Valley National Bancorp (VLY) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Valley Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Travis Lan, Head of Investor Relations. Thank you. Please go ahead.

Good morning, and welcome to Valley's Fourth Quarter 2020 Earnings Conference Call. Presenting on behalf of Valley today are President and CEO, Ira Robbins; Chief Financial Officer, Mike Hagedorn; and Chief Banking Officer, Tom Iadanza.

Before we begin, I would like to make everyone aware that our quarterly earnings release and supporting documents can be found on our company website 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, the banking industry and the impact of the COVID-19 pandemic. Valley encourages all participants to refer to our SEC filings, including those found on Form 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements.

With that, I'll turn the call over to Ira Robbins.

Thank you, Travis, and welcome to all the participants on the call. This morning, I will update you on Valley's strong 2020 performance and discuss our longer-term strategic vision, including the important role that technology will play in our future success. Mike will then provide additional details on the financial results before opening the call to your questions.

In the fourth quarter of 2020, we reported net income of $105 million and earnings per share of $0.25. Exclusive of charges for debt extinguishment and severance, adjusted net income was $113 million. For the second consecutive quarter, this represents the highest level of quarterly earnings in Valley's entire history. Our 2020 adjusted net income of $402 million was 23% higher than 2019, despite a $100 million increase in our provision. Despite a challenging backdrop, these exceptional financial results were achieved through the execution of our strategic priorities as we became more efficient, diversified our revenue mix and generated substantial core deposit growth. I am optimistic that last year's macro challenges are beginning to abate, and our strategic focus on positive operating leverage and growth will position us for future success in 2021.

With regard to the macro environment, a more comprehensive vaccine rollout is on the horizon, which will improve the economic outlook and present new growth opportunities for us. With this backdrop, we expect to achieve mid single-digit loan growth in 2021, exclusive of the effects of PPP. The yield curve has also steepened meaningfully in recent months, driving an increase in our loan origination yields. We continue to believe that we will outperform many of our peers from a net interest margin perspective in 2021.

Despite ongoing economic pressure from the pandemic, our credit trends remain strong in 2020. Inclusive of loans modified under the CARES Act, active deferrals were only 1.1% of loans at 12/31/2020, and nonaccrual loans were only 0.58% of total loans. Our net charge-offs were a mere 4 basis points of average loans in the fourth quarter. Our underwriting discipline and credit strength support our below peer allowance for credit losses which stands at 1.17% of loans, excluding PPP. We are confident in our underwriting philosophy and the performance of our borrowers and are well positioned to manage the aftereffects of the pandemic from a credit perspective. This improving backdrop sets the stage for another strong year in 2021.

I want to spend some time this morning discussing how our relationship-based value proposition and technology strategy will help us drive improved operating leverage and strong organic growth in 2021 and beyond. As you know, COVID-19 has amplified the role of technology in the banking industry. Valley has been well ahead of this trend, and our experience in 2020 reinforces the emphasis that we have placed on building best-in-class technology solutions over the last few years. While the industry has concentrated on front end applications, we are hyper-focused on enhancing our back office technology as well. This unique approach will ensure that we have the infrastructure and agility to support the evolving needs of our customers and to execute on our growth initiatives.

Our success in PPP is a great example of why our differentiated strategy is so important. In the early days of the program, we quickly stood up and internally developed end-to-end digital process built on our own technology infrastructure. Our ability to execute and originate $2.3 billion of PPP loans was a direct result of our technology strategy and the agile infrastructure we are building. PPP also highlighted how we use technology to support, not replace the human element of banking. Each PPP borrower was supported by a Valley banker throughout this process. Valley has always been a relationship-focused banking institution. Our customers value thoughtful advice from our knowledgeable bankers, our differentiated high-touch service and the comprehensive suite of financial solutions that we provide. This customer-focused value proposition supported by technology will help us attract new clients and drive growth going forward.

Our customers aren't the only ones that recognize the momentum that we have built. Over the last few years, we have reinvigorated and diversified our team, and we are now a desired destination for top bankers across the industry. People want to join our organization and we continue to bolster the team that will execute the next phase of our evolution. This evolution will be supported by a sustainable technology infrastructure, enabling improved operating leverage and organic growth. We continue to use technology to drive process improvement and support our relationship bankers as they service the diverse financial needs of our customers. We are building a high performing, agile organization with a strong corporate culture. This will allow our organization to continue to adapt quickly to changing market conditions and will drive future success for all of our stakeholders. I couldn't be more proud of what our team has accomplished to date, and couldn't be more excited for what the future holds for Valley.

With that, I'd like to turn the call over to Mike Hagedorn for some additional financial highlights.

Thank you, Ira. Turning to Slide 5, you can see that Valley's reported net interest margin increased to 3.06% from 3.01% in the third quarter of 2020. On a sequential basis, our cost of interest-bearing liabilities improved by 11 basis points to 0.69%. Total interest expense declined by approximately 15% from the prior quarter and is down 56% from the fourth quarter of 2019. This reflects continued reductions in interest-bearing deposit costs and the significant nonmaturity deposit growth that we have experienced in recent quarters.

Earning asset yields declined 4 basis points as higher-yielding loans continue to repay. This repayment was partially offset by higher prepayment fees and PPP forgiveness income compared to the third quarter. Our cash balance continued to increase in the quarter as a result of strong deposit inflows. We estimate that additional cash weighed on our asset yield by 2 basis points as compared to the third quarter. In mid-December, we deployed excess liquidity to repay $534 million of higher cost FHLB advances. These borrowings carried an average cost of 2.48%, and the majority were set to mature in the third quarter of 2021. All else equal, we estimate this action would add 7 basis points to our future net interest margin.

You can see more detail regarding the impact of PPP income on Slide 6. We estimate that PPP income contributed 1 basis point to the margin during the quarter. The sequential increase in PPP revenue is due to the accelerated forgiveness of approximately $125 million of PPP loans during the quarter. To date, we have recognized PPP fees of $28 million. An additional $45 million of fees related to Phase 1 and 2 originations will be recognized as remaining loans are forgiven or repaid. As you are aware, the SBA recently rolled out Phase 3 of PPP. We are now encouraged again with origination volumes that our colleagues are processing in support of our local businesses.

Slide 7 outlines our interest rate positioning and the remaining opportunity to reprice liabilities lower in 2021. Over the next 3 quarters, we have over $4 billion of retail CDs maturing at an average cost above 80 basis points. Currently, our highest CD offering rate is 35 basis points for 5 years. There are additional opportunities to reprice borrowings and brokerage CDs lower as well. To this point, we've been able to protect our net interest margin through funding cost reductions. As a result of our repricing and liquidity deployment levers, we continue to believe that we will outperform peers from a net interest margin perspective going forward.

Slide 8 illustrates the significant improvement in our funding profile that we achieved in 2020. Total deposits increased more than 9%, driven by a 37% increase in noninterest-bearing deposits and a 25% increase in interest-bearing transaction accounts. CD balances declined 31% in the year. This transformation is the result of both Valley-specific efforts, particularly with regards to cross-selling new PPP customers, and an industry-wide liquidity increase. We will work hard to preserve this mix shift going forward.

The bottom left chart illustrates the significant downward trend in our interest-bearing deposit costs over the last few quarters. In the fourth quarter, our average cost of deposits was a mere 33 basis points. This is Valley's lowest quarterly deposit cost in at least the last 30 years. Given this already low starting point, deposit cost reductions beyond the CD repricing opportunity identified earlier are likely to be more incremental going forward.

One side effect of our recent deposit growth is continually elevated levels of liquidity. Our cash balance increased to $1.3 billion from $1.0 billion in the third quarter. This occurred despite our utilization of nearly $550 million of excess liquidity to prepay FHLB advances, as mentioned earlier. As we strive to optimize our liquidity and our earnings, we will continue to evaluate additional deployment opportunities on both sides of the balance sheet.

Slide 9 details our loan portfolio and origination trends over the last few quarters. Despite higher loan fees and the previously mentioned PPP forgiveness, average loan yields declined 3 basis points in the quarter. On the positive side, our average origination rate increased 9 basis points from the third quarter. The steeper curve has also expanded loan spreads, which reached their widest levels since the first quarter of 2019.

Excluding PPP, total loans declined slightly during the quarter. We generated $1.4 billion of new loans in the quarter, up nearly 40% from the third quarter and on par with pre-pandemic levels. On the commercial side, strong originations were offset by the repayment of 2 large loans totaling approximately $150 million where the borrowers' businesses were sold. We also saw stability in our consumer portfolios, which increased for the first time in 4 quarters. Our pipelines remain robust and organic growth opportunities have returned to pre-pandemic levels. While activity has rebounded across our markets, we are particularly excited by opportunities in Florida, where we are dedicating additional resources to meet the increased demand.

Slide 10 illustrates the improvement in our loan deferral since the onset of the pandemic. At the end of the fourth quarter, total deferrals had declined to $361 million or just over 1% of our loan portfolio. Loan deferrals in our COVID-exposed portfolios stand at 2.3%, down from 7.1% in the third quarter. As a reminder, the majority of our commercial deferrals remain current with regards to interest payments.

Moving to Slide 11. Our noninterest income declined 5% from the third quarter. Swap fees declined 43% to $11 million, while deposit service charges and gain on sale income both improved. Net residential mortgage gain on sale income increased approximately 19% sequentially, reflecting gain on sale margin expansion. Residential loans sold were effectively in line with the third quarter at $295 million, while the gain on sale margin increased over 50 basis points to 4.35%.

For the year, adjusted noninterest income increased over 30% and comprised 14% of our revenue. We recognize that certain fee lines will ebb and flow with market conditions. However, we remain focused on growing diverse revenue streams and building differentiated businesses that our customers will value. To that end, we recently announced the hiring of a municipal investment strategy team to further diversify our capital markets and correspondent banking businesses.

Slide 12 illustrates our expense trends throughout the year. Our fourth quarter results included nearly $12 million of pretax debt extinguishment and severance charges. These charges reflect efforts to improve our positioning for 2021. Adjusted expenses increased 1.5% in the fourth quarter, partially related to a $1.4 million asset impairment charge and elevated telecom expenses. We expect both of these items to normalize going forward.

For the year, our adjusted efficiency ratio was 47.4%, down from 53.8% in 2019 and well below our 51% target. On a year-over-year basis, we generated 26% revenue growth against an 11% increase in adjusted operating expenses. Looking forward, we acknowledge that industry-wide revenue headwinds are likely to build. On the expense side, easily identified excess costs have been largely rationalized. We have a modest tailwind from the branch closures that we mentioned last quarter and which occurred in December. Our team is hard at work identifying additional process improvements that can help us preserve the strong operating leverage momentum that we have established.

Turning to Slide 13, you can see our credit trends in the last 5 quarters. Notably, on the top right, nonaccruals declined to 0.58% of loans from 0.59% in the third quarter. The sequential improvement was primarily driven by the C&I portfolio. Net charge-offs declined to $3 million, representing the lowest level since the third quarter of 2019. This equated to just 4 basis points of loans versus 19 basis points in the prior quarter. Despite the extremely low level of charge-offs, our allowance for credit losses increased to 1.09% of loans from 1.03%. We remain optimistic on our outlook for credit performance. The quarter's reserve build is related to a few specific factors. First, we revised our New York City taxi medallion valuation to $82,000 from $109,000, which contributed to our specific reserve. We also downgraded certain commercial credits in COVID-exposed industries, including hospitality, retail and dining. We have been very selective lending to these industries and have focused on established borrowers with substantial liquidity and diverse sources of cash flow.

While the properties in these specific industries warranted downgrades, we remain confident in the overall performance of these borrowers. Valley's credit strength has long been a distinguishing characteristic of our organization. Our loss rates have historically lagged peers, which has enabled us to carry a below-average reserve. While continued economic uncertainty contributed to our modest reserve build this quarter, we still expect to outperform the industry on credit loss experience in any economic environment.

Slide 14 illustrates the consistent growth in our tangible book value and the ongoing improvement in our capital ratios. Tangible book value has increased 8% in the last 12 months, driven by our increased earnings power. Our tangible common equity ratio increased to 7.47% from 7.32% in the third quarter. We estimate that our $2.2 billion of PPP loans reduced our TCE to total asset ratio by approximately 43 basis points in the quarter. On a year-over-year basis, we have also seen a significant improvement in our regulatory capital ratios. We remain comfortable with our capital levels and believe that the consistent growth in our risk-based ratios illustrate our improving ability to increase our capital levels on an organic basis.

With that, I'll turn the call back over to Ira for some closing commentary.

Thanks, Mike. I am extremely proud of the commitment and hard work of our team that contributed to Valley's 2020 financial results and strategic achievements. We are very excited about the opportunities that 2021 will offer and look forward to executing on our strategic priorities and driving continued success.

With that, I'd now like to turn the call back over to the operator to begin Q&A.

(Operator Instructions) And our first question comes from the line of Frank Schiraldi from Piper Sandler.

First question was on the loan. You talked about the loan pipelines having rebuilt to pre-COVID levels and the mid-single-digit growth. And Mike, you also mentioned Florida is the greater opportunity within that. Just wondering if you can speak to a little more color on, is it sort of Florida could be a high single-digit growth and up north could be low single digits? And then any expected change in mix in terms of loan type?

Frank, it's Tom Iadanza. The production and pipeline increased 15% and 30%, respectively, from the third quarter to the fourth quarter, as Mike pointed out, returning us to the pre-pandemic levels. Florida represents 40% of our production today, up from probably 30% a year ago, and we also experienced slightly better margins in the Florida market. Our business in New York, New Jersey remains steady. The pipelines continue to grow across the regions and across all different types of loans that we're involved in between C&I and CRE. Our business is primarily into the suburban markets, not a big reliance on the Manhattan market. But following our success and our growth in Florida, we've begun adding C&I teams, and we're looking to increase the C&I staff in Florida by 25%, and we've already begun adding those people. Florida today represents about 28% of our commercial portfolio. We expect that to grow. We expect C&I to complement our already strong real estate business, but we expect growth in New York, New Jersey to continue on the same pace it has in the past.

Also, we'll be adding a team of experienced C&I lenders in the Philadelphia market at some point during this year. We're actively recruiting. 2 years ago, we moved into Philly with real estate lenders. We've had great success. It complements what we do up here, and the attributes of the market are very similar to the New Jersey market, and it's contiguous and much easier for us to manage. So we do expect that single-digit growth to occur this year. Florida will be an important component of that, it always has been, but we get steady growth in all our markets.

Okay. And then if I could just sneak in one more on fee income initiatives. And just thinking about the next couple of years, I guess. I mean noninterest income to revenues, I guess, could that ratio, just given the strong year in 2020, could that ratio growing be more of sort of a 2022 or 2023 result? Just wondering if you could talk a little bit about that.

Yes. This is Mike. Keep in mind that fee income as a percent of total revenue is taking a little bit of a hit because we've had such great success with net interest income. And so it's probably stronger than it looks as a -- on a percent of revenue basis just because of that. But our commitment to either starting new businesses, adding to what we already do in the fee income space, which shouldn't get lost in the equation, that's definitely part of what we're doing. One of our strategic priorities over the coming years is to increase that percentage that fees represent of total revenue. And I think the comment that I made regarding the municipal business we started in the fourth quarter shows and demonstrates our commitment to do that.

Our next question will come from the line of Steve Alexopoulos from JPMorgan.

I wanted to start first on the efficiency ratio. So you're well below the 51% target for 2020. Now that you're well below that, what's the target for 2021? And moving forward, more general.

We really haven't given a specific target as to where we think we're going to move the organization. I think you've seen significant positive operating leverage. We think there's still levers that we can pull, Steve, based on improvements in how we outline technology throughout the entire organization. We continue down the path of looking at efficiencies across the entire branch platform, and we think there's a lot of opportunities within the organization. Getting to a stronger efficiency ratio, we think, is going to be important as we continue to lever and grow the organization. As Mike mentioned, there's definite headwinds coming within the interest rate environment. And we think we have a good opportunity to really mitigate some of those headwinds based on what we do on the efficiency side.

And without giving a number, as we look forward, one of the things we enjoy today is our efficiency ratio is a differentiator for us vis-à-vis our peers. That is something that we expect to be -- continue to produce. And we believe that that's actually really important to our future strategic success as you look at what's going on in the industry.

Okay. So if we look at it another way. So if we look at the pre-tax pre-provision ROA, which you call it on Slide 3, we'd have to back out the PPP program impact. So let's say we do that, which I think we could do with the numbers you give us. So apples-to-apples, how should we think about that trending through 2020, given the headwinds you're talking about, Ira?

Look, I think we looked at that. Obviously, there's some headwinds when you think about the PPP income coming off as you identified. We think that's still going to be strong for the first half of 2021. I think mortgage volume could potentially go down as well based on where we see interest rate environment. But we have a lot, a lot going on within the organization when we think about the organic growth. As Tom mentioned, we're expanding our lending staff 25% in the Florida footprint. We are going down to Philadelphia as well with a more concerted effort. And we think that we can manage the expense base to not really see significant increase as a result of these strategic initiatives. So we think there's a lot of opportunity within the organization to really drive revenue growth throughout the entire footprint. And we think that will have a positive impact as to how we think about the efficiency ratio as we move forward, largely a function of what we're doing on the revenue side, and we think we have the capacity based on the operating leverage to not really have to increase expenses.

If you just look at the -- I'll add to that real quickly. If you just look at the lending side, I would direct your attention to Slide 9. One of the things we're most encouraged by is the fact that our total loan book only went down 3 basis points and our net originations for the quarter were up 9. I'm not saying that that's necessarily the ongoing run rate, but it's definitely encouraging, and we're not seeing remarkable reductions in loans, at least on the portfolio as it sits right now. And as I said, the new originations are higher. When you flip to the liability side of the balance sheet, one of the things that's going to help us on PTPP is going to be the continued improvement that we have, an opportunity to reprice our liability sources considerably lower with $4 billion in the next roughly 3 quarters at over 80 bps. I would expect that those would all come on at least less than half of where they're coming off right now when they mature.

Okay. That's helpful. So for my final question, Ira, I wanted to ask you a big picture question. So you guys had announced a fairly bold initiative and intended transformation of the franchise. It was part of LIFT, but it was really when you took over the CEO role. Can you give us a sense where is the company now, right, the new Valley? Are you where you need to be from a client satisfaction view? Are you still working to change the culture? Are you still heavily investing in the franchise? Where are we in this transformation?

Thank you. I think we made significant progress, I think, from where we were to where we're headed. The investment in technology has been significant. And you've seen that investment in technology without bringing up the overall expenses within the organization. So I think we've done a really good job of managing that investment. There is a tremendous amount of opportunity still left when we think about what that technology investment has and what the positive operating leverage is. The culture within the organization is something I've never seen before in my 25 years here, and I think is enviable to many outsiders. We are a destination without question for bankers looking to come to an organization that has consistency, that has empowerment, and that really drives agility as to how we think about moving forward.

Technology is going to continue to change and banking is going to continue to change. I think 3 years ago, we started to talk about technology. And everyone looked at technology and said, okay, we need a new front end or we need a new way to interact with our customers. And we sat there and said, wait, technology is all about the infrastructure and the agility, and we started to invest in the infrastructure. Not an individual core and not a front-end technology when it comes to treasury, but what type of infrastructure we had to enable to have plug-and-play technology that enabled us to really be relevant as the environment changes.

And then we think about just, Steven, what you're thinking about from a physical transformation today, everyone's looking at COVID and saying, wow, we need to now begin to rethink what our workspace looks like. 2.5 years ago, we sold our corporate office buildings here, and we began to think about at that point that the physical environment was going to change. Over the last 5 years, we've closed over 50 branches with an understanding that delivery channels were changing. We didn't need COVID to begin to tell us that the environment was changing and that the customer behavior was changing. This is our vision. This was our understanding of what was happening within the environment, and it's going to continue to change.

And we think we're building an agile workforce that will be first to adapt to many of these changes and deliver outsized performance. I mean I remember 3 years ago when we sat there and laid out these efficiency targets, no one thought that we would get to them, right? And we well surpassed them. And I think the Street will be pleased, I think, with where we're headed, and we continue to deliver outsized performance.

(Operator Instructions) Our next question will come from the line of Matthew Breese from Stephens.

Just following up on the expense discussion. Clearly, there's been a lot of work done, and the technology is, at least from what I've seen, paying dividends. But philosophically speaking, should we expect expenses from here to mostly stabilize, receive revenues without added cost. Is that, at least philosophically, the way to think about it? Or is there actual room to bring down the absolute level of expenses?

I think as we said in our -- or as I said in my prepared remarks, I think the low-hanging fruit part of it is done. There's -- we're never done in our ability to get more efficient or bring down expenses. So we will always be trying to find places to do that. However, we do have to admit that, as we've said, we're going to be growing the business. We're going to be adding new teams of bankers. And so to the extent that they produce the revenue that offsets it and continues to show the positive operating leverage that we have historically shown, and this quarter, we showed 2.5x operating leverage, we got to keep our eyes on both sides of it, but I don't think we're done necessarily on the expense side.

Okay. And then the other one for me is, I couldn't help but ask. In your 10-Q, you mentioned implementing a new deposit service for businesses in the cannabis industry. Can you better frame for us that business? What's on the balance sheet already? The overall market as it currently stands and the opportunity, whether it's deposits, loans, fees?

I'll let Tom address it in a couple of seconds, but I think this is happening. And we're burying our heads into the sand if we think that this isn't going to really impact us. From my perspective, it's better to come in with an approach as to how we want to handle it and be well thought out as opposed to letting the market dictate what that strategy is. We've had an ability over the last year to really define who we wanted to partner with from an infrastructure perspective to make sure we had the right checks and balances in place, to make sure we had the right AML processes in place and we could pick the partner that we wanted to really deal with as we begin to grow this.

When this becomes legal and more widespread throughout the entire banking industry, I think people are going to take shortcuts in how they look at garnering this type of business. And in my mind, it's much better to be proactive in addressing something than being reactive. And I think that was our approach here. It's not sizable at this point. We picked a couple of reputable partners as to how we want to grow. And we think it will continue to pay some dividends, but it's not moving the needle on anything at this point. Tom, is there something you wanted to add?

Yes. Matt, it's a deposit-focused opportunity for us. We're going to onboard slowly within the states we do business where it's legalized. We have one multi-state company that we've begun onboarding in both New Jersey and Florida. We'll continue to add other entities as we kind of get a little more comfortable and we'll go a slow pace in making sure we're doing all the right AML, BSA work and we're verifying as we go along. But as Ira said, it's not going to move the needle this year, but ultimately, it could be impactful.

And I think, Matt, just one thing I would add, I think, in my mind it reflects where the organization is headed. And I think too many organizations look to COVID, look to this environment, look to that environment and say, well, we need to not react. We have a very strong understanding, a very strong belief as to where the industry is headed, not just COVID, but banking in general. And we better be damn well proactive in how we address that and make sure that we have the right infrastructure and agility on our own without somebody telling us that we need to put this in place.

Understood. Last one for me. Ira, clearly, there's a lot of energy from you and the rest of the management team on what you can do internally. Is M&A a priority here? Or do you think you have enough internally to get where you need to be without it? Can you prioritize where M&A stands for us?

Look, we have amazing strategic initiatives within this organization. We've hired the most amazing, tremendous people as well, and I couldn't be more excited about where we're headed. There's new businesses that we're beginning to get into from an organic perspective. But there's a clear understanding that we need to continue to diversify the revenue stream, look at opportunities as to how we create consistent growth from a deposit and loan perspective. That may be in looking at different expanded strategies and geographies, as Tom was talking about earlier. And we need to make sure that we're looking at them positive operating leverage.

So if there's opportunities from an A perspective that makes sense that don't distract us, that don't reallocate a tremendous amount of resources, it's something we would definitely entertain. That said, if it doesn't happen, we're absolutely comfortable. I think the most important thing is we have a clear understanding of who we are, where we're headed and what we want to be. We also have a clear understanding that there are things that could potentially accelerate that. And if it makes sense from an allocation of resources perspective, then we owe it to our shareholders to go down the path of looking at it from a diligence perspective. That said, it has to align with our strategic initiatives. And if it doesn't, it's not something we're going to focus on.

Our last question will be from the line of Chris O'Connell from KBW.

So I just want to start off with -- you guys mentioned the strength in the Florida franchise and allocating some additional strategic resources towards those efforts. If you could just kind of like expand upon the efforts that you're having there, and I'm assuming it's primarily on the residential mortgage side as well as the deposit gathering side?

No. No, it's primarily on the C&I side. As you know, our real estate business in Florida is very strong. We have an active C&I business. We'll be expanding C&I lenders in all of our major markets, going Miami, all the way up for Orlando, Jacksonville and over across to Tampa and down to Naples. So it's a C&I emphasis in Florida. And I also want to say, we're doing similar in New York, we just don't need as many in New York. We have a vibrant C&I business up here in New York and New Jersey, and we'll be expanding that to complement that already strong real estate business. So it's a C&I focus, and we'll fill in real estate lenders here and there in the markets we need them.

Chris, Florida is a massively growing market, obviously, as you see the demographic shift. We obviously have a very strong residential mortgage program throughout our entire footprint. If you look at the footprint, we average about 50-50 this quarter in what was refinance, what was home purchase. If you look up in the New Jersey market, though there was about -- 35% of that was refinance. It's the exact opposite in Florida. Most of the originations are based on home purchases. There is a growing economy down in Florida. A lot of the loan growth that we see up here is definitely from a focus of us from a relationship perspective, but also taking business from other banks. There's real organic growth that's happening in Florida. And we think there's a real opportunity to continue to differentiate ourselves and put some additional growth on by allocating the resources down there.

Just to expand on what Ira said on the consumer side, the Florida purchase market is 60% and refinance is 40%. And as Ira pointed out, it's the flip side when you get up here in New York, New Jersey. And more importantly, in a very short period of time, a couple of years, we've built a consumer business between Florida, Alabama to almost $1.2 billion. So when you look at the Florida contribution, it's not just the commercial at 28% of the portfolio. It's also a growing consumer business. And again, it's a lot of conforming. It's a lot of prime and super prime and direct auto business that's coming out of there.

Got it. That's great color. And as you're kind of thinking longer-term or from a broader strategic perspective at Florida, I mean obviously, you guys have gone down there in the past with acquisitions, but it's been a while. Would you consider M&A down in that area as well?

I think we would definitely consider M&A in that marketplace. But let me be clear sort of what our constraints are, right? So the constraint certainly revolves around what our strategic initiatives are. If it's not going to be complementary to one of those strategic initiatives, it's something we don't want to do, and we don't want to allocate resources.

But let me also talk about tangible book value, right? And it's something that I've been pretty attuned to as to how we think about growth and what that franchise value is. And we are absolutely not going to further dilute our shareholders to a significant degree, just to continue to grow down in the Florida marketplace. We think we have a good foothold and there's organic growth that we can do down there. If it's tangible book value dilutive, it has to make sense. It has to be very, very short from an earnback perspective and something we think that we can really, really leverage. And if it doesn't make sense from a tangible book value perspective, then we're not doing it. We diluted our shareholders a significant amount back in 2014 in some of the other deals that we did. We are not doing that again.

Understood. And then just a couple of clean-up items. For the mortgage banking, I mean, 2020, obviously, particularly strong year. I mean how do you see that demand coming into the gain line going forward?

Yes. It's -- the demand in the production this year was very strong for us, probably up 30% from 2019. The refinance market has held up so far this quarter. We don't expect it to hold up for the full year at the same pace. The purchase market is strong. The migration into the suburbs and the purchase market is holding -- is doing well also. So it's really hard to say. I mean we are focused on conforming business. So I don't expect growth in the portfolio, but I do expect that we'll continue to manage and take advantage of the refinance market while it's here.

And I have no further questions in the queue. I'd like to turn the call back over to Ira Robbins for any closing remarks.

We just want to thank you for taking the time to join us today. Thank you for your interest in Valley, and we look forward to generating significant positive operating results as we continue to move forward into 2021. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.