth.
Yes.
Speaker 14: transcript
Speaker 14: Great and through the cycle the positive rate of mid-50s any update on that.
Great and then.
Through the cycle deposit beta of mid fifties and any update on that.
Speaker 12: transcript
Speaker 12: Our through the cycle estimate was for the 4th quarter of 23 year through the 3rd quarter of 23, you know, we're, we're in the mid 50s. So it's likely that we'll end up above that. But that's factored into all the commentary that we've already given about stable in the near term and an opportunity to expand as we get into 2024. I appreciate it. Thank you.
Pamer.
Our through the cycle economics for the fourth quarter 'twenty three year for the third quarter of 'twenty three.
Tom Iadanza: Hey, Matt, it's, it's, you know, the long growth, the fact is slowing it down. Really customer related, the uncertainty of the rate market as well as widening spreads has slowed down their activity. We still service those values real estate customers when they needed it. And we continue to grow that portfolio just at a much slower base. I just want to point out our C&I portfolio has grown 12 percent over the last year.
We're in the mid fifties, so it's likely that we will end up above that but that's factored into all the commentary that we've already given about stable NII in the near term and an opportunity to expand NII as we get into 2024.
I appreciate it thank you.
Okay. Thank you one moment for our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from Steve Moss with Raymond James. Please go ahead.
Tom Iadanza: So our focus is really good on that relationship driven C&I piece. We're still getting higher percent growth in the Florida market and stable growth here in the northeast. I would expect, you know, that growth in a quarter to be in a similar fashion to the third quarter and will be in that range of seven to nine percent for the year. Great. Okay.
Our next question comes from Steve Moss with Raymond James. Please go ahead.
Hi, good morning.
Steve maybe just on.
Speaker 15: transcript
Speaker 15: Warner on credit here and just, you know, the dynamic of fixed rate loans repricing just curious, you know, what you what you all are seeing for the impact on debt service coverage ratios and, you know, what's the dynamic of, you know, how many clients have to put up additional cash to support a loan or a project.
Good morning on credit here and just the dynamic of fixed rate loans re pricing just curious.
What you are seeing for the.
The impact on debt service coverage ratios and what's the dynamic of how many clients have to put up additional cash to support our loan our project.
Matthew Breeze: And then I wrote, you know, just acknowledging yours and values relationship with bank Naomi and first, you know, just wishing everybody on your end and on Naomi's end the best as they deal with the horrific events over in Israel. In light of that, I was curious if events overseas will have, and because of the partnership, any impact on your bank balance sheet or private client group in any way. Thank you very much.
Speaker 4: transcript
Speaker 4: Sure, Steve, if they mention that we reprised in 2023 or reset the rate of 2023 on $1.8 billion of our loans, we did not have to modify the contractable payment terms on any of them. They just reset flow through with continued PNI payments.
Yeah sure Steve It's Tom as I mentioned earlier, we repriced in 2023, a reset the rate of 2023 on $1 $8 billion of our loans, we did not have to modify the contractual payment terms on any of them. They just reset flowed through with continued piano.
Speaker 4: transcript
Speaker 4: No cash up front for customers that need it. I want to point out our upfront underwriting underwrites more conservatively.
Payments no cash upfront the customer didn't need it I want to point out our upfront underwriting underwriting more conservatively typically a 1617 average debt service coverage, a 60% LTV so that creates cushion in our upfront analysis.
Matthew Breeze: I appreciate that. It's been a very difficult time. You know, that said, you know, it's not going to be bad to buy it. Yeah, Matt, it's some just going to give you a little context. You're the only direct loan exposure we have is to high net worth US citizens, and it's shared by state of Israel bonds as a very original portfolio. Otherwise, you know, we help finance domestic subsidiaries of Israeli companies, but it's all done here in the US, US based entities. The back and forth of the flow of business slow down really based on that economic conditions, but it's business as usual and working with them on partner transactions. Got it. Okay.
Speaker 4: transcript
Speaker 4: typically a 1.6, 1.7 average debt service coverage, a 60% LTV, so that creates cushion in our upfront analysis.
Speaker 15: transcript
Speaker 15: Okay, but just given that, you know, rates have moved up quite a bit here in the last month or two, you still expect that dynamic to play out into 2024.
Okay, but just given that rates have moved up quite a bit here in the last month or two you still expect that dynamic to play out into 2024.
Speaker 16: transcript
Speaker 16: Yeah, I think I mentioned earlier, but I think there's another 600 million that will reset over the next 6 months. We do a forward analysis of this. We don't expect any different results or modification based on that analysis today. Thank you. Maybe just highlighting what Tom said and.
Yes.
And earlier I think there's another 600 million that will reset over the next six months. We do have forward analysis of this we don't expect any different results or modifications based on that analysis today.
And can you maybe just highlighting what Tom said and he said it twice.
Speaker 6: transcript
Speaker 6: hearing what he said, we did 1.8 million dollars and now one client had to come and bring additional equity into it. They reset as to what they were. And I think that's something significant when we look at how we underwrite loans day one, how we think about resetting these loans and the capacity of our clients to pay. And I think that's a big distinction versus what you're seeing at other words.
Twice now and I just want to make sure everyone is hearing what he said, we did $1 $8 million and now one client had to come and bring additional equity into it a reset as to what they were at.
And I think that's something significant when we look at how we underwrite loans with day, one how we think about setting these loans and the capacity of our clients to pay and I think that's a big distinction with versus what youre seeing at other organizations today.
Travis Lan: And then could you give us some update as as to where we are in the previously mentioned cost saving plan. I believe it was like $40 million identified. Last week, we spoke. It was expected to progress over even four quarters. How is execution matching up versus planning and so any else you've uncovered as you've kind of looked into this in terms of additional cost saves. Yeah, Matt, it's Travis in the quarter.
Speaker 15: transcript
Speaker 15: Great. Appreciate all the color. And then just in terms of, you know, as we think about, um,
Great I appreciate all the color.
And then just in terms of.
As we think about.
Speaker 15: transcript
Speaker 15: you know, the outlook going forward here. Just curious, you know, Ira, I know you said you're focused on organic growth and internally, but, you know, are you seeing more M&A opportunities or, you know, has any thought process changed here just given the more volatile macro environment?
The outlook going forward here just curious.
Alright, I know you said, you're focused on organic growth and internally, but.
Are you seeing more M&A opportunities or any thought process changed here just given them the more volatile macro environment.
Travis Lan: I think you probably got 20 to 25% of, you know, in the United States is what we had anticipated. I don't expect much incrementally in the fourth quarter post conversion. We're keeping the 14 stacked up and running. But then as we get into the first half of 2024, I think that's where you get the next wave, which will come from a combination of third party vendors and some additional resource efficiencies. So I don't have to say much in the fourth quarter.
Speaker 16: transcript
Speaker 16: I think on the back end of what we're seeing with regards to the curve, there's going to be definitely a lot more opportunities based on some of the challenges that may have. That's what I think we've been very diligent and disciplined around our tangible value, and to have a deal of work in this environment becomes very challenging.
I think on the back end of what we're seeing with regards to the curve.
It's going to be definitely a lot more opportunities based on some of the challenges that many banks have that sort of thing.
We've been very diligent and disciplined around our tangible book value and.
To have a deal of work in this environment becomes very very challenging so some of the economics and the need to change.
Speaker 16: transcript
Speaker 16: So some of the economics need to change. If you go back to the tangible book value we had at 3.30 of 2018, which was the first quarter that this management team took over, we were sitting at $5.64.
Travis Lan: But again, once you get the first half of 2024, I think that's where you see in the bulk of what's what's remaining. We are still looking, you know, obviously post conversion at opportunities that we hadn't previously identified. And so we'll continue to dig there. And we should be thinking of this expense plan as one that slows down the natural pickup and expenses versus one that, you know, dollar for dollar lowers the run rate.
Go back to the tangible book value at $3 30 of 2018, which was the first quarter.
That this management team took over we were sitting at $5 64.
Speaker 15: transcript
Speaker 15: they were seeing at $8.63, which is pretty much $2.00 of incremental tangible book value. When you add in the dividends that we pay an L, $2.86 during that same period, we have effectively doubled the tangible book value in a five and a half year period. And I think that sort of advantage management team is very, very proud of. We want to make sure, as we think about the potential acquisition as we look forward, that we're not denigrating that kind of abstract record. Okay, great. Thank you very much.
They were seeing at $8 63, which is pretty much $3 of incremental annual book value.
When you add in the dividends that we paid out $2, 86% during that same period, we have effectively doubled the tangible book value and a five and a half year period, and I think thats something that this management team is very very proud of and we want to make sure as we think about potential acquisitions as we move forward, but we're not denigrating that kind of a track record.
Travis Lan: Correct. That's correct. So I mean, if you think in this is just high level, and I don't mean for these to be numbers to take away, but it was sort of we've run kind of high single digits from an operating expense growth perspective as a growth company, you know, they're obviously headwinds from an inflation perspective at the cost regulatory perspective on top of that. And then we're just trying to work our way back into kind of admit single digit expense growth level based on these these initiatives.
Okay, great. Thank you very much I appreciate the color.
Matthew Breeze: Great.
Thank you.
One moment for our next question.
Okay.
Speaker 9: transcript
Speaker 9: Our next question comes from Matthew Brees with Stevens. Please go ahead. Hey, good afternoon. Just one follow-up M&A question. You know, obviously, the intensity of the events from March have subsided, but it doesn't feel like we're quite out of the woods yet. Just wanted to make sure that, you know, when we talk about whole bank M&A versus organic growth, Ira, I would love your thoughts on, you know, FDIC-assisted deals, or if that were to still come about, would that be something you were interested in?
Our next question comes from Matthew Breese with Stephens. Please go ahead.
Unknown Executive: Last one for me is just, I don't know if you have one or not, but could you just comment if you do on syndicated loan exposure? What's the size of that book? How is it performing? Any other metrics you should be aware of there?
Good afternoon, just one follow up M&A question, obviously, the intensity of the events from March of subsided, but it doesn't feel like we're quite out of the woods yet.
Unknown Executive: Yeah, sure.
Just wanted to make sure that when we talk about whole bank M&A versus organic growth IRA I would love your thoughts on FDIC assisted deals or if that were to still come about would that be something you're interested in.
Unknown Executive: It's time again. The portfolio is about $1.4 billion. It's written over a number of loans. When I think L.T. Landers, we don't really have leverage transactions in there. They're mostly cloth deals with a small group of banks, direct contacts, relationships with any of the bars and roll in more.
Speaker 16: transcript
Speaker 16: I think that we've been an active player in FDIC deals before, but we have to make economic and go strategic sense for us.
I think we've been an active player in FDIC deals before but you have to make economic and strategic sense for us and I think those are still two two variables that are important to us as we think about those as potential avenues for growth and that said there is tremendous internal opportunities that we have today.
Speaker 16: transcript
Speaker 16: And I think those are still two variables that are important to us as we think about those as potential avenues for growth. With that said, there is tremendous internal opportunities that we have today as we focused organically on, like I mentioned earlier, changing the core here is something that's been significant to us.
Unknown Executive: Perfect. I appreciate it. It's all I had. Thank you. We lead a lot of those transactions also. We're not participating where we tend to be the lead bank and over 50% of that. Thank you.
Unknown Executive: One moment for our next question.
As we focus organically on like I mentioned earlier a change in the core here is something thats been significant to us.
Speaker 16: transcript
Speaker 16: The growth that we're seeing in C&I has been phenomenal here. If you look at the deposit page, we're up to $8.7 billion in differentiated specialized deposits today. I mean, that has been significant for us. And there's a lot of opportunity still for organic there. So while I think there's definitely opportunities we should look at it, if there is something from an FGIC, that said, I couldn't be more excited about what we're doing here organically and what those outcomes could potentially look like for us. Got it.
The growth that we're seeing in C&I has been phenomenal here. If you look at the deposit rates were up $8 $7 billion and differentiated specialized deposit today I think that is.
Michael Perito: Our next question comes from Michael Perito with KBW.
Michael Perito: Please go ahead. Hey, guys. Thanks for taking my questions. I apologize. I got on a couple minutes late, so you guys just addressed this already. I apologize for asking again, but just taking into context all the commentary you guys have given around NII and the expense plan kind of execution. Is it fair for us to be thinking about that the third quarter of 23 as probably the peak in the efficiency ratio here and you guys at this point able to provide any kind of context around the type of year on your improvement, you're hoping the expense plan can drive assuming you know your NII projections kind of play out as you expect them today.
<unk> has been significant for us.
And there is lot of opportunities to organically ourselves.
I think theres definitely opportunities, we should look at it there is something from an efficacy.
And I couldn't be more excited about what we're doing here organically on those outcomes potentially look like for us.
Got it well I appreciate taking my follow ups. Thank you guys.
Michael Perito: So I don't think there's any banks you have to say that the third quarter would tend to be their peak. I think four quarter tends to be the peak for a lot of reasons, right? You have year and expenses that get pushed through. There's some bonus of global work sometimes in the fourth quarter. Their bike drive costs up. So I wouldn't necessarily agree with that it's third quarter, but I would point you back to Travis' comments right before that.
Speaker 1: transcript
Speaker 1: Thank you. I'm showing no further questions at this time. I now like to turn it back to IRA Robbins for closing remarks.
Thank you I'm showing no further questions at this time I would now like to turn it back to IRA Robbins for closing remarks.
Speaker 16: transcript
Speaker 16: Thank you and I just want to thank everyone for taking the time to listen to our call today and we look forward to speaking to you in three months.
Thank you everyone for taking the time to listen to our call today and we look forward to speaking to you then take months.
Speaker 1: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Thank you for your participation in today's conference. This concludes the program you may now disconnect.
Michael Perito: If it's fourth quarter that's actually the peak, again in the first half of 24 we expect to realize the vast majority, the remainder and the vast majority of our previously announced cost savings condition is which in turn would then drive down our efficiency ratio. Got it. That's helpful.
Okay.
[music].
Okay.
Yes.
[music].
Michael Perito: And then just a couple more quick ones on you know I think the kind of New York New Jersey area of credit commercial real estate dynamics, you know we probably beat the dead horse on that for quite some time now, but just curious if you guys can maybe you know provide some context about updated demographic and trends you're seeing in the Florida and Alabama market. I mean are there similar kind of supply and demand dynamics? Is there still kind of inflow of population growth and just wondering kind of what the demographics are down there more recently?
Tom Iadanza: Yeah sure Michael. The impacts of slowing and higher interest rates are affecting them also. The metrics on the transactions we do aren't any different. There are below 60 percent loans of value, usually 1.6 percent of that service coverage. So we're still generating transactions with those similar metrics. We are seeing continued growth in those markets. The population migration has slowed but there's still migration into that Florida market. Our consumer business is strong down there but probably half of what was the earlier part of this year it's still a growth market for us at all cases but you know I'll continue to point out we underwrite very conservatively in all markets.
Tom Iadanza: We have floors that are cap rates in all markets. We track those cap rates where more suburban than urban. We're not big players in the Miami market where we're more spread around the six or seven other major areas of floors.
Tom Iadanza: Thanks, I'm really helpful. And then just the last one for me, just once again, kind of taken into context while you're in the commentary. Is it fair for us to be thinking about kind of the asset base to be pretty stable here for the next several quarters? And then, you know, possibly some lip beyond that, assuming the environment is permitting of kind of growth, re-accelerating, is that similar to how you guys are budgeting it or is there any kind of anything that you would point to that could make a difference?
Tom Iadanza: I think you have it generally right, Mike, I mean, I think, you know, into the third quarter, our cash position was normalized. I think Tom referenced the growth that we anticipated in the fourth quarter and then kind of picking up maybe someone in 2024, but I don't think there's any types of significant other changes that you would see on the voucher.
Michael Perito: Very good. Thank you guys. I appreciate it. Thank you.
Unknown Executive: One moment for our next question.
John Arfstrom: Our next question comes from John Arfstrom with RBC Capital Markets. Please go ahead. Hey, thanks. Good morning, everyone. Maybe a question for you, Mike. Slide 11, you show the fee income numbers in capital markets being down and you tied it to loan growth. What kind of expectations should we have for capital markets? And then also curious if there's any kind of expense offset, how much bottom line impact there is to lower capital markets fees?
John Arfstrom: Yeah, I mean, John, it's, it's, yeah, the capital market for us has really been driven by gain on sale in the consumer-rendy space as well as swaps into the commercial space. We expect that to be flat going forward. We don't expect any less there.
Michael Hagedorn: Okay. You know, we have other avenues here. We have a tax environment advisory business. We get to slide up, taking the fourth quarter to get things closed by year end. We continue to build down our effects and trades and shows, you know, progress quarter to quarter, but we're expecting flat into next year.
Michael Hagedorn: Okay. Good. Credit looks great, but some of the accruing past dues are up sequentially anything to note there or anything that you're, that you're thinking about there that we should be aware of. No, no. I'm looking at really, it's coming out of the consumer and resident pockets. On the consumer side is primarily our catcher and the value of life insurance business to matter of liquidating and collecting on there. So that's not going to be problematic from any potential loss standpoint.
Michael Hagedorn: On the resident side, I just want to point out our two key levels were abnormally low. We are still below where we were a year ago at this point. We're about 99 million, you know, the third quarter of 22 was every nine million in third quarter of 23. So we're really gravitating to more normal levels.
Michael Hagedorn: So now we don't anticipate any problems. Okay. Good. And then, um, my key reference slide four, that upper right chart with the deposit cost increases. And, um, what do you think that looks like in a quarter or two? I mean, that you reference the 49 and 49 for the last two quarters. But is that curve bending at all from the 49? If it's bending, it's ever so spot. I think you'll see the real bend and flexion point happened early next year, but you still see some migration.
Michael Hagedorn: If it's slowed considerably, but you still see some migration from non-intersparing into intrasparing from a incremental next dollar cost of deposit funding and more broadly, even liability funding, that is definitely stabilized in that mid five Okay.
Michael Hagedorn: All right. Thank you very much.
Unknown Executive: Thank you.
Manan Gosalia: One moment for our next question. Our next question comes from Manan Gosalia with Morgan Stanley. Please go ahead.
Manan Gosalia: Hey, good morning. You spoke about getting higher yields on on the originations. And that's fixed rate loan reprising will be one of the main drivers of the name expansion from here. Can you give us a more color on what level of loans are reprising what level loans are reprising at over the currently. And you know, if you could size the amount of fixed rate loans that are coming due over the next year or so.
Manan Gosalia: Yeah. It's Tom here. Give you some context. We reprised about a billion eight of loans for the first time months of this year. This friend really depends on asset class, but the spreads are in the mid 350, around the 350 or so range. We expect that to continue. Looking forward, there's probably another 600 million reprises over the next six months. We expect those spreads to be the same. There's also a lot of renewing loans low double the sure.
Manan Gosalia: So it tends to be that billion dollar or so range over the next six months in total. Yeah, I think that number's a little bit overstated, right? So we have a little bit understated, excuse me. So we have about 20 billion dollar fixed rate portfolio average length and extended to about five years. So if you do the math, I mean, just assuming all the people, you'll get about four billion a year fixed rate loans that come due and would ultimately reprise our.
Manan Gosalia: And I think the one good thing if you look at three of a slide and maybe the slide seven, you can look at the credit spreads, right? So if you go back to just three quarter of 22, and you look at where the original vegetation deal was versus where the index was, you're sitting around a 200 base point spread. You can do the same math just today. You're sitting at about 270 basis points spread.
Manan Gosalia: So new originations are coming on. Definitely had a higher spread and it's a traveston townboat alluded to the reprising is probably going to come on at three to 400 basis points above where current rates are today. So there's a significant pick up when you think about the four billion dollars plus or minus. This is my closest add to what Ira said. So the the sample average of new loan originations in the second quarter was 7.38% and for the third quarter was 7.89% and the last month September and that quarter finished just over 8%.
Manan Gosalia: So clearly we're seeing reprising on new loan originations both from the spread increases that both Ira and Tom mentioned. And then also just because of the discipline that we have around here to make sure that we're getting paid for the risk for taking. It can make just what I mean, I think this is an important piece right when we think about sort of auto overall for portfolio and how we manage the balance sheet, you know, obviously based on sort of the sensitivity that we have, there was a decline in the them.
Manan Gosalia: Maybe earlier than some of our peers were, but we do have a significant amount of talent coming from the assets that are going to be priced. So once we get into a more stable environment whether it is higher for longer or just able from where we are today, you know, there is that tail would not come from a significant amount of assets. And I think that would that will be a significant positive.
Tom Iadanza: That's very helpful. And maybe on the flip side, on the funding side, the 360 or so pricing that you mentioned that deposits are coming on and right now, would you be able to provide a breakdown between CDs and savings accounts and what those are coming on at right now? And also, if there's any update to your, through the cycle deposit data, the guide of around the 50s? So on the regular savings accounts, you're probably in the mid three-ish category, but we also have a high yield savings account out there in our direct channel, which is in the mid five.
Tom Iadanza: Maybe I actually low fives. And while we don't have a new CD specialty, haven't had a new one for a while, we're retaining anywhere from about 92% of all maturing CDs. So I think that when you think that I said earlier when I talked about the incremental cost of the next dollar of funding, it's going to be in that mid to low five range, but you got to realize that it's in certain pockets within our deposit pricing where we've had some growth.
Tom Iadanza: So that are a little more competitive. And that's just for that incremental CD that's coming on. I think the bigger piece is, we had our strongest quarter of today's new account opening. So I know you're seeing a big shift still continuing and average coming out of the non-interest barring. The number of accounts in non-interest barring can seem to escalate significantly. And we were able to grow both consumer and commercial. And just as an example of month of September, you know, the blended commercial that came on with that rate of 248 for overall deposit base.
Tom Iadanza: So while Mike's correct in looking at some of those CDs and what that the specials are, it keep in mind we're still originating and opening poor accounts in this organization, like we haven't ever historically be before. And that will have continue to have a positive impact on how we think about what those marginal funding costs are. So that the marginal funding cost that you saw of 36370 is for the quarter on that length, something we anticipate to continue with assuming interest rates may at the current levels.
Tom Iadanza: Great. And through the cycle deposit rate of mid 50s, any update on that? Anywhere R through the cycle estimate was for the fourth quarter, 23 year through the third quarter, 23. You know, we're in the mid 50s, so it's likely that we'll end up above that. So that's back to the end of all the commentary that we've already given about stable NII in the near term and opportunity to expand NII as we get into 2024.
Tom Iadanza: I appreciate it. Thank you.
Steve Moss: One moment for our next question. Our next question comes from Steve Moss with Raymond James, please go ahead. Good morning. On credit here and just, you know, the dynamic of fixed rate loans, repricing, just curious, you know, what you what you all are seen for. The impact on debt service coverage ratios and, you know, what's the dynamic of, you know, how many clients have to put up additional cash to support a loan or a project?
Steve Moss: Yes, sure, Steven, if I mention earlier, we reprised in 2023 or reset the rate of 2023 on $1.8 billion of our loans. We did not have to modify the contractable payment terms on any of them. They just reset flow through with continued P and I payments, no cash from the customer that needed. I want to point out our upfront underwriting, underites for conservatively, typically 1.6, 1.7 average debt service coverage, a 60% LTV, so they create cushioned in our upfront analysis.
Steve Moss: Okay, but just given that, you know, rates have moved up quite a bit here in the last month or two, you still expect that dynamic to play out into 2024. Yeah, making early, I think there's another 600 million that will reset over the next six months. We do a forward analysis of this. We don't expect any different results or modifications based on that analysis today. Thank you, maybe just highlighting what Tom said and he said twice now and I just want to make sure everyone is hearing what he said.
Steve Moss: We did 1.8 billion dollars and now one client had to come and bring additional equity into it. They reset us what they were. And I think that's something significant when we look at how we underwrite loans, day one, how we think about setting these loans and the capacity of our clients to pay. And I think that's a big distinction versus what you're seeing at other organizations today. Great. No, appreciate all the color.
Steve Moss: And then just in terms of, you know, as we think about, you know, the outlook going forward here.
IRA Robbins: Just curious, you know, I know you said you're focused on organic growth and internally, but you know, are you seeing more M&A opportunities or, you know, has any thought process changed or just given them the more volatile macro environment? I think on the back end of what we're seeing with regards to the curve, you know, there's going to be more definitely a lot more opportunities based on some of the challenges that many banks have.
IRA Robbins: You know, that's that I think we've been very diligent and disciplined around our tangible book value and to have a deal work in this environment becomes very, very challenging. So some of the economic need to change, you know, if you go back to the tangible book value, we had 330 of 2018, which was the first quarter that this management team to go will be receiving us $5.64. They were sitting at $8.63, which is pretty much $3 of incremental tangible book value.
IRA Robbins: When you add in the dividends that we paid out $2.86 during that same period, we have effectively doubled the tangible book value in a five and a half year period. And I think that sort of management team is very, very proud of.
IRA Robbins: We want to make sure to speak about potential acquisitions as we look forward that we're not generating that kind of attract record. Okay, great. Thank you very much. I appreciate the color. Thank you.
Matthew Breeze: One moment for our next question. Our next question comes from Matthew Breeze with Stevens. Please go ahead. Hey, good afternoon. Just one follow up M&A question. You know, obviously the intensity of the events from March of society, but doesn't feel like we're quite out of the woods yet.
IRA Robbins: Just wanted to make sure that, you know, when we talk about whole bank M&A versus organic growth, Ira, we love your thoughts on, you know, FDIC assisted deals or if that were to still come about, would that be something you're interested in? I think that we've been an active player in FGIC deals before, but they have to make economic and go straight to each extent for us. And I think those are still two variables that are important to us as we think about those, that's potential avenues for growth.
IRA Robbins: And that said, there is tremendous internal opportunities that we have today as we focused organically on, like I mentioned earlier, change the core here is something that's been significant to us. The growth that we're seeing at CNI has been phenomenal here. If you look at the deposits, we're up to 8.7 billion dollars, differentiated, specialized deposits today of events that have been significant for us. And there's a lot of opportunities still for organic there.
IRA Robbins: So while I think there's definitely opportunities we should look at it, there is something from an FGIC that said I couldn't do more excited about what we're doing here organically when this outcomes could potentially look like for us. Got it. Well, I appreciate taking my follow up. Thank you guys. Thank you.
Unknown Executive: I'm showing no further questions at this time.
IRA Robbins: I now like to turn it back to Ira Robbins for closing remarks. Thank you, and I just want to thank everyone for taking the time to listen to our call today, and we look forward to speaking to you in three months. Thank you for your participation in today's conference.
Unknown Executive: This concludes the program.
Unknown Executive: You may now disconnect.