Valley National Bancorp (VLY) Q3 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session instructions will be given at that time. [Operator Instructions] As a reminder this conference is being recorded. I'd now like to turn the conference over to your host, Senior Vice President, Public Relations, Mr. Marc Piro. Please go ahead.

Good morning. Welcome to Valley's third quarter 2015 earnings conference call. If you have not read the third quarter 2015 earnings release that we issued earlier this morning, you may access it from our Web site at valleynationalbank.com. Comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements. Now, I'd like to turn the call over to Valley's Chairman, President and CEO, Gerald Lipkin.

Thank you, Marc. Good morning and welcome to our third quarter earnings conference call. This morning, we are excited to announce Valley's third quarter operating results a multi-faceted plan design to improve Valley's immediate and long-term financial results as well as details surrounding the recently approved CNL bank acquisition in Florida. For the quarter, Valley generated net income of available to common shareholders of $33.9 million, an increase of $1.9 million or 6% from the second quarter. Loan growth was strong across all categories and geographies as the bank opportunistically purchased $429 million of residential mortgage and multi-family loans augmenting strong organic loan growth. For the first nine months of 2015 organic loan growth exclusive of purchases and participation was approximately 6% annualized with total loan originations exceeding $2.3 billion an increase of approximately 10% from the same period one year ago. Valley strategy to supplement organic loan growth with loan purchases is in large part simply a redeployment of short-term liquidity in cash from the investment portfolio to earning assets with shorter duration and a higher yield than those prevalent in the marketplace. Since the beginning of the year, cash and investments have declined nearly $800 million with the investment portfolio now comprising approximately 14% of the bank's total gross earning asset portfolio. We believe the current size and composition of the investment portfolio to be appropriate based on current interest rates and economic conditions. In addition to the multi-family loans acquired during the quarter, Valley purchased a significant portion -- portfolio comprised in part of adjustable rate one-to-four family residential loans. During the quarter, Valley sold approximately $40 million of fixed rate organic loan originations recognizing approximately a $2.0 million gain on sales. We anticipate continued loan sale revenue coupled with a contraction in residential mortgage balances as much as the new fixed rate production is expected to be originated for sale. As we have stated in the past, many of the purchased loans against -- assist Valley in meeting its CRA obligations. While we strive to meet those obligations to move organic originations, the limited supply of high-quality, CRA qualified loans is somewhat limited and competition for them is intense. From a macro perspective, we continued to believe that maintaining Valley's diverse balance sheet comprised of both consumer and commercial loans remains the prudent approach for the long-term success of the bank as each portfolio contains unique cash flow and interest rate characteristics in varying interest rates environments and economic cycles. The new origination yield on certain portfolios may exacerbate net interest margin compression. However, we believe extending asset duration at this point in the economic cycle is analogous to sub-prime lending pre-2008. As if the interest rate environment wasn't demanding enough, the competition -- the competitive landscape remains difficult. As competitions liberalization of lending terms and conditions within our market, it's most dramatic. We have witnessed -- we've witnessed since prior to the financial crisis in 2008 combined these external portions create a challenging environment for Valley to deliver a sustainable long-term shareholder value while most importantly maintaining the bank's credit culture and risk profile. Today we announced steps we are taking to enhance our cost reduction initiatives in conjunction with a restructure of the bank's borrowing portfolio which should give rise to improved earning results and more importantly position the bank for continued long-term success. During the second quarter, we announced our intent to close 13 legacy branch locations during 2015, largely within the banks New Jersey footprint. Today we're expanding the plan closures by approximately 15 additional legacy branches representing a 13% reduction in total branches by the end of 2016 as compared to the start of the third quarter. The right sizing of Valley's branch network through closing or downsizing branches is a major component in the bank's organizationally wide cost cutting initiatives. At this point, we wish to emphasize the fact that we still believe in the value of a well-structured branch system position to serve the needs of our current and potential clients both living and working in our marketplace. What we are focusing on is eliminating redundancy and oversized branches throughout the network with alternative delivery channels lowering foot traffic at branches, it has become apparent that multiple offices in close proximity to each other is not a winning approach. Strategically positioning our office within a few miles of each other accomplishes our objective to service customer need while better controlling expenses. Also, we wish to note that many of the branches we are closing were the result of mergers where overlaps were tolerated. Most notably none of the branches selected for closure are located in low to moderate income areas as we do not wish to diminish our CRA efforts. In total, we plan to reduce non-interest expense by approximately 4.2% comprised of $10 million in specific branch savings coupled with an additional $8 million attributable to non-branch staff reductions and enhancing the utilization of technology to streamline various aspects of Valley's business model. We anticipate recognizing a significant portion of the cost saves in 2016 with the [remaining] [ph] to realize the following year. As to the cost saves, Alan provide additional details in his prepared remarks. While the reduction in non-interest expense generated from the cost saves is significant, it alone will not bring our bottom line to the level we find acceptable. To that end, this month we prepaid $795 million of borrowings with an average cost of 3.78%. Valley will incur a pre-tax, prepayment penalty in the fourth quarter equal to approximately $50 million. The [added] [ph] replacement funds have a duration of approximately one-year and an average fixed rate cost of 0.56%. We anticipate a boost to the banks annual net interest income of approximately $26 million or approximately $0.07 per share as the result of the transaction. We also note that even after recognizing the prepayment charge, we still anticipate showing a profitable fourth quarter maintaining Valley's record of never reporting a losing quarter. Also at this time, we anticipate subject to Board approval that we will continue to pay our normal quarterly cash dividend at its current rate of $0.11 per share. Waiting until now to prepay the debt is justifiable in our thinking because as we have begun to approach the normal maturity of the debt, the prepayment penalty has shrunk to a more manageable level. Had we prepaid the debt much earlier, the impact of capital would have been significant and the common stock cash dividend may have been dramatically impacted. In addition, in March and April of 2016, $182 million of additional borrowings costing on average 4.69% will contractually mature requiring no prepayment penalty to be taken and further improving the bank's net interest income. Another $75 million at 5% will mature on July 25, 2016. As I mentioned earlier, the interest rate and economic environment remain challenging. The steps we are announcing today will enable Valley to expand net income while not denigrating the bank's conservative credit culture and risk profile. Instead, we intend to lever these core competencies to further expand the bank's operating footprint and captured greater market share. Valley is a growth story. In addition to lifting our organic loan growth, we acquisitively entered the Florida market in late 2014 with the 1st United bank acquisition. Since that time, the Florida franchise has produced double-digit loan growth consistent with our desire to make a more important difference Valley embraced a dual strategy to grow Florida book in an organic and in an acquisitive manner. In May of 2015, just seven months after closing on the acquisition of 1st United, we announced the agreement to acquire the $1.4 billion asset CNL bank. On October 23, 2015, we announced Valley had received final OCC approval to merge in CNL, which will be closed later this quarter. Combined with our Florida operations under Valley's single charter CNL will help us significantly grow our Florida banker team through the addition of many seasoned and highly regarded bankers, give us a new or reinforced presence in Florida's major population centers, and of course, Valley's Florida operations to be an even more important contributor to Valley's earnings and market share. As with the 1st United acquisition we anticipate having CNL completely integrated on to our data systems within a few months following the closing. We are excited about the initiatives announced today. We believe each will provide an opportunity to generate improved financial performance while enabling Valley to grow the balance sheet in a responsible manner cognizant of both long-term interest rate risk and credit cycles. Alan Eskow will now provide some more insight into the financial results.

Thank you, Gerry. For the quarter, Valley's fully tax equivalent net interest margin was 3.09% a decrease of 13 basis points from the second quarter. The linked quarter reduction is largely attributable to a decrease in customer swap fee income contraction in loan recovery income, combined with the decrease in accretion to Valley's legacy covered loan portfolio. In total the sequential quarter decline as a result of these items was approximately $5 million. Valley's core margin exclusive of the aforementioned decline approximately 2 basis points from the second quarter as Valley's cost of deposits increased by 1 basis point to 0.41% and the yield on interest earning assets declined 2 basis points, once again exclusive of the $5 million in items previously referenced. For the period, the yield on taxable investments increased 17 basis points to 2.67% as premium amortization declined by $1.3 million largely due to a decline in MBS pay downs of 19%. As Gerry referenced earlier in October, the bank prepaid approximately $800 million of borrowings with an effective cost of 3.78%, replacement funds were comprised of term, fixed rate brokered money market deposits and termed fixed rate repurchase agreements. The average duration of the new funds is equal to approximately one year for the weighted average cost of 0.56%. We anticipate Valley to recognize approximately a two month benefit in the fourth quarter due to the restructure ultimately being fully recognized in the first quarter of 2016. For the fourth quarter, we expect a reduction in borrowing costs equal to $4.3 million lowering the bank's total cost of average long and short-term borrowings to 3.1% from 3.72% as recognized in the third quarter. The full net interest income and margin impact of the prepayment will be realized in the first quarter as we anticipate the cost of borrowings to decrease an additional 31 basis points. In addition, during March and April of 2016 approximately a $182 million of additional borrowings is scheduled to mature. These borrowings currently have a weighted average cost of 4.69%. Based on the bank's current interest rate risk profile we expect to replace these funds with the duration similar to that of the funds used to replace the prepaid borrowings. Non-interest income for the quarter -- increased slightly from the prior period as increases in gain on sale of loan revenue was in-part mitigated by the moderate level of losses on assets largely recognized in conjunction with the branch right-sizing initiative announced in the second quarter. As Gerry alluded to in his prepared remarks, during the third quarter Valley acquired approximately $334 million comprised in-part with adjustable rate residential mortgages. As a result of the purchase coupled with the bank's asset liability risk management program Valley intends to originate and sell most of the new fixed rate residential mortgage reduction. Non-interest expense for the quarter was $108.7 million, an increase of $1.3 million from the prior linked quarter. The increase is largely attributable to valuation adjustments on certain OREO properties equaling $1.1 million; $700,000 of additional amortization expense attributable to tax credits and approximately $200,000 of professional and legal fees associated with the pending CNL acquisition. During the quarter seven branch locations were closed in conjunction with the bank's previously announced branch right-sizing program. In conjunction with a macro assessment of bank wide expenses, we now intend to increase the total branch closings to approximately 28 or roughly 13% of the entire branch network from when the strategy was initially announced. We expect to reduce annual operating expenses by approximately $10 million once all 28 locations have been closed. Further, $8 million of additional annual cost saves have been identified, largely resulting from reductions in staff and improved use of technology throughout the organization. We anticipate recognizing a significant portion of the pro-rated cost saves throughout 2016 and the remaining savings will be realized by the end of the first quarter in 2017. Of the total annual savings approximately $12.5 million or 70% of the total saves will be recognized through salary and benefit reductions. We intend to recognize severance expense of less than $1 million in the fourth quarter as a result of the reductions in staff. Approximately $4.3 million of the total annual cost reductions will be recognized in occupancy and equipment expense largely attributable to branch closings. We expect to recognize approximately $3.5 million in non-recurring expenses during the course of 2016 as the branches are closed. The remaining $1.2 million of annual cost reductions will be recognized in the other expense category with the majority realized by the second quarter of 2016. The total completed cost saving initiatives when combined with the borrowing restructure are expected to increase annual pre-tax net income by approximately $44 million. The effective tax rate for the quarter was 22% a decline from the 28% rate recognized in the second quarter. In the fourth quarter, the effective tax rate directly attributable to the $50 million prepayment penalty will be approximately 35% while we anticipate the effective rate on Valley's ordinary operating results to range between 25% and 27% once again exclusive of the prepayment penalty. Asset quality as of September 30 was solid, as gross loan loss recoveries of $3.7 million exceeded gross charge-offs by $1.7 million. We recognized $94,000 of provision expense or credit losses during the quarter when combined with the net recoveries increased the bank's ending allowance for credit losses from $104.9 million in the second quarter to $106.7 million as of September 30. Total non-accrual loans increased slightly for the September second quarter that's the loan represent 0.39% of the bank's total loan portfolio. In conclusion, we are excited about the bank's future prospects. We look forward to consummating this CNL bank acquisition in December. We believe the growth prospects for the bank are solid, combining both synergies from CNL with improved net income spearheaded by today's announced cost savings and balance sheet restructure. This concludes my prepared remarks and we will now open the conference call for questions.

Okay. [Operator Instructions] Your first question comes from the line of Frank Schiraldi from Sandler O'Neill. Please go ahead.

Hi, guys. Good morning.

Good morning.

Just a few questions. Just first on the -- just want to make sure I understand, to talk about the expense saves both the branch and non-branch cost save initiatives. It sounds like the message is that, these saves you talk about are basically falling to the bottom line rather than a portion being reinvested into things like technologies. Is that a fair way to think about it, that mostly this is falling to the bottom line?

A little bit of both. Most of it will fall to the bottom line. However, we're investing in technology to grow the bank technologically. That is also built into our budget. So, what we are talking here is saves.

Well, it does include some of the technology expenses that we will incur as a result of what's going on in the process. So, some of that is already booked in.

Okay. Okay. And then just on the -- when you guys talk in that release about 45%, I will make sure it's 45% of the $10 million in saves from branch rationalization will be in the run rate by the end of 2016. Does that -- is that kind of -- does that include some of the one-time charges you talked about Alan? Is that the reason why only 45% mostly by the end of 2016?

Yes. Otherwise, that would have been higher.

Right, okay. Great. And then, just on the NIM, I guess you talked about the core to NIM compression obviously being fairly modest compared to the reduction and the reported NIM. Just wondering if -- the things like swap income that's running through -- our fees from swap income that's running through the margin, is that unusually low in the quarter or is this is a reasonable starting point for 4Q obviously excluding the restructuring announced?

That number kind of goes all over the place. It was high probably more in the second quarter than anything else.

And the second quarter was high, okay.

Second quarter which was high, yeah.

Okay. And then, I just want to make sure, I heard you guys right on asset purchases or loan purchases, so is the message here now that we will likely see a slowdown there as the securities portfolio is more right-sized?

To some degree, it will be a slowdown. We are as I mentioned, we are under an obligation to meet our CRA targets as we come closer to the end of the year, if we are short as a result of organic originations, we're going to have to look to buy. It's a very difficult number to predict.

Okay.

Yes, I think Frank, just as Gerry said on the CRA, we will continue to -- be looking at that on the resi side. Definitely things we will continue to look at to make sure we meet the requirements that we have and goals that we set for ourselves in order to meet the CRA requirements.

Yes. The bank is acquisitive and we're looking to do other additions. We have to maintain our CRA rating in order to do that. We also feel as good corporate citizens, we should be -- we're maintaining that rating. But it's difficult in our particular market at times to generate organically the total amount of loans that we need. So we have to reach out the buy.

Okay. And then just finally, I don't know if you gave it, I think you've given it before, just to size if you added of the Florida, the commercial pipeline at this point I guess versus three months ago?

So, it's Rudy Schupp. We are running about $90 million for the aggregate pipeline and it was about 60% approved and in closing -- in the 40% in credit. And today, we tend to target between about $170 million to a little over $200 million on any given day. It was about the same mix.

Okay. I thought it was around the same level three months ago, but you're saying no, it's increased significantly from three month ago period?

It was a stepwise increase of -- like candidly points generally after we merged in, we've been able to sustain in that range.

Okay, great. Thanks guys.

Your next question comes from the line of Ken Zerbe from Morgan Stanley. Please go ahead.

Okay. Thanks. Actually first question on the CRA again. Of the loans that you're purchasing over the last couple of quarters, how much specifically relate just to you're buying them just for CRA purposes versus buying extra loans for growth or other needs?

Yes. We don't really disclose that amount.

Okay. May be a different question then, its obviously with the loan purchases stepped up recently over the last couple of quarters, were there something that happened on the regulatory side that I mean I don't want to say that you fell short somewhere. but I'm just trying to understand like what's changed whether your CRA compliance that is actually driving the meaningful amount of loan purchases that you're doing?

When we applied to buy 1st United, number of community groups expressed a displeasure with the volume of loans -- CRA loans even though they were high enough to get us an OCC satisfactory evaluation, they were not happy with it. In order to satisfy everybody we agreed to enhance our efforts along those lines significantly and we have been doing that.

Got it, understood. That makes it very clear.

Ken, let me just make sure we're clear though. Not everything we're buying is because of CRA. We have other lines or reasons of why we do think. For example, the residential a lot of what we bought in the residentials because we like the asset mix, we like the fact that we add some seasonality in some of those loans they were adjustable rate loans in there. To the most part Valley seems to get mostly fixed rate loans. It also was more of a little bit of a pre-funding if you will of what we expected to see during the course of the year and as a result we were able to pre-fund it to help our net interest income if you will, and at the same time come up with some gains on the sale of some of Valley's portfolio. And they're still more attractive than what we're finding in the investment portfolio. So the investment portfolio, I think was down about $106 million during the quarter. We were down 130 odd million in the prior quarter and we need to continue to grow the bank and we would rather grow it by buying loans or originating them that fit our needs.

Got you understood and that helps out tremendously. The other question I had just in terms of the $795 million debt that you prepaid, I ran some of the numbers through back of the envelop and it looks like the present value of the charge that you're taking is pretty much equal to the present value of the savings that you're going to get over the next two years or so. Is that the right way to think about it, or is there other benefits that were not --

It's close. It's not exact. But what I mean I think as Gerry pointed out, number one, if you are doing this way too far from maturity, the quest of that penalty is huge and its precluded us historically from doing anything as we got closer would make more and more sense. We also take a little bit of interest rate risk off the table waiting until 2017 for it to happen to see where the rates will be in terms of locking in some kind of a rate. So we know where we are. We know we've done it. And we don't have to wait until 2017. But generally speaking, we also look at it in terms of like an acquisition. You wouldn't want to create tangible book value dilution in an acquisition that went out five to seven years or whatever that number is. So this is only a two year if you will dilution or approximately two years and we are much more comfortable with that just like they're comfortable doing an acquisition right here.

I emphasize, look it's Gerry again. I emphasize also the fact that had we done this four years ago, the hit to our capital would have been immense. We probably would had to go out and raise more capital, if we would have gone out then and raised additional common equity you'd be paying for that forever. The hit to our equity was small enough now that we'll just bring it back to earnings, but of course, it gave a problem to our capital. Also if we would have done it then it's of this huge hit we probably would had to do something with our dividend that was far more dramatic than we would like. And the way the regulators operate today, if you lower dividend below a certain level threshold, it's very difficult to once again raise it above that again. So we don't have that issue now.

I think also Ken, as you become a little bit of an outlier because of the fact that we have this debt that is so expensive on our books and so and somebody looks at Valley and they think about the fact that the debt will come down, the debt will come down, the debt will come down, when we look at ourselves relative to our peer group and when others are valuing the company, they need to look at us in-light of what current cost of funding is not what it was 5 to 10 years ago and that we're still stuck with. So we think this puts us in a different light on a go forward basis internally against our peer group et cetera. So, we think right now is a good time to be able to do this and continue to look forward into 2016 of more of this prepay -- prepaying or maturing I should say.

Yes. I also mentioned in my remarks, we have two more pieces -- several more pieces that come due both in March and April, and then again, in July which further helps us as we go through 2016.

Yes, okay. Great. Thank you very much.

Your next question comes from the line of David Darst from Guggenheim. Please go ahead.

Hey, good morning.

Good morning.

So it's great, sounds like you've been busier with some good things. Alan, you talked about last quarter some of the technology investments and then I guess it felt like then that we would not see at least much benefits from the cost savings in that first round of branch consolidations. I guess now can you kind of frame what -- can you frame what your technology and kind of internal compliance requirement investments are relative to the second wave of branch savings and then the total other initiatives?

We've been spending a lot of money on technology on a whole bunch of different areas of technology. I think our press release indicated all the different changes that are going on in our branches throughout the system to attempt to make them much more technology driven unless individual driven and that we would have probably less salaries and less staffing going on in a lot of those and that's really what you're seeing and what's going on.

Okay. And is that -- one of those products kind of built into your run rate today, or is it going to continue to build for next year?

No. A lot of actually have been built in.

Okay, got it. Okay. And then, just based on your [indiscernible] profile, once you get the acquisition completed and then what you say you get to the first quarter, do you think you're becoming more neutral relative to how you benefit in a raising rate environment or you become asset sensitive mid-2016?

I think we're becoming more neutral.

Okay, great. And then just with this, do you have any long term ROA targets or a long term efficiency ratio that you might like to --

A lot higher than where we've been; how about we start with that? We're not happy with it. And it's one of the reasons, again, I think when you look at the borrowings and you look at the cost saves and the branch closures we're attempting to get those up to a much higher level than where we've been. We're not happy with the efficiency of running here 70% and we think that you will start to see that come down somewhat the fourth quarter will be a little bit off shelter if you will because of the prepayments et cetera. So to be a odd quarter to use as a measurement, but I think we're getting in the first quarter you'll start to see the benefits of some of the things we have done, and you’ll see some ROAs pick up; you'll see efficiencies go down, so we're working. That's exactly what we're working towards, higher levels than the levels we've been showing. And I think again, if you take just the borrowings alone it's what I said you can't match up against the peer group, and we're still dealing with what happened 5 to 10 years ago, we need to get rid of it.

So it's the 60% an unreasonable goal for the fourth quarter of 2016?

No. For 2016, no.

Okay. Great, okay. Thank you.

[Operator Instructions] Next we'll go to the line of Collyn Gilbert from KBW. Please go ahead.

Thanks, good morning gentlemen.

Good morning.

Alan, if we could start off with just kind of going to some of the expense thoughts here, okay. First if I -- if you could help us understand -- I think you guys were guiding to an expense level of about $103 million for this quarter and it came in about $108 million. Where I'm ultimately wanting to go is what the net effect really will be of this $10 million, so where quickly, as you can so…

So let's -- Collyn, let's get backwards. We thought we would have got in $103 million about two quarters ago and that never really materialized and we've been running more in the $107 million range. This quarter had a couple of items as we indicated some ROA, OREO write downs et cetera that we didn't really expect. And then they came through unfortunately and they hurt us a little bit. There would be some cost in terms of CNL that are going on. There are some additional costs relative to buying tax credits that we utilize to manage our effective tax rate, all that goes above the line and the tax rate is below the line. And I think that we've talked about that before. But we are definitely starting to move that downwards with what we're doing and we expect we're going to get down more like the $016 million level and we're working towards creating a better efficiency on expenses than we've had.

Okay. And if I just -- again, just sort of think big picture here for a minute just to understand the flow. So let's say 108 that's kind of a normal run rate perhaps. You have $7 million coming in with CNLB. And then, I'm just looking obviously on a quarterly basis so that's 115 and then you've got say $2 million or so cost saves from CNLB, so you're 113, I mean that's still a big drop from 113 to 106 more than what you're indicating…

No, no, 106 is -- I didn’t indicate that CNL was part of that, did I? So 106 is where we are now. So whatever CNL was going to be is going to obviously add to that. But106 now because if you take out some of these non-recurring items, we'd get to 106. Then we're going to have the cost saves that we're working on for ourselves going through 2016 and into 2017. So when you factor in those numbers, and then CNL I believe we're going to have about $13 million of cost saves up there run rate of about 30 odd million dollars of expenses. And so those could obviously be added on. So you'd have to factor in 106.5 today not 108. And then, you'd have to take into account in addition to that CNL which would be about $20 million I think, I think it's about $20 million and then which is net of cost saves I'm pretty sure.

That's a full year, well okay.

Yes. That's a full year number. So and then, in addition to that you would have the cost saves we just told you about this morning which is another $18 million.

Okay. With some of that being offset by just investments in the business?

Right, absolutely.

Okay, okay. Can we just talk a little bit about -- just want to understand the dynamics within the core NIM and kind of where that's trending I know in the press release you've indicated you expect it to go lower. But just want to know better so. Do you have -- what the yield was on the purchase loans how that compares to the yield that you were originating and then how that compares to the existing yield?

Our own yields that we put on this quarter were about 345 of our own originated loans. So obviously, with a higher number than that in our portfolio so that has a negative impact as we've been saying all along. In addition some of the loans we bought were also I would say in low to mid-3s.

Okay. So -- the -- when you're talking about the ARMs for low to mid-3s?

Yes.

Okay.

Well, no, I'm combining the fixed rate that we acquired. And so the entire portfolio had say 60% ARMs 40% fixed rate, the fixed rate obviously was at a lot higher level the ARMs were a lot lower level, so I would say that they're probably in the low three range.

Okay, okay. And then, how are you guys thinking about the reserves from here and how that is likely to build obviously, if you're pointing to stronger loan growth and sort of how you're thinking about that going into next year?

I think we're thinking about it in terms of credit quality. We think about it in terms of types of loans and the exposure we have on those loans. We go through -- I think we've talked about this before, we go through a complete methodology. And I don't think we have a target. I think the methodology takes us to where it takes us. And so we've extended our LAP period if you will, which looks back at loss -- the experience factor of how many year and we keep going back in time and it doesn't get any, it doesn't drive us to any higher reserve at this point.

Okay.

Again, Collyn, I think you have to look at the pieces of the reserve as well. And I think we've talked about this before, we have a lot of resi loans out there, we have a lot of coop loans, we have some multi families besides coops, all of those drive to a lower reserve then let's say true C&I loans and that's reflected in our charts where C&I, if you look from last quarter to this quarter, went up. The allocation or the reserve went up. So that's takes into account higher risk of C&I loans.

Okay. Okay. Okay. I will leave it there. Thanks. I'm sorry. Just one thing on the consultant fees. They have been in kind of a big upward swing -- could you talk about what's driving that?

I just thinking generally there is a lot going on, there is acquisitions going on, there is -- we have lawsuits like everybody has that drives it. You have workout and all kind of things with loans that we have acquired. So, I don't think there is anything in particular that we can point to, it's basics --consultant fees --

Okay. All right. Very good thanks guys.

-- and compliance. Yes.

Your next question comes from the line of Matthew Breese from Piper Jaffray. Please go ahead.

Good morning, everybody.

Good morning.

Good morning.

In the press release, you disclosed that you had $159 million in taxi medallion loan exposure. I was hoping you could give us an update on the performance and the credit metrics in some more detail.

Sure. Historically, I guess this sort of flows back to the loan loss reserve and how Valley handles things. We artificially put a cap on taxi medallion loans going back sometime for years of $850,000.

Taxi medallion values.

Values, I'm sorry. Excuse me. Okay. I will get back. We usually put a cap on the value of $850,000. We then lent a percentage in the most cases that were like a 2/3rds advance rate against that. So, our ceiling on taxi medallion loans was significantly lower than that of our peer group at least from what I'm reading in the paper about the amount that they lent on them. The performance on our portfolio as of today remains absolutely perfect. We have and I'm told as of yesterday, we had no delinquencies, I don't know we have any today. As of yesterday, when I raised the issue, we had zero delinquencies. We have -- most of them have personal guarantees and also carry amortization that we require most of them to amortize. And most of the portfolio is about 90% of it is in New York City. So at this point while we are monitoring it closely and keeping a close eye on it, it's all performing, it's all occurring. And we believe that the value would have to drop substantially from the level it's at now before we would even reach a 100% loan to value on the loans. We did feel, it was important to disclose because we're not trying to hide anything from anybody. And in the sense of transparency, we put it into the press release.

Right.

And obviously that is evaluated as part of our loan loss reserve, as we review that every quarter. That's the things we look at.

So it sounds like your cap is in and around where current appraisal levels are for these medallion loans, there is a range but it sounds like it's within that. So for the portfolio, what would you say the average LTV?

Average is a very misleading. It's -- it's probably less than 50% on average.

Okay. And I agree, the LTV is -- the average LTV can be misleading, so do you have any detail as to, what percentage of loans are above call an 80% LTV?

No. No, we're not going to -- I don't think we're going to disclose that. I think we've given you a fair amount of information. The average is around 50%. And we really don't go that high as Gerry said based on the caps we use and so forth. So --

Understood. Okay. That's all I had. Thank you.

Okay.

All right.

And at this time, there are no further questions.

Okay. Thank you for joining us on our third quarter conference call. Have a good day.