Q1 2024 Valley National Bancorp Earnings Call

Welcome to the Valley National Bancorp earnings Conference call at.

At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer.

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I would now like to hand, the conference over to your first speaker today Travis Lan. Please go ahead.

Travis P. Lan: Good morning, and welcome to Valley's first quarter 2024 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.

Travis P. Lan: And non-GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release for reconciliations of these non-GAAP measures. Additionally, I would like to highlight slide two of our earnings presentation and remind you that comments made during this call may contain forward looking statements relating to valley National Bancorp and the banking industry Valley encourages all participants to refer to our SEC.

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 during.

Ira D. Robbins: During the fourth quarter of 2020 for Valley reported net income of $96 million and earnings per share of <unk> 18.

Ira D. Robbins: Exclusive of noncore items, adjusted net income and adjusted earnings per share were $99 million and 19, respectively.

Ira D. Robbins: The quarters results were impacted by an outsized provision for loan losses, which I will discuss shortly.

Ira D. Robbins: On a pretax pre provision basis, we saw a positive inflection this quarter.

Ira D. Robbins: The sequential downward trend in net interest income slowed meaningfully despite the lower day count during the quarter.

Ira D. Robbins: This reflects the benefit of asset pricing and our efforts to better control funding cost.

Ira D. Robbins: The income results were strong supported by certain unique businesses, including tax credit advisory.

Ira D. Robbins: Finally, noninterest expenses were extremely well controlled despite the seasonal headwind associated with higher payroll taxes.

Ira D. Robbins: Despite the continuation of the inverted yield curve and other environmental challenges I am pleased with the stronger pre tax pre provision earnings results this quarter.

Ira D. Robbins: I'm also pleased with the quarter's balance sheet strength and credit quality performance.

Ira D. Robbins: On slide four we outlined certain efforts made to curtail loan growth.

Ira D. Robbins: Enhanced reserve coverage, where needed in the portfolio and incrementally optimize our funding base.

Ira D. Robbins: Total loans declined nearly 300 million during the quarter as a result of our proactive efforts to participate out a portion of certain commercial real estate and construction loans and the sale of our commercial premium finance business.

Ira D. Robbins: <unk> transactions each occurred at or above par and incrementally benefit our commercial real estate concentration capital.

Ira D. Robbins: Capital ratios and reserve levels.

Ira D. Robbins: Our allowance for credit losses for loans as a percentage of total loans increased five basis points to <unk>, 98% during the quarter.

Ira D. Robbins: Meanwhile, our past due and non accrual loans, both declined as compared to December 31 2023.

Ira D. Robbins: The higher provision and associated reserve coverage reflects internal risk rating migrations, resulting from our continuous monitoring and rigorous stress testing of the commercial loan portfolio.

Ira D. Robbins: During the quarter, an additional 1% of loans transitioned into either our criticized or classified loan buckets.

Ira D. Robbins: While we remain comfortable with the sponsorship collateral support and potential loss content of these loans criticized loans require elevated reserve coverage under sea salt.

Ira D. Robbins: We are comfortable with the current reserve coverage levels, but anticipate that the allowance could trend slightly higher over the next few quarters.

Ira D. Robbins: Our focus on an expertise in commercial real estate lending has generated strong and stable risk adjusted financial results throughout our history.

Ira D. Robbins: The strength of our commercial real estate underwriting and the consistently industry. The loss content of our portfolio has contributed to significant shareholder value creation through above average tangible book value growth.

Ira D. Robbins: Our strong network of borrowers have banked with valley for decades, and have performed very well in other periods of rising interest rates.

Ira D. Robbins: We remain very confident with our capital allocation and in future credit performance of our commercial real estate portfolio.

Ira D. Robbins: That said I acknowledged that our perceived concentration in commercial real estate has recently amplified the volatility in our company's valuation.

Ira D. Robbins: This volatility is based purely on perception and is not reflective of our financial results, nor the strength of our credit quality and balance sheet.

Ira D. Robbins: Still we exist to serve our key stakeholders and while I'm proud of our ability to exceed the expectations of our clients communities and employees.

Ira D. Robbins: At the volatility experienced by our shareholders is not sustainable.

Ira D. Robbins: Commercial real estate is a wonderful asset class and one in which our differentiated approach continues to create incredible value.

Ira D. Robbins: We will remain active in this space, but we'll manage our concentration more efficiently going forward.

Ira D. Robbins: Our diversifying C&I initiatives will continue to accelerate and we will further enhance our financial flexibility. These.

Ira D. Robbins: These efforts are consistent with our established strategic plan and I believe that accelerating them will help to reduce the volatility in our valuation.

Ira D. Robbins: With this in mind, you can see our near and intermediate term expectations for certain balance sheet metrics on slide five.

Ira D. Robbins: We expect to have approximately nine 8% tier one common equity.

Ira D. Robbins: 440% commercial real estate to risk based capital.

Ira D. Robbins: An allowance coverage ratio above, 1% and our loan to deposit ratio around 100% by year end 2024.

Ira D. Robbins: These metrics are consistent with the strategy, which we have discussed previously and our ongoing efforts to further strengthen our balance sheet and enhanced financial flexibility.

Ira D. Robbins: The following slide updates our previously provided guidance.

Ira D. Robbins: The downward revision to our net interest income forecast reflects slower loan growth and a modest funding mix shift related to lower noninterest bearing deposit balances during the first quarter.

Ira D. Robbins: We anticipate that the downward revision in net interest income for the year will be largely offset by lower noninterest expenses relative to our prior guidance.

Ira D. Robbins: All else equal this would lead pretax pre provision income relatively in line with current consensus expectations.

Ira D. Robbins: On slide seven we provide additional commentary on our base case that interest income scenario.

Ira D. Robbins: As well as some considerations related to our exposure to changing interest rates.

Ira D. Robbins: As we have described before our balance sheet is generally neutral to changes in short term interest rates.

Ira D. Robbins: We are more sensitive to movement in longer and rates, which impacted repricing, a roughly 60% of our loans.

Speaker Change: Before turning the call to Tom I wanted to highlight the underlying franchise value that we continue to create despite the volatility in our valuation.

Speaker Change: Since the end of 2017, we have grown reported tangible book value by 47% versus just 38% for our regional banking peers.

Tom: Including the impact of distributed dividends this increases to 91% versus just 70% respectively.

Speaker Change: This positive variance reflects our ability to enhance our franchise without meaningfully diluting tangible book value and overpriced acquisitions or through our efforts to maximize near term results.

Speaker Change: Customer account growth is another key metric that engages our ability to build and optimize our franchise.

Speaker Change: Since year end 2017, we have more than doubled our number of commercial deposit accounts, which isn't a direct alignment with our strategic objectives.

Speaker Change: The ongoing addition of new deposit clients is critical as it supports our future earnings potential and financial consistency.

Speaker Change: This growth has been broad based across geographies and business lines and we continue to work hard at sustaining this momentum.

Speaker Change: We also believe there is significant value in the geographic diversity that we have developed on both the asset and liability sides of the balance sheet.

Speaker Change: At the end of 2017, nearly 80% of our commercial loans were concentrated in New York and New Jersey.

Speaker Change: That figure has declined from nearly 50% today as a result of our focus in Florida and other dynamic commercial markets.

Speaker Change: We continue to develop exceptional service oriented banking teams across the country, which are focused on generating and enhancing the valuable commercial relationships that we have targeted.

Speaker Change: This progress has benefited the funding side of our bank as well.

Speaker Change: In 2017, 78% of our deposits were in northeast branches.

Speaker Change: As of the end of the first quarter that number has declined to 45%.

Speaker Change: We have diverse niche funding businesses and a robust branch network across Florida and Alabama.

Operator: Welcome to the Valley National Bancorp Earnings Conference Call. At this time, all participants are in listen-only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one on your telephone. You will then hear an automated message advising that your hand is raised.

Speaker Change: This diversity helps to insulate our funding base and provide unique and differentiated opportunities to further reduce our reliance on wholesale funding overtime.

Speaker Change: On last quarter's call I laid out three strategic imperatives for the coming year.

Operator: To withdraw your question, please press star 1 1 again. 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 Lan. Please go ahead.

Speaker Change: Our early results indicate solid traction relative to enhancing our cost effective core deposit funding.

Speaker Change: The de emphasis of commercial real estate and more revenue diversity.

Speaker Change: As mentioned, we will continue to accelerate the diversification of our loan portfolio and I have all the confidence that we will continue to produce solid results.

Travis P. Lan: Good morning, and welcome to Valley's first quarter 2024 earnings conference call. Presenting on behalf of Valley today are 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-GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release for reconciliations of these non-GAAP measures.

Speaker Change: With that I will turn the call over to Tom and Mike to discuss the quarter's growth and financial results.

Speaker Change: After my concluding remarks, Tom Mike myself, and Mark Baker, our Chief Credit officer will be available for your questions.

Travis P. Lan: Additionally, I would like to highlight slide 2 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 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. Thank you, Travis.

Tom: Thank you IRA.

Tom: Slide nine illustrates the quarter's deposit trends total deposits declined slightly due to the intentional runoff of higher cost time deposits, which had matured.

Ira D. Robbins: During the fourth quarter of 2024, Valley reported net income of $96 million and earnings per share of $18.7 million. Excluding non-core items, adjusted net income and adjusted earnings per share were $99,019,000, respectively. The court's results were impacted by an outsized provision for loan losses, which I will discuss shortly. However, on a pre-tax, pre-provision basis, we saw a positive inflection this quarter. The sequential downward trend in net interest income slowed meaningfully despite the lower day count during the quarter.

Ira D. Robbins: This reflects the benefit of asset pricing and our efforts to better control funding costs. The income results were strong, supported by certain unique businesses, including tax credit advisories. Finally, non-interest expenses were extremely well controlled despite the seasonal headwind associated with higher payroll taxes.

Speaker Change: From a customer deposit perspective. This runoff was primarily offset by growth in interest bearing non maturity deposits within our specialty deposit niches.

Tom: Our ability to tactically reduce deposit pricing in certain product types and categories helped to meaningfully slow the pace of deposit cost increases during the quarter.

Tom: Despite a rotation of approximately $200 million of noninterest deposits into interest bearing deposits. Our total cost of deposits increased a modest three basis points.

Tom: The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business lines.

Tom: Traditional branch deposits declined slightly as a result of the runoff of certain higher cost time deposits.

Tom: That said, we saw a stable deposit trends in our southeast franchise.

Tom: Our specialty niches increased slightly during the quarter as our online deposits to technology business continued to expand.

Ira D. Robbins: Despite the continuation of the inverted yield curve and other environmental challenges, I am pleased with the stronger pre-tax, pre-provision earnings results this quarter. I'm also pleased with the quarter's balance sheet strength and credit quality performance. On slide four, we outline certain efforts made to curtail loan growth, enhance reserve coverage where needed in the portfolio, and incrementally optimize our funding base. Total loans declined nearly $300 million during the quarter as a result of our proactive efforts to participate out a portion of certain commercial real estate and construction loans and the sale of our commercial premium finance business.

Tom: Yeah.

Tom: Slide 11 illustrates the management actions, which reduced loans during the quarter.

Tom: Total allowance declined nearly $300 million, driven primarily by commercial real estate and construction participations out of the back.

Tom: Importantly, these participations were executed with no negative impact to equity.

Tom: We continue to monitor opportunities to further participate out certain loans and to enable certain maturing loans to refinance away from valley.

Tom: The sequential reduction in C&I loans was due entirely to the sale of our commercial premium finance business and subsequent maturities in that remaining portfolio.

Ira D. Robbins: These sale transactions each occurred at or above par and incrementally benefit our commercial real estate concentration, Capital Ratios, and Reserve Level. Our allowance for credit loss for loans as a percentage of total loans increased five basis points to 0.98% during the quarter. Meanwhile, our past due and non-accrual loans both declined as compared to December 31st, 2023.

Tom: We continue to focus our origination efforts on traditional C&I owner occupied real estate and healthcare.

Tom: On slide 12, I would highlight that our loan to values are based on the most recent appraisal received on a property. The average life of these appraisals is approximately two and one half years.

Tom: Our debt service coverage ratios are calculated based on the most recent borrower financial information that we have which is typically received at least annually.

Ira D. Robbins: The higher provision and associated reserve coverage reflects internal risk rating migrations resulting from our continuous monitoring and rigorous stress testing of the commercial loan portfolio. During the quarter, an additional 1% of loans transitioned into either our Criticized or Classified Loan Bucket. While we remain comfortable with the sponsorship, collateral, support, and potential loss content of these loans, criticized loans require elevated reserve coverage under CECL.

Tom: The following two slides provide additional detail on our multifamily and office portfolios.

Tom: We continue to have modest exposure to New York multifamily loans, and highlight that EMEA or $531 million or roughly 20% of that sub portfolio as more than 50% rent controlled units.

Ira D. Robbins: We are comfortable with the current reserve coverage levels but anticipate that the allowance could trend slightly higher over the next few quarters. Our focus on and expertise in commercial real estate lending has generated strong and stable risk-adjusted financial results throughout our history. The strength of our commercial real estate underwriting and the consistently industry-leading lost content of our portfolio have contributed to significant shareholder value creation through above-average tangible book value growth. Our strong network of borrowers has banked with Valley for decades and have performed very well in other periods of rising interest rates. We remain very confident with our capital allocation and in future credit performance of our commercial real estate portfolio. That's it.

Tom: Our office portfolio remains diverse by geography, and supported by generally diverse cash flows with nearly 65% of our allowance to multi tenant properties.

Tom: With that I will turn the call over to Mike Hagadorn to provide additional insight into the quarter's financials.

Michael D. Hagedorn: Thank you Tom staying on the <unk> topic for a moment slide 15 illustrates the contractual maturities of our commercial real estate portfolio.

Michael D. Hagedorn: We also included the LTV DSC are and rate by maturity bucket for your benefit.

Michael D. Hagedorn: This maturity schedule illustrates the minimal repricing risk of our loans maturing over the next few quarters.

Michael D. Hagedorn: Slide 16 illustrates valleys recent quarterly net interest income and margin trends.

Ira D. Robbins: I acknowledge that our perceived concentration in commercial real estate has recently amplified the volatility in our company's valuation. However, this volatility is based purely on perception and is not reflective of our financial results nor the strength of our credit quality and balance sheet. We exist to serve our key stakeholders, and while I'm proud of our ability to exceed the expectations of our clients, communities, and employees. I acknowledge that the volatility experienced by our shareholders is not sustainable.

Michael D. Hagedorn: The modest sequential declines in both net interest income and net interest margin were primarily the result of one fewer day in the quarter.

Michael D. Hagedorn: We strategically lowered deposit costs by approximately 40 basis points on nearly $10 billion of deposits, which helped to stabilize net interest income as the quarter progressed.

Michael D. Hagedorn: This helped to offset the headwinds associated with lower average noninterest bearing deposits during the quarter.

Ira D. Robbins: Commercial real estate is a wonderful asset class, and one in which our differentiated approach continues to create incredible value. We will remain active in this space, but we'll manage our concentration more efficiently going forward. Our diversifying C&I initiatives will continue to accelerate, and we will further enhance our financial flexibility. These efforts are consistent with our established strategic plan, and I believe that accelerating them will help to reduce the volatility in our valuation. With this in mind, you can see our near and intermediate term expectations for certain balance sheet metrics on slide five. We expect to have approximately 9.8% of Tier 1 common equity.

Michael D. Hagedorn: After shortening our liability duration during the first quarter, we locked in a small amount of long term funding at relatively attractive cost, which will further benefit net interest income during the second quarter all else equal.

Michael D. Hagedorn: Turning to the next slide you can see that noninterest income on an adjusted basis improved meaningfully from the fourth quarter of 2023.

Michael D. Hagedorn: A portion of this improvement was related to rebounding deposit service charges as some fees were waived round our conversion in the fourth quarter of 2023.

Michael D. Hagedorn: Beyond this we offset headwinds in swap revenue on commercial loan transactions with improved wealth revenues and a very strong quarter from our tax credit advisory business.

Ira D. Robbins: 440% of commercial real estate to risk-based capital, an allowance coverage ratio above 1%, and a loan to deposit ratio around 100% by year-end 2024. These metrics are consistent with the strategy which we have discussed previously and our ongoing efforts to further strengthen our balance sheet and enhance financial flexibility. The following slide updates our previously provided guidance. The downward revision to our net interest income forecast reflects slower loan growth and a modest funding mix shift related to lower non-interest bearing deposit balances during the first quarter.

Michael D. Hagedorn: On that front Dudley ventures had certain tax credit transactions closed during the quarter, which had been delayed from the end of 2023.

Michael D. Hagedorn: While demand for our tax credit Advisory services continues to grow we would anticipate that that lease revenues will decline somewhat from this quarter's elevated levels.

Michael D. Hagedorn: On the following slide you can see that our noninterest expenses were approximately $280 million for the quarter.

Michael D. Hagedorn: Adjusting for our $7 5 million FDIC special assessment and certain other non core charges noninterest expenses were approximately $267 million on an adjusted basis.

Ira D. Robbins: We anticipate that the downward revision in net interest income for the year will be largely offset by lower non-interest expenses relative to our prior guidance. All else equal, this will leave pre-tax, pre-provision income relatively in line with current consensus expectations.

Michael D. Hagedorn: This represents a 2% decline from the adjusted fourth quarter of 2023, and a mere 1% increase on a year over year basis.

Michael D. Hagedorn: The quarter's increase in compensation costs was primarily the result of seasonal payroll tax impacts as head count remains generally well controlled.

Ira D. Robbins: On Slide 7, we provide additional commentary on our base case net interest income scenario, as well as some considerations related to our exposure to changing interest rates. As we have described before, our balance sheet is generally neutral to changes in short-term interest rates. However, we are more sensitive to movement and longer-term rates, which impact the repricing of roughly 60% of our loans.

Michael D. Hagedorn: We saw notable reductions in our technology and consulting expenses as the costs associated with our core conversion in the fourth quarter of 2023 continue to run off.

Michael D. Hagedorn: While revenue pressures have weighed on our efficiency ratio in recent quarters. Our expense base continues to be stable relative to our balance sheet and well below peer levels for the same comparison.

Ira D. Robbins: Before I turn the call over to Tom, I want to highlight the underlying franchise value that we continue to create despite the volatility in our valuation. Since the end of 2017, we have grown reported tangible book value by 47% versus just 38% for our regional banking peers. Including the impact of distributed dividends, this increases to 91% versus just 70%, respectively. This positive variance reflects our ability to enhance our franchise without meaningfully diluting tangible book value in overpriced acquisitions or through other efforts to maximize near-term results. Customer account growth is another key metric that gauges our ability to build and optimize our franchise.

Michael D. Hagedorn: The key pillars on slide 19, not only support our conservative underwriting and strong credit performance, but also our ability to mitigate losses in periods of stress I will discuss this more in a moment.

Michael D. Hagedorn: Slide 20 offers a general comparison of our lending approach as it relationship based regional bank with more transactional oriented institutions.

Michael D. Hagedorn: We have deep market knowledge and bank, well known and active investors, who are strongly aligned with the need to protect and enhance their property values over time.

Michael D. Hagedorn: Our borrowers tend to be more disciplined and value oriented with respect to project selection.

Michael D. Hagedorn: From an underwriting perspective, we generally focus on in place not projected cash flows which provides an added buffer should NOI growth not materialize.

Ira D. Robbins: Since year-end 2017, we have more than doubled our number of commercial deposit accounts, which is in direct alignment with our strategic objectives. The ongoing addition of new deposit clients is critical as it supports our future earnings potential and financial consistency. This growth has been broad-based across geographies and business lines, and we continue to work hard at sustaining this momentum. We also believe there is significant value in the geographic diversity that we have developed on both the asset and liability sides of the balance sheet. At the end of 2017, nearly 80% of our commercial loans were concentrated in New York and New Jersey.

Michael D. Hagedorn: We hope these pages provide some further context for the credit results illustrated on slides 21 and 'twenty two.

Michael D. Hagedorn: On 21, you can see the continued stability in our non accrual and past due loan buckets.

Michael D. Hagedorn: Bottom charts illustrate our allowance for credit loss coverage relative to loans and past due loans.

Michael D. Hagedorn: As I remember the quarter's increase in allowance was primarily related to quantitative reserves associated with the migration of loans into criticized and classified categories.

Ira D. Robbins: That figure has declined to nearly 50% today as a result of our focus on Florida and other dynamic commercial markets. We continue to develop exceptional service-oriented banking teams across the country, which are focused on generating and enhancing the valuable commercial relationships that we have targeted. This progress has benefited the funding side of our bank as well. In 2017, 78% of our deposits were in northeast branches.

Michael D. Hagedorn: We remain confident with the performance and potential loss content of these loans.

Michael D. Hagedorn: We are comfortable with the current position of the allowance, but acknowledge that further real estate stress and elevated interest rates could move our allowance coverage somewhat beyond 1% during the remainder of 2024.

Michael D. Hagedorn: Okay.

Michael D. Hagedorn: Turning to slide 22, net charge offs ticked up during the quarter as a result of a $9 $5 million charge off related to taxi medallion loans.

Ira D. Robbins: As of the end of the first quarter, that number has declined to 45%. We have diverse niche funding businesses and a robust branch network across Florida and Alabama. This diversity helps to insulate our funding base and provides unique and differentiated opportunities to further reduce our reliance on wholesale funding over time. On last quarter's call, I laid out three strategic imperatives for the coming year.

Michael D. Hagedorn: Commercial real estate charge offs were de Minimis.

Michael D. Hagedorn: We present two important analysis at the bottom of this slide on the bottom left we compare loss given default ratios on our commercial real estate and construction loans to peers over a variety of timeframes.

Michael D. Hagedorn: Loss, given default is a calculation of charge offs relative to non accrual loans.

Michael D. Hagedorn: This analysis suggest that over time, our nonaccrual loans were significantly less likely to be charged off than our peers, given our loss mitigation techniques.

Ira D. Robbins: Our early results indicate solid traction relative to enhancing our cost-effective core deposit funding, the de-emphasis on commercial real estate, and more revenue diversity. As mentioned, we will continue to accelerate the diversification of our loan portfolio, and I have every confidence that we will continue to produce solid results. With that, I will turn the call over to Tom and Mike to discuss the quarter's growth and financial results. After Mike concludes his remarks, Tom, Mike, myself, and Marc Sager, our Chief Credit Officer, will be available for your questions. Thank you, Ira.

Michael D. Hagedorn: The most important loss mitigation tool that we have in times of stress is typically the deep resources and liquidity of our wealthy borrower base.

Michael D. Hagedorn: On the bottom right, we illustrate our reserve relative to implied years of coverage based on certain loss rates.

Michael D. Hagedorn: While our allowance coverage is below peers on an absolute basis, we believe that relative to potential loss content, we remained consistently better reserved.

Michael D. Hagedorn: For example, our current reserve would cover six years of implied loan losses based on the average net charge off rate between 2001 and 2023.

Tom: Slide 9 illustrates the Quarters Depository. Total deposits declined slightly due to the intentional runoff of higher cost time deposits which had matured. From a customer deposit perspective, this runoff is primarily offset by growth in interest-bearing non-maturity deposits within our specialty deposit niche. Additionally, our ability to tactically reduce deposit pricing in certain product types and categories helped to meaningfully slow the pace of deposit cost increases during the quarter. Despite a rotation of approximately 200 million of non-interest deposits into interest-bearing deposits, our total cost of deposits increased by a modest three-fifths. The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business. Traditional branch deposits declined slightly as a result of the runoff of certain higher-cost time deposits.

Michael D. Hagedorn: This is double the relative reserve coverage of our peers.

Michael D. Hagedorn: We remain confident that we are well positioned for a potential deterioration of credit quality across the industry.

Michael D. Hagedorn: Our below peer loss rates relative to total loans and <unk> loans, specifically are illustrated on slide 23.

Michael D. Hagedorn: As we have said historically, our loss rates tend to be roughly 40% of peer levels through the cycle.

Michael D. Hagedorn: The next slide illustrates the sequential increase in our tangible book value and capital ratios Tans.

Michael D. Hagedorn: Tangible book value increased slightly from the fourth quarter of 2023, despite a modest headwind from the OCI impact associated with our available for sale securities portfolio.

Michael D. Hagedorn: Regulatory capital ratios have continued to expand and as IRA mentioned earlier, we anticipate further expansion for the rest of 2024 and beyond.

Speaker Change: With that I'll turn the call back to the operator to begin Q&A. Thank you.

Tom: That said, we saw stable deposit trends in our Southeast franchise. Our specialty niches increased slightly during the quarter as our online deposits and technology business continued to expand. Slide 11 illustrates the management actions that reduced loans during the quarter. Total loans declined nearly $300 million, driven primarily by commercial real estate and construction participations out of the bank. Importantly, these participations were executed with no negative impact on equity.

Speaker Change: Thank you.

Speaker Change: At this time, we will conduct a question answer session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question. Please press star one again, please stand by while a compile the Q&A roster.

Speaker Change: Our first question comes from Steven Alexopoulos from JP Morgan. Please go ahead.

Steven A. Alexopoulos: Hey, good morning, everyone.

Steven A. Alexopoulos: Good morning.

Steven A. Alexopoulos: I wanted to start.

Tom: We continue to monitor opportunities to further participate in certain loans and to enable certain maturing loans to refinance away from Valley. The sequential reduction in C&I loans was due entirely to the sale of our commercial premium finance business and subsequent maturities in that remaining portfolio. We continue to focus our origination efforts on traditional C&I, owner-occupied real estate, and health care. On slide 12, I would highlight that our loan-to-values are based on the most recent appraisal received on a property. The average life of these appraisals is approximately two and one-half years.

Steven A. Alexopoulos: First on the Cree concentration moving down to $4, 48% of the lower could you give us a sense of your $32 billion of Cree loans in the quarter, including construction.

Steven A. Alexopoulos: Should we expect those to trend for the rest of the year and do you think you could continue to do what you did this quarter exit at par.

Steven A. Alexopoulos: Yes, I think when we look at that pre concentration, it's really a function of not including the owner occupied loans into that.

Steven A. Alexopoulos: So I think on one of our slides when we give the breakout of the balance sheet, probably gives a bit better on what that starting number it looks like I think we had a really successful quarter in working with bleed into some of the other partners that we've worked with over the areas and looking at increased participations and you can see on the loan yield maturities that we have coming coming due there really is not a significant variance versus where are.

Tom: Our debt service coverage ratios are calculated based on the most recent borrower financial information that we have, which is typically received at least annually. The following two slides provide additional detail on our multifamily and office portfolio. We continue to have modest exposure to New York multi-family loans and highlight that a mere $531 million, or roughly 20% of that sub-portfolio, is in more than 50% rent-controlled use. Our office portfolio remains diverse by geography and supported by generally diverse cash flows, with nearly 65% of our loans to multi-tenant properties. With that, I will turn the call over to Mike Hagedorn to provide additional insight into the quarter's financial performance. Thank you, Tom.

Steven A. Alexopoulos: Current portfolio sits.

Steven A. Alexopoulos: Versus where market indications our rates are today, so there really isn't a rate issue.

Steven A. Alexopoulos: Which would hinder some of our ability to really offset some of the loans that we have from our participation perspective.

Steven A. Alexopoulos: And as you've seen over the years that credit quality has been really really stellar here and as people have gone through and looked at the loans. They tend to agree with that assessment as well.

Steven A. Alexopoulos: Okay.

Speaker Change: That's helpful. I am curious I always those stocks off I think it's a little over 30%. This year and you mentioned perception I believe in terms of on the real estate portfolio.

Speaker Change: When you compare yourselves everybody I mean this is what happened in the aftermath of New York community. When you compare your portfolio to peer banks, what do you think the market is missing.

Michael D. Hagedorn: Staying on the CRE topic for a moment, slide 15 illustrates the contractual maturities of our commercial real estate portfolio. We have also included the LTV, DSCR, and Rate by Maturity Bucket for your benefit. This maturity schedule illustrates the minimal repricing risk of our loans maturing over the next few quarters. Slide 16 illustrates Valley's recent quarterly net interest income and margin trend. The modest sequential declines in both net interest income and net interest margin were primarily the result of one fewer day in the quarter.

Steven A. Alexopoulos: Okay.

Steven A. Alexopoulos: <unk> acknowledged that there is not an issue in commercial real estate on a macro perspective, I think would be putting my head in the sand I think that said if you really dive into the areas that are really unjust and distress today I think office is an obvious right and that's just not a function of where interest rates are that's behaviors have actually changed.

Steven A. Alexopoulos: The rent regulated in New York City is another area of stress and then I think from a third perspective as it's the repricing risk that exists.

Steven A. Alexopoulos: Just really isolate those three specific areas and then dive into the underlying details of where valley is on those three specifics on.

Steven A. Alexopoulos: On the office portfolio, its about $3 $3 billion, but when you look at the specific underlying metrics of those loans. They are very small in size. In addition to that what we tried to do is give you an update on what those updated debt service coverage ratios are so we're sitting at 168 of a debt service coverage ratio on the office portfolio, which I think is very differentiated.

Michael D. Hagedorn: We strategically lowered deposit costs by approximately 40 basis points on nearly $10 billion of deposits, which helped to stabilize net interest income as the quarter progressed. This helped to offset the headwind associated with lower average non-interest-bearing deposits during the quarter. After shortening our liability duration during the first quarter, we locked in a small amount of long-term funding at relatively attractive costs, which will further benefit net interest income during the second quarter, all else equal.

Steven A. Alexopoulos: I would say the larger differentiation on the La office on the office is actually the size. Our office is only $3 million on average I mean, there really is not much stress within those types of offices that we're lending against.

Steven A. Alexopoulos: That's something that's probably a little bit differentiated.

Steven A. Alexopoulos: The rent regulated is obviously, a little bit differentiated as well.

Michael D. Hagedorn: Turning to the next slide, you can see that non-interest income on an adjusted basis improved meaningfully from the fourth quarter of 2023. A portion of this improvement was related to rebounding deposit service charges as some fees were waived around our conversion in the fourth quarter of 2023. Beyond this, we offset headwinds in SWOC revenue on commercial loan transactions with improved wealth revenues and a very strong quarter from our tax credit advisory business.

Steven A. Alexopoulos: As Tom mentioned in his prepared comments, we are only sitting with about $500 million of rent regulated that's north of 50%.

Steven A. Alexopoulos: What that composition looks like so once again I think it's a very small portfolio and very manageable as we think about what the risk of that portfolio looks like everything's current today.

Steven A. Alexopoulos: That portfolio and then I think the third one that I alluded to was really the rate reset risk and we tried to give a little more granularity in the earnings call as well as in the presentation.

Steven A. Alexopoulos: The rate we saw risk is not what it is like at many of our peers here.

Michael D. Hagedorn: On that front, Dudley Ventures had certain tax credit transactions closed during the quarter, which had been delayed from the end of 2023. While demand for our tax credit advisory services continues to grow, we would anticipate that Deadly's revenues will decline somewhat from this quarter's elevated levels. On the following slide, you can see that our non-interest expenses were approximately $280 million for the quarter. However, adjusting for our $7.5 million FDIC special assessment and certain other non-core charges, non-interest expenses were approximately $267 million on an adjusted basis.

Steven A. Alexopoulos: That said look I acknowledged the Cree concentration is pretty significant and on a macro level. We look at the concentration and people just have a perspective of what that is at valley I'm aware that I acknowledge it I think as an organization we need to begin to reduce what that macro Creek concentration is.

Steven A. Alexopoulos: At Valley.

Steven A. Alexopoulos: Pre concentration doesn't mean that you're going to have an absolute loss.

Steven A. Alexopoulos: We migrated some loans into.

Steven A. Alexopoulos: Classified and criticized loans this specific quarter as we mentioned before the loss history is very very different here at valley as well because alone gets classified as a criticized loan here does not mean youre going to have a loss associated with that we've proven that year over year I think in the third quarter, we had a significant increase in what our classified loans were as well.

Michael D. Hagedorn: This represents a 2% decline from the adjusted fourth quarter of 2023 and a mere 1% increase on a year-over-year basis. The quarter's increase in compensation costs was primarily the result of seasonal payroll tax impacts as headcount remains generally well controlled.

Steven A. Alexopoulos: And if you look at the results this quarter Theres not an uptick on nonaccrual, there's not an uptick in delinquency, yes, we had an uptick in classified a few quarters ago. So I think it's just getting familiar with the granularity of what our portfolio is which takes time for some people and it takes effort as well and that said we have patients here and we're very comfortable that over the long.

Michael D. Hagedorn: We saw notable reductions in our technology and consulting expenses as the costs associated with our core conversion in the fourth quarter of 2023 continued to run off. While revenue pressures have weighed on our efficiency ratio in recent quarters, our expense base continues to be stable relative to our balance sheet and well below peer levels for the same comparison. The key pillars on slide 19 not only support our conservative underwriting and strong credit performance but also our ability to mitigate losses in periods of stress. I will discuss this more in a moment.

Steven A. Alexopoulos: We're going to end up in a really good spot.

Steven A. Alexopoulos: Okay.

Speaker Change: That's helpful. If I could just ask one other one and change direction on the expense the updated expense guidance just as below low end of the range.

Steven A. Alexopoulos: Actions you guys think you've done a lot right over the past few years.

Steven A. Alexopoulos: What is the new range in terms of what Youre thinking for expense growth this year.

Steven A. Alexopoulos: I think hopefully lower than where it is today I think we announced on last call.

Steven A. Alexopoulos: And that last causing me last year right. When we started to really see some additional pressure associated with the inverted yield curve that we're going to put forth a 5% head count reduction in June of last year.

Michael D. Hagedorn: Slide 20 offers a general comparison of our lending approach as a relationship-based regional bank with more transactional-oriented institutions. We have deep market knowledge and work with well-known and active investors who are strongly aligned with the need to protect and enhance their property values over time. Our borrowers tend to be more disciplined and value-oriented with respect to project selection. From an underwriting perspective, we generally focus on in-place, not projected, cash flows, which provides an added buffer should NOI growth not materialize.

Steven A. Alexopoulos: When you look at the actual numbers. We went from 3912 employees in June of 'twenty. Three we're sitting at 3709 employees today. So we've decreased by five 2% on the employee head count overall, we think there's more opportunity to continue that that that overall focus and I think the bigger pieces.

Steven A. Alexopoulos: Theme that people underestimate the amount of resources from an internal and external perspective associated with the core conversion that we did at the end of 2023.

Michael D. Hagedorn: We hope these pages provide some further context for the credit results illustrated on slides 21 and 22. On slide 21, you can see the continued stability in our non-accrual and past-due loan bucket. The bottom charts illustrate our allowance for credit loss coverage relative to loans and past due loans. As Ira mentioned, the quarter's increase in the allowance was primarily related to quantitative reserves associated with the migration of loans into criticized and classified categories. We remain confident with the performance and potential loss content of these loans.

Steven A. Alexopoulos: A significant amount of expense was associated with that and we continue to really to really begin to recognize some of the benefits of being on one platform and we think that will continue throughout 2024 as well.

Speaker Change: Got it alright, thanks for taking my questions.

Speaker Change: Thanks.

Speaker Change: Thank you <unk>.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Matthew Breese from Stephens incorporated please go ahead.

Matthew M. Breese: Hey, good morning, everyone.

Matthew M. Breese: Good morning.

Matthew M. Breese: Yes.

Matthew M. Breese: As we think about commercial real estate growth in light of the updated guidance and actions. This quarter should we expect active run off in that book and if so to what extent or should we expect that loan that loan segments.

Michael D. Hagedorn: We are comfortable with the current position of the allowance but acknowledge that further real estate stress and elevated interest rates could move our allowance coverage somewhat beyond 1% during the remainder of 2024. Turning to slide 22, net charge-offs ticked up during the quarter as a result of a $9.5 million charge-off related to taxing medallion loans. Commercial real estate charge-offs were de minimis.

Matthew M. Breese: Essentially remain flattish, while all the other segments C&I, especially grow around it.

Matthew M. Breese: Yeah, Hey, Matt its Tom.

Tom Mike: We revised our guidance after our total loans to be between zero and two 4% from the 5% to 7% annualized.

Michael D. Hagedorn: We present two important analyses at the bottom of this slide. On the bottom left, we compare loss-given default ratios on our commercial real estate and construction loans to peers over a variety of time frames. Loss given default is a calculation of charge-offs relative to non-accrual loans.

Tom Mike: We are intentionally managing our real estate portfolio by focusing on our top relationship driven clients, we originated about $750 million in real estate loans in the first quarter, which is down significantly from what we have done in the past few years, we will still be active in it.

Michael D. Hagedorn: This analysis suggests that over time, our non-accrual loans were significantly less likely to be charged off than it appears, given our loss mitigation techniques. The most important loss mitigation tool that we have in times of stress is typically the deep resources and liquidity of our wealthy borrower base. On the bottom right, we illustrate our reserve relative to implied years of coverage based on certain loss rates. While our allowance coverage is below peers on an absolute basis, we believe that, relative to potential loss content, we remain consistently better reserved. For example, our current reserve would cover six years of implied loan losses based on the average net charge-off rate between 2001 and 2023.

Tom Mike: Bob them real estate, but we will still continue to sell loans.

Tom Mike: The loans that are not relationship driven well, let that mature and leave in the first quarter or about $500 million of loans that matured and exited to other banks and ill point out all at full value to the bank are seeing we are not changing our C&I expectations, we've grown that portfolio, 10% on an annual base.

Tom Mike: <unk>.

Tom Mike: Outside of the premium finance sale, we would have been slightly up in the first quarter first quarter is traditionally a slow quarter. We tend to get line utilization Paydowns are owner occupied portfolio in the first quarter grew 6% annualized. So that's a positive event our pipelines in C&I, a very stable when we originated a $1 billion of <unk>.

Tom Mike: C&I loans in the first quarter, which is in line with what we have done in the past.

Michael D. Hagedorn: This is double the relative reserve coverage of our peers. We remain confident that we are well positioned for a potential deterioration of credit quality across the industry. Our below-peer loss rates relative to total loans and CRE loans specifically are illustrated on slide 23. As we have said historically, our loss rates tend to be roughly 40% of peer levels through the cycle. The next slide illustrates the sequential increase in our tangible book value and capital ratio. Tangible book value increased slightly from the fourth quarter of 2023, despite a modest headwind from the OCI impact associated with our available-for-sale securities portfolio.

Speaker Change: Got it Okay and then.

Speaker Change: With seasonal it feels like we're all.

Speaker Change: I also think about historical losses and forward looking economic factors.

Speaker Change: And the reserve is supposed to be catered to each institution based on these assumptions, but in the wake of New York community and now the category four banks classification. It feels like there is a third leg to the stool.

Speaker Change: Which is your peer group and what they are doing.

Speaker Change: Is it fair to assume with that in mind that longer term beyond what you've outlined for the intermediate term debt a lot of your ratios commercial real estate reserves capital needs to migrate to your categories for peer like levels. Despite whatever simple says in terms of your quarter to quarter change.

Michael D. Hagedorn: Regulatory capital ratios have continued to expand, and as Ira mentioned earlier, we anticipate further expansion for the rest of 2024 and beyond. With that, I'll turn the call back to the operator to begin Q and A. Thank you. Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, please 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.

Speaker Change: In reserving.

Speaker Change: Hey, Matthew this is mark Seger, just as it relates to our model one of the positives as we use a transition matrix model, which is very sensitive to migration in the portfolio.

Mark Seger: We hold an elevated level of reserves against criticized and classified credits. So we get an immediate bump through the migration in our reserve, which shows the appropriateness of that migration not just loss and about two thirds of the increase in our reserve for the quarter was related.

Operator: Please stand by while I compile the Q&A roster. Our first question comes from Stephen Alexopoulos from JP Morgan. Please go ahead. Hey, good morning, everyone.

Mark Seger: Tim migration within the portfolio.

Mark Seger: I think on a macro basis the amount I mean.

Speaker Change: To your specific question do we have to be aware peer levels are right I think at our size organization and $160 billion. It has a long runway for us to get to a 100 <unk>.

Steven A. Alexopoulos: Morning. What a start. So Ira, first on the Cree concentration, moving down to 440. Could you give us a sense of your $32 billion in CREA loans, Corridor, including construction?

Speaker Change: So to look at where those reserve ratios are and automatically apply that we need to be at those levels.

Ira D. Robbins: Where should we expect those to trend for the rest of the year, and do you think you could continue to do what you did this quarter, exit at par? Yeah, I think when we look at that CRE concentration, it's really a function of not including the owner-occupied loans into that. So I think on one of our slides, when we give the break out of the balance sheet, probably gives a bit better idea of what that starting number looks like. I think we had a really successful quarter working with BLEDA and some of the other partners that we've worked with over the years to look at increased participation.

Speaker Change: Just on sort of this third perspective of what <unk> looks like I think would be an incorrect assumption.

Speaker Change: I think the accounts are pretty clear what drives that the CSO model and as Mark mentioned, it's going to uptick a little bit because of what we're seeing with the transition and a bit of an increase in some of those classified loans and criticized loans, but I don't think there is in our guidance as we need to be at whatever the 100 and plus banks are.

Speaker Change: I guess I'm more concerned about the CRE concentration.

Ira D. Robbins: As you can see on the loan yield maturities that we have coming due, there really is not a significant variance versus where our current portfolio sits versus where market indications or rates are today. So there really isn't a rate issue which would hinder some of our ability to really offset some of the loans that we have from a participation perspective. And as you've seen over the years, credit quality has been really, really stellar here. And as people have gone through and looked at the loans, they tend to agree with that assessment as well. I'm curious, Ira, are those stocks off? I think it's a little over $30.

Speaker Change: Because that.

Speaker Change: Those peers operate at a median of 100% concentration the highest <unk> around 180 190.

Speaker Change: And we're a long ways off from that so by the time you get to 100.

Speaker Change: To have made some significant changes along the way and Im curious if thats.

Ira D. Robbins: Part of the plan here.

IRA: I think obviously going to $100 billion in saying, we're going to have 400% Cree concentration is something that doesn't make any sense.

Speaker Change: That said, obviously, we have a very long runway, Matt I mean, if you even took a 10% growth rate on our balance sheet today.

Speaker Change: It's over six years before we even get to a $100 billion and there's a lot that's going to happen at value over the next six ish years, and I think getting the Cree concentration down is something we've talked about for years now of what the strategic focus has really been here, we've instituted C&I business lines.

Ira D. Robbins: Perception, I, In terms of the real estate portfolio, when you compare yourselves, I mean, this has all happened in the aftermath of New York. When you compare your pre-portfolio to peer banks, what do you think? I think to acknowledge that there is not an issue in commercial real estate from a macro perspective, I think it would be, putting my head in his hand, I think that said, if you really dive into the areas that are really under stress today, I think office is an obvious choice, and that's just not a function of where interest rates are; that behavior has actually changed. The rent regulated in New York City is another area of stress, and then I think from a third perspective, it's the repricing risk that exists.

Ira D. Robbins: The tech business to our commodities business to all different types of C&I businesses. Many many years ago with a focus on beginning to diversify what that portfolio. It looks like now as Tom mentioned, we're growing C&I, 10% annualized so it's not like we woke up one day and said hey, the Cree concentrations too high we need to begin to establish some of these.

Speaker Change: Foundation of our C&I businesses, we've been doing it for years and we've actually seen a lot of positive outcomes associated with that C&I business as well. So obviously the Cree cannot be the same level at valley that it's been historically.

Ira D. Robbins: So if you just really isolate those three specific areas and then dive into the underlying details of where Valley is on those three specifics, the office portfolio is about $3.3 billion, but when you look at the specific underlying metrics of those loans, they're very small in size. In addition to that, what we try to do is give you an update on what those updated debt service coverage ratios are. So we're sitting at 168 of a debt service coverage ratio on the office portfolio, which I think is very differentiated. I would say the larger differentiation in office space is actually the size. Our office is only $3 million on average.

Speaker Change: And we've put a lot of good strategic initiatives in place to really begin to drive C&I business here that we've seen the fruits out for many years now and we anticipate continuing to accelerate that.

Speaker Change: Last one from me and then I'll hop back into queue.

Ira D. Robbins: Tom you had mentioned undergoing it sounds like fairly extensive stress testing of your commercial real estate book.

Speaker Change: And it shows that over time, you have had better loss content versus peers.

Speaker Change: Curious what types of assumptions.

Speaker Change: Related in that in those stress tests and at the end of the day, what was the kind of loss content what was the charge offs.

Ira D. Robbins: I mean, there really is not much stress within those types of offices that we're lending against, so I think that's something that's probably a little bit differentiated. On the rent regulated side, it's obviously a little bit differentiated as well. As Tom mentioned in his prepared comments, we're only sitting with about $500 million of rent regulated, that's north of 50% of what that composition looks like. So once again, I think it's a very small portfolio and very manageable as we think about what the risk of that portfolio looks like. Everything's current today with that portfolio.

Speaker Change: That stress test.

Speaker Change: All of them.

Speaker Change: So we don't publish needless to say our specific stress test assumptions, but we do stress occupancy rent per square foot vacancies overall rate and market conditions as part of that that stress testing and then test that.

Speaker Change: Just our overall capital to ensure that were remaining.

Ira D. Robbins: And then I think the third one that I alluded to was really the rate reset risk, and we tried to give a little bit more granularity in the earnings call as well as in the presentation. The rate reset risk is not what it's like at many of our peers here. That said, look, I acknowledge the CRE concentration is pretty significant on a macro level. But we look at the concentration. People just have a perspective of what that is at Valley, so I'm aware of that; I acknowledge it. I think, as an organization, we need to begin to reduce what that macro CRE concentration is. But at Valley, CRE concentration doesn't mean that you're going to have an absolute loss.

Speaker Change: Well capitalized organization.

Speaker Change: And then I think one thing I would just add to that is the size of the scope of what we do when it comes to the credit review process and we laid out on slide 19.

Speaker Change: Really value specific credit framework, and Thats really led to a lot of the lower loss given defaults that Mike mentioned earlier.

Speaker Change: We manually credit officers looked at over 60% of the commercial real estate portfolio. Just this last quarter. So stress testing for us isn't just what assumptions you're applying to those stress testing, but the scale of what that stress testing is it's not just hey, let's look at a couple of loans that are coming due over the next 12 ish months.

Ira D. Robbins: We migrated some loans into classified and criticized loans this specific quarter. As we mentioned before, the loss history is very, very different here at Valley as well. Because if a loan gets classified as a criticized loan here, it does not mean you're going to have a loss associated with it.

Speaker Change: Really deep dives on each of these individual portfolios. So what youre seeing in the migration. This quarter isn't just reflective of loans that are coming due in the next 12 ish months, it's 60% of the entire accrete book that we have.

Ira D. Robbins: We've proven that year over year. I think in the third quarter, we had a significant increase in our classified loans as well. And if you look at the results this quarter, there's not an uptick in non-accrual, there's not an uptick in delinquency, yet we had an uptick in classified a few quarters ago. So I think it's just getting familiar with the granularity of what our portfolio is, which takes time for some people and takes effort as well.

Speaker Change: I appreciate all the color there. Thank you.

Ira D. Robbins: Thanks.

Speaker Change: Thank you.

Speaker Change: When we Brian next question.

Speaker Change: Our next question comes from.

Frank Joseph Schiraldi: Frank Schiraldi.

Frank Joseph Schiraldi: From Piper Sandler. Please go ahead.

Ira D. Robbins: That said, we have patience here, and we're very comfortable that over the long term, we're going to end up in a really good spot. If I could just ask one other one to change direction on the expense, the up..., guy just says below. You know, what actions do you guys think you've done a lot, right, over the past few years? What is the new re- what you're.

Frank Joseph Schiraldi: Hey, guys good morning.

Ira D. Robbins: Just to.

Frank Joseph Schiraldi: A follow up.

Speaker Change: The last one on the question a little bit just on the I just want to make sure I understand.

Piper Sandler: On slide five.

Ira D. Robbins: The reserve, Mike you talked about being relatively comfortable with where our reserves are in.

Speaker Change: And given.

Speaker Change: Loss rates.

Speaker Change: Actually better reserve compares in many ways, but.

Ira D. Robbins: I think it's hopefully lower than where it is today. You know, I think we announced on last call, not last call, excuse me, last year, right, when we started to really see some additional pressure associated with the inverted yield curve that we were going to put forth a 5 percent headcount reduction in June of last year. You know, when you look at the actual numbers, we went from 3,912 employees in June 23. We're sitting at 3,709 employees today, so we've decreased about 5.2 percent on the employee headcount overall.

Speaker Change: So I'm just trying to understand when we get to.

Speaker Change: The roughly 110 reserve.

Speaker Change: Over the next 12 to 24 months.

Speaker Change: So what's the driver there.

Speaker Change: As the commercial real estate book.

Speaker Change: Matures and re prices.

Ira D. Robbins: Or is that just kind of more.

Speaker Change: As you grow getting getting in line with peers over time.

Speaker Change: Sure.

Speaker Change: Yes, I think from a macro perspective, it is probably two things right.

Ira D. Robbins: We think there's more opportunity to continue that overall focus, and I think the bigger piece is, Steve, that people underestimate the amount of resources from an internal and external perspective associated with the core conversion that we did at the end of 2023. A significant amount of expense was associated with that, and we continue to really begin to recognize some of the benefits of being on one platform. We think that will continue throughout 2024 as well. Got it.

Speaker Change: Obviously, the Cree we've used that we do in the migration associated with that has really benefited us from what the loss given defaults or so.

Speaker Change: Potentially there's going to be a bit more migration and what that curve looks like as we go through the rest of the portfolio and I think one of the other drivers is really on the C&I side as we continue to originate more C&I loans, they're going to come at a higher reserve ratio than what the rest of the historical <unk>. So so that's automatically going to end up driving up what that coverage ratio looks like.

Matthew M. Breese: Ira, thanks for taking my questions. Thanks. Thank you. One moment for our next question. Our next question comes from Matthew Breese from Stevens Incorporated. Please go ahead. Hey, good morning, everyone.

Speaker Change: Got you, Okay, and then just wondering about the potential to accelerate some of this reduction in concentration you obviously move some stuff out of Korea at par this quarter and.

Obviously, it seems like there's been some opportunity on the on the commercial side, we've certainly seen commercial teams moving around I'd say given.

Tom: Morning. You know, as we think about commercial real estate growth in light of the updated guidance and actions this quarter, should we expect active runoff in that book? And if so, to what extent? Or should we expect that loan, that loan segment to, you know, essentially remain flattish while all the other segments, C&I especially, grow around it? Hey Matt, it's Tom.

Speaker Change: To a greater degree given some of the dislocation in the marketplace, let's say so I'm just curious as you think about that that's something.

Speaker Change: That.

Speaker Change: You guys are seeing potential there.

Speaker Change: Maybe maybe accelerate this through greater.

Speaker Change: Mix shift in the near term.

Matt: I think I think maybe I'll start and if you don't mind, and then I'll turn it over to Tom, but I think one of the constraints that we've always operated in here is what that tangible book value number is right and it's really been a focus within the organization to not dilute shareholders too.

Tom: As you see, we revised our guidance for our total loans to be between zero and 4% from the 5% to 7% annualized. We are intentionally managing our real estate portfolio by focusing on our top relationship-driven clients. We originated about 750 million in real estate loans in the first quarter, which is down significantly from what we have done in the past few years.

Tom Mike: Tangible book value transactions, as we mentioned earlier, whether it be through silly M&A transactions that have very long buybacks or through balance sheet restructuring I mean, we see that today and what's happening with some securities books, we see with what's happening with also sales. So I think thats a constraint that we look at to make sure.

Tom: We will still be active and involved in real estate, but we will still continue to sell loans. The loans that are not relationship-driven, we'll let them mature and leave. In the first quarter, there were about $500 million of loans that matured and exited to other banks, and I'll point out all that full value to the bank. RC, we're not changing our C&I expectations. We've grown that portfolio 10% on an annual basis. Outside of the premium finance sale, we would have been slightly up in the first quarter. The first quarter is traditionally a slow quarter.

Tom: Alternatives are that we have to make sure that that tangible book value and capital really continuing to grow within the organization that said, we were able to execute a lot at par today.

Tom Mike: And.

Tom Mike: Frank you and Youre referencing question regarding.

Tom: Deposit driven commercial teams, we have opportunistically added teams in certain markets, including the southeast.

Tom Mike: No not.

Tom Mike: Okay.

Speaker Change: Okay Alright.

Tom Mike: I guess the big.

Tom: We tend to get line utilization paydowns. Our owner-occupied portfolio in the first quarter grew 6% annualized, so that's a positive event. Our pipelines and C&I are very stable, and we originated a billion dollars of C&I loans in the first quarter, which is in line with what we have done in the past. Okay. And then, you know... With Cecil, it feels like we are all.

Tom: It just seems like Theres a lot of movement I don't know if maybe some of these things end up being too expensive on the front end.

Tom: End of things.

Tom: Obviously, you guys reduced your expense.

Tom Mike: Yes.

Tom Mike: So I was just curious and maybe there was a significant pickup.

Tom Mike: Opportunity here just in the near term.

Tom: Obviously seen some other press releases from other places.

Tom: And so.

Tom Mike: So I was just I was just curious about anything in the near term of size.

Marc Piro: It's hard to think about historical losses and forward-looking economic factors, and the reserve is supposed to be catered to each institution based on these assumptions. But in the wake of New York community and now the category for bank classification, it feels like there's a third leg to the stool, which is your peer group and what they're doing. Is it fair to assume, with that in mind, that, longer term, beyond what you've outlined for the intermediate term, that a lot of your ratios, commercial real estate, reserve, and capital needs to migrate to your Category 4 peer-like levels, in Missouri.

Tom Mike: Yes.

Then I misunderstood your question first and I apologize I thought you were going a little bit more on the loan side and so just defer to time right off the bat.

Tom Mike: I think as we mentioned on the call.

Tom Mike: We're seeing a lot of growth in that southeast market.

Tom Mike: So some of the dislocation that you are seeing up here in the northeast with people coming with teams. They obviously come at a significant expense we've looked at some of them and the marginal cost to bring on some of those deposits. When you combine it with the expense of those teams.

Tom Mike: Finding much much cheaper alternatives elsewhere, and Thats, where we intend to allocate a lot of our resources here.

Speaker Change: Got you, Okay that makes sense I appreciate it.

Marc Piro: Hey, Matthew, this is Marc Sager. Just as it relates to our model, one of the positives is that we use a transition matrix model, which is very sensitive to migration in the portfolio. We hold an elevated level of reserves against criticized and classified credits, so we get an immediate bump in our reserve levels, which shows the appropriateness of that migration, not just loss. And about two-thirds of the increase in our reserve levels for the quarter was related to migration within the portfolio. I think on a macro basis, though, Matt, I mean, to your specific question, do we have to be at where peer levels are, right?

Speaker Change: Thanks, Okay. Thank you.

Speaker Change: One moment for our next question.

Marc Piro: Our next question comes from Emily Lee from <unk>. Please go ahead.

Marc Piro: Emily.

Marc Piro: Hello.

Speaker Change: Hey, Chris we can hear you.

Tom Mike: Okay.

Chris: It's Chris.

Marc Piro: In terms of the.

Marc Piro: Capital the nine eight by the end of the year and.

Chris: And 10 plus.

Marc Piro: Plus over the next 12 to 24, how did you get to those numbers.

Speaker Change: I'm just interested is kind of I understand the mechanics of how you would get there, but how did you get I guess more importantly to the 10 10, plus some of your peers are kind of mid teens, even 11.

Ira D. Robbins: I think at our size organization, we're only $60 billion. It's a long runway for us to get to $100 billion. So to look at where those reserve ratios are and automatically apply that we need to be at those levels based on sort of this third perspective of what CISA looks like would be an incorrect assumption. I think the accounts are pretty clear what drives the CISA model, and as Marc mentioned, it's going to uptick a little bit because of what we're seeing with the transition and a bit of an increase in some of those classified loans and criticized loans.

Speaker Change: Yes, I think overall, Chris we've talked a lot about relative to our peers that our allowance and capital ratios, we justify them being slightly below our peers are understanding that they are going to be higher than where we are today. So I don't know if your question is on kind of the immediate term or kind of where we view ourselves in the long term.

Speaker Change: But if you look at that near term expectation column.

Ira D. Robbins: These metrics reflect kind of organic efforts or things on the margin like what we did this quarter in terms of selling off certain commercial real estate loans at par. So theres no significant rash actions that are embedded in the near term expectation column and then it's a continuation of those efforts over time that gets you over to the right hand column, so not sure if.

Ira D. Robbins: But I don't think there's any guidance because we need to be at whatever the $100 billion plus banks are. I guess I'm more concerned about the CRE concentration because those peers operate at a median of 100% concentration. The highest is M&T, around 180 or 190.

Ira D. Robbins: And we're a long ways off from that. So by the time you get to 100, you have to have made some significant changes along the way. And I'm curious if that's part of the plan. I think obviously going to $100 billion and saying we're going to have 400% CRE concentration is something that doesn't make any sense. That said, obviously, we have a very long runway, Matt.

Speaker Change: That's the answer but yes that helps just to follow up on that.

Ira D. Robbins: <unk>.

Speaker Change: Would there be any situation, where you would do.

Ira D. Robbins: Credit linked note or some sort of <unk> mitigation to accelerate that you've seen some peers do that with success.

Ira D. Robbins: I would say that all our Wi optimally optimization opportunities are on the table in.

Ira D. Robbins: Out there, but there are certain portfolio that lend themselves more to that than others, but we have a very diverse balance sheet and we have portfolios like auto and residential that could be good opportunities for transactions like that.

Ira D. Robbins: I mean, if you even take a 10% growth rate on our balance sheet today, it's over six years before we even get to $100 billion. And there's a lot that's going to happen at Valley over the next six-ish years. And I think getting the CRE concentration down is something we've talked about for years now of what the strategic focus has really been here. We instituted C&I business lines from the tech business to a commodities business to all different types of C&I businesses many, many years ago with a focus on beginning to diversify what that portfolio looks like.

Speaker Change: Okay, Great and then maybe just two housekeeping.

Speaker Change: Do you have maybe I missed it the CRE concentration metric in the first quarter and then also the.

Michael D. Hagedorn: Quarter on quarter change in the criticized classified as special mention I know you mentioned.

Ira D. Robbins: Below the high level, but any specifics there.

Speaker Change: Yes, the Cree ratio is going to be about 464%. So it should be down about 10% from December 31, Mark on.

Ira D. Robbins: As Tom mentioned, we're growing C&I 10% annualized. So it's not like we woke up one day and said, hey, the CRE concentration is too high. We need to begin to establish some of these foundational C&I businesses. We've been doing it for years. And we've actually seen a lot of positive outcomes associated with that C&I business as well. So obviously, the CRE cannot be at the same level at Valley that it has been historically.

Ira D. Robbins: The migration as we mentioned approximately 500 migrated into criticized for the quarter Little granularity on that is proportionately in office, which should not be a surprise with what's going on in the market today.

Speaker Change: Alright, perfect. Thank you.

Ira D. Robbins: Yes.

Speaker Change: Thanks, Chris Thank you.

Ira D. Robbins: And we put a lot of good strategic initiatives in place to really begin to drive C&I business here that we've seen the fruits of for many years now. And we anticipate continuing to accelerate that. So that's one for me, and then I'll hop back in the queue.

Speaker Change: For our next question.

Ira D. Robbins: Okay.

Our next question comes from Jon <unk> from RBC capital markets. Please go ahead.

Travis P. Lan: Hey, Thanks, good morning.

Speaker Change: Just a follow up on the follow up on the last.

Ira D. Robbins: You know, Tom, you mentioned undergoing, what sounds like, a fairly extensive stress test for your commercial real estate. And it shows that over time you've had better loss content versus peers. I'm curious, what types of assumptions were overlaid in those stress tests, and at the end of the day, what was the kind of loss content, what was the charge-off?

Speaker Change: And sort of Christmas question are you guys, telling us just to expect high.

Ira D. Robbins: Higher criticized and classified loans each quarter it sounds like Youre doing a deep dive maybe.

Speaker Change: Maybe every quarter, but how do you want us to think about what's ahead.

Ira D. Robbins: Just to prepare for that.

Speaker Change: Okay I'd point to this is mark just pointing to iras.

Tom: that that stress test resulted. So we don't publish, needless to say, our specific stress test assumptions, but we do stress occupancy, rent per square foot, vacancies, overall rate, and market conditions as part of that stress testing, and then test that against our overall capital to ensure that we're remaining a well-capitalized organization. I think one thing I would just add to that is the size of the scope of what we do when it comes to the credit review process.

Tom: <unk> spoke to before we did a special review on the sensitive asset classes and overall portfolio touching a little over 60% of the portfolio in the first quarter.

Tom: With a focus on rents.

Tom: <unk> stabilized office, so why anticipated because of a high rate environment that we will continue to have some migration throughout the year. We do believe that the first quarter migration was elevated because of the focus of the reviews as a percent of the portfolio that was reviewed.

Speaker Change: That's helpful. Thank you for that.

Tom: We laid out on slide 19 a really value-specific credit framework, and that's really led to a lot of the lower loss-giving defaults that Mike mentioned earlier. We, as credit officers, looked at over 60 percent of the commercial real estate portfolio just this last quarter.

Tom: Mike.

Speaker Change: Can you go over your margin expectations again, I think I heard you say that you.

Tom: Do you feel like the margin trough and we're going to get a lift in the second quarter, but I just want to make sure I heard that correctly.

Speaker Change: Yes first Brett Thanks for asking the question I was feeling left out this morning.

Tom: So stress testing for us isn't just what assumptions you're applying to those stress tests but the scale of what that stress testing is. It's not just, hey, let's look at a couple loans that are coming due in the next 12-ish months. It's really deep dives on each of these individual portfolios, so what you're seeing in the migration this quarter isn't just reflective of loans that are coming due in the next 12-ish months. It's 60 percent of the entire creed book that we have.

Tom: Yes.

Tom: I don't believe I said, the word troughs, but.

Tom: Let me go back to the first quarter, and then I'll give you a guidance and a generally the first quarter results were in line with our expectations on a day count basis.

Tom: The modest headwinds as it relates to net interest income where really the noninterest bearing deposits and slower loan growth, but those were also offset by some deposit cost reductions that we've spoken about as well and we continue to look at that the guidance being revised slightly down again a function of a.

Tom: I appreciate all the calls today. Thank you. Thank you. One moment for our next question. Our next question comes from... Frank Schiraldi, from Piper Sandler.

Frank Joseph Schiraldi: Starting point with lower noninterest bearing deposits and again the slower loan growth that we talked about especially when you consider the participations that we visited about being in the latter part of the first quarter. So that impact is in the numbers.

Frank Joseph Schiraldi: Please go ahead. Hey guys, good morning.

Frank Joseph Schiraldi: In the first quarter as much as it will be in the second quarter.

Frank Joseph Schiraldi: Just to follow up on the last line of questioning a little bit, just on the, I just want to make sure I understand. On slide five, the reserve, you know, Mike, you talked about being relatively comfortable with where reserves are, and given, you know, loss rates, you're actually better reserved than peers in many ways, but so just trying to understand when we get to, you know, the roughly 110 reserve over the next 12 to 24 months. So who's the driver there?

Frank Joseph Schiraldi: And then while we did assume.

Frank Joseph Schiraldi: Fewer fed cuts I would assume most people are doing that remember that long end rates are forecasted to be higher relative to where they were at the start off point in 12 31.

Frank Joseph Schiraldi: So that on a net basis, the shifting yield curve, whether it's on the higher the short end is a modest benefit to us because we're more exposed on the long end.

Frank Joseph Schiraldi: Yes.

Speaker Change: Okay, Alright that makes sense to me.

Frank Joseph Schiraldi: And your IRA fees, if I heard you correctly you said.

Ira D. Robbins: Is it as the commercial real estate book matures and reprices, or is that just kind of more, as you grow, getting in line with peers? I think from a macro perspective, it's probably two things, right? Obviously, the CRE reviews that we do and the migration associated with that have really benefited us from what the loss-given defaults are. So potentially, there's going to be a bit more migration as we go through the rest of the portfolio. I think one of the other drivers is really on the C&I side.

Frank Joseph Schiraldi: With these guidance changes do you still expect relatively consistent.

Ira D. Robbins: PNR to what you said before these adjustments is that right.

Ira D. Robbins: Absolutely.

Speaker Change: Okay. So it's just for US it's a question I'm trying to figure out what the provision is that.

Ira D. Robbins: And Thats and Youre, just seeing some modest growth in the reserve.

Ira D. Robbins: PNR stays the same just the geography on the income statement is different is that right.

Ira D. Robbins: I think we've tried to give you some guidance as to where those numbers could shake out, but obviously look it's market dependent as Mark said, we've gone through and looked at a lot of the portfolio already that said, we're going to continue to monitor the portfolio into the credit reviews, we believe that that's really been a.

Ira D. Robbins: As we continue to originate more C&I loans, they're going to come at a higher reserve ratio than what the rest of the historical CRE does. So that's automatically going to end up driving up what that coverage ratio looks like. Gotcha, okay. And then I was wondering about the potential to accelerate some of this reduction in concentration.

Ira D. Robbins: A strong point for us and the ability to have the significant reviews that we do as it's driven down to lower loss given default. So it's been part of our hallmark of who we are and actively managing the portfolio not just waiting for something to happen. So we are all over every single loan that we have and we continue to to really be and as market conditions change we'll adjust.

Ira D. Robbins: You obviously moved some stuff out of Caridia this quarter, and obviously, there seems like there's been some opportunity on the commercial side. We've certainly seen commercial teams moving around, I'd say, to a greater degree, given some of the dislocation in the marketplace, let's say. So I'm just curious, as you think about that, if that's something that you guys are seeing potential for there to maybe accelerate this through greater mix shift in the near term? I think maybe I'll start, if you don't mind, and then I'll turn it over to Tom.

Tom: Them Accordingly.

Tom: Okay, Alright fair enough. Thank you guys appreciate it.

Tom: Thanks, Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Manhattan gasoline.

Morgan Stanley: From Morgan Stanley. Please go ahead.

Tom: Hey, good morning.

Tom: With that with all the puts and takes in the loan side that you just discussed.

Ira D. Robbins: But I think one of the constraints that we've always operated in here is what that tangible book value number is. And it's really been a focus within the organization to not dilute shareholders through tangible book value transactions, as we mentioned earlier, whether it be through silly M&A transactions that have very long buybacks or through balance sheet restructures. I mean, we see that today in what's happening with some securities books.

Ira D. Robbins: Given the fixed rate loan repricing in the 40% of loans being floating rate.

Ira D. Robbins: How should we think about the loan yield expansion from this quarter's levels.

Ira D. Robbins: Right got scenario.

Ira D. Robbins: Look I think you've seen the pace of loan yield growth has slowed as rates have stabilized generally on the front end. So that immediate benefit has kind of played itself out probably but you do obviously have some tailwind and when we show you I think in the in the definitely show that mature increase side that may be a good kind of guide to help you.

Ira D. Robbins: We see what's happening with sales, too. So I think that's a constraint that we look at to make sure what alternatives we have to make sure that that tangible book value and capital really continue to grow within the organization. You know, that said, we were able to execute a lot at par today.

Ira D. Robbins: In terms of what's coming off and then where are you putting things back on we originated loans loan yields. This quarter is still in the high sevens sitting on a credit perspective, our Cree origination yield was 780, so theres still some some opportunity to enhance plenty of there.

Ira D. Robbins: Frank, in your reference and question regarding deposit-driven commercial teams, we have opportunistically added teams in certain markets, including the Southeast and the North. Okay, all right. I guess the big thing is, you know, there's a lot of movement. I don't know if maybe some of these things end up being too expensive on the front end of things.

Speaker Change: Alright, I appreciate that.

Ira D. Robbins: And then you noted that you purchased this quarter.

Ira D. Robbins: Is there more room to do that and how should we think about the level of on balance sheet liquidity that you want to manage to over the next few quarters.

Frank: Yes, so the Ginnie Mae purchases, obviously, another reserve risk weighted they average about three to four years and the yields on that portfolio on recent purchases I should say have been in the 5% slightly more than 5% range.

Ira D. Robbins: Obviously, you guys have reduced your expense guide a bit. Yeah, so I was just curious, and maybe there was a significant pickup opportunity here just in the near term. We've obviously seen some other press releases from other places, and no, so I was just curious about anything in the near term of size.

Ira D. Robbins: The runoff on the portfolio there is theres really no prepayments. So it's going to be just as stated maturity payoffs brought around $75 million to $90 million a quarter and we would consider continue to add we believe in zero risk weighted genies.

Ira D. Robbins: Yeah, maybe I misunderstood your question at first, and I apologize. I thought you were going a little bit more on the loan side, and I should have just deferred to Tom right off the bat. Look, I think, as we mentioned on the call, you know, we're seeing a lot of growth in that Southeast market. So some of the dislocation that you're seeing up here in the Northeast with people coming with teams, they obviously come at a significant expense.

Ira D. Robbins: At probably five to five 5%.

Ira D. Robbins: Got it so in terms of the.

Ira D. Robbins: On balance sheet liquidity, you need to maintain from here.

Ira D. Robbins: We've looked at some of them, and the marginal cost to bring in some of those deposits, when you combine it with the expense of those teams, we're finding much, much cheaper alternatives elsewhere, and that's where we intend to allocate a lot of our resources. Gotcha. Okay. No, that makes sense.

Ira D. Robbins: There is room for that to move up or do you think youre at the right level asking context of.

Ira D. Robbins: You also mentioned that the LDR should trend below a 100% in 2025. So just wanted to get a sense of what the right level of liquidity is.

Ira D. Robbins: And I want to make sure I'm answering you, referring specifically to say FHL Federal reserve availability I think overall, you're probably going to see a little bit more on balance sheet liquidity.

Frank Joseph Schiraldi: I appreciate it. Thank you. One moment for our next question- Our next question comes from Emily Lee from KBW. Please go ahead. Emily?

Speaker Change: Not to a significant.

Emily Lee: Degree, but <unk>.

Emily Lee: Getting the loan to deposit ratio down to 100 will definitely be a little bit of the core deposits coming on and being reinvested in securities as opposed to going into loans, but I don't think you really need to look at a significant shift within what that securities book looks like.

Emily Lee: Hello? Hello? Hey, Chris. We can hear you. Okay, yeah, it's Chris. In terms of capital, the 9.8 by the end of the year and 10 plus over the next 12 to 24. How'd you get to those?

Emily Lee: Got it yeah, that's what I was getting at thank you.

Emily Lee: Thank you.

Emily Lee: Thank you.

Emily Lee: One moment for our next question.

Emily Lee: Okay.

Emily Lee: Our next question comes from Jared Shaw from Barclays. Please go ahead.

Chris: I understand the mechanics of how you would get there, but how did you get, I guess, more importantly, to the 10 plus? Some of your peers are kind of in the mid-10s, even 11. Yeah, I think overall, Chris, we've talked a lot about, you know, relative to our peers, that our allowance and capital ratios, you know, we've justified them being slightly below where peers are, understanding that they still need to be higher than where we are today.

Speaker Change: Hey, good morning. Thanks.

Chris: Alright, yes, looking at the at the CRE sales that you did this quarter.

Chris: Being able to do those at par is great.

Chris: I guess, that's a little surprising just given where rates are and if there wasn't even a rate mark on there could you give us any detail on the term and yield of the type of loans that were sale are sold and if there was any retained credit.

Chris: So I don't know if your question's about kind of the immediate term or kind of where we view ourselves in the long term. But, you know, if you look at that near-term expectation column, all these metrics reflect kind of organic efforts or, you know, things on the margin, like what we did this quarter in terms of selling off certain commercial real estate loans at par. So, you know, there are no significant rash actions that are embedded in the near-term expectation column. And then it's a continuation of those efforts over time that gets you over to the right-hand column.

Chris: Participation on that.

Tom: Yes, it's Tom here.

Chris: These were participations for the most part those participations.

Chris: This range, probably from I think seven 4% and up.

Chris: Fixed side was seven four to seven five they will all participated out at par we retained a portion as lead bank on those.

Michael D. Hagedorn: So I'm not sure if that's the answer, but... Yep, that helps. Just to follow up on that, would there be any situation where you would do a credit link node or some sort of RWA mitigation to accelerate that? You've seen some peers do that with success.

Chris: The floating side, they were mostly prime plus construction allowance and again, we retain a position into us.

Speaker Change: And I think that last point is pretty important too because we're preserving our customer relationships and as you heard RSA in the prepared remarks, some increase a very valuable asset class will remain in it we have a deep pool of high quality commercial real estate borrowers, but there are ways that we can balance the need to manage the balance sheet with preserving and building those customer.

Chris: I would say that all RWA optimization opportunities are on the table, and there are certain portfolios that lend themselves more to that than others. But we have a very diverse balance sheet, and we have portfolios like auto and residential that could be good opportunities for transactions like that. Okay, great. And then maybe just two hours for housekeeping. Do you have, maybe I missed it, the CRE concentration metric in the first quarter and then also the, you know, quarter on quarter change in the criticized classified special mention? I know you mentioned a little bit at a high level, but any specifics there?

Chris: Relationships.

Speaker Change: Okay. Thanks, and then following up.

Chris: What's the expectation for deposit growth from here.

Chris: And then as we look at some of the promotional.

Chris: Products that are that are rolling off where are you seeing those.

Chris: Yeah.

Chris: Coming on where is the new product coming in terms of term and price.

Michael D. Hagedorn: Yeah, the CRE ratio is going to be about 464%, so it should be down about 10% from December 31st. And Marc, on the migration, as we mentioned, approximately 500 migrated into Criticize for the Quarter, a little granularity on that, disproportionately in office, which should not be a surprise with what's going on in the market today. All right, perfect. Thank you. Thank you, Chris.

Speaker Change: While we've continued to have the noninterest bearing rotation.

Michael D. Hagedorn: One of the really bright spots has been the growth savings and now which is more than offset what we've lost in noninterest bearing or rotated into noninterest art out of noninterest bearing into other products and the growth in our niche businesses has been very strong as well and maybe a harbinger of or an indicator of the future.

Jon Glenn Arfstrom: Thank you. One moment for our next question. Our next question comes from Jon Arfstrom, from RBC Capital Markets. Please go ahead.

Michael D. Hagedorn: Both in the strength there is just in the first quarter alone on a net basis, we added over 3000 net new deposit accounts.

Jon Glenn Arfstrom: So we feel pretty good what I'm, telling you is I think the growth is going to come out of the niche businesses and the continued efforts in our retail branches to grow households, and to the extent that we could see a flattening of rotation of noninterest bearing that's only going to help us maybe Jared outlet just just two different pieces to that.

Jon Glenn Arfstrom: Hey, thanks. Just a follow-up on the, yeah, follow-up on the last answer to Chris's question. Are you guys telling us just to expect... hire criticized and classified loans each quarter? It sounds like you're doing a deep dive, maybe every quarter.

Jon Glenn Arfstrom: Last call, we talked about at least me specifically some of the disappointment I had and where the funding cost headcount within the organization. So we were very proactive in going out and looking at $10 million of different deposit products across the organization and lowering those from a 40 basis points and that did not happen in the first period, assuming that the first month of the quarter, but it happened throughout the <unk>.

Marc: But how do you want us to think about what's ahead just to prepare us for that? I point to, this is Marc, just pointing to what Ira spoke about earlier. We did a special review of the sensitive asset classes and overall portfolio, touching a little over 60% of the portfolio in the first quarter with a focus on rent stabilized and office. So while I anticipate, because of the high rate environment, that we will continue to have some migration throughout the year, we do believe that the first quarter migration was elevated because of the focus of the reviews and the percent of the portfolio that was reviewed. That's helpful; thank you for that. Mike... Can you go over your margin expectations again? I think I heard you say that.

Speaker Change: So we think theres going to be some tailwind associated with that as we continue to think about.

Speaker Change: Deposit costs.

Speaker Change: That said the new originations came on very very strong and deposits for the quarter.

Speaker Change: The cost was only three 3% and is well over $1 billion.

Mike: Net new originations that came in.

Marc: And obviously some of that offset some of the higher cost.

Speaker Change: Time deposits that Tom that Darcy me that Mike mentioned that ran off so I think we've done a really good job, bringing in newer deposits into the organization at a much lower cost than with them.

Michael D. Hagedorn: You feel like the margins have troughed and we're going to get a lift in the second quarter, but I just want to make sure I heard that correctly. First, thanks for asking the question. I was feeling left out this morning, but that's good.

Mike: The marginal cost of some of the current deposits that we have here and we've also been able to be very successful in bringing down some of the cost of deposits that sit within that book right. Now. So we believe that theres a lot of tailwind associated with that.

Michael D. Hagedorn: I don't believe I said the word troughed, but, you know, let me go back to the first quarter and then I'll give you the guidance. Generally, the first quarter results were, you know, in line with our expectations on a day count basis, and the modest headwinds as it relates to net interest income were really the non-interest bearing deposits and slower loan growth. But those were also offset by some deposit cost reductions that we've spoken about as well.

Speaker Change: Great. Thank you.

Michael D. Hagedorn: Thanks.

Speaker Change: Thank you one moment for our next question.

Michael D. Hagedorn: Our next question comes from Steve Moss from Raymond James. Please go ahead.

Speaker Change: Good morning.

Michael D. Hagedorn: And we continue to look at that. You know, the guidance being revised slightly down is, again, a function of a starting point with lower non-interest-bearing deposits and, again, the slower loan growth that we talked about, especially when you consider the participations that we visited being in the latter part of the first quarter. So that impact isn't in the numbers in the first quarter as much as it will be in the second quarter.

Speaker Change: Good morning upon deposits here.

Speaker Change: I'm curious when did you guys reduce deposit rates by 40 basis points in the fourth.

Michael D. Hagedorn: There were tranches of.

Michael D. Hagedorn: Deposit classes that we reduce beginning February 1st and then continuing through parts of March.

Michael D. Hagedorn: Okay.

Michael D. Hagedorn: So just.

Speaker Change: I guess basically the idea is to see how they hold and if we stay in the current environment.

Michael D. Hagedorn: And then while we did assume fewer Fed cuts, I would assume most people are doing that, remember that long-end rates are forecasted to be higher relative to where they were as the start-off point in 1231. So, on a net basis, the shifting yield curve, whether it's on the high or the short end, is a modest benefit to us because we're more exposed on the long end. All right. And Ira, if I heard you correctly, you said... With these guidance changes, you'd still expect relatively consistent results. PNR back to what you said before these adjustments, is that right?

IRA: Will you continue to press for additional.

Michael D. Hagedorn: Great.

Michael D. Hagedorn: Yes.

IRA: We manage it weekly we look at the levels that we have not seen any significant change in those levels from the from the groups that were being reduced.

Michael D. Hagedorn: Okay.

Speaker Change: With that and then in terms of on credit here.

Speaker Change: The deep dive you guys took on the specific portfolios.

IRA: You guys mentioned that.

Speaker Change: Had migration there just curious what is the specific reserve for office and then also along those lines just curious.

Ira D. Robbins: So it's just, for us, it's a question of trying to figure out what the provision is, and that's, and you're just saying some modest growth in the reserve. PPNR stays the same, just the geography on the income statements is different, is that right? I think we've tried to give you some guidance as to where those numbers could shake out, but obviously, look, it's market-dependent, as Marc said. We've gone through and looked at a lot of the portfolio already.

Ira D. Robbins: No.

Speaker Change: Are you looking primarily at the specific properties or are you looking at the borrower the borrowers global cash flows I'm just kind of curious as to how those global cash flows are holding up these days.

Speaker Change: No absolutely.

Ira D. Robbins: My address at the end of the question, yes, as part of our standard credit process. We look at not only the property that we financed but the overall global cash flow of any of the developers that we do business with to get that overall view to see if not stress in our property or their stress it is global or vice versa.

Ira D. Robbins: That said, we're gonna continue to monitor the portfolio and do the credit reviews. We believe that that's really been a strong point for us in the ability to have the significant reviews that we do as it's driven down to lower loss-given default.

Ira D. Robbins: So it's been part of a hallmark of who we are in actively managing the portfolio, not just waiting for something to happen. So we are all over every single loan that we have, and we continue to really be, and as market conditions change, we'll adjust them accordingly. All right, fair enough. Thank you guys. I appreciate it.

Ira D. Robbins: Strength strengthening global cash flow and weakness in property all of those factors go in to the risk rating.

Ira D. Robbins: And the migration and portfolio, we don't publish a separate office reserve, but as I mentioned earlier, we are substantially higher level of reserves for criticized assets and if there is an elevated level of criticized assets in our office portfolio.

Jon Glenn Arfstrom: Thanks. Thank you. One moment for our next question. Our next question comes from Manan Gosalia, from Morgan Stanley. Please go ahead. Hi, good morning.

Manan Gosalia: I just want to add to that as many of our customers are in multiple classes of assets not just in a single class.

Manan Gosalia: Right and maybe just in terms of the office portfolio I think it was.

Manan Gosalia: With all the put-and-takes on the loan side that you just discussed, and given the fixed-rate loan repricing and the 40% of loans being floating rate, how should we think about the loan yield expansion from this quarter's levels under a three-rate cut scenario? Look, I think you've seen the pace of loan yield growth has slowed as rates have stabilized generally on the front end, so that immediate benefit has kind of played itself out, probably.

Manan Gosalia: 158, or 160, and I forget the debt service coverage ratio right now but like.

Manan Gosalia: Are a lot of those borrowers in the current environment headed towards one.

Manan Gosalia: Kind of curious as to how much capital a borrower might have to put up to kind of right size.

Manan Gosalia: <unk> loans these days.

Speaker Change: Yes, I think you see the granularity in the portfolio with a $3 million average loan size in that we do look in the individual cases with migrated clearly there was stress and debt service coverage on those assets necessitating the downgrade, but historically.

Manan Gosalia: But you do obviously have some tailwind, and when we show you, I think in the deck when we show that maturing CRE slide, that may be a good kind of guide to help you in terms of what's coming off and then where you're putting things back on.

Manan Gosalia: Our leverage on office assets in our going in coverage was exceptionally strong to long term customers that we have relationships with which we also believe.

Michael D. Hagedorn: We originated loans, loan yields this quarter were still in the high sevens, so I think out of the CRE perspective, our CRE origination yield was 780. So there's still some opportunity to enhance loan yields there. All right.

Michael D. Hagedorn: And the overall performance of that portfolio in the long run.

Manan Gosalia: I appreciate that. And then you noted that you purchased Genesee this quarter. Is there more room to do that?

Michael D. Hagedorn: And how should we think about the level of on-balance sheet liquidity that you want to manage to over the next few quarters? So the Ginnie Mae purchases, obviously, you know they're zero risk weighted, they average about three to four years, and the yield on that portfolio, on the recent purchases, I should say, have been in the 5%, slightly more than 5% range. The runoff on the portfolio, there are really no prepayments, so it's going to be just the stated maturity.

Michael D. Hagedorn: To rightsize things and I think that's the benefit.

Speaker Change: Okay, and maybe just one more related to commercial real estate office.

Michael D. Hagedorn: Payoffs run around $75 to $90 million a quarter, and we would continue to add, we believe, in zero-risk-weighted GINIs at probably five to five and a half percent yields. Got to say, in terms of the on-balance sheet liquidity you need to maintain from here, is there room for that to move up, or do you think you're at the right level? I ask in the context of you also mentioned that the LDR should trend below 100% in 2025, so I just want to get a sense of what the right level of liquidity is.

Michael D. Hagedorn: Are you where.

Michael D. Hagedorn: Are you seeing the migration is it in your larger loans these days or is it.

Michael D. Hagedorn: Is it across the board.

Michael D. Hagedorn: I want to make sure I'm answering correctly. You're referring specifically to, say, FHLB or Federal Reserve availability? I think overall, you're probably going to see a little bit more on balance sheet liquidity. Not to a significant degree, but part of getting the loan-to-deposit ratio down to 100 will definitely be a little bit of the core deposits coming in and being reinvested in securities as opposed to going into loans. But I don't think you really need to look at a significant shift within what that securities book looks like. Got it. Yeah, that's what I was getting at.

Manan Gosalia: Thank you. Thank you. One moment for our next question. Our next question comes from Jared Shaw, from Barclays. Please go ahead. Hey, good morning.

Manan Gosalia: No.

Jared Shaw: Stepping back from brings here IRA just curious here with.

Jared Shaw: The plant to reduce commercial real estate concentrations.

Manan Gosalia: No.

Jared Shaw: It might not be easy to do a deal today, but just curious as to how.

Jared Shaw: This shift is.

Jared Shaw: Changing your thinking on the M&A front.

Jared Shaw: Look I think this is the strategic initiatives and plan that we've outlined for a couple years now. So I think we're just looking at accelerating some of the things that we're doing if there is an M&A opportunity that helps accelerate some of the strategic initiatives. We're definitely something we will look at that said.

Jared Shaw: The guard rails around tangible book value of our real Timmy saliva.

Jared Shaw: Obviously, the valuation of that.

Jared Shaw: In today's market limits, the ability to do some of that but M&A that really accelerate strategic initiatives is something thats definitely that we are as an organization are open to.

Jared Shaw: Thanks. Looking at the CRE sales that you did this quarter, being able to do those up par is great. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.

Jared Shaw: Okay, Great I appreciate all the color. Thank you.

Jared Shaw: Thanks, Thank you.

Jared Shaw: Well before our next question.

Tom: Participation in that. Great. Yeah, it's Tom here.

Jared Shaw: Our next question goes to <unk>.

Tom: These were participation rates for the most part. Those participation rates range probably from I think 7.4% and up. Fixed side was 7.4% to 7.5%. They were all participated at par.

Speaker Change: David <unk> from Wedbush Securities. Please go ahead.

Speaker Change: Hi, Thanks, I wanted to follow up on expenses it looks like we could see a decent reduction here could you talk about what areas you're pulling back on any initiatives that are getting pushed to the back burner.

Tom: We retained a portion as lead bank on those. On the floating side, they were mostly prime plus construction loans, and again, we retained a position in those.

Tom: I think from a macro perspective.

Tom: I think that last point is pretty important, too, because we're preserving the customer relationships. And as you heard Ira say in the prepared remarks, I mean, Cree is a very valuable asset class. We'll remain in it.

Tom: You know, we have a deep pool of high-quality commercial real estate borrowers, but there are ways that we can, you know, balance the need to, you know, manage the balance sheet with preserving and building those customer relationships. OK, thanks. And then following up.

Jared Shaw: What's the expectation for deposit growth from here? And then, as we look at some of the promotional.. products that are rolling off, where are you seeing those coming on, you know, where's the new product coming in terms of term and price? You know, while we've continued to have the non-interest bearing rotation. One of the really bright spots has been the growth.

Speaker Change: Thanks for that and I also wanted to follow up on the question on liquidity I guess to put a finer point on Ed cash and securities as a percent of assets was 11% should we expect that 11% to kind of trend higher here over time.

Michael D. Hagedorn: And the growth in our niche businesses has been very strong as well. Maybe a harbinger of or an indicator of future growth and the strength there. In the first quarter alone, on a net basis, we added over 3000 net new deposits. So we feel pretty good.

Speaker Change: Yes, I think slowly over time, directionally that makes sense, but I don't think theres any bulk action thats going to occur at any point I mean, that's just in general direction. We've trended higher if you look back over the last couple of years and we'll continue to do so.

Ira D. Robbins: What I'm telling you is that I think the growth is gonna come out of the niche businesses and the continued efforts in our retail branches to grow households. And to the extent that we could see a flattening of rotation of non-interest bearing deposits, that's only going to help us. Maybe, Jared, I'll add just two different pieces to that.

Ira D. Robbins: We have a very stable deposit base, its very granular and so we think we're well positioned as it is today, but just directionally too as we grow we will continue to have more cash and securities.

Ira D. Robbins: You know, on the last call, we talked about, at least for me specifically, some of the disappointment I had and where the funding costs had gone within the organization. So we were very proactive in going out and looking at $10 million of different deposit products across the organization and lowering those by 40 basis points. And that did not happen in the first period, assuming in the first month of the quarter, but it happened throughout the quarter.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Ira D. Robbins: Our next question goes to being girl linger from Citi. Please go ahead.

Speaker Change: Good afternoon, everyone.

Ira D. Robbins: So we think there's going to be some tailwind associated with that as we continue to think about deposit costs. You know, that said, new originations came on very, very strong in deposits for the quarter. The cost was only 3.23%, and it's well over a billion dollars of net new originations that came in. And obviously, some of that offset some of the higher cost time deposits that Tom meant or assume that Mike mentioned that ran off.

Ira D. Robbins: Hi.

Ira D. Robbins: Slide 12, and 13 with debt service coverage ratios were really helpful.

Ira D. Robbins: Modest migration as to when do we expect is it fair to say that all of those now include 2023 annual or are we still waiting on a little bit I'm just trying to look for the most up to date type of ratio there.

Ira D. Robbins: On a large portion of our portfolio. We do have updated current rent roll information I don't believe a 100% of them, though clearly include 2023 numbers and we think about.

Ira D. Robbins: So I think we've done a really good job bringing in newer deposits into the organization at a much lower cost than the marginal cost of some of the current deposits that we have here. And we've also been able to be very successful in bringing down some of the cost of deposits that sit on the book right now. So we believe that there's a lot of tailwind associated with that.

Ira D. Robbins: In all asset classes other than office, we've seen strength.

Ira D. Robbins: NOI growth.

Speaker Change: Gotcha, and then I notice of multifamily down here in the Southeast, Florida, Alabama.

Jared Shaw: Great, thank you. Thank you. One moment for our next question. Our next question comes from Steve Moss from Raymond James. Please go ahead. Good morning.

Stephen M. Moss: Kingdom fusion amount quarter over quarter any commentary on that.

Stephen M. Moss: Then we will go back and take a look at the number you mean the debt service coverage came down.

Stephen M. Moss: Just following up on deposits here, just, you know, curious, when did you guys reduce deposit rates by 40 base points? There were tranches of deposit classes that we reduced beginning February 1st and then continuing through parts of March. I guess basically the idea is to see how they hold and if we stay in the current rate environment. Will you continue to press for additional deposit rate cuts? Yes, we manage it weekly. We look at the levels, and we have not seen any significant change in those levels from the groups that we're reducing.

Stephen M. Moss: Yes. It went from basically it also happens to be the same number.

Stephen M. Moss: Now I'll go back and take a look at it because it happened to be the same number as the ROE above and so on.

Speaker Change: I'll take a look at it and get back to everyone.

Speaker Change: Gotcha, Okay, and then my last week.

Stephen M. Moss: It's been a long call and I apologize if you are going to repeat yourself, but did you guys give.

Stephen M. Moss: Monthly spot.

Stephen M. Moss: The spot rate on deposit costs.

Stephen M. Moss: We did not give a spot rate, but you can see in the IP that the total deposit costs went from 31, 3% to $3 six other up three basis points.

Stephen M. Moss: A lot of the deposit cost changes, yes, okay.

Speaker Change: Alright. Thanks.

Speaker Change: Thank you. Thank you.

Speaker Change: One moment for our next question.

Michael D. Hagedorn: Okay, appreciate that. And then in terms of credit here, with the deep dive you guys took on the specific portfolios, you mentioned that, you know, you analyzed the office portfolio, had migration there, just curious, you know, what is the specific reserve for office? And then also along those lines, just curious, you know. Are you looking primarily at the specific properties, or are you looking at the borrower's global cash flows? I'm just kind of curious as to, you know, how those global cash flows are holding up. No, absolutely not.

Michael D. Hagedorn: Our next question comes from Matthew Breese from Stephens, Inc.

Speaker Change: Please go ahead.

Speaker Change: Hey, I had just two quick follow ups. The first of all just on the taxi medallion charge off.

Michael D. Hagedorn: The remaining balance we have $52 million left and portfolio, that's fully reserved down to current market prices for the charge offs that we experienced this quarter that was also fully reserved for it was one relationship of a customer who had been paying we were in a long term.

Tom: Let me address the end of the question. Yeah, as part of our standard credit process, we look at not only the property that we finance but the overall global cash flow of any of the developers that we do business with to get that overall view, to see if there is stress in our property, or there is stress in this global or vice versa, you know, strength, strength in the global cash flow and weakness and property, all of those factors go into the risk rating in the migration and portfolio.

Tom: Term negotiation kind of hit a standstill subsequent to the charge offs, we have entered into a forbearance agreement.

Tom: And that loan has continued to pay.

Tom: We don't publish a separate office reserve, but as I mentioned earlier, we have a substantially higher level of reserves for criticized assets, and there is an elevated level of criticized assets in our office portfolio. The only thing I just want to add to that is that many of our customers are in multiple classes of assets, not just in a single class. Right. And maybe just in terms of the office portfolio, I think it was 158 or 168. I forget the debt service card ratio right now, but you know, are a lot of those borrowers in the current environment headed towards one?

Tom: Capital deployment priorities and I'm really curious of share repurchases become part of the.

Tom: And I look I think from a capital deployment perspective that allocating capital to grow in the <unk> book is probably not going to happen here.

Tom: There is ample opportunity internally just to serve our current <unk> clients side.

Tom: So I think thats, probably where more of the focus would end up being.

Tom: Well once again, we are seeing strong C&I growth than we have for a couple years now so allocating capital to those specific segments seems to be a much better return test today from.

Tom: You know, just kind of curious as to how much capital a borrower might have to put up to kind of right-size those loans these days. Again, I think you see the granularity in the portfolio with a $3 million average loan size that we do look at in the individual cases with migrated. Clearly, there was stress in debt service coverage on those assets, necessitating the downgrade. But historically, our leverage on office assets and our going in coverage was exceptionally strong for long-term customers that we have relationships with, which we also believe assist in the overall performance of that portfolio in the long run.

Tom: From an M&A perspective, I think once again and if its something thats strategic it makes sense, we would look at it but once again the guardrails around tangible book value or is some of that significant to me.

Speaker Change: Got it that's all I had thank you.

Tom: Thanks.

Tom: Yes.

Tom: I am showing no further questions at this time I will now turn it turn it over to IRA Robbins from for closing remarks.

Speaker Change: Thanks, I just wanted to thank everyone for taking the time to listen to US today and I look forward to speaking to you next quarter have a nice day.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Tom: Steve, we showed the average loan size. I don't like to indicate the granularity and diversity of the portfolio, but in reality, to your last question, and it doesn't apply just to offices, I think across the portfolio, given our average loan size, when a borrower does need to bring additional cash reserves or equity into a deal, you know, these are low average loan sizes that require less in terms of absolute dollars to right-size things. And I think that's a benefit and a component of, you know, loss mitigation and credit management.

Tom: Yes.

Tom: [music].

Tom: Okay, and maybe just one more related to commercial real estate and offices. You know, where are you seeing the migration? Is it in your larger loans these days? Or is it, you know, is it across the board?

Tom: Okay.

Tom: Okay.

Tom: [music].

Tom: So I would say it's really more geographically focused. So our largest percentage of office is in the Florida and Alabama market, and we've seen a much lower level of migration in that portfolio, with the majority of migration in the Northeast, in the New Jersey and New York marketplace. But noting that our Manhattan exposure is quite granular and quite small in the, Okay, I appreciate that.

Stephen M. Moss: And then just, you know, Stepping back from things here, Ira, just curious about the plan to reduce commercial real estate concentrations. It might not be easy to do a deal today, but just curious as to how this shift is changing your thinking on M&A. Look, I think this is the strategic initiatives and plan that we've outlined for a couple years now. So I think we're just looking at accelerating some of the things that we're doing. If there's an M&A opportunity that helps accelerate some of the strategic initiatives, we're definitely something we would look at. That said, the guardrails around tangible book value are real to me.

Ira D. Robbins: So obviously, the valuation in today's market limits the ability to do some of that. But M&A that really accelerates strategic initiatives is something that we as an organization are open to. Okay, great. I appreciate all the color.

Stephen M. Moss: Thank you. Thanks. One moment for our next question. Our next question goes to David Tarverini, from Wedbisch Securities, please go ahead. Hi, thanks.

David Jason Bishop: I wanted to follow up on expenses. It looks like we could see a decent reduction here. Could you talk about what areas you're pulling back on and any initiatives that are getting pushed to the back burner? I think from a macro perspective, there will be less activity and volume in certain loan classes, so there's probably going to be some continued reduction in those specific areas. But I think a large part of it goes back to what we talked about last quarter. The core conversion that we had here required significant resources from an internal perspective and from an external perspective.

Ira D. Robbins: And as we continue to get the benefits of migrating onto one core platform, we do believe that there's going to be some savings from that. Definitely, you know, not to the degree I think that we saw the contraction from last year to now. But that said, you know, we do think that there's opportunity on the expense side of the book. Maybe to give you an example to hopefully make this real, prior to core conversion, we ran on three separate GL systems, and we had two different cores.

Ira D. Robbins: We closed the books this quarter the fastest we've done in the time that I've been at Valley, so that's a good example of showing the efficiency of the core conversion and how it has ancillary benefits that kind of spill through the whole organization. Thanks for that. And I also want to follow up on the question on liquidity. I guess, to put a finer point on it, cash insecurities as a percent of assets were 11%.

Ira D. Robbins: Should we expect that 11% to kind of trend higher here over time? Yeah, I think slowly over time, directionally, that makes sense. But I don't think there's any, you know, bulk action that's going to occur at any point. I mean, that's just the general direction. We've trended higher, if you look back over the last couple of years, and we will continue to do so. You know, we have a very stable deposit base. It's very granular.

Ira D. Robbins: And so, you know, we think we're well positioned as it is today, but just directionally so that, as we grow, we will continue to have more cash and security. Thanks very much.

David Jason Bishop: Thank you. One moment for our next question. Our next question goes to Ben Gerlinger from Citi. Please go ahead. Hey, good afternoon, everyone.

Ben Gerlinger: Hi. Slides 12 and 13, the debt service coverage ratios, were really helpful. Notice that a modest migration is one to be expected. Is it fair to say that all of those now include annuals, or are we still waiting for a little bit? I'm just trying to look for the most up-to-date type ratio there.

Tom: On a large portion of our portfolio, we do have updated current rent roll information. I don't believe 100% of them, though, yet they clearly include 2023 numbers that show in all asset classes other than office we've seen strength in NOI growth. Gotcha. And then I noticed a multi-family down here in the southeast of Florida, Alabama.

Ben Gerlinger: Came down a decent amount quarter over quarter. Commentary on that. Ben, we'll go back and take a look at the number. Do you mean the debt service coverage came down? Yeah, it also happens to be the same number. No, I'll go back and take a look at it because it happens to be the same number as the row above, and so, you know, I'll take a look at it and get back to everyone. And then last week...

Ben Gerlinger: I know it's been a long call, and I apologize if you're going to repeat yourself here, but did you guys give a monthly or an exit or spot rate on deposits? We did not give a spot rate.

Ben Gerlinger: You can see in the IP that the total deposit costs went from 3.13% to 3.16%, so they're up three basis points. A lot of the departments are changing. Thank you. Thank you. One moment for our next question. Our next question comes from Matthew Breese of Stevens, Inc. Please go ahead.

Matthew M. Breese: Hey, I had just two quick follow-ups. The first one was just on the tax and medallion charge. What happened there?

Tom: Was that part of the credit review? It just seems like a fairly big charge given how far away we are from the kind of height of the tax medallion days. And what's the remaining balance on that portfolio? The remaining balance, we have $52 million left in the portfolio. That's fully reserved down to current market prices. For the charge-off that we experienced this quarter, that was also fully reserved. It was the relationship of a customer who had been paying. We were in a long-term negotiation and kind of hit a standstill. Subsequent to the charge-off, we entered into a forbearance agreement, and that loan has continued to be paid.

Matthew M. Breese: Great, okay. And then, you know, just in light of a slower loan growth outlook, could you just stack the order for us? Capital Deployment Priorities, and I'm really curious if share repurchases become part of the plan here, even if they are just a little bit. The other thing is understanding, Ira, your comments on M&A. Would FDIC-assisted deals be something you look at should

Ira D. Robbins: That's all I had. Thank you. Look, I think from a capital deployment perspective, allocating capital to grow the CREE book is probably not going to happen here. There is ample opportunity internally just to serve our current CREE clients.

Ira D. Robbins: So I think that's probably where more of the focus would end up being. But once again, we are seeing strong C&I growth, and we have for a couple of years now. So allocating capital to those specific segments seems to be a much better return to us today. From an M&A perspective, I think, once again, if it's something that's strategic and makes sense, we would look at it. But once again, the guardrails around intangible book value are some of the most significant.

Matthew M. Breese: Got it. That's all I had. Thank you. I am showing no further questions at this time. I will now turn it over to Ira Robbins, from foreclosure remarks. Thanks. I just want to thank everyone for taking the time to listen to us today, and I look forward to speaking to you next quarter. Have a nice day. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you for watching!