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spk05: Good day, and thank you for standing by. Welcome to the Valley National Bancorp Q1 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising you to raise your hand. 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 speaker today, Travis Land, Head of Investor Relations. Travis, the floor is yours.
spk01: Good morning, and welcome to Valley's first quarter 2023 earnings conference call. Presenting on behalf of Valley today are CEO Ira Robbins, President Tom 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. Additionally, I would like to highlight slide two of earnings presentation and remind you that comments made during this call may contain forward-looking statements relating to Valley National Bank Corp and the banking industry. 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.
spk07: Thank you, Travis, and welcome to those of you on the call. This morning, I will discuss Valley's response to recent events, and then we'll ask Tom to provide insight on the quarter's loan and deposit results. Mike will then discuss the financial results in more detail. In the first quarter of 2023, Valley reported net income of $147 million, earnings per share of 28 cents, and an annualized ROA of 0.98%. Exclusive of non-core items, adjusted net income, EPS, and ROA were $155 million, 30 cents, and 1.0 respectively. This quarter's financial performance was negatively impacted by seasonal factors related to net interest income and operating expenses. Net interest margin compression partially related to our conservative liquidity build and other operating leverage headwinds. That said, I am extremely proud of the strength exhibited by our balance sheet in this recent period of stress. To be clear, we entered the turmoil from a position of balance sheet and capital strength. Our extremely diverse and granular deposit base contributed to our structurally low uninsured deposit balances and supported our funding stability during the quarter. Our business niches and geographic footprint have positioned us well to benefit from recent disruption. In the last three weeks of March, we opened over 7,000 new deposit accounts, which represented a full quarter's worth of account acquisitions in normal times. These accounts continue to fund, and new customer flows remain strong. From a capital perspective, we continue to benefit from our modest securities portfolio and associated OCI impact. These characteristics, as well as our strong underwriting track record, have clearly differentiated value during this period of stress. As always, during the recent bank failure crisis, our teams were proactive, consistent, and direct in their client communications. This high touch approach further differentiates our organization and is indicative of the premier service-oriented culture that we have built. We are also set apart as one of the top risk managers in the entire banking space. External stakeholders tend to focus on our track record of strong credit quality, but we are equally proud of the other components of our enterprise risk culture. For example, our interest rate risk and liquidity risk management positively differentiated value during the crisis. As a result of our strong risk management approach and confidence in our balance sheet, we were able to bid on the former Silicon Valley Bank. We structured a sophisticated and thoughtful proposal that was strategically and financially compelling for Valley. While our disciplined bid came up just short in the end, we are prepared and positioned to explore future opportunities that may emerge. Valley fills a void in the current banking landscape today, as there are only a handful of commercial banks our size in the entire country. The niche of client we serve is strong, and our opportunities will only expand exponentially as the banking industry further evolves. Over the last 95 years, our organization has successfully navigated a variety of diverse crises. While we remain confident in our risk management approach, strategic vision, and collective path forward, we are laser-focused on diversity and granularity on both sides of the balance sheet and will not sacrifice the high credit standards which have set us apart throughout our history. We continue to provide industry-leading service and expertise to assist our clients and communities in achieving their financial goals. We believe that this long-term approach will drive shareholder value over time. With that, I will turn the call over to Tom and Mike to discuss the course growth and financial results.
spk13: Thank you, Ira. Slide 5 illustrates our stable deposit balances for the quarter. We are very pleased with the performance of our deposit base over the last few months. precious experience following the closures of Silicon Valley and Signature were generally contained to a few larger corporate relationships, which we have been actively managing as rates increased. Our technology banking business performed extremely well during the crisis and experienced only a modest decline in total balances. This team contributed to a significant amount of the new account openings that Ira mentioned earlier. The combination of runoff and lower-cost customer balances and the continued utilization of higher-cost, fully FDIC-insured indirect deposits drove costs higher during the quarter. In general, betas remain in line with our projected path for the year. Slide 6 highlights the diversity of our deposit portfolio. Roughly two-thirds of our deposits come from our stable branch network. Just less than 20% of our deposits are from specialized verticals like our online channel, international and technology, private banking, and cannabis segments. The diversity of available sources of funding continues to provide significant opportunity for Valley to capitalize on disruption across the industry. Our uninsured deposit exposure compares favorably to peers, And we continue to utilize a variety of tools to reduce this further. Most importantly, our robust cash and available liquidity provides significant coverage in excess of our uninsured balances. Slide seven further illustrates the diversity and granularity of our deposit base. Our commercial deposits are spread across our extensive geographic footprint and a variety of industries. This diversity has been critical in defending our deposit base and should continue to provide discrete growth opportunities going forward. You can also see some statistics on the depth and breadth of our client base. We have over 600,000 deposit customers with an average tenure beyond 10 years. Our granular deposit base has an average account size below $60,000. Turning to the loan portfolio on slide eight, you can see an overview of the portfolio's growth and compositions. While quarterly originations continue to decline, net loan growth remains elevated as payoff activity is depressed. Our portfolio is extremely diverse across geographies and asset classes, and both origination and portfolio yields continue to increase. Slide nine illustrates diversity of our commercial real estate portfolio by collateral type and geography. As a reminder, we have an extremely granular loan portfolio with an average loan size of roughly $5 million. From a metric perspective, our weighted average loan to value is 58% and our weighted average debt service coverage is approximately 1.8 times. We believe these metrics compare favorably to peers as we have consistently and conservatively underwritten to higher cap rates. Our experience with recent refinancing activity has been positive given the existing cushion we had baked into past underwriting. Slide 10 provides additional detail on our modest and granular office portfolio. Our office portfolio, including healthcare office, comprises a modest 11% of commercial real estate. This includes approximately 600 million of owner occupied office. Our portfolio is geographically diverse with only immaterial exposure to Manhattan. The credit metrics on this portfolio are extremely strong and we have not experienced any losses in our recent history. Important, the portfolio is largely multi-tenant with a very small average loan size of $2.2 million. We understand the concerns over office collateral in general, but believe our portfolio is positioned to perform well. We have utilized slide 11 at various times in the past. We believe this illustrates the ultimate manifestation of our strong and consistent credit culture in both ordinary times and in periods of stress Valley's credit losses have been well below industry levels. We anticipate this will continue going forward. With that, I will turn the call over to Mike Hagedorn to provide additional insight on the quarter's financials. Thank you, Tom.
spk03: Slide 12 illustrates Valley's recent quarterly net interest income and margin trends. Net interest income declined approximately $30 million from the linked quarter. We estimate that $8.5 million of the reduction was related to the combined impact of the lower day count in the quarter and the drag of excess liquidity added in March. The remaining pressure is the result of continued deposit mix shift into higher cost products and increasing deposit costs reflecting competitive dynamics. Our fully tax equivalent net interest margin declined 41 basis points to 3.16% from the fourth quarter of 2022. Approximately 16 basis points of the sequential reduction was associated with day count and the drag of excess liquidity in March. Remaining compression is largely the result of higher costs associated with incremental funding. As you saw in slide five, cumulative deposit beta increased to 41% in the quarter from 34% in the fourth quarter. While asset yields are expected to reprice higher, the funding cost dynamic will likely result in net interest margin continuing to decline throughout the year absent the impacts of day count and excess liquidity. We anticipate that our 2023 net interest income growth will now be closer to 10 to 12% from the 16 to 18% range provided previously. Moving to slide 13, we generated $54.3 million of non-interest income for the quarter as compared to $52.8 million in the fourth quarter. This sequential growth was primarily the result of higher capital markets revenue and other income, which offset seasonally lower income from wealth, trust, and insurance. On slide 14, you can see that our non-interest expenses were approximately $272 million for the quarter or approximately $264 million on an adjusted basis. The increase in adjusted expenses from the fourth quarter were largely related to seasonally elevated payroll taxes expenses and the higher FDIC assessment. Expenses in other categories were well controlled and declined modestly from the fourth quarter. As a result of seasonal factors associated with day count and elevated payroll taxes, our first quarter efficiency ratio traditionally represents the high watermark for the year. We're not currently revising our guided growth rate for non-interest expenses. However, our revised non-interest income growth guidance will negatively impact our efficiency ratio expectations. While efficiency will improve throughout the year, we believe a full year estimate, around 50%, is more reasonable. Turning to slide 15, you can see our asset quality trends for the last five quarters. The first quarter's 2023 elevated net charge-offs were the result of the further write-down of a CNI loan discussed last quarter and a single development project. These credits were each substantially reserved for and proactively addressed. Underlying credit metrics remain strong. Our allowance for credit losses declined to 0.95% of loans from 1.03% in the fourth quarter. The sequential decline was largely the result of substantial pre-existing specific reserves associated with the quarter's charge-offs. As a reminder, our allowance coverage ratio of 0.95% is still higher than our day one CECL ratio of 0.89%. As a percent of non-accrual loans, the allowance for loan losses increased to 181% at March 31, 2023, from 170% at December 31, 2022. In response to recent environmental turmoil, we added disclosure around our securities portfolio on page 16. In aggregate, securities represent a modest 8% of our total assets. Our portfolio is conservatively managed for ongoing liquidity and is not a profitability tool. On slide 17, you can see that tangible book value increased approximately 2.6% for the quarter. This was the result of our retained earnings and a modest improvement in the OCI impact associated with our available for sale securities portfolio. Tangible common equity to tangible assets declined to 6.82% during the quarter. The sequential reduction is primarily a result of excess liquidity held at March 31st. If our cash position had remained stable from December 31st, 2022, our tangible common equity ratio would have been approximately 7.38%. Our risk-based capital ratios were relatively stable during the quarter. As you can see, given our modest securities portfolio, OCI would only have a minor impact on our regulatory ratios, all else equal. With that, I'll turn the call back to the operator to begin Q&A.
spk04: Thank you. Thank you.
spk05: At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Steve Moss with Raymond James. Steve, the floor is yours.
spk09: Good morning. Maybe just starting off with loan growth here. You saw strong loan growth in the quarter. Just kind of curious as to how you're thinking about the dynamic there and loan pricing as well.
spk13: Yeah, I think, Steve, it's Tom Iodanza. As you saw, we had a 50% annualized growth. I just want to point out how balanced, diverse, and granular it was. We're still averaging below $10 million on our Cree portfolio originations and about $1 million on our CNI originations. It's balanced by region. It's balanced by type. It's balanced in a very diverse way by size and such, as I've mentioned. We previously gave a range of 7% to 9% for the year. We think we'll be at the high end or slightly above that range. at the end of 2023. We have a very strong customer base, a very loyal customer base. 70% of our business comes from that customer base. It's relationship driven. It's priced in a relationship way. We are opportunistically raising spreads wherever we can across the board.
spk09: Okay. And so in terms of raising spreads, just kind of curious, you know, if you're raising spreads relative to whatever index, how are you guys thinking about that? It seems still pretty tight if marginal funding costs are around 5% these days or just kind of any help you can give with that dynamic?
spk13: Yeah, sure. Keep in mind, with the diversity of the types of loans we do, the spreads will vary. We have a very active profitability model, which we use. Again, it's relationship-driven. The spreads will vary based on the risk and type of loan, so it's really hard to give you a figure on that spread. But I will tell you, on average, spreads have probably gone up over 50 basis points.
spk09: Okay. That's helpful. And then maybe just one for me on credit, you know, you did have an increase in delinquencies here in CNI and CRE in the 30- to 89-day buckets. Kind of curious if you could give some color around those projects and, you know, how you guys are thinking about the reserve ratio going forward.
spk13: Yeah, Steve, I think you're referring to the performing Non-accruals or performing accruals there, that bucket slightly picked up. Our non-accruals went down to 50 basis points from 57. That performing accrual went slightly up. That's a function of one customer that's fully secured by cash or in the value of life insurance at about $21 million. You take that out, that bucket also declines. That's the process of getting broad current.
spk09: Okay. That's helpful. I appreciate all the call here, and I'll step back. Thanks. Thanks, Pete.
spk05: Please stand by for our next caller. Our next call comes from Frank Shiridalli with Piper Sandler. Frank, the floor is yours.
spk04: Frank, can you hear me?
spk10: You know, can you talk a little bit about the opportunity to fund that growth? Talk about, you know, where your brokered balances are now on the deposit side. I mean, it seems like, you know, brokerage seems like a reasonable alternative in this environment for funding. But, you know, are you limited in the room there in terms of bringing that higher? Or how do you think about, you know, funding in general here?
spk07: Maybe let me start just with, I think, how we think about funding overall. And then I think, Tom, obviously, you'll speak to some of, obviously, the demands from a loan growth perspective and what that is. But, you know, I think it would probably be incorrect to think every incremental dollar of funding cost comes in here at 5%. During the quarter, we raised over $600 million. What I would deem as core funding, non-specific broker, and the cost of that was a blended 2.50%. And we have a very strong funding vehicle across the entire organization based on the diversity and granularity that we have. When you think about some of the incremental funding costs, obviously a lot of that should be able to the 14.7% annualized loan growth. That obviously impacts the data, and as Tom referenced, we anticipate that really declining a little bit, which will definitely impact the plug that we need when it comes to some of the wholesale funding in the environment today.
spk13: Just to add to that, Francis, you know, as I mentioned, 70% of our new business comes from our existing customer base. We have consistently supported them in all economic cycles at all times. We will continue to do that. We are experiencing a decline in our originations, as you've seen on probably slide eight, if I recall. But more importantly, Our pipeline of approved to be closed loans is down 30% since Q4. So we are seeing that reduction in loan demand. And as part of that, our customers are choosing not to move forward on projects and reducing that pull through of our work in process piece. Yeah, and 1 other component, you know, when you look at the deposit side, if you go back 3 years, we didn't have the ditches and deposit verticals that we have today. So there's 8.5Billion dollars of deposits that came from some of those specialty programs that we referenced in that slide.
spk10: Right. Okay. So, in terms of the, some of the verticals you mentioned, you know, the technology deposits, which is still, I guess, a relatively small piece of the overall pie. I think, Tom, you said they were down modestly, but you also talked about opportunity on that side. So are those, and account openings. So I wonder if you could just talk about the opportunity, specifically with a couple of names that have, you know, the signatures of the world, the Silicon Valley, the opportunity there in the near term to drive growth both loan and deposit growth. And then specifically on the technology side, are those deposit balances now actually up from where they were? Or can you give a little bit more clarification there?
spk07: Thanks. And I think it's something we've been focused on. You know, having a diverse and granular deposit base that we have is something we've been commenting on and driving across the entire organization for the last five-ish years. You know, as Tom mentioned, that $8.5 billion that we're referencing on slide six, zero. of that existed five years ago, right? The average cost of that is 2.17% today. So I think we've done a very good job of being able to originate alternative deposit groups based on different initiatives that we've initiated over the last few years, which I think is now coming to fruition. And I think one of the things that you don't see here, though, is some of the off-balance sheet platforms that we've been able to create as well. We had about a billion dollars, $1.9 billion moved from our balance sheet into treasury accounts still on our platform since October 1st of last year. Historically, those would have been deposits that would have left the balance sheet. At some point, as the inverted curve begins to change, there's obviously an expectation that those will rotate back into deposits on the bank. So we feel really good about the position we've in, all the work we've done over the last five years in creating not just diversity from an on-balance sheet perspective, but diversity from an off-balance sheet perspective. Those deposits that you see on slide six, you know, the 8.5, there is real significant opportunity for continued growth in that. And I think during the quarter, we saw about 15% growth in the cannabis business. And we continue to see expansion of technology accounts across the entire platform. You know, the technology bucket's a little bit interesting. There's obviously some chunkier deposits in there. And some of those deposits, you know, have an airflow based on unique activity activities within those individual clients. One of the clients, a very large percentage of that actually went public. And as a result of that, we lost some of those deposits during the quarter. So it is a very, very sticky deposit base. Over 60% of the technology deposits are non-interest bearing here at Valley, which I think is different from a lot of other organizations as well. So we are really excited about the continued opportunities for growth in these segments.
spk10: Okay. And then just lastly, just a point of clarification from the deck. When you guys mentioned on the page six, slide six, the 31% uninsured deposit number, is that inclusive of the fully collateralized deposits? Are those in that uninsured number, that 4.6?
spk03: Yes, they are.
spk10: Okay, great. Thank you.
spk04: Our next question is coming from David Bishop with Hadoop Group.
spk05: David, you have the floor.
spk12: Yeah, good morning. Good morning. The earnings release notes that some of the short-term funding that you guys added during the quarter has rolled off. Just curious how much has already been paid down or redeemed since the quarter ends?
spk03: This is Mike. As you can see from the the earnings release at the peak, and I'm talking about from 3.9 to 3.31. At the peak during that time, it was in excess of $6 billion. And as we sit today, our cash and cash equivalents at the Federal Reserve or any other cash balance is at $1.5 billion. So it has remarkably come down. And just to be clear about this, this was done specifically for an abundance of caution given the environment that existed post March 9th.
spk12: Got it. And then in terms of the disclosures regarding deposits, I'd be curious, did a lot of customers take advantage of sort of the CDARS ICS system? Just curious what you saw in terms of flows there.
spk03: Yeah, so prior to March 9th, we had just a little over $200 million in that program, whether that be reciprocal or one-ways. The reciprocal balance, as we sit today, is $1.4 billion, and if you put the one-ways on there, it's $1.6 billion. So there has been usage, but I would say probably not as much as you would think. Once again, it goes back to Ira's comments about the resiliency and the opportunities that we have in those various verticals to make that difference up.
spk13: Hey, David, it's Tom again. Just as a point of reference, an example, we were proactive in discussing a variety of verticals to ensure customer deposits. And some of our very largest commercial deposit customers chose not to based on their confidence and faith in Valley.
spk12: Got it. Now, one final question. I think you noted in the preamble, payoffs were down to zero this quarter. Just Curious what they were this quarter versus last. Thanks.
spk13: Yeah, they've been pretty consistent these last few quarters, keeping in mind the higher interest rates really knocked out any type of refinance business. So they really haven't deviated in the last two or three quarters.
spk12: Great. Thank you. Thanks, David.
spk05: Our next question comes from Manon Gasalia of Morgan Stanley. Manon, please go ahead with your question.
spk06: Hi, good morning. Good morning. I wanted to follow up on the last question where you mentioned that cash balances are back down to one and a half billion or so. Based on that, I guess, how should we think about the NIM trajectory embedded within your guidance? So you noted that 16 basis points of the decline in NIM was related to day count and excess liquidity. So is a good starting point for the second quarter about 330 or so in NIM? And then how should we think about the decline in NIM that you saw last quarter, the core decline of about 25 basis points? Should we expect that to slow as we go through the year?
spk03: This is Mike. I'll take the first stab at this. First, I want to point out that the $1.5 billion that we have in excess liquidity on the balance sheet, as we said today, I think the bias clearly for that will be for that to go lower as we see the crisis, at least the immediate impact of the crisis, abate. In my prepared remarks, as you rightly pointed out, the 16 basis points against the margin would put it at $3.32 for the quarter, but I think it's important as you look forward March liquidity adjusted margin was only 3.25%. So we're already starting to see some of that compression, and essentially that compression is coming from two places. One, a continued rotation out of non-interest-bearing and interest-bearing accounts. As Tom alluded to, and Ira both, our mix of clients tend to be savvy, very liquid customers, and so they can take advantage of the fact that they don't need to hold as much of non-interest-bearing. And then the second reason is the inverted curve is causing increased deposit competition, especially on the short end of the curve. And also we're competing against government securities with our clients as well. So the more savvy ones are moving into treasuries. And the good news on that side is they're still staying within the Valley family to do that. So in a different interest rate environment, we expect some of those deposits or those securities to rotate back into deposits.
spk06: Got it. So as you think about the mix of NIB and IB deposit balances, how should we think about that going into year end?
spk03: Yeah, right now we expect the trough, I can't tell you what quarter I think it's going to happen in, but we expect the trough to be somewhere in the mid-20s. So we do expect, you know, continued rotation.
spk06: Got it. And maybe just a quick follow-up there. In terms of the maturity of CDs on your books, you know, I recall that you were putting on longer dated CDs a while back. How should we think about the maturities coming up over the next couple of quarters or so?
spk03: No, we have actually not been putting on, at least in the last year, longer dated CDs. We've been actually, we put some specials on in 22. that were roughly 18 months at the high end. And you'll see all of that come due in the latter half of this year, early 24. Got it.
spk06: Very helpful. Thank you. Yep.
spk04: Thanks.
spk05: Please stand by as we get our next question. Our next question comes from Tim Switzer with KBW. Tim, you have the floor.
spk02: Thank you. I'm on for Mike Pareto. Could you talk about your various deposit niches, every good slide and all of that and across the various industries and categories you have and which ones you think could be the strongest over the rest of the year and possibly as we enter into 2024?
spk07: And, you know, I think, you know, obviously in there we mentioned a bunch of them, and that diversity is really important to us. So, you know, it's not just specialized niches that are focused on one individual slide or one individual pie, excuse me, but it's a lot of individual pies there that really comprise that. You know, if you think about the technology, a slide just in itself with a pie there. Obviously, there's been a significant amount of disruption in the industry associated with that. We opened up over 7,000 accounts in the last three weeks of the first quarter. Another metric is we opened up 4,500 business accounts in the first quarter of 2023, and that's equal to what we would have done in six months back in 2022. So there's been a significant amount of activity across the entire footprint of Alley. And I think there's an opportunity to continue to expand some of the specialized base. When we were able to grow 600 million of deposits in the first quarter at a blender rate of 250, it does reflect the overall diversity. You know, I think the funding cost on an incremental blend basis will come down a little bit as we think about slowing loan growth. So I think a 41% deposit data on the cumulative basis where we are today based on having loan growth at the levels we have really reflect a lot of organic deposit growth that's a little bit hard to see when you try to sort of measure it versus a lot of our peers that haven't really generated the same type of loan growth that we have. So, you know, we do believe that that data will continue to perform well and will probably improve on a relative basis as the loan growth really subsides a little bit.
spk02: Okay. And on the loan growth, my guess is no, just given you're still kind of maintaining guidance there. But have you heard from customers any signs of slowing investment or loan demand just out there with the uncertainty? I'm wondering if people are starting to become a little bit more cautious what your discussions are like.
spk13: Yeah, you know, as we mentioned earlier, customers have certainly slowed down in their desire to start projects. They're going to wait to see what happens to the interest rate market over the next 12 to 24 months. You know, that's what's created that 30% reduction in our, you know, to be closed bucket of our pipeline. A lot of it is self-induced by the customer base, you know, more so than it is by us. Customers, we're not seeing any deterioration in credit quality. What we are seeing is just a wait and see by the customers.
spk02: Okay. And has the environment caused you guys to tighten your lending standards at all? I didn't get that question. I'm sorry. Has the environment caused you to tighten your lending standards at all?
spk13: Yes, again, we have very conservative underwriting standards to begin with, but we look to tighten, especially in certain buckets of our portfolio. So we consistently do that throughout every cycle.
spk02: Okay, that's all from me. Thank you.
spk04: Thanks, Daniel.
spk05: Our next question comes from Matthew Breezy with Stevens. Matthew, go ahead with your question.
spk11: Good morning, everybody. Good morning, Matt. I know in past quarters we've discussed the outlook for deposit betas through cycle and in the past you provided somewhat of a range. At this stage, is it safe to say that the cumulative deposit beta will end up being closer to the higher end, you know, 40% to 50%? Is that kind of how you see this all playing out?
spk03: Yeah, this is Mike. We clearly think that through the cycle, cumulative deposit beta will be around 50%.
spk07: One of the things I think, Matt, right, is obviously, you know, we've been in banking for a long time, just like what you've seen. You can go back to sort of past environments and see what happens. But obviously, betas in different environments are really a function of what the alternative external variables are as well. And right now, we're in an inverted curve. That inverted curve obviously is going to pressure betas until the inversion changes. So as Mike mentioned, Travis mentioned, and I'm sure a lot of others are seeing today, most of our competition today is in pure banks that are sitting around the corner. Most of the competition sits in the treasury yields today based on where they are. So that deposit beta is going to stay elevated, I believe, as long as we're in this inverted curve. But once we get back to a sort of a normalized curve and a normalized environment, I think the deposit betas will really come back down.
spk03: And you can, this is Mike and Ken, and you can see that in our public disclosure that the cost of deposits was around 196 for the quarter. But for the month of March, it was 2.14%. And we're originating new core deposits around 250. So back to the comment that I think Ira made earlier around don't think that every incremental dollar is being funded by something in the brokerage space, which is closer to five, because we also have a promo rate right now on our internet at 420. So the blended rate will come down, but the beta is definitely going to go up, as I said earlier, due to the competition that we're seeing in the marketplace for deposits, especially post-March 9th.
spk11: And how have deposit flows gone post-quarter end? Has the mix shift continued and are balances up or down ex-brokered?
spk03: The shift has actually been pretty good. A couple of really good examples of that would be in our tech business. As Ira pointed out, early on, 10% of our tech deposits were gone. Only half of those, however, were made up of one customer unrelated to the crisis, and they're only at 5% reduction in March. So we feel pretty good about where that is relative to the overall industry. Another bright spot would be that our branch deposits, even when you consider the fact that people are making tax payments, our branch deposits held in very well in a post-March 9th environment. So the flows haven't slowed. The flows are still good. We opened, as an example, and I think Ira mentioned this in his prepared remarks, 7,000 new accounts just in the month of March. So the flows have been good. But obviously, when you have 15% growth in loans, you're going to have a higher percentage of that being funded by broker just because those balance sheet increases.
spk11: Have you seen any customers or hiring opportunities stemming from signature and dislocation at some of the other nearby banks?
spk13: Hey Matt, it's Tom. We're always going to be opportunistic to add teams of people as long as it follows our relationship driven strategy and our credit standards. So the short answer to that is yes, we do see opportunities.
spk11: Okay. And then last one for me, just on new commercial real estate loans, either those involved in a transaction or resetting into a new kind of five or seven-year fixed rate, what is the ultimate change in value, particularly on commercial real estate office that you're seeing appraisals come in at, particularly for loans that are pre-COVID? Yeah.
spk13: Sure. We are seeing across the board increase in cap rates, as you would expect, more so in the office and retail industry than we have seen in multifamily and industrial. We're not major office players, especially in Manhattan. We have $260 million of Manhattan office. So the NOIs are down, so we would expect that's going to drive the values more so than the cap rates have increased to drive those values. But we have not seen any material deterioration. As a matter of fact, we only have one office loan on non-accrual. It's $315,000. Yeah.
spk07: I think one of the things to really look at, Matt, is really what our day one underwriting was. You know, as an example, you know, multifamily for us, the cap rates were 5.42%, right? And when you look at sort of where the environment's been on that sort of reflects how we underwrote day one. So I think, you know, some of the changes that others are seeing based on changes in interest rates and cap rates. really are going to have less of an impact on us. And I think maybe just going back to an earlier question that Tim might have asked, what are our clients doing? We're very fortunate to have a very strong, knowledgeable client base that has been in the business for a very long time. And they're really the first line of defense here. I was with a client the other day. They actually walked away from a $3 million deposit that they had on a project because they thought the economics just didn't work out now and there were other opportunities that were going to happen. So Our client base didn't just get into the real estate market three, four, or five years ago. They've been in for a very long time. They're very astute, and I think there's going to be a lot of ability for us to help support them as they continue to look at opportunities that are going to come about in this economic environment.
spk13: Yeah, and Matt, just a final point on this. A wave average loan-to-value on our real estate portfolio is 58%. On our office portfolio, it's 54%. So there's tremendous cushion in our previous underwriting standards, as Ira had mentioned.
spk11: Great. I appreciate it. That's all I had. Thanks for taking my questions.
spk12: Thanks, Matt.
spk05: Our next question comes from John Afstrom. With RBC Capital Markets?
spk08: RBC. John, go ahead with your question. Good morning. Mike, I was writing kind of fast. Can you go over the efficiency ratio guide again and what you're thinking on overall expense growth?
spk03: So as a reminder, if you were to go back to first quarter of 22, you would also see an efficiency ratio that started with a 53 to the left of the decimal place. So for us to be at 53 in the first quarter, based on the seasonality of some of our expenses, that being the largest portion of it being the various payroll taxes associated with compensation-related expenses, it's not unusual. And I also want to point out the second thing that is a large impact on the expense side, which is the increase in FDIC assessment rates. That increase, that two basis point annual increase in rate drove a $2.3 million increase in our expenses as well. So when you back those out, as we've said in the past, our long-term goal is to have it below 50% efficiency ratio. When you back those out and you consider the NIM compression that we've talked about previously, it seems reasonable to think that the bias right now might be slightly over 50% for the remainder of 2023.
spk08: Okay, so you're saying for the remainder of 23 from here?
spk03: Yeah. Yeah, so what I'm saying is 53 is seasonally high, and I think that something over 50 wouldn't be that terribly new. I'm not talking about 53, by the way. We're talking 50, 51, 52. Yeah.
spk08: Okay. And how about the C piece of the equation? Any drivers or anything to call out in terms of your expectations there?
spk03: Yeah, two things I think are really important. One, I hope it doesn't get lost and everything else that's going on. The income was actually pretty good in the first quarter. It was up over the fourth quarter. And when you look at the drivers of that, the swap and the FX business, the FX business came to us from Leumi and we're selling the Valley legacy customer base into that. Those were strong. And then the one negative that's in there that will come back is there is some seasonality to how Dudley recognizes their revenue, and we expect that to come back in the second quarter. So I feel pretty good about fee income.
spk08: Okay. Thank you for that. And then, Ira, you brought up the bid on SBB, and you talked about how you're open to opportunities. You know, that would have been a bigger deal. But what might – What might make sense for you guys, and are you seeing any more or less in the way of opportunities to do something strategic?
spk07: I would say I think there's going to be a lot of opportunities available to us, and I think it's already a function of the granularity and diversity that we have today within our balance sheet. We've identified a couple of core strategic initiatives. the organization to reduce some of the concentration and create to help expand some of the alternative funding sources, you know, as well as continuing to identify alternative non-interest income sources. So I do believe there's going to be opportunities out there for us. You know, that said, you know, for us, it really has to align from a strategic perspective, and I think that's really critical. We have a lot of internal and organic opportunities that are really tremendous to us, and it's it would be incremental for us to really go ahead and look at something else. So I do think there's going to be other opportunities. I think we'll be able to look at them, but I think we'll be very disciplined, sort of like we were on the SBB bid. It has to make both strategic sense for us as well as economic sense for us. One of the things that I've been focused on for the last five years is making sure that our tangible book value grows. And I think it's something I'm very, very proud of when you think on a relative basis, we've done much better than our peers in tangible book value growth over that last five years. So that's something that sort of remains top of mind to me.
spk08: Okay. All right. Thank you. Appreciate it.
spk07: Thanks, John.
spk05: That concludes our Q&A. I'd now like to turn it back over to Ira Robbins for closing remarks.
spk07: I'd like to thank everyone for taking the time to join us today, and we look forward to talking to you next quarter.
spk05: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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