Valley National Bancorp (VLY) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the First 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 would 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 first quarter 2017 earnings conference call. If you have not read the first quarter 2017 earnings release that we issued earlier this morning, you may access it from our website 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 would like to turn the call over to Valley’s Chairman, and CEO, Gerald Lipkin.

Thank you, Marc. Good morning, everyone. During the first quarter of 2017, we have seen considerable loan activity in each of our primary markets. While the banking industry continues to experience increased regulatory attention on commercial real estate loans, our enhanced underwriting procedures have enabled us to continue to extend credit in this area and continue to service our experienced borrowers with strong equity positions and good cash flows. Throughout the quarter, we continue to focus attention on improving our position in our portfolio of loans secured by taxi cab medallions. As of quarter end, our average exposure for New York City medallion was $397,000. Two of our highest loan-to-value borrowers are currently in the process of paying down on their loans, which will reduce our average exposure to $375,000 per medallion. One of those borrowers had the highest valuation, which accordingly will be reduced from $600,000 per medallion to $300,000 per medallion. At quarter end, our total New York City taxi medallion loans, prior to pay-downs was $139.4 million, against which we have 351 medallions. The vast majority of these loans are current and show positive cash flows. Also in that portfolio, we typically have personal guarantees in further support of the loan. Many of those guarantors have substantial assets outside of the taxi business, which often add significant value to our loan. While short-term rates are expected to trend positive for Valley, the long end of the curve has not responded in a similar manner. Please keep in mind that the slope of the yield curve is just as important to a bank as the absolute level of short-term rates. With that said, we are pleased to report our strong and much improved first quarter results as compared to the same period one year ago. During the quarter, we produced net income of $46 million, resulting in earnings per share of $0.17, compared to $36 million or $0.14 of earnings per share for the first quarter of 2016. Strong growth in our net interest income and improved operating leverage were instrumental in producing the improved performance. Our return on assets for the quarter was 80 basis points, a significant improvement over the 67 basis points that we reported in the first quarter of 2016. As a result, our tangible book value increased from $5.80 as of December 31, 2016, to $5.88 as of March 31, 2017. The increase of $0.08 per share when coupled with Valley’s $0.11 quarterly cash dividend represents an annualized 13% return on tangible book value. As many of our strategic initiatives outlined in the fourth quarter of 2016 come to fruition, we expect to recognize continued growth in profitability. We have placed considerable emphasis on expanding non-interest income at Valley in order to diversify our revenue stream from primarily net interest income to sources less sensitive to interest rate volatility. In that regard, we have greatly enhanced our residential mortgage banking operations by expanding our range of products, adding staff and upgrading our technology platform. Accordingly, mortgage-banking activity for the quarter was solid and we anticipate increased gain on sale in the latter half of the year as our investment in technology and human capital continue to develop. Also, we have been focusing on increasing our wealth management division and continue to add personnel to this endeavor. Although still early in the process, we are already very encouraged by its progress to date. For the quarter, non-interest income comprised approximately 13% of gross revenue and it is our goal to expand its contribution to between 15% and 20% annually. Another of our major strategic incentives is to improve Valley’s efficiency ratio by rationalizing its expense base. Considering our ever-increasing regulatory expense burden, this is not a simple task. Nevertheless, during 2016, we internally identified and reduced operating expense by approximately $20 million. Over half of those cost saves were achieved through eliminating redundancies in our branch network. To expand upon this effort, in December 2016 we announced a company-wide initiative to enhance earnings which we identified as LIFT. To that end, we have engaged a third-party consultant, EHS to assist us in identifying initiatives and executing on those deliverables. We are pleased that we have nearly completed the identification phase of the engagement and now I would like to call upon Rudy Schupp, to provide more details on this endeavor. Rudy?

Thank you, Gerry, and good morning to all. Before Alan Eskow reviews our financial outcomes, I’d like to revisit one of our longer horizon strategic initiatives. You may recall that we shared our quest to diversify revenue streams to achieve sustained higher growth and to improve operating efficiency. I’d like to spend a moment at a high level on our efficiency initiatives. And then talk more about our lending activities after Alan speaks. So you’ll recall that in January we announced a comprehensive efficiency initiative, as Gerry said, called LIFT. For the last three months, our catalyst teams and our line of business leaders have identified well over 1,000 ideas to either reduce operating expense or enhance revenue. Some of the ideas will not be actionable items, as they don’t meet our LIFT criteria. And yet a significant number will be approved as having a tangible measurable benefit to Valley within the 24-month horizon. In our Q2, 2017 earnings conversation with you, which will be in July, we intend to announce in detail the financial implications of LIFT. We will be very transparent as to the timing and the net impact to financial statements at that time. The implementation phase will be well underway as Gerry said at the time. And as mentioned, we expect implementation to last for 24 months. And will be overseen by a combination of our line of business leaders and a special LIFT implementation team. We consider LIFT to be a significant part of the effort to achieve our strategic initiative of improved efficiency. With that said, let me turn the program back to Alan Eskow to review our financial outcomes for the year and for the quarter.

Thank you, Rudy. Linked quarter net interest income declined $2 million as certain periodic loan fees declined as anticipated. Exclusive of the approximate $5.9 million decline in these fees, sequential quarter net interest income increased approximately 10% annualized. Earning asset yields declined to 3.84% from 3.99% in the fourth quarter largely attributable to the aforementioned items. Partially mitigating the decline in loan yields was an increase in interest income on taxable investments, as market prepayment speeds declined, thus having a positive impact on premium amortization. Interest expense for the fourth quarter declined slightly, although average interest-bearing liabilities increased over $350 million. The cost of deposits declined 1 basis point linked quarter to 0.45%. Non-interest income for the period equaled $25 million, a decline of $7.6 million from the fourth quarter of 2016. The decline is mostly attributable to a decrease in the gain on sale of loans, as Valley transferred from portfolio and sold the large amount of residential loans during the fourth quarter of 2016. The gain on sale recognized in the first quarter is attributable to new organic originations for sale. At the end of the first quarter, we transferred $104 million of residential mortgage loans held for sale, and expect to liquidate that portfolio during the second quarter at a gain of approximately $3 million. We anticipate strong traditional mortgage banking revenue to continue through 2017 although skewed towards the third and fourth quarter as Valley’s efforts to expand its purchased mortgage products are realized. BOLI income for the quarter increased $1.2 million for the fourth quarter as Valley – from the fourth quarter as Valley received incremental death benefit income, which is unlikely to continue into the second quarter. The majority of Valley’s BOLI does not benefit when a death should occur but rather the death benefit is built into the normal income flows as actuarially determined. Non-interest expense for the quarter was $121 million, a decline of $3.9 million from the linked quarter. The decline is the result of a decrease in amortization of tax credits equal to approximately $8 million offset by increases in salary and occupancy. The $2.3 million increase in linked period salary and benefit expense is a function of increases in stock-based compensation expense and other seasonable – seasonal items mainly payroll taxes. Overall direct salary expense increased about 1% as total full-time equivalent staff as of March 31 was 2,842 employees, an increase of only 14 employees from December 31, and a contraction of 55 employees from March 31, 2016. However, we continue to target Valley’s hiring efforts to support the expanded residential mortgage revenue initiative and various technology disciplines as the bank executes on its and has enhanced technology roadmap. Overall, credit quality remains mostly unchanged. We did see an increase in past due loans in the 30 day or more past due, as they were taxi medallion loans totaling $15.3 million, which were matured and current as to payments. Non-accrual loans were largely unchanged that $38.3 million compared to the fourth quarter of 2016, and remained at 0.22% of loans. The allowance for loan losses also was relatively unchanged, as net loan charge offs were $1.4 million, and the provision $2.5 million. The allowance as a percentage of non-PCI loans was stable at 0.75%. I have no further comments, and would like to return it to Rudy to discuss lending activities during the quarter.

Thanks, Alan. Total loans excluding those held for sale at March 31 were $17.4 billion compared to $17.2 billion in the prior quarter. The 5% annualized loan growth is inclusive of $270 million of loans Alan referred to that were transferred to held for sale, comprised of $104 million of portfolio residential loans, and $113 million of fresh originated loans again held for sale. Total origination volume was strong as Valley originated over $930 million of fresh loans in the first quarter compared to approximately $830 million in the same period one-year ago that’s 12% increase. As to commercial purpose lending, new commercial originations for the quarter equaled approximately $650 million relatively in line with the results for the same period one-year ago. And the loans were made across the entire geographic footprint. The $650 million of commercial originations were comprised of $280 million of CRE originations, and $365 million of C&I originations. A $2.6 billion in C&I loans outstanding the portfolio was relatively static despite $365 million of fresh C&I originations. At $2.6 billion in C&I loans outstanding, the portfolio was relatively static, despite $365 million of fresh C&I originations as commercial line usage experienced expected seasonal contraction. Approximately, $175 million of the $280 million of CRE originations were purchase participations. We should note though that we do not expect future purchase loan participations to be at or near recent levels, as our current pipeline of total commercial purpose loans is over $1.3 billion, of which $416 million is approved, pending closing. Also encouraging is that our yield on loans on the margin are increasing in the commercial purpose area, where that yield was – average rates were about 3.62% in March of 2016. They’re 4.09% in March of 2017, so we find that very encouraging. As to consumer lending, indirect auto originations were strong as we originated approximately $140 million in the first quarter, compared to just over $70 million in the same period one year ago. Doubling of origination volume as a function of dealers becoming more familiar with Valley’s process and was pointed out seasoning up of Florida dealer population. At the same time, Tom Iadanza and the auto team have identified and have reduced operating expenses within this business line by approximately 16% or $1 million on a run rate basis beginning this quarter. Additional efforts have been focused on improving the portfolio buy rate. For the month of March, new originations were equal to 3.23%, which is a spread of 200 basis points versus the comparable treasury. For comparison purposes, this spread was approximately 160 basis points for the same period one year ago. Now to residential mortgage, this team closed $163 million dollars versus $85 million for the same period one year ago. Although closings are still skewed towards New Jersey, we have begun to see increased activity in Valley’s New York and Florida footprints. For example, loans closed outside of New Jersey increased from 16% of total volume in Q4 to 28% of volume in Q1 2017. Application volume in terms of number of units was light in Q1. Although, our efforts to introduce a purchase mortgage platform are promising as the average loan size increased from $277,000 in the fourth quarter of 2016, to just over $400,000 in Q1 2017. As to recruiting of home mortgage consultants, we are making great progress, under the leadership of our new head of sales, Mr. Shawn Cassidy. The energy among our team and the mortgage bank here at Valley has never been higher as we seek to make a name for ourselves in our tri-state footprint. So let me turn the presentation over to Ira Robbins, our Bank President to discuss deposit matters and channels of distribution. Ira?

Thank you, Rudy. Totaling core deposits declined a little over 2% to $17.3 billion as of March 31. Well, looking on the surface, the contraction appears significant. It’s largely attributable to short-term surge in deposits recognized between the third and fourth quarters of 2016. On an annual basis, total deposits are actually up, approximately 5.5%. And the bank’s composition of non-interest bearing deposits to total deposits remained strong and relatively unchanged at 30%. As Alan mentioned previously, the total cost of deposits for the quarter was relatively unchanged to 45 basis points. But the total cost of funds declined 1 basis point to 0.72%. Although the deposit cost is in line with the fourth quarter, we are beginning to witness an increase in competition throughout our marketplace. Specifically, consumer money market and certificate of deposit accounts are being targeted. And we anticipate new deposit cost to increase due to competition even if the interest rate environment remains static. The competition appears to be driven by community and regional banks adjusting upward deposit rates for most offerings, coupled with select promotional campaigns being advertised by money center banks. Whether through project LIFT or our independent internal analysis we remain focused on streamlining, enhancing and modernizing delivery channels relevant to our existing and prospective customer base. Within Valley’s northern footprint, approximately 80% of our customers utilize a branch as a means to execute his or her financial transactions. While this trend has declined 5% from the same period one year ago, the high concentration reflects the significance of the branch network as an important touch-point for our customers. More importantly, that data reflects our need to invest in digital delivery channels which ultimately reduce the bank’s transaction costs, while creating a more customer-centric experience. Presently, approximately 64% of Valley’s consumer deposit households utilize Internet banking, an increase from 60% one year ago. Similarly, utilization rates within Valley’s mobile banking app continue to improve as nearly 25% of all consumer deposit households connect with Valley via this channel, an increase from approximately 18% one year ago. In the aggregate, the penetration is positive and moving in the right direction, however it’s not enough. We are focused on increasing and expanding delivery channels to grow the franchise as well as rationalize our expense base. In the fourth quarter, we introduced a loan payment platform through a suite of Internet banking products. Within the first six months, approximately 6,000 transactions per month are now being consummated via this channel. Further, we are in the final stages of preparing a digital interactive tele-program, we intend to introduce in the third quarter. Once again, the goal is to reduce expenses, while providing both current and new customers of safe, secure and effortless medium to interact with Valley. Where historically, Valley’s funding strategies were predicated on the branch, our focus is now complementing the physical footprint with digital platforms and resources such as introducing mobile wallet capabilities or improving Valley’s mobile app. Similarly, through partnerships with Salesforce and nCino, we are investing in technology to enhance customer centricity and appearance throughout our commercial and residential lending platforms. As technology begins to play a greater purpose of Valley, whether it’d be internally by improving processes and efficiencies or externally in the manner in which we connect with our customers, we are introducing a new platform for banking, one which will make us more competitive for today and in the future. With that, we would now like to open the call for questions.

[Operator Instructions] Your first question comes from the line of Frank Schiraldi. Please go ahead.

Good morning.

Hi.

Just a couple of questions on – to start with on deposits, the money market runoff, you talked about the large customer. I guess, in light of our other comments, is it safe to assume that that is due to competitive pressures due to pricing? And then just what sort of deposit betas should we think about or are you thinking about on the money market side here?

So I think when we look at our deposits, Frank, it really is a [chibel to read about] [ph] $700 million increase between the third and fourth quarter. And largely that was attributable to that one customer of about $250 million. We anticipate it being short-term. I wouldn’t say it due to competitive natures. That being said, there was additional runoff of some other large customers that probably were associated with deposit rates within the market. Now, historically our money market rates run at about 50 beta. There’s a lag with that, but I think we’re now beginning to see some movement within those money market rates.

And then just wondered, if maybe more generally on – you could maybe – you talked about NIM expectations. Obviously, this wasn’t a surprise this quarter. You kind guided to it in 4Q. But just wonder how we should think about the NIM here in the short-term.

I think in – we don’t typically give a lot of guidance, but I would say that where we’re at now, I wouldn’t expect any dramatic changes. I mean, I think it was – as was pointed out by Rudy. We are seeing some increases in loan yields coming on. We did see again that slowdown in amortization. So I would say, in and around or where we are today is kind of where we’ll probably be in the near-term.

Okay. So if we think about as the fed – the December hike obviously is in there. The March hike, we’ll see in 2Q. But given how you guys manage the book, basically neutral, right? We shouldn’t necessarily expect that you get any sort of pick up in terms of basis points from these 25 basis point hikes of the fed, is that reasonable?

We don’t really expect it to be anything significant. I mean, again, the hike came at the end of the quarter. So we really didn’t see any benefit whatsoever, but we really don’t expect any major benefit.

Okay. I appreciate. Thank you.

Good morning, everybody.

Good morning, Steven.

Good morning. Hello.

I wanted to first ask a question regarding the LIFT initiative. As you guys have now been through the discovery phase, are you finding more opportunities on the revenue or the expense side?

So, it’s Rudy. And the answer of that would be on the expense reduction side. And I would tell you that by virtue of a thousand ideas, it’s sort of success by paper cuts. It’s what I was saying the other day. It’s a battery of small ideas that exceed our minimum threshold and value, and a lot of really good ideas across the company in all the lines of business. And in saying that, I think it also shows how granular the work has been by both the catalyst teams and the team leaders, the group leaders, the owners of the lines of business. And they’ve done a ton of work. Today, they’re really embroiled with valuing the ideas so they can be sure that the net of cost gain or the net expense reduction is totally real that we can get it over the horizon, so that as a company we can commit to it and report to you in July.

Rudy, are the cost saves only coming from taking out redundancies or are you also considering exiting any business lines?

Really not from exiting business lines, it’s really process improvement. It’s introduction of technology in many, many places. Bob Bardusch, who joined us as our technology leader and teams across the board, all the catalyst teams have often found that there’s an opportunity to automate. And it both helps us from a time to serve customers and it helps us with respect to our cost in doing so. So we’re encouraged because process improvement is huge, because we think we can make that very sustainable.

Yeah, thank you. And maybe shifting gears to commercial real estate, what was the CRE concentration percent at the end of the first quarter?

If you look at it with owner occupied it was about 450%. I know the OCC looks at it without owner occupied. I think we’re around 280% [ph] plus or minus, I have to spend a little more time looking at the numbers there, Steven.

Okay. And maybe just one last one. So BankUnited on their call yesterday talked about more scrutiny on CRE, particularly multifamily. Gerry, you referenced that. But you guys keep buying these loans. Why are you – why do you think you’re not seeing the same level of pressure as some of your peers?

I think a lot of it – I know a lot of it has to do with underwriting. We stress all of our CRE, a lot tougher I think than some of our peer group does. For example, we look as a floor to a cap rate of pretty much 5.5%, when we stress the loans. And that improves our valuations. It gives comfort to the OCC. We look heavily at cash flow. And wherever possible we push for personal guarantees. We are a little bit old fashioned in the way we approach it. But it’s held us in good state with the OCC.

And, Gerry, as others pull out there, given the position you’re in with regulators, would you consider adding more lenders there? I know you’ve been generally participating in multifamily loans, but doing more on your own from an origination…

We are doing a little bit more on our own. We also look to make sure that our portfolio is diversified. It is not our intention simply to build CRE. We would like to see C&I lending building more, where we can do it on a sound footing. So we’re just looking to grow the bank with sound credits in every direction.

Okay. Terrific. Thanks for all the color.

Your next question comes from the line of Brody Preston. Please go ahead.

Good morning, everybody. I’m filling in for Matt Breese. How are you?

Great, Brody.

Hi. So with regards to LIFT initiative, I know that, Rudy, you sort of said that you’re finding more opportunities on the expense side. Last quarter, you said you wanted to get your efficiency ratio down to the mid-50s. And it seems like over a 24-month timeframe you guys could be able to do that. So should we see more of that coming from the expense side than the revenue opportunity side?

I think what we announced it before on it’s a good question, Brody, it was that we expected a split off, and we were roughing it 75% expenses and 25% revenue enhancement. So far, because we’re really nesting on the refinement again of the values, it looks like that guesstimate is holding up, and so it’s clearly skewed toward expense reduction.

Okay, great. And I guess, just pulling on this string a little bit more, on your own you guys have cut like $20 million in costs. So using that sort of as a bogie, you guys don’t accomplish at least $20 million in cost saves, like how successful would you judge the LIFT initiative to be?

We’ve been went on through the whole process to be sure that it was – first $20 million was not easy to get, I would argue that maybe it was a little more focus than what LIFT has done. LIFT is very comprehensive, I mean no one’s exempt, no line of business, no department is exempt. So it’s very, very comprehensive. And I think here that in the end the steering committee gets to make the up or down decision whether an idea sticks or not that that meeting is coming up, and I think we feel very confident that lift is serving our purposes. We’re not prepared at this time to value that in the aggregate, because again the valuation process is really underway. And not a dodge, it’s just that, honestly, these are sort of net numbers, and the way it goes is, as we’ve nested in the process. You can imagine how every day you get that much more refined, that much more in a sense serious about being sure that – it’s the number that we can get. And so I can answer your question more than that at this time.

Okay. That’s fine. And then switching gears a little bit, can you talk about the health of the markets here in Florida, New York, New Jersey in terms of ranking which one is furthest along in the economic cycle in your opinion, and potentially peaking and how would you rank them and why?

Please?

No.

Well, as I said in my opening remarks, we are seeing good loan activity in all of our markets. Florida is showing as a percentage, the strongest growth, right now. Although, New York is also showing real nice growth, and then we turn our back on our home state of New Jersey. So I’m actually pleased, what I’m seeing in all areas, I think, Rudy pointed out a good point that we never worry in the residential market to speak about in Florida. And now we’re down there, so we’re starting to see some of that bear fruit. We have an aggressive cash rendered value life insurance program in our bank. And we only introduced that recently into the Florida marketplace, and that showing some activity. So we’re seeing good activity coming out of Florida as we expected, but I pleased pretty much with what I see coming out of New York and New Jersey. So we’re happy on all fronts.

Yes, I’d amplify on that only to say that I think that we’re very pragmatic people, so I think all of our markets, we don’t want to defy what our markets naturally serve up, if you will. And then, again, we apply our criteria to looking at opportunities. And the one place that we see danger, we spoke to really at the last meeting, which is – and I read the statistics – so it’s just that I read a statistics, so I have not verified it, but there’s over 60,000 residential units in Miami-Dade County, is that are coming out of the ground in phases of construction. And I think, we’ve seen that move you before. It’s a market that we’ve refrained from recently, because we feel a certain rightness to that market having said we love Miami-Dade County, we participate in commercial purpose of lending their of various varieties. But that’s part of being bankers on the ground, as we need to pick our spots. And if we smell a submarket is ripe, we tend to be agile enough to refrain and remove ourselves from that market. Other than that, I think, and I don’t need to focus on Florida. But I mean, we see so much strength in New York and New Jersey in the sub markets, we can participate in, and we see great strength in the state of Florida in the markets. We see Central Florida, as serving up terrific opportunity and our teams also, I should say, digging them out. That’s been a wonderful market force, and generally Southeast Florida, Southwest Florida we love the markets and so on. So I would – again, the only one that is sending out signals that concern us is really the resi part of Miami-Dade County particularly the multifamily side. So other than that I think we feel so we’re uniquely positioned in three great states.

That’s great color. And then, one last one for me. Gerry, in your prepared remarks on the expanding the fee income side, you mentioned that you’re sort of in the early stages with building out the wealth management division What are your thoughts surrounding M&A in this area especially considering the earn backs tend to be quite a bit longer than maybe whole-bank acquisitions.

We have been focused at this point on building the core base. And we have not really been looking toward M&A to build it, we really want to make sure that what we’re running runs along the lines that Valley is comfortable with. So we really have some really great people that we put into build this. And I have personally been very pleased with not only the staff, but the efforts to date that they’ve done. It’s really being spearheaded by Rudy, I’ll turn it over to him, if you’d like to add a couple of comments.

So we – as I think we mentioned at our last conversation, we remain very internally focused. We want to be sure houses in order in every way. Bob guiding us in the technology piece; Dianne Grenz, in our Consumer Bank; and Kevin Chittenden, in our Mortgage Banking; Tom Iadanza, in the Commercial Bank; and Sherry, you name it. The team is very internally focused at this point in time. Having said that, we know that we’re going to be invited to processes in all three states, now sort of a difference way to be invited or attempt to be aggressive even though my experience has been that when you’re aggressive particularly – publicly held you really just encourage them into a process, and then you’re there with others that are invited to that process. So I guess, you would say that we remain opportunistic generally with M&A, we care about all three states, we will respond the processes, we’ve been active in processes, we’ve been invited through the footprint. With respect to our historical focus in Florida, we do still care very much about achieving our aspirational goal of increasing our magnitude in Florida though we like the markets was served very much in Florida today. So we would love to have bigger share in those markets. And so, it could be argued that we’re a little more aggressive in finding opportunity in the state, but again we look at all three states. And so we’re keenly interested in that stepwise growth that can be derived from whole-bank acquisitions.

All right, great. Thank you very much, guys.

Your next question comes from the line of Collyn Gilbert. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Collyn.

Good morning, Collyn.

Just going back to the commentary on the loan growth, do you guys have what the utilization rates where this quarter, and where – how that compares to where they have been trending?

We are actually down around 2% from where we were at linked quarter, which is typical for us for first quarter. If you translate it actually into dollars and cents though, we probably had about a negative $100 million impact on outstandings for March 31 versus where we were as of December 31?

Okay. And what was the actual rate. Do you have that Ira, the line rate?

I think about 38%.

Okay. That’s helpful. And then, do you – what is the split between your – annual deposit mix between commercial and retail?

So if you look at core and you’re not including certificates of deposits and things like that. Our business – non-interest bearing accounts account for about 60% of the overall non-interest bearing base. And keep in mind, a large part of that is based on us being a true commercial lender, not just the CRE side. And having compensating balances, operating accounts associated with the C&I customers. So we think a lot that is sticky and it’s going to be here for a long time.

Okay. So just to clarify, Ira, you said 60% of the non-interest bearing is in commercial?

Right.

Got it, okay. That’s helpful. And then, just thinking through the NIM comment, Alan, just trying to understand this a little bit, so I guess I would have thought that there could be positive movement in the NIM kind of over time. What is it that’s holding that back? Is it just that the loan yield – loan origination yield is still below portfolio yield? Is it what’s happening on the security side, I know the security is built a little bit this quarter? But just trying to understand why we wouldn’t see NIM expansion over time.

I think, Collyn, we’re going to hedge ourselves as we’ve tried to do in the past. And, yes, you might see some increase. I’m not going to say we’re not. I did mention that we are seeing increases in loan yields coming on the books. So that certainly will have a positive on us. But in terms of where we’re going to be raising deposit rates and what’s going to happen there, it’s a little hard to tell you how much of an increase we might see. So that’s why I said, give or take around where we are today.

Okay. And then, just following up on the security side, what is your outlook there for how you want to run the securities portfolio, in terms of duration and price, and what you might be adding versus what’s rolling off there?

Well, actually, from a duration standpoint we obviously try and remain relatively short where we can. And one of the reasons we have told everybody we bought some multi-family participations is because we like the duration of those which is generally shorter than some of the securities we can buy. We all know when rates go up those securities are going to extend. So we are trying to keep ourselves relatively short. We are seeing prepayments come down. So it will be a balancing act depending on where the loan rates go, and whether or not we want to continue to grow that portfolio and by how much versus whether we want to cut back a little bit.

Okay. Okay. I’ll leave it there. Thanks.

Okay.

Okay. Thanks, Collyn.

[Operator Instructions] And at this time, there are no further questions.

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

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