Q3 2023 Valley National Bancorp Earnings Call
Yeah.
Good day and thank you for standing by welcome to the third quarter 2023 Valley National Bancorp Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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.
Withdraw your question. Please press star one again.
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.
Good morning, and welcome to Valley's third quarter 2023 earnings conference call presenting on behalf of Valley today are CEO IRA Robbins, President, Tom <unk>, and Chief Financial Officer, Mike Hagadorn before we begin I would like to make everyone aware that our quarterly earnings release and supporting documents can be found on our company website.
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.
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 those.
Statements with that I'll turn the call over to IRA Robbins.
Thank you Travis.
Third quarter of 2023 Valley reported net income of $141 million and earnings per share of <unk> 27.
Exclusive of noncore items, adjusted net income and EPS were $136 million in 2006, respectively.
Our quarterly results were highlighted by organic capital growth.
And asset quality metrics improved core deposit flows and solid expense control.
The current interest rate environment reflective of an inverted curve has challenge traditional banking models.
And we have not been insulated from these pressures.
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 slower pace than in recent quarters, and we believe that NII at the bottom of the decline all else equal.
While the external environment remains fluid and our focus on executing our strategic initiatives remains steadfast.
One of our strategic efforts over the last few years has been to transform our core operating environment to allow flexibility and integrating unique delivery channels.
Enhancing fintech integrations and positioning the bank to the scalability without the traditional technology expense hurdles.
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.
This was a massive undertaking which requires months of planning development and testing.
Valleys are operating on a single system spoke delivery channels and I couldnt be prouder of our discipline and ability to execute on this project.
Which I reiterate was done in the face of an extremely challenging operating environment.
This technology conversion is a natural progression of our 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 bank is 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 successful conversion was yet another example of our disciplined and proven ability to execute.
As we enter 2024, we anticipate generating those expense efficiencies and revenue scale, resulting from a common core platform.
We have moved to a cloud based infrastructure, we're not burdened with the massive hardware costs, principally associated with hybrid technology investments.
More nimble today than we were a month ago and the opportunities ahead of us remain significant.
With that I will turn the call over to Tom I'd like to discuss the quarters growth and financial results.
Thank you IRA.
Slide four illustrates approximately $300 million of total deposit growth during the quarter.
We experienced strong growth in interest bearing transaction accounts, and retail Cds, which offset noninterest bearing deposit declines and indirect CD maturities.
Operator: 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 speakers presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised for today's conference of being recorded.
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.
Slide five provides more detail on the continued diversity of our deposit portfolio.
Operator: 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.
During the quarter, we benefited from stability in our branch based deposits and strong growth in our specialized verticals.
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 Thomas 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 excludes 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 slide two of our 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.
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 have 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 for more than 7% of our deposits.
Our government portfolio remains diversified across our footprint and it's fully collateralized relative to state collateral requirements.
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.
Now turning to slide seven you can see an overview of our loan growth and portfolio composition.
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 PPS, were 136 million and 26 cents respectively. Our quarterly results were highlighted by any capital growth. Sound FA quality metrics improved core deposits low and solid expense control. The current interest rate environment, reflective of an invert occurred, has challenged traditional banking models, and we have not been insulated from these pressures.
Annualized loan growth on a year to date basis has slowed consistently as the year has progressed.
Originations declined meaningfully during the quarter as we require wireless 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.
IRA Robbins: 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 an AI is near the bottom of the decline, although it's equal.
As a reminder, we have an extremely granular loan portfolio with an average loan size of roughly $5 million.
From a metric perspective, our weighted average LTV remains at 58%.
As interest rates have increased debt service coverage ratios have declined somewhat to one seven 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.
IRA Robbins: While the external environment remains fluid, our focus on executing our strategic initiatives remains that best. One of our strategic efforts in the last few years has been to transform our core operating environment to our flexibility in integrating unique delivery channels, enhancing spin tech integrations, and positioning the banks the scalability without the traditional technology expense hurdles. 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 systems.
This reflects consistent underwriting discipline and conservative cap rates and significant stress testing efforts at origination.
The following slide illustrates the continued strong metrics and granular composition of our diverse office portfolio.
With that I will turn the call over to Mike Hagadorn to provide additional insight on the quarter's financials.
IRA Robbins: This was a massive undertaking which required months of planning, development, and testing. Valley is operating on a single system with bespoke delivery channels, and I couldn't be prouder of our discipline to execute on this project, which I reiterate was done in the phase of an extremely challenging operating environment. Department. This technology conversion is the natural progression of a cultural evolution has occurred over the last few years. We have collectively developed a growth oriented mindset, which has been evident in our recent financial results.
Thanks, Tom.
Slide 10 illustrates valleys 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 mix shift drove funding costs higher.
On the second quarter call. We indicated that we were observing signs of net interest income stabilization.
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.
IRA Robbins: 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 for leverage these new technologies. And drive additional growth as the environment normalizes. Our successful conversion was yet another example of our discipline, improving ability to execute. As we enter 2024, we anticipate generating both expensive efficiencies and revenue scale resulting from our common core platform.
All else equal, we expect fourth quarter net interest income to be relatively in line with the third quarter level.
By the end of the quarter, our liquidity position has been effectively normalized.
Absent abnormal environmental factors, we expect cash to remain generally consistent with third quarter levels.
IRA Robbins: As we move to a cloud-based infrastructure, we're not burdened with the massive hardware costs and typically associated with type of technology investment. We are more nimble today than we were a month ago, and the opportunity to head of us remains significant.
Moving to slide 11, we generated nearly $59 million of noninterest income for the quarter as compared to $60 million in the second quarter.
Exclusive of approximately $6 million of noncore items, adjusted noninterest income was closer to $52 million for the quarter.
Thomas Iadanza: With that, I will turn the call over to Tom and Mike to respect the growth and financial results.
Thomas Iadanza: Thank you, Ira. Slide four illustrates approximately 300 million of total deposit growth during the quarter. We experience strong growth in interest-baring transaction account and retail CDs, which also set non-interest-baring deposit declines and indirect CD maturities. The pace of non-interest-baring deposit runoff has flowed but mixed shift to interest-baring products has continued to weigh an hour total deposit cost. Slide five provides more detail on the continued diversity of our deposit portfolio. During the quarter, we benefited from stability in our branch-based deposits and strong growth in our specialized verticals.
The decline was primarily related to lower capital markets fees associated with our slower loan growth.
Other business lines were generally stable.
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.
Adjusted 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.
Thomas Iadanza: 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.
We continue to execute on previously identified efforts to slow future expense growth.
Legacy Valley and lay Omi 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.
Turning to slide 13, you can see our asset quality trends for the last five quarters.
Non accrual 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.
Thomas 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.
Third quarter net charge offs declined somewhat from recent levels.
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.
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.
Thomas Iadanza: 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. Valors. 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.
We manage all risk areas prudently and are proud and our ability to insulate tangible capital from this headwind.
Tangible common equity to tangible assets increased to seven 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.
We continue to prioritize organic capital growth in this challenging environment and are prudently managing our balance sheet to incrementally strengthen our position.
With that I'll turn the call back to the operator to begin Q&A. Thank you.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Thomas Iadanza: The following slide illustrates the continued strong metrics and granular composition of our diverse office portfolio.
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 mix shift drove funding costs higher. On the second quarter call, we indicated that we were observing signs of net interest income stabilization.
Our first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Good morning.
Just on <unk>.
Just on the trajectory of NII slashing them I mean, you talked about.
The hopeful trough year.
And are higher for longer scenario.
Just just thinking out into 2024 do you think there is.
Some stabilization in NIM and then you get a reversal from there. So you get a little bit of trajectory upwards or is it more sort of like.
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 line with the third quarter level. By the end of the quarter, our liquidity position has been effectively normalized.
And higher for longer sort of bouncing along the bottom for a period of time.
Wondering your general thoughts there.
Hi, Frank its Mike.
I think that when you look at the trajectory of NIM in 2023, as we said in our prepared remarks.
And in that mid <unk> to low to mid 90 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.
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.
From first quarter 'twenty three the second quarter of $23 49, and there were 49 in the third quarter as well. So we're starting to see a normalization both in the cost but also an app.
Look in a 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.
It's been true for all of 2023 the biggest driver.
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.
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.
Second you got to keep in mind that we've had a very large liquidity bill bulk.
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.
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.
Expansion in NII increases is going to be the repricing on our assets, earning assets, but more specifically loans and as we look at our modeling.
Michael Hagedorn: We continue to execute on previously identified efforts to slow future expense growth. Booth, 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.
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.
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.
Michael Hagedorn: Turning to slide 13, you can see our asset quality trends for the last five quarters. Nonacrual 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.
Raising customer deposits.
And so you've let these roll off.
I guess do you expect that to continue.
And if so as you look out the.
The maturation payable when do you expect or how quickly do you expect brokered balances to kind of.
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.
Paul here.
Yes, our current thinking on our current modeling is that we will see further reduction in our brokerage balances and that's certainly one of our goals, but I want to I want to make sure everybody understands how we may be using brokers, we've been using brokered throughout 'twenty three 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 re pricing the back book of our dip.
Deposits are core deposit base.
And then 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.
While I know they have a bad connotation, sometimes they've 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.
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.
Operator: With that, I'll turn the call back to the operator to begin Q&A. Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 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.
And just 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.
Much of a difference in terms of <unk>.
Rising in terms of new new brokered versus new direct.
Yes, the inversion of the curve probably has the biggest impact on that I think youre talking about is exactly the same duration.
I wouldn't 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.
Frank Schiraldi: Our first question comes from Frank Sheraldi with Piper Sandler. Please go ahead.
Frank Schiraldi: Good morning. I just found 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 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 wondering your general thoughts there.
So I think again I'd go back to my previous comments is if 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.
Frankly xyrem.
I would just add to that when we think about the incremental piece of that.
Earlier.
Significant.
And for us to put some of those incremental based on the loan growth we were seeing.
Congratulate us incremental cost of some of these deposits.
As we have scaled back some of the loan growth the demand for those broker deposits in higher cost Cds actually come.
Michael Hagedorn: Hi, Frank.
Michael Hagedorn: It's Mike. You know, I think that when you look at the trajectory of NAMM in 2023, as we said in our prepare 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 fourth quarter to the first quarter, they were up 60 basis points, from 1st quarter of 23 to 2nd quarter of 23, they were up 49, and they were up 49 into 3rd quarter as well.
All of that down and we're still our provisioning and core deposits I think as we spoke about last time on the call.
In the quarter over on a partner.
<unk> for this quarter were around $3 73 ish.
Blended basis marginal deposits coming in at much cheaper.
And as we can.
Okay.
We definitely anticipate.
<unk>.
Alright.
Michael Hagedorn: So we're starting to see a normalization both in the cost, but also in the net. In a look 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 NIM is been the rotation out of non interest bearing into interest bearing product.
Based on that.
Thanks.
Thanks.
Great. Okay I appreciate all the color guys.
Thank you thank.
Thank you one moment for our next question.
Our next question comes from Matthew Breese with Stephens. Please go ahead.
Hey, good morning, everybody.
Michael Hagedorn: So I 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 1st quarter and throughout the 2nd 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.
Maybe just sticking with the NIM.
Could you provide what the monthly NIM was across the quarter and is this September.
The September NIM, a good launch point into fourth quarter about where it could shake out for <unk> for the fourth quarter.
And Matt. This is Travis just on a monthly basis July was 291 to 92 in September to 91, so when we say it was pretty stable throughout the quarter I mean, we really mean it so.
Michael Hagedorn: 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 NIM expansion and NII increases is going to be the repricing on our assets or any assets, but more specifically loans. 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 and the adjustable rate book.
You can use the camera and the quarter was the same number of occupied.
Thank you.
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.
Hey, Matt its Tom.
Loan growth of active slowing it down and really customer related the uncertainty of the rate market as well as widening spreads have slowed down their activity.
Michael Hagedorn: So we would expect that to be the main driver of an NIM expansion next year. Okay, great. Appreciate all the color Mike and then just as a follow up to that in terms of the broker down to the, 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?
We still service those valued real estate customers.
When they need it and we continue to grow that portfolio 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 religion on that relationship driven C&I piece, we're still getting higher percent growth in the Florida market and stable growth here in the north.
East.
I would expect that growth in 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.
Michael Hagedorn: Yeah, so our current thinking in 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 everybody 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 court deposit base.
Great Okay.
And then IRA.
Just acknowledging yours and valleys relationship with bank Leumi, and first just wishing everybody on year end and on <unk>, 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.
Michael Hagedorn: And the second thing that we've done is we've used that in the stopgap measures, we've used both duration and rate in that portfolio to help manage our NIM and I. And so I, well, I know they have a bad connotation. Sometimes they've been a very effective and the market has been excellent for us to use that in certain certain times and certain circumstances and will vary effectively. And just just last the last day 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 a much of a difference in terms of pricing in terms of new, you know, new broker versus new direct.
Thank you very much I appreciate that.
Our employees and clients.
Yes.
It's been a very difficult time.
No Bank Leumi.
A significant partner for us on the participation side, we haven't seen any interruption.
Yet we continue to anticipate business as usual.
So.
I think difficult for a lot of people.
We still think we're going to continue to move forward.
And that's impacted by it.
Yes, Matt it's Tom just kind of give you a little context here 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.
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 politics 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.
While we help finance domestic subsidiaries of Israeli companies, but it's all done here in the U S U S based entities.
The back end quarter, Florida business slowed down really based on macroeconomic conditions, but it's business as usual and working with them on partnered transactions.
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.
Michael Hagedorn: Frank Schiraldi, 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 didn't yet begin to demand for us to put some of the incremental deposits on based on the little growth we were seeing and that obviously ratcheted up the incremental cost for some of these deposits. As we now scale back some of the lower of the demand for this for the deposit and higher quality, these actually come, you know, a bit down and we're still originating towards deposits.
Last week, we spoke it was expected to progress over.
Four quarters.
How is 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.
Yes, Matt it's Travis in the quarter I would say you probably got 20% 25%.
Annualised 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.
Michael Hagedorn: I think it speaks about that time on the call, the overall deposit of originations for this quarter, we're around 370, 380ish, so also on a blended basis, marginal deposits are coming in much cheaper than what the indirects are. And as we could tell below, we definitely anticipate some expansion on margin based on that information below next column. Great. Okay. I appreciate all the color guys. Thank you.
But then as we get into the first half of 2024, I think that's where you get the next wave.
It will come from a combination of third party vendors and some additional.
Operator: One moment for our next question.
Resource.
Efficiencies.
I don't anticipate much in the fourth quarter and again once again in the first half of 'twenty 'twenty four <unk> 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.
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.
Matthew Breeze: Our next question comes from Matthew Breeze with Stevens, please go ahead.
Matthew Breeze: Hey, good morning, everybody. Maybe you're sticking 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. And Matt, this is Travis, just on a monthly basis July the 291, obviously, 92 in 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.
Yes, that's correct. So I mean, if you think this is just high level and I don't mean for these to be number 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.
Matthew Breeze: But yes, the launch point. Thank you.
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.
Great.
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.
Thomas 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. Hey, Matt, it's, it's, um, 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 and we continue to grow back what's probably not just that much slower base.
Any other metrics you should be aware of there.
Yes, sure Matt its Tom again, the portfolio is about $1 4 billion spread over a number of loans.
E. 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.
Perfect I appreciate it that's all I had thank you.
Yes.
We leave a lot of valves transactions also.
Not participate where we tend to be the lead bank and over 50% of that.
Thomas Iadanza: I just want to point out our C and I was probably on as grown 12% 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 Northeast. I would expect on that growth of what order to be in a similar fashion to the third quarter and will be in that range of 7 to 9%, of the year.
Thank you one moment for our next question.
Matthew Breeze: Great. Okay.
Our next question comes from Michael Perito with <unk>. Please go ahead.
Okay.
Hey, guys. Thanks for taking my questions.
Alright.
I apologize I got on a couple of minutes late so yes.
You guys you guys Thats already projects.
IRA Robbins: And then Ira, you know, just acknowledging yours and Valley's relationship with Bank Layumi and first, you know, just wishing everybody on your end and on Layumi'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.
Thats correct me again.
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.
<unk> will be the peak in the efficiency ratio here.
Yes.
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.
IRA Robbins: I appreciate that. It's been a very difficult time. You know, that said, you know, Bank Layumi obviously is a significant part of it for us on the participation side. We haven't seen any interruption as of yet. We continue to anticipate business as usual. So what's definitely difficult for a lot of people, we still think we're going to continue to look forward and not be impacted by it. Yeah, it's some just going to give you a little context here.
So I don't think Theres any bank's CFO I would say that the third quarter of incentive either peak I think fourth quarter tends to be the peak for lot of reasons right you have your <unk> expenses.
Get pushed through.
There is some bonus accrual works, sometimes in the fourth quarter, thereby 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 Thats actually the peak again in the first half of 'twenty four we expect to realize.
IRA Robbins: The only direct loan exposure we have is to high net worth US citizens and secured by state of Israel bonds as a very useful 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 flow down really based on natural economic conditions, but it's as usual and working with them on partner transactions. Got it. Okay.
The vast majority of the remainder in the vast majority of our previously announced cost savings initiatives, which in turn will drive down our efficiency ratio.
Got it.
That's helpful. And then just a couple more quick ones on <unk>.
I think the kind of the New York, New Jersey area credit commercial real estate dynamics.
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 I'm, just wondering kind of what the.
Matthew Breeze: 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? And is there anything else you've uncovered as you've kind of looked into this in terms of additional callscapes?
The demographics are down there more recently.
Sure Michael This is Tom.
Yes, yes.
Impacts of slowing and higher interest rates are affecting them also the metrics on the transactions, we do aren't any different generic 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.
Travis Lan: 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 fourth quarter post conversion. We're keeping 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.
Travis Lan: So I don't anticipate much in the fourth quarter. But again, once again, the first half of 2024, I think that's where you see the bulk of what's remaining. We are still looking, you know, obviously post conversion at opportunities that we hadn't previously identified. 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 to run rate.
<unk> continued growth in those markets. The population migration has slowed but there is still a migration interact Florida market. Our consumer business is strong down there, but probably half of what it was in the earlier part of this year, it's still a growth market for us in all cases, but.
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 Florida.
Travis Lan: Correct? That's correct. So I mean, if you think in the just high level, and I don't mean for these to be numbers to take away, but in a sort of 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 into kind of that mid single digit expense growth level based on these Great.
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 over the next several quarters and then possibly some lift 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.
Thomas Iadanza: 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 who should be aware of there? Yeah, sure, Max, it's time again. The portfolio is about $1.4 billion. It's spread over a number of loans. When I think Chelsea Lander is, we don't really have leverage transactions in there.
I think you have it generally right, Mike I mean, I think end of it.
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.
Very good. Thank you guys I appreciate it.
Thank you.
Sure.
One moment for our next question.
Thomas Iadanza: They're mostly club deals with a small group of banks, direct contact, relationships with any of the borrowers in the role in market. Perfect. I appreciate it. It's only had thank you. We lead a lot of those transactions also. We're not participate, we tend to be the lead bank in over 50% of that. Thank you. One moment for our next question.
Our next question comes from John Armstrong with RBC capital markets. Please go ahead, hey, thanks.
Thanks, Good morning, everyone.
Hi, John.
<unk>.
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.
Yeah, Hey, John It's Tom Yes on the capital markets for US has really been driven by gain on sale in the consumer space as well as swaps to the commercial space, we expect that to be flat going forward, we don't expect any lift there.
Michael Perito: Our next question comes from Michael Perito with KBW. Please go ahead. Hey guys, thanks for taking my questions. I apologize. I got on a couple minutes late, so you guys 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.
Okay.
We have other avenues that we are impacted by advisory business, we get the slight uptick in the fourth quarter to get things close by year end, we continue to build out our FX trades, which shows.
Michael Hagedorn: 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 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're NII projections kind of play out as you expect them today. So I don't think there's any banks. You have though that would say that the third quarter would tend to be their peak.
Progress quarter to quarter, but we're expecting flat into next year.
Okay. Okay. Good.
Credit looks great, but some of the accruing past dues are up sequentially.
Anything to note there or anything that you are.
That youre thinking about there that we should be aware of.
No no im looking im really is 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's 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.
Michael Hagedorn: I think four quarter tends to be the peak for a lot of reasons, right? You have your expenses that get pushed through. There's some bonus of global work sometimes in the fourth quarter that might 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 the vast majority, the remainder and the vast majority of our previously announced cost savings initiatives, which in turn would then drive down our efficiency ratio. Got it. That's helpful.
Normally law, we are still below where we were a year ago at this point, we're about $99 million.
In the third quarter up 22 were $79 million in the third quarter of 2003, So we're really gravitating to more normal levels. So now we don't anticipate any problems.
Good.
And then.
Mike you referenced slide four the upper right chart with the deposit cost increases and.
Thomas Iadanza: 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?
What do you think that looks like in a quarter or two.
Referenced.
49% and 49 for the last two quarters, but.
Is that curve bending at all from the <unk> 49.
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.
Thomas Iadanza: Yeah, sure, Michael. This is Tom. 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 7% debt 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 I'll continue to point that.
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.
Our next question comes from Manan <unk> with Morgan Stanley. Please go ahead.
Hey, good morning.
Great.
You spoke about.
Getting higher yields on new originations.
Fixed rate loans repricing will be one of the main drivers.
Expansion from here.
Could you give us some more color on what level.
Thomas Iadanza: We underwrite very conservatively in all markets. 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. Thanks, I'm really helpful.
Launch of repricing.
What level larger repricing at currently.
Currently.
If you could size the amount of fixed rate launch comic deal over the next year or so.
Yes, it's Tom here.
Give you some context, we repriced about $1 billion of loans for the first five months of this year the spreads it really depends on asset class, but the spreads are in the <unk>.
Michael Hagedorn: And then just the last one for me, just once again, kind of taking into context all your other commentaries, it's 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 want to point to that could make a difference. I think you have it generally right, Mike, I mean, I think, you know, into the third quarter, our cash position was normalized.
Mid 350 around the $3 50, or so range, we expect that to continue.
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, I think that number is a little bit overstated rates that we have.
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 one other thing if you look at.
Michael Hagedorn: I think Tom referenced the growth that we anticipated in the fourth quarter, and then kind of picking up maybe someone's 20.4, but I don't think there's any type of significant other changes that you would see on the voucher. Very good. Thank you guys. I appreciate it. Thank you.
It was filed in may be the slides and you can look at the credit spreads right. So if you go back just three quarter of 2002, when you look at where anything origination yield was versus where the index was you're sitting around a 200 basis points spread when we do the same math just today youre sitting at about 270 basis points spreads. So so new originations are coming on dental.
John Arfstrom: One moment for our next question. 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?
You had a higher spread and as Travis Tom both alluded to the re pricing is probably going to come on 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 million plus or minus.
John Arfstrom: Yeah, I mean, John, it's, it's, yeah, the capital markets for us has really been driven by gain on sale in the consumer-rendy space, as well as swaps in the commercial space. We expect that to be flat going forward. We don't expect any less there.
Sure.
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 month September in that quarter finished just over 8%. So clearly we are seeing.
Michael Hagedorn: Okay. You know, the everyone that we have on the RAM and you say 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 out our effects and trades and shows, you know, progress quarter to quarter, but we're expecting flat into next year.
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 were taking.
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.
Michael Hagedorn: Okay. Good. Credit looks great, but some of the accruing past dues are up sequentially. Anything to note there, anything that you're, that you're thinking about there that we should be aware of? No, no. I'm looking at really just 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.
Obviously based on sort of the sensitivity that we have there was a decline in the NIM maybe.
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 this significant amount of assets.
Michael Hagedorn: On the regular 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, we're every nine million in third quarter of 23. So we're really gravitating to more normal levels.
I think that that will be a significant positive for us.
Yes.
Okay.
That's very helpful. And then maybe just on the flip side on the funding side.
The 360 ASO pricing that you mentioned that deposits are coming on it right now.
Michael Hagedorn: So now we don't anticipate any problems. Okay. Good. And then, um, my key reference slide for that upper rate 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? It's bending. It's ever slow slide. I think you'll see the real bend and flexion point happened early next year, but you still see some migration. If it's slowed considerably, but you still see some migration from non-experting to intersparing from a incremental next dollar cost of deposit funding and more broadly even liability funding, that is definitely stabilized in that mid-privileged. Range.
Would you be able to provide a break down between.
Michael Hagedorn: Okay. All right.
Operator: Thank you very much. Thank you.
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.
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.
And while we don't have a new CD specials, we 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 of as I said earlier, when I talked about the incremental cost of the next dollar funding.
It's going to be in that mid to low five range, but you got to realize that is 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 TV, that's coming on and I think the bigger pieces, we had our strongest quarter to date of new account opening.
Manan Gosalia: One moment for our next question. Our next question comes from Manan Gosalia with Morgan Stanley. Please go ahead. Hey, good morning. You you spoke about getting higher yields on on the originations. And that fixed rate loan reprising will be one of the main drivers of an expansion from here. Can you give us a more color on what level of loan to 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.
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.
To escalate significantly and we were able to grow in both consumer and commercial and just as an example.
On September <unk>.
Blended commercial that came out with that range of $2 48 for overall deposit base. So while Mike's correct in looking at some of those Cds 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.
Manan Gosalia: Yeah. It's time here. Give you some context. We reprised about a billion eight of loans for the first five months of this year. The spread really depends on asset class, but the spreads are in the, you know, 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, loans that will mature.
Before and that will have a casino or a positive impact on how we think about what those marginal funding costs are so the marginal funding cost that you saw a 360 370 ish for the quarter on that when it's something we anticipate to continue assuming interest rates stay at their current levels.
Okay.
Great and then.
Through the cycle deposit beta of mid fifties and any update on that.
Pamer.
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 is a little bit overstated. Right. So we have a little bit understatement. So we have a $20 billion fixed rate portfolio average length 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 reprised higher.
Our through the cycle estimate was for the fourth quarter 'twenty three year for the third quarter of 'twenty three.
We're in the mid fifties, so slightly that 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.
Manan Gosalia: And I think the one thing if you look at the 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 regionation deal was versus where the index was, you're sitting around a 200 basis point spread. If you do the same math just today, you're sitting around 270 basis point spread. So the new originations are coming on.
One moment for our next question.
Our next question comes from Steve Moss with Raymond James. Please go ahead.
Hi, good morning.
My question is maybe just on.
Good morning.
Credit here and just the dynamic of fixed rate loans re pricing just curious.
What you are seeing for the.
Manan Gosalia: Definitely had a higher spread. And as Travis and Tom both alluded to, the reprising is probably going to come on at three to 400 basis points above where current rates aren't today. So there's a significant pick up when you think about the $4 billion plus or minus. This is my closest 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 was 7.89%.
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 or a project.
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 flow through with continued piano.
Manan Gosalia: And the last month September and that quarter finished just over 8%. 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. I think this is an important piece right when we think about sort of auto overall portfolio and how we've managed the balance sheet.
Hi payments no cash upfront to customers that 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.
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.
Manan Gosalia: Obviously based on sort of the sensitivity that we have, there was a decline in the demand 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 stable from where we are today, there is that talent that's going to come from the strategic amount of assets. And I think that will be a significant part.
Yes.
And 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.
Thomas Iadanza: That's very helpful.
Thank you Hany, just highlighting what Tom said and he said it 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 and I think thats something significant when we look at how we underwrite loans with day, one how we think.
Michael Hagedorn: And maybe just 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. So on the regular savings accounts here, 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, maybe actually low fives.
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.
Great and I appreciate all the color.
And then just in terms of.
As we think about.
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 the more volatile macro environment.
Michael Hagedorn: And while we don't have a new CD specialty, haven't had anyone 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 that are a little more competitive.
I think on the back end of what we're seeing with regards to the curve.
Definitely a lot more opportunities based on some of the challenges in the back half.
And I think we've been very diligent and disciplined around our tangible book value.
<unk>.
The deal work in this environment becomes very very challenging so some of the economics need need to change. If you go back to the tangible book value at $3 30 of 2018, which was the first quarter that that this management team took over we were sitting at $5 64.
Michael Hagedorn: And that's just for that incremental CD that's coming on. I think the bigger piece is that we have the strongest quarter today of the account opening. So I know you're seeing a makeshift still continue at average coming out of the non-interest barring. The number of accounts in non-interest barring continue to escalate significantly. And we were able to grow both consumer and commercial. And just as an example of month of September, the blended commercial that came on with that rate of 248 for a raw deposit base.
They were seeing at $8 63, which is pretty much $3 of incremental potential 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 of five and a half year period.
I think thats something that this management team is very very proud of and we want to make sure as we think about potential acquisition as we move forward that were not denigrating that kind of a track record.
Michael Hagedorn: So while Mike's correct in looking at some of those CDs and what that the specials are, they keep in mind we're still originating an opening core account in this organization like we haven't ever historically be before. And that will have continued to have a positive impact on what those marginal funding costs are. So that the marginal funding cost that you saw 36370 is for the quarter on that one something to get to pay to to continue.
Okay, great. Thank you very much I appreciate the color.
Thank you.
Thank you one moment for our next question.
Okay.
Our next question comes from Matthew Breese with Stephens. Please go ahead.
Hey, 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.
Michael Hagedorn: So you can just spend the current levels. Great. And through the cycle deposit rate of mid 50s. Any update on that? We're through the cycle. It was going to fourth quarter 23 year to the third quarter 23. You know, we're we're in the mid 50s. So it's likely that we'll end up above that. So that's factored into all the commentary that we've already given about stable NII in your term and opportunity to expand NII as we get into 2024. I appreciate it.
Just wanted to make sure that when we talk about whole bank M&A versus organic growth IRA I would love your thoughts on <unk>.
Michael Hagedorn: Thank you.
Operator: One moment for our next question.
The IC assisted deals or if that were to still come about would that be something you're interested in.
I think we've been an active player in FDIC deals before but it has to make economic and strategic sense for us.
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 as we focus organically on like I mentioned earlier a change in the core here is something thats been significant to us.
Steve Moss: Our next question comes from Steve Moss with Raymond James, please go ahead. Good morning. Maybe just on. 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 project.
The growth that we're seeing in C&I has been phenomenal here. If you look at the deposit fees were up $8 $7 billion and differentiated specialized deposits. Today I think that is has been significant for us.
And there is a 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 when those outcomes could potentially look like for us.
Steve Moss: Rick. 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 PNI payments, no cash up from the customer that needed. I want to point out our upfront underwriting, underwrites for conservatively, typically 1.6, 1.7 average debt service coverage, a 60% LTV, so they create cushion in our upfront analysis.
Got it well I appreciate taking my follow ups. Thank you guys.
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.
Thank you.
<unk> taken the time to listen to our call today, and we look forward to speaking to you in six months.
Thank you for your participation in today's conference. This concludes the program you may now disconnect.
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, I think I mentioned earlier when 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. I think it may be just highlighting what Tom said and he said twice now, and I just want to make sure everyone is hearing what he said.
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Steve Moss: We did 1.8 million dollars, and now one client had to come and bring additional equity into it. They reset us when they weren't. And I think that's something significant when we look at how we underwrite loan with 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 organizations today.
Steve Moss: Great, no appreciate all the color.
IRA Robbins: And then just in terms of, you know, as we think about, you know, the outlook going forward here, just curious, you know, I know you said you're focused on organic growth internally, but you know, are you seeing more M&A opportunities or, you know, has any thought process changed? You're just giving them the more volatile macro environment. Same on the back, I think what we're seeing with regards to the current, 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 of work in this environment becomes very, very challenging. So some of the economics 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 were sitting at $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 pay it 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 advantage management team is very, very proud of. We want to make sure to speak about potential acquisition as we look forward that we're not denigrating that kind of track record.
IRA Robbins: Okay, great.
IRA Robbins: Thank you very much.
IRA Robbins: I appreciate the color.
Operator: Thank you.
Matthew Breeze: One moment for our next question.
Matthew Breeze: 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 have subsided, but 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, we'd 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?
Matthew Breeze: I think that we've been an active player in FGIC deals before, but they have to make economic and go straight to Egypt 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. 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 in some of the domestic significant tests.
Matthew Breeze: 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 in differentiated specialized deposits today. I mean, that has been significant for us. And there's a lot of opportunities still for organic there. 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, and what the outcomes could potentially look like for us. Got it. Well, I appreciate taking my follow up. Thank you, guys. Thank you.
IRA Robbins: 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 look into our call today. And we look forward to speaking to you in three months. Thank you for your participation in today's conference.
Operator: This concludes the program.
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Operator: You may now disconnect. Thank you. Matthew Breese, Frank Schiraldi, David Chiaverini, David Chiaverini, David Chiaverini Matthew Breese, Frank Schiraldi, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini,[inaudible] David Chiaverini, David Chiaverini, David Chiaverini[inaudible] David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini David Chiaverini, David Chiaverini, David Chiaverini, David Chiaverini
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