Valley National Bancorp (NASDAQ:VLY) Q1 2024 Earnings Call Transcript

Valley National Bancorp (NASDAQ:VLY) Q1 2024 Earnings Call Transcript April 25, 2024

Valley National Bancorp misses on earnings expectations. Reported EPS is $0.19 EPS, expectations were $0.2. Valley National Bancorp isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Valley National Bancorp Earnings Conference Call. At this time, all participants are in listen only mode. After the speaker’s presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today’s conference is being recorded. I would like to turn the call over to your first speaker today, Travis Lan. Please begin.

Travis Lan: Good morning. And welcome to Valley’s First Quarter 2024 Earnings Conference Call. Presenting on behalf of Valley today are CEO, Ira Robbins; President, Tom 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 Web site 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 2 of our earnings presentation and remind you that comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry.

Valley encourages all participants to refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements and the factors that could cause actual results to differ from those statements. With that, I’ll turn the call over to Ira Robbins.

Ira Robbins: Thank you, Travis. During the first quarter of 2024, Valley reported net income of $96 million and earnings per share of $0.18. Exclusive of noncore items, adjusted net income and adjusted earnings per share were $99 million and $0.19 respectively. The quarter’s results were impacted by an outsized provision for loan losses, which I will discuss shortly. On a pretax pre-provision basis, we saw a positive inflection this quarter. The sequential downward trend in net interest income slowed meaningfully despite the lower day count during the quarter. This reflects the benefit of asset pricing and our efforts to better control funding costs. Fee income results were strong, supported by certain unique businesses, including tax credit advisory.

Finally, noninterest expenses were extremely well controlled despite the seasonal headwind associated with higher payroll taxes. Despite the continuation of the inverted yield curve and other environmental challenges, I am pleased with the stronger pretax pre-provision earnings results this quarter. I’m also pleased with the quarter’s balance sheet strength and credit quality performance. On Slide 4, we outlined certain efforts made to curtail loan growth, enhance reserve coverage where needed in the portfolio and incrementally optimize our funding base. Total loans declined nearly $300 million during the quarter as a result of our proactive efforts to participate out a portion of certain commercial real estate and construction loans, and the sale of our commercial premium finance business.

These sale transactions each occurred at or above par and incrementally benefit our commercial real estate concentration, capital ratios and reserve levels. Our allowance for credit losses for loans as a percentage of total loans increased 5 basis points to 0.98% during the quarter. Meanwhile, our past due and nonaccrual loans both declined as compared to December 31, 2023. The higher provision and associated reserve coverage reflects internal risk rating migrations resulting from our continuous monitoring and rigorous stress testing of the commercial loan portfolio. During the quarter, an additional 1% of loans transitioned into either our criticized or classified loan buckets. While we remain comfortable with the sponsorship, collateral, support and potential loss content of these loans, criticized loans require elevated reserve coverage under CECL.

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

That said, I acknowledge that our perceived concentration in commercial real estate has recently amplified the volatility in our company’s valuation. This volatility is based purely on perception and is not reflective of our financial results nor the strength of our credit quality and balance sheet. Still, we exist to serve our key stakeholders. And while I’m proud of our ability to exceed the expectations of our clients, communities and employees, I acknowledge that the volatility experienced by our shareholders is not sustainable. Commercial real estate is a wonderful asset class and one in which our differentiated approach continues to create incredible value. We will remain active in this space but we’ll manage our concentration more efficiently going forward.

Our diversifying C&I initiatives will continue to accelerate and we will further enhance our financial flexibility. These efforts are consistent with our established strategic plan, and I believe that accelerating them will help to reduce the volatility in our valuation. With this in mind, you can see our near and intermediate term expectations for certain balance sheet metrics on Slide 5. We expect to have approximately 9.8% Tier 1 common equity, 440% commercial real estate to risk based capital, an allowance coverage ratio above 1% and a loan to deposit ratio around 100% by year end 2024. These metrics are consistent with the strategy which we have discussed previously and our ongoing efforts to further strengthen our balance sheet and enhance financial flexibility.

The following slide updates our previously provided guidance. The downward revision to our net interest income forecast reflects slower loan growth and the modest funding mix shift related to lower noninterest bearing deposit balances during the first quarter. We anticipate that the downward revision in net interest income for the year will be largely offset by lower noninterest expenses relative to our prior guidance. All else equal, this will leave pretax pre-provision income relatively in line with current consensus expectations. On Slide 7, we provide additional commentary on our base case net interest income scenario as well as some considerations related to our exposure to changing interest rates. As we have described before, our balance sheet is generally neutral to changes in short term interest rates.

We are more sensitive to movement in longer end rates, which impacted repricing of roughly 60% of our loans. Before turning the call to Tom, I wanted to highlight the underlying franchise value that we continue to create despite the volatility in our valuation. Since the end of 2017, we have grown reported tangible book value by 47% versus just 38% for our regional banking peers. Including the impact of distributed dividends, this increases to 91% versus just 70% respectively. This positive variance reflects our ability to enhance our franchise without meaningfully diluting tangible book value in overpriced acquisitions or through efforts to maximize near term results. Customer account growth is another key metric that gauges our ability to build and optimize our franchise.

Since year end 2017, we have more than doubled our number of commercial deposit accounts, which is in direct alignment with our strategic objectives. The ongoing addition of new deposit clients is critical as it supports our future earnings potential and financial consistency. This growth has been broad based across geographies and business line and we continue to work hard at sustaining this momentum. We also believe there is significant value in the geographic diversity that we have developed on both the asset and liability side of the balance sheet. At the end of 2017, nearly 80% of our commercial loans were concentrated in New York and New Jersey. That figure has declined to nearly 50% today as a result of our focus in Florida and other dynamic commercial markets.

We continue to develop exceptional service oriented banking teams across the country, which are focused on generating and enhancing the valuable commercial relationships that we have targeted. This progress has benefited the funding side of our bank as well. In 2017, 78% of our deposits were in Northeast branches. As of the end of first quarter that number has declined to 45%. We have diverse niche funding businesses and a robust branch network across Florida and Alabama. This diversity helps to insulate our funding base and provides unique and differentiated opportunities to further reduce our reliance on wholesale funding over time. On last quarter’s call, I laid out three strategic imperatives for the coming year. Our early results indicate solid traction relative to enhancing our cost effective core deposit funding, the de-emphasis of commercial real estate and more revenue diversity.

As mentioned, we will continue to accelerate the diversification of our loan portfolio and I have all the confidence that we will continue to produce solid results. With that, I will turn the call over to Tom and Mike to discuss the quarter’s growth and financial results. After Mike concludes his remarks, Tom, Mike, myself and Mark Saeger, our Chief Credit Officer, will be available for your questions.

Tom Iadanza: Thank you, Ira. Slide 9 illustrates the quarter’s deposit trends. Total deposits declined slightly due to the intentional runoff of higher cost time deposits, which had matured. From a customer deposit perspective, this runoff was primarily offset by growth in interest bearing non-maturity deposits within our specialty deposit niches. Our ability to tactically reduce deposit pricing in certain product types and categories helped to meaningfully slow the pace of deposit cost increases during the quarter. Despite a rotation of approximately $200 million of noninterest deposits into interest bearing deposits, our total cost of deposits increased a modest 3 basis points. The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business line.

Traditional branch deposits declined slightly as a result of the runoff of certain higher cost time deposits. That said, we saw stable deposit trends in our Southeast franchise. Our specialty niches increased slightly during the quarter as our online deposits and technology business continue to expand. Slide 11 illustrates the management actions which reduced loans during the quarter. Total loans declined nearly $300 million, driven primarily by commercial real estate and construction participations out of the bank. Importantly, these participations were executed with no negative impact to equity. We continue to monitor opportunities to further participate out certain loans and to enable certain maturing loans to refinance away from Valley.

The sequential reduction in C&I loans was due entirely to the sale of our commercial premium finance business and subsequent maturities in that remaining portfolio. We continue to focus our origination efforts on traditional C&I, owner occupied real estate and healthcare. On Slide 12, I would highlight that our loan to values are based on the most recent appraisal received on a property. The average life of these appraisals is approximately two and one and half years. Our debt service coverage ratios are calculated based on the most recent borrower financial information that we have, which is typically received at least annually. The following two slides provide additional detail on our multifamily and office portfolios. We continue to have modest exposure to New York multifamily loans and highlight that a mere $531 million or roughly 20% of that sub-portfolio has more than 50% rent controlled units.

Our office portfolio remains diverse by geography and supported by generally diverse cash flows with nearly 65% of our loans to multi-tenant properties. With that, I will turn the call over to Mike Hagedorn to provide additional insight into the quarter’s financials.

Mike Hagedorn: Thank you, Tom. Staying on the CRE topic for a moment, Slide 15 illustrates the contractual maturities of our commercial real estate portfolio. We also included the LTV, DSCR and rate by maturity bucket for your benefit. This maturity schedule illustrates the minimal repricing risk of our loans maturing over the next few quarters. Slide 16 illustrates Valley’s recent quarterly net interest income and margin trends. The modest sequential declines in both net interest income and net interest margin were primarily the result of one fewer day in the quarter. We strategically lowered deposit costs by approximately 40 basis points on nearly $10 billion of deposits, which helped to stabilize net interest income as the quarter progressed.

This helped to offset the headwind associated with lower average noninterest bearing deposits during the quarter. After shortening our liability duration during the first quarter, we locked in a small amount of long term funding at relatively attractive costs, which will further benefit net interest income during the second quarter, all else equal. Turning to the next slide. You can see that noninterest income on an adjusted basis improved meaningfully from the fourth quarter of 2023. A portion of this improvement was related to rebounding deposit service charges as some fees were waived around our conversion in the fourth quarter of 2023. Beyond this, we offset headwinds in swap revenue on commercial loan transactions with improved wealth revenues and a very strong quarter from our tax credit advisory business.

On that front, Dudley Ventures had certain tax credit transactions closed during the quarter, which had been delayed from the end of 2023. While demand for our tax credit advisory services continues to grow, we would anticipate that Dudley’s revenues will decline somewhat from this quarter’s elevated levels. On the following slide, you can see that our noninterest expenses were approximately $280 million for the quarter. Adjusting for our $7.5 million FDIC special assessment and certain other noncore charges, noninterest expenses were approximately $267 million on an adjusted basis. This represents a 2% decline from the adjusted fourth quarter of 2023 and a mere 1% increase on a year-over-year basis. The quarter’s increase in compensation costs was primarily the result of seasonal payroll tax impacts as headcount remains generally well controlled.

We saw notable reductions in our technology and consulting expenses as the costs associated with our core conversion in the fourth quarter of 2023 continued to run off. While revenue pressures have weighed on our efficiency ratio in recent quarters, our expense base continues to be stable relative to our balance sheet and well below peer levels for the same comparison. The key pillars on Slide 19 not only support our conservative underwriting and strong credit performance, but also our ability to mitigate losses in periods of stress. I will discuss this more in a moment. Slide 20 offers a general comparison of our lending approach as a relationship based regional bank with more transactional oriented institutions. We have deep market knowledge and bank well known and active investors who are strongly aligned with the need to protect and enhance their property values over time.

Our borrowers tend to be more disciplined and value oriented with respect to project selection. From an underwriting perspective, we generally focus on in place not projected cash flows, which provides an added buffer should NOI growth not materialize. We hope these pages provide some further context for the credit results illustrated on Slides 21 and 22. On 21, you can see the continued stability in our nonaccrual and past due loan buckets. The bottom charts illustrate our allowance for credit loss coverage relative to loans and past due loans. As Ira mentioned, the quarter’s increase in allowance was primarily related to quantitative reserves associated with the migration of loans into criticized and classified categories. We remain confident with the performance and potential loss content of these loans.

We are comfortable with the current position of the allowance but acknowledge that further real estate stress and elevated interest rates could move our allowance coverage somewhat beyond 1% during the remainder of 2024. Turning to Slide 22. Net charge offs ticked up during the quarter as a result of $9.5 million charge-off related to taxi medallion loans. Commercial real estate charge offs were de minimis. We present two important analyses at the bottom of this slide. On the bottom left, we compare loss given default ratios on our commercial real estate and construction loans to peers over a variety of timeframes. Loss given default is a calculation of charge offs relative to nonaccrual loans. This analysis suggests that over time our nonaccrual loans were significantly less likely to be charged off than appears given our loss mitigation techniques.

The most important loss mitigation tool that we have in times of stress is typically the deep resources and liquidity of our wealthy borrower base. On the bottom right, we illustrate our reserve relative to implied years of coverage based on certain loss rates. While our allowance coverage is below peers on an absolute basis, we believe that relative to potential loss content we remain consistently better reserved. For example, our current reserve would cover six years of implied loan losses based on the average net charge-off rate between 2001 and 2023. This is double the relative reserve coverage of our peers. We remain confident that we are well positioned for a potential deterioration of credit quality across the industry. Our below peer loss rates relative to total loans and CRE loans specifically are illustrated on Slide 23.

As we have said historically, our loss rates tend to be roughly 40% of peer levels through the cycle. The next slide illustrates the sequential increase in our tangible book value and capital ratios. Tangible book value increased slightly from the fourth quarter of 2023 despite a modest headwind from the OCI impact associated with our available for sale securities portfolio. Regulatory capital ratios have continued to expand. And as Ira mentioned earlier, we anticipate further expansion for the rest of 2024 and beyond. With that, I’ll turn the call back to the operator to begin Q&A. Thank you.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Steven Alexopoulos from JPMorgan.

Steven Alexopoulos: I want to start — so Ira, first on the CRE concentration moving down to 4.48% and lower. Could you give us a sense of your $32 billion of CRE loans in the quarter, including construction? Where should we expect those to trend for the rest of the year? And do you think you could continue to do what you did this quarter, exit at par?

Ira Robbins: I think when we look at that CRE concentration, it’s really a function of not including the owner occupied loans into that. So I think on one of our slides when we give the breakout of the balance sheet, probably gives a bit better of what that starting number looks like. I think we had a really successful quarter in working with [Indiscernible] and some of the other partners that we’ve worked with over the years and looking at increased participations. As you can see on the loan yield maturities that we have coming due, there really is not a significant variance versus where our current portfolio sits versus where market indications or rates are today. So there really isn’t a rate issue as our — which would hinder some of our ability to really offset some of the loans that we have from a participation perspective.

And as you’ve seen over the years, the credit quality has been really, really stellar here. And as people have gone through and looked at the loans, they tend to agree with that assessment as well.

Steven Alexopoulos: I’m curious, Ira, those stocks off, I think it’s a little over 30% this year. And you mentioned perception, I believe, in terms of on the real estate portfolio. When you compare yourselves everybody — I mean, this has all happened in the aftermath of New York community? When you compare your pre-portfolio to peer banks, what do you think the market’s missing?

Ira Robbins: I think to acknowledge that there is not an issue in commercial real estate on a macro perspective I think would be putting my head in this hand. I think that said, if you really dive into the areas that are really under stress today, I think office is an obvious, right and that’s just not a function of where interest rates are, that’s behaviors have actually changed. The rent regulated in New York City is another area of stress. And then I think from a third perspective is it’s the repricing risk that exists. So if you just really isolate those three specific areas and then dive into the underlying details of where Valley is on those three specifics, on the office portfolio, it’s about $3.3 billion. But when you look at the specific underlying metrics of those loans, they’re very small in size.

In addition to that, what we tried to do is give you an update even on what those updated debt service coverage ratios are. So we’re sitting at [1.68] of a debt service coverage ratio on the office portfolio, which I think is very differentiated. I would say the larger differentiation on the office is actually the size. Our office is only $3 million on average. I mean, there really is not much stress within those types of offices that we’re lending against. So I think that’s something that’s probably a little bit differentiated. And then on the rent regulated, it’s obviously a little bit differentiated as well. As Tom mentioned in his prepared comments, we’re only sitting with about $500 million of rent regulated that’s north of 50% of what that composition looks like.

So once again, I think it’s a very small portfolio and very manageable as we think about what the risk of that portfolio looks like, everything is current today with that portfolio. And then I think the third one that I alluded to was really the rate reset risk. And we tried to give a little bit more granularity in the earnings call as well as in the presentation. The rate we set risk is not what it’s like at many of our peers here. That said, look, I acknowledge the CRE concentration is pretty significant. And on a macro level, we look at the concentration. People just have a perspective of what that is at Valley. So I’m aware of that. I acknowledge it. I think as an organization, we need to begin to reduce what that macro CRE concentration is.

But at Valley, CRE concentration doesn’t mean that you’re going to have an absolute loss. We migrated some loans into classified and criticized loans this specific quarter. As we mentioned before, the loss history is very, very different here at Valley as well. Because a loan gets classified as a criticized loan here does not mean you’re going to have a loss associated with it. We’ve proven that year-over-year. I think in the third quarter, we had a significant increase in what our classified loans were as well. And if you look at the results this quarter, there’s not an uptick in nonaccrual, there’s not an uptick in delinquency, yet we had an uptick in classified a few quarters ago. So I think it’s just getting familiar with the granularity of what our portfolio is, which takes time for some people and takes effort as well.

That said, we have patients here and we’re very comfortable that over the long term, we’re going to end up in a really good spot.

Steven Alexopoulos: If I could just ask one other one and change direction. On the expense, the updated expense guide just says below low end of the range. What actions do you guys think you’ve done a lot, right, over the past few years and what is the new range in terms of what you’re thinking for expense growth this year?

Ira Robbins: I think it’s hopefully lower than where it is today. I think we announced on last call, not last call, last year, right, when we started to really see some additional pressure associated with the inverted yield curve that we’re going to put forth a 5% headcount reduction in June of last year. When you look at the actual numbers, we went from 3,912 employees in June of ’23, we’re sitting at 3,709 employees today. So we’ve decreased about 5.2% on the employee headcount overall. We think there’s more opportunity to continue that overall focus. And I think the bigger piece is, Steve, that people underestimate the amount of resources from an internal and external perspective associated with the core conversion that we did at the end of 2023. A significant amount of expense was associated with that and we continue to really begin to recognize some of the benefits of being on one platform, and we think that will continue throughout 2024 as well.

Operator: Our next question comes from Matthew Breese from Stephens Inc.

Matthew Breese: As we think about commercial real estate growth in light of the updated guidance and actions this quarter, should we expect active runoff in that book? And if so, to what extent? Or should we expect that loan segment to essentially remain flattish while all the other segments, C&I especially, grow around it?

Tom Iadanza: As you see, we revised our guidance for our total loans to be between 0% and 4% from the 5% to 7% annualized. We are intentionally managing our real estate portfolio by focusing on our top relationship driven clients. We originated about $750 million in real estate loans in the first quarter, which is down significantly from what we have done in the past few years. We will still be active and involved in real estate but we will still continue to sell loans. The loans that are not relationship driven will let them mature and lead in the first quarter through about $500 million of loans that matured and exited to other banks, and I’ll point out all that full value to the bank. We’re not changing our C&I expectations, we’ve grown that portfolio 10% on an annual basis.

Outside of the premium finance sale, we would have been slightly up in the first quarter. First quarter is traditionally a slow quarter. We tend to get line utilization pay downs. Our owner occupied portfolio in the first quarter grew 6% annualized, so that’s a positive event. Our pipelines and C&I are very stable and we originated $1 billion of C&I loans in the first quarter, which is in line with what we have done in the past.

Matthew Breese: And then with CECL, it feels like we were all — to also think about historical losses and forward looking economic factors, and the reserve was supposed to be catered to each institution based on these assumptions. But in the wake of New York Community and now the Category IV bank classification, it feels like there’s a third leg to the stool, which is your peer group and what they’re doing. Is it fair to assume with that in mind that longer term beyond what you’ve outlined for the intermediate term that a lot of your ratios commercial real estate, reserve, capital needs to migrate to your Category IV peer like levels despite whatever CECL says in terms of your quarter-to-quarter change in reserving?

Mark Saeger: Just as it relates to our model, one of the positives is we use a transition matrix model, which is very sensitive to migration in the portfolio. We hold an elevated level of reserves against criticized and classifieds credits. So we get an immediate bump through the migration in our reserve, which shows the appropriateness of that migration not just loss. And about two thirds of the increase in our reserve for the quarter was related to migration within the portfolio.

Ira Robbins: I think on a macro basis though, Matt, I mean, to your specific question, do we have to be at where peer levels are, right? I think, at our size organization of only $60 billion, it’s a long runway for us to get to $100 billion. So to look at where those reserve ratios are and automatically apply that we need to be at those levels based on sort of this third perspective of what CECL looks like, I think would be an incorrect assumption. I think the accounts are pretty clear what drives the CECL model. And as Mark mentioned, it’s going to uptick a little bit because of what we’re seeing with the transition and a bit of an increase in some of those classified loans and criticized loans. But I don’t think there’s a guidance as we need to be at whatever the $100 billion plus banks are.

Matthew Breese: I guess, I’m more concerned about the CRE concentration, because that — those peers operate at a median of 100% concentration, the highest is M&T at around 180, 190, and we’re a long ways off from that. So by the time you get to 100, you have to have made some significant changes along the way. And I’m curious if that’s part of the plan here?

Ira Robbins: I think, obviously, going to $100 billion and saying we’re going have 400% CRE concentration is something that doesn’t make any sense. That said, obviously, we have a very long runway, Matt. I mean, if you even took 10% growth rate on our balance sheet today, it’s over six years before we even get to $100 billion. And there’s a lot that’s going to happen at value over the next six-ish years. And I think getting the CRE concentration down is something we’ve talked about for years now of what the strategic focus has really been here. We’ve instituted C&I business lines from the tech business to a commodities business to all different types of C&I businesses many, many years ago with a focus on beginning to diversify what that portfolio looks like As Tom mentioned, we’re growing C&I 10% annualized.

So it’s not like we woke up one day and said, hey, the CRE concentration is too high, we need to begin to establish some of these foundational C&I businesses. We’ve been doing it for years and we’ve actually seen a lot of positive outcomes associated with that C&I business as well. So obviously, the CRE cannot be the same level at value that it’s been historically. And we put a lot of good strategic initiatives in place to really begin to drive C&I business here that we’ve seen the fruits of for many years now, and we anticipate continuing to accelerate that.

Matthew Breese: Last one for me and then I’ll hop back in the queue. Tom, you had mentioned undergoing, it sounds like fairly extensive stress test for your commercial real estate book and it shows that over time you’ve had better loss content versus peers. Curious, what types of assumptions were overlaid in those stress tests? And at the end of the day, what was the kind of loss content, what was the charge offs that stress test resulted in?

Tom Iadanza: So we don’t publish, needless to say, our specific stress test assumptions. But we do stress occupancy, rent per square foot, vacancies, overall rate and market conditions as part of that stress testing and then test that against our overall capital to ensure that we’re remaining a well capitalized organization.

Ira Robbins: I mean I think one thing I would just add to that is the size of the scope of what we do when it comes to the credit review process. We laid out on Slide 19 a really value specific credit framework, and that’s really led to a lot of the lower loss given defaults that Mike mentioned earlier. We manually — credit officers looked at over 60% of the commercial real estate portfolio just this last quarter. So stress testing for us isn’t just what assumptions you’re applying to those stress testing, but the scale of what that stress testing is. It’s not just, hey, let’s look at a couple of loans that are coming due in the next 12-ish months. It’s really deep dives on each of these individual portfolios. So what you’re seeing in the migration this quarter isn’t just reflective of loans that are coming due in the next 12-ish months, it’s 60% of the entire CRE book that we have.

Operator: Our next question comes from Frank Schiraldi from Piper Sandler.

Frank Schiraldi: Just to follow-up on the last line of questioning a little bit. Just on the — I just want to make sure I understand, on Slide 5, the reserve. Mike, you talked about being relatively comfortable with where reserves are and given loss rates, you’re actually better reserved than peers in many ways. So just trying to understand when we get to the roughly 110 reserve over the next 12 to 24 months. So what’s the driver there as the commercial real estate book matures and reprices or is that just kind of more as you grow getting in line with peers over time?

Mike Hagedorn: I think from a macro perspective, it’s probably two things, right? Obviously, the CRE reviews that we do and the migration associated with that has really benefited us from what the loss given defaults are. So potentially, there’s going to be a bit more migration what that CRE looks like as we go through the rest of the portfolio. And I think one of the other drivers is really on the C&I side. As we continue to originate more C&I loans, they’re going to come at a higher reserve ratio than what the rest of the historical CRE does. So that’s automatically going to end up driving up what that coverage ratio looks like.