Mark Saeger: I think that last point is pretty important too, because we’re preserving the customer relationships. And as you heard Ira say in the prepared remarks, I mean CRE is a very valuable asset class, we’ll remain in it. And we have a deep pool of high quality commercial real estate borrowers, but there are ways that we can balance the need to manage the balance sheet with preserving and building those customer relationships.
Jared Shaw: And then following up, what’s the expectation for deposit growth from here? And then as we look at some of the promotional products that are rolling off, where are you seeing those coming on at, where is the new product coming in terms of term and price?
Tom Iadanza: While we continue to have the noninterest bearing rotation, one of the really bright spots has been the growth in savings now, which is more than offset what we’ve lost in noninterest bearing or rotated into noninterest — or out of noninterest bearing in other products. And the growth in our niche businesses has been very strong as well. And maybe a harbinger of — or an indicator of the future growth and the strength there is just in the first quarter alone on a net basis, we added over 3,000 net new deposit accounts. So we feel pretty good. What I am telling you is I think the growth is going to come out of the niche businesses and the continued efforts in our retail branches to grow households. And to the extent that we could see a flattening of rotation of noninterest bearing, that’s only going to help us.
Ira Robbins: Maybe Jared, I’ll add just two different pieces to that. So last call, we talked about, at least me specifically, some of the disappointment I had and where the funding costs have gone within the organization. So we were very proactive in going out and looking at $10 million of different deposit products across the organization and lowering those from a 40 basis points. And that did not happen in the first period, assuming the first month of the quarter, but it happened throughout the quarter. So we think there’s going to be some tailwind associated with that as we continue to think about deposit costs. That said, the new originations came on very, very strong in deposits for the quarter. The cost was only 3.23% and it was well over $1 billion of net new originations that came in.
And obviously some of that offset some of the higher cost time deposits that Tom meant or something that Mike mentioned that ran off. So I think we’ve done a really good job bringing in newer deposits into the organization at a much lower cost than what the marginal cost of some of the current deposits that we have here. And we’ve also been able to be very successful in bringing down some of the cost of deposits that sit with on the book right now. So we believe that there’s a lot of tailwind associated with that.
Operator: Our next question comes from Steve Moss from Raymond James.
Steve Moss: Following up on deposits here. Just curious when did you guys reduce deposit rates by 40 basis points in the quarter?
Mike Hagedorn: There were tranches of deposit classes that we reduced beginning February 1st and then continuing through parts of March.
Steve Moss: And so just, I guess, basically, the idea is to see how they hold. And if we stay in the current rate environment, will you continue to press for additional rate — deposit rate cuts?
Mike Hagedorn: Yes. We manage it weekly. We look at the levels and we have not seen any significant change in those levels from the groups that we reduced.
Steve Moss: And then in terms of on credit here with the deep dive you guys took on the specific portfolios, you guys mentioned that you examined the office portfolio, had migration there. Just curious, what is the specific reserve for office? And then also along those lines, just curious, are you looking primarily at the specific properties or are you looking at the borrower’s global cash flows? I’m just kind of curious as to how those global cash flows are holding up these days?
Tom Iadanza: Let me address the end of the question. Yes, as part of our standard credit process, we look at not only the property that we finance, but the overall global cash flow of any of the developers that we do business with to get that overall view to see if not stress in our property, are there stress in this global or vice versa, strength in the global cash flow and weakness in property, all of those factors go in to the risk rating and the migration and portfolio. We don’t publish a separate office reserve. But as I mentioned earlier, we have substantially higher level of reserves for criticized assets and there is an elevated level of criticized assets in our office portfolio.
Mark Saeger: The only thing I just want to add to that is, many of our customers are in multiple classes of assets, not just in a single class.
Steve Moss: And maybe just in terms of the office portfolio, I think it was 158 or 168, I forget the debt service card ratio right now. But like are a lot of those borrowers in the current environment headed towards 1? Just kind of curious as to how much capital a borrower might have to put up to kind of right size those loans these days?
Tom Iadanza: I think you see the granularity in the portfolio with $3 million average loan size in that. We do look in the individual cases with migrated. Clearly, there was stress in debt service coverage on those assets necessitating the downgrade. But historically, our leverage on office assets and our going in coverage was exceptionally strong to long term customers that we have relationships with, which we also believe assists in the overall performance of that portfolio in the long run.
Ira Robbins: Steve, we show the average loan size, not only to indicate the granularity and diversity of the portfolio, but in reality, to your last question and it doesn’t apply just to offices, I think across the portfolio given our average loan size. When a borrower does need to bring additional cash reserves or equity into a deal, these are low average loan sizes that require less in terms of absolute dollars to rightsize things. And I think that’s a benefit and a component of the loss mitigation in credit management.
Steve Moss: And maybe just one more related to commercial real estate office. Where you’re seeing the migration, is it in your larger loans these days or is it across the board?
Tom Iadanza: So I would say it’s really more geographically focused. So our largest percentage of office is in the Florida, Alabama market, and we’ve seen much lower level of migration in that portfolio with the majority of migration in the Northeast and the New Jersey and New York marketplace, but noting that our Manhattan exposure is quite granular and quite small in that.
Steve Moss: And then just stepping back from things here, Ira, just curious here with the plan to reduce commercial real estate concentrations. It might not be easy to do a deal today, but just curious as to how the shift is changing your thinking on the M&A front?
Ira Robbins: Look, I think this is a strategic initiatives and plan that we’ve outlined for a couple of years now. So I think we’re just looking at accelerating some of the things that we’re doing. If there’s an M&A opportunity that helps accelerate some of the strategic initiatives, we’re definitely — something we would look at. That said, the guardrails around tangible book value are real to me. So obviously, the valuation in today’s market limits the ability to do some of that. But M&A that really accelerates strategic initiatives is something that’s definitely that we are as an organization are open to.
Operator: Our next question goes to David Chiaverini from Wedbush Securities.
David Chiaverini: I wanted to follow-up on expenses. It looks like we could see a decent reduction here. Could you talk about what areas you’re pulling back on and any initiatives that are getting pushed to the back burner?
Ira Robbins: I think from a macro perspective, obviously, there’s going to be less activity in volume in certain loan classes. So there’s probably going to be some continued reduction in those specific areas. But I think a large piece of it goes back to what we talked about last quarter. The core conversion that we had here took significant resources from an internal perspective and from an external perspective. And as we continue to get the benefits of migrating onto one core platform, we do believe that there’s going to be some saves from that, definitely not to the degree, I think, that we saw the contraction from last year to now. But that said, we do think that there’s opportunity on the expense side of the book.
Tom Iadanza: And maybe to give you an example to hopefully make this real. Prior to conversion, core conversion, we ran on three separate GL systems and we had two different core systems. We closed the books this quarter the fastest we’ve done in the time that I’ve been at Valley. So that’s a good example of showing the efficiency in the core conversion and how it has ancillary benefits that kind of spill through the whole organization.
David Chiaverini: And I also want to follow-up on the question on liquidity. I guess to put a finer point on it, cash and securities as a percent of assets was 11%. Should we expect that 11% to kind of trend higher here over time?
Ira Robbins: Yes, I think slowly over time directionally that makes sense but I don’t think there’s any bulk action that’s going to occur at any point. I mean, that’s just general direction we’ve trended higher if you look back over the last couple of years and we’ll continue to do so. We have a very stable deposit base, it’s very granular. And so we think we’re well positioned as it is today but just directionally to as we grow we will continue to have more cash and securities.
