Valley National Bancorp (VLY) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the First Quarter Earnings Release Conference Call.

(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've 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 paydowns 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 1 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 and profitability.

We have placed considerable emphasis on expanding noninterest 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, noninterest income comprised approximately 13% of growth 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 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 outcome, 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 3 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 a 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 through financial statements at that time.

The implementation phase will be well underway as Gerry said, at that time, and as I mentioned, we expect implementation to last for 24 months.

It 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 one basis point linked quarter to 0.45%.

Noninterest 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 a 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 purchase 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 debt benefit income, which is unlikely to continue into the second quarter.

The majority of Valley's BOLI does not benefit when a debt should occur, but rather the debt benefit is built into the normal income flows as actuarially determined.

Noninterest 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 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 enhanced technology roadmap.

Overall, credit quality remained mostly unchanged.

We did see an increase in past due loans in the 30-day or more past due, as there were taxi medallion loans totaling $15.3 million, which were matured and current past due payments.

Nonaccrual loans were largely unchanged at $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 we originated over $930 million of fresh loans in the first quarter.

Compared to approximately $830 million in the same period 1 year ago, that's a 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 1 year ago, and the loans were made across the entire geographic footprint.

These $650 million of commercial originations were comprised of $280 million of CRE originations and $365 million of 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 purchased participations.

We should note, though, that we do not expect future purchased 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, 4.09% in the 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 1 year ago.

Doubling of origination volume is a function of dealers becoming more familiar with Valley's process, and it was pointed out seasoning of the 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 by 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 1 year ago.

Now to residential mortgage.

This team closed $163 million versus $85 million for the same period 1 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 of 2017.

Application volume in terms of number of units was light in Q1, although our efforts to introduce a purchased mortgage platform are promising as the average loan size increased from $277,000 in the fourth quarter of '16 to just over $400,000 in Q1 '17.

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 have 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.

Total linked 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 insurance 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 noninterest-bearing deposits to total deposits remain strong and relatively unchanged at 30%.

As Alan mentioned previously, the total cost of deposits for the quarter was relatively unchanged at 45 basis points, while the total cost of funds declined 1 basis point to 0.72%.

Although the deposit costs was in line with the fourth quarter, we are beginning to witness an increasing 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 celeb 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 the branch as a means to execute his or her financial transactions.

While this trend has declined 5% from the same period 1 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 cost while creating a more customer-centric experience.

Presently, approximately 64% of Valley's consumer deposit households utilize Internet banking, an increase from 60% 1 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.

It increased from approximately 18%, 1 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 with a suite of Internet banking products.

Within the first 6 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 teller program we intend to introduce in the third quarter.

Once again, the goal is to reduce expenses, while providing both current and new customers a 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 at 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 to questions.

(Operator Instructions) Your first question comes from the line of Frank Schiraldi.

Just a couple of questions on -- to start with on deposits.

The money market run-off, you talked about the large customer, I guess in light of Ira's other comments, is it safe to assume that, that is due to competitive price pressures due to pricing?

And then just what sort of deposit betas do you -- should we think about?

Or are you thinking about on the money market side here?

I think when we look at our deposits, Frank, it really is attributable to be about $700 million increase between the third and the fourth quarter.

And largely that was attributable to that one customer as about $250 million.

We anticipate it being short-term.

So I wouldn't say it due to competitive natures.

That being said, there was additional run-off of some of the larger 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, Alan, you could, maybe, you talked about NIM expectations.

Obviously, this wasn't a surprise this quarter.

You kind of guided to it in 4Q, but just wonder how should we 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, 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 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 pickup in terms of basis points from these 25 basis points hike of the Fed, is that reasonable?

We don't really expect 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.

Your next question comes from the line of Steven Alexopoulos.

I want to first ask a question regarding the LIFT initiative.

As you guys have been now through the discovery phase, are you finding more opportunities on the revenue or the expense side?

It's Rudy.

And the answer to that would be on the expense reduction side.

And I would tell you that by virtue of 1,000 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 catalysts teams and the team leaders, the group leaders, the owners of the lines business.

They've done a ton of work.

Today, they're really embroiled with valuing the ideas so we can be sure that the net of cost gain or the net debt 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.

But yes, the cost saves only coming from taking out redundancies or you're 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 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 as we think we can make that very sustainable.

Okay.

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 around 450% and I know the OCC looks at it, without owner occupied I think we're around 280% plus or minus, I have to spend a little bit more time looking at the numbers I just gave you.

Okay.

And maybe just one last one.

So Bank United on their call yesterday talked about more scrutiny on CRE, particularly multifamily, Gerry, you referenced that.

Will you guys keep buying these loans?

Why are you -- why do you think you're not seeing the same level of pressure in some of your peers?

Thinking a lot of it -- I know, a lot of it has to do with underwriting.

We stressed all of our [CRE] offer, I think, in some of our peer group does.

For example, we look at it as a floor to a cap rate of pretty much 5.5%.

When we stress the loans, that improves our valuations.

It gives comfort to the OCC.

We look heavily at cash flow.

And then 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 stead with the OCC.

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, I mean, origination?

We are doing a little 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.

Your next question comes from the line of Brody Preston.

I am filling in for Matt Breese.

So with regard 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 want to make your efficiency ratio down to the mid-50s, and it seems like over a 24-month time frame, 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 enunciated before, it's a good question, Brody, was that we expected a split of, when we were roughing it, 75% expense saves, 25% revenue enhancement.

So far because we're really nesting on the refinement again of the value, it looks like that guesstimate is holding up, and so it's clearly skewed toward expense reduction.

Okay, great.

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 bogey.

You guys don't accomplish at least $20 million in cost saves, like, how successful would you judge the LIFT initiative to be?

We're -- we've been bent on through the whole process to be sure that it was -- the first $20 million was not easy to get.

I would argue that maybe it was a little more focused than what LIFT has done.

LIFT is very comprehensive.

No one is exempt in our line of business, no department is exempt.

So it's very comprehensive.

And I think, here that in the end, the Steering Committee gets to make the up or down decision whether an idea is fixed or not, 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 it's 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, I can imagine how every day you get that much more refined, that much more, in a sense, curious about being sure that the number that we can get.

And so I can't 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 you're 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?

Yes.

Please.

Well, as I said in the -- in my opening remarks, we're 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 never turned 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 were 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 surrender value life insurance program in our bank.

And we only introduced that recently into the Florida marketplace and that's showing some activity.

So we're seeing good activity coming out of Florida as we expected.

But I'm pleased pretty much with what I see coming out of New York and New Jersey.

So I'm -- 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 its' statistics.

So I have not verified it.

But there's over 60,000 residential units in Miami-Dade County that are coming out of the ground in phases of construction.

And I think we've seen that movie before.

It's a market that we've refrained from recently because we feel a certain ripeness to that market.

Having said that, we love Miami-Dade County.

We participate in commercial purpose lending there of various varieties.

But that's part of being bankers on the ground is we can pick our spot, 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, in New Jersey, in the submarket we participate in, we see great strength in the State of Florida and the markets, we see Central Florida is serving up terrific opportunity and our teams also I should say, baking them out.

That's been a wonderful market for us and generally Southeast Florida.

Southwest Florida, we love the market, 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 we're uniquely positioned in 3 great states.

That's great color.

And then one last one from me.

Gerry, in your prepared remarks on the expanding the fee income side, you mentioned that you're sort of in 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 for an 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 in to build this.

And I have -- personally I'm 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 he would 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 our house is order in every way.

Bob, guiding us in the technology piece, Dianne Grenz in our consumer bank.

And Kevin Chittenden in our mortgage bank.

And Tom Iadanza in the commercial bank.

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 3 states.

Now sort of a difference state, to be invited or attempt to be aggressive even though my experience has been that when you're aggressive, particularly with the public, 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 3 states and we will respond to processes.

We've been active in processes where we've been invited to 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 we serve very much in Florida today.

So we'd 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 this state, but again, we look at all 3 states.

And so we're keenly interested in that stepwise growth that can be derived from whole bank acquisition.

Your next question comes from the line of Collyn Gilbert.

Just going back to the commentary on the loan growth.

Do you guys have what the utilization rates were this quarter?

And where -- how that compares to where they've been trending?

We're actually down around 2% from where we were at for a lean quarter, which is typical for us for first quarter.

And if you translate 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.

What was the actual rate?

Do you have that, Ira, the line rate?

About 38%.

Okay.

That's helpful.

And then do you -- what is the split between your -- in your deposit mix between commercial and retail?

So if you look at core, you're not including certificate of deposits and things like that.

Our business, noninterest bearing accounts, they account for about 60% of the overall noninterest-bearing base.

And keep in mind, a large part of that it is based on us being a true commercial lender.

Not just the CRE side.

And having compensating balances, operating accounts associated with these C&I customers.

So we think a lot of that's sticky and it's going to be here for a long time.

Okay.

So just to clarify, Ira, you said 60% of the noninterest-bearing is in commercial?

Correct.

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 security side?

I know that securities is built a little 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 impact 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 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 when we can.

And one of the reasons we have told everybody we bought some multifamily 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.

(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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