Valley National Bancorp (VLY) 2022 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to Q2 2022 Valley National Bancorp Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Travis Lan, you may begin.

Good morning, and welcome to Valley's Second Quarter 2022 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 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 and the banking industry.

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 those of you on the call. I have a few comments to make this morning, and then we'll ask Tom to provide insight on the exceptional growth results that were achieved on both sides of the balance sheet this quarter. Mike will then discuss the financial results in more detail.

In the second quarter of 2022, Valley reported net income of $96 million, earnings per share of $0.18 and an annualized ROA of 0.72%.

Exclusive of noncore charges, including the provision expense, mainly associated with Bank Leumi non-PCD loans, adjusted net income, EPS and ROA were $166 million, $0.32 and 1.25%, respectively. These exceptional results reflect significant organic loan and deposit growth and our ability to manage deposit betas in a generally supportive interest rate environment.

With the Bank Leumi transaction behind us and integration efforts well underway, I want to take a moment to put Valley's recent transformation into context. Beginning on Slide 4 of our deck, we compare this quarter's key financial metrics against the fourth quarter of 2019.

This comparison highlights the tangible progress that has been made in the last 2.5 years as we have executed on our strategic and tactical initiatives. From a big picture perspective, we have driven sustainable balance sheet growth, diversified and enhanced our funding base, establish new noninterest revenue channels and benefited from disciplined and strategic M&A.

We have grown organic loans and deposits by just below 10% on an annualized basis over the last 2.5 years. While COVID weighted on the 2020 results, these growth rates have accelerated more recently. We have achieved this growth by providing exceptional service and advice to our existing clients and proactively identifying growth opportunities in specific markets and business segments.

Once these opportunities have been identified, we dedicated the appropriate resources from a talent, product and technology perspective to ensure that we capture the available growth.

As growth has accelerated, we have been careful to preserve the stringent underwriting standards that have supported our long-standing track record of the low peer credit losses. While we haven't materially altered our underwriting standards, our allowance for credit losses as a percentage of loans remains well above the day 1 reserve that was established on the adoption of CECL.

Meanwhile, neither our earnings nor our capital had benefited from the reserve release that have recently been common across the industry. Still, we have preserved our tangible common equity to tangible asset ratio at 7.5% without a diluted capital raise, while supporting the strong growth.

Turning to Slide 5. You can see that our growth has also been extremely profitable. Quarterly adjusted net income has increased approximately $75 million between the fourth quarter of 2019 and the second quarter of 2022. We are a much more profitable organization today as a result of strong growth in both spread-based and noninterest income. Our adjusted ROA during the quarter of 1.25% represents a nearly 25 basis point increase since the fourth quarter of 2019.

We recognize that our future operating performance will drive the trajectory of our valuation. That said, we provide this snapshot as proof of our ability to execute in challenging times.

Over the last 2.5 years, our tangible common equity and annualized earnings power have increased approximately $1.2 billion and $300 million, respectively. On a per share basis, tangible book value and adjusted earnings per share have increased 15% and 33%.

We are proud of this performance and confident that our ability to execute will drive success in the next phase of our evolution. Finally, while our preference is not to revisit our stated guidance on a quarterly basis, we have attempted to be as transparent as possible given the backdrop of an extremely volatile economic and interest rate environment.

With a full quarter of post-line results, we thought it would be most helpful to provide combined guidance for the remainder of the year. Using the second quarter's loan balance as a starting point, we now anticipate between 8% and 10% annualized loan growth for the second half of 2022.

We anticipate preserving our loan-to-deposit ratio around 100% give or take. Based on these dynamics and the June 30 forward rate curve, we would anticipate generating aggregate net interest income of around $900 million in the second half of the year.

Finally, we expect to achieve an efficiency ratio of below 50% in the second half of 2022 as well.

With that, I will turn the call over to Tom and Mike to discuss the quarter's growth and financial results.

Thank you, Ira. On Slide 7, you can see a summary of the quarter's exceptional loan growth. For the quarter, total loans increased approximately $8.2 billion, excluding approximately $5.9 billion of loans acquired from Bank Leumi on April 1, our combined organization generated nearly $2.3 billion net growth during the quarter.

For Legacy Valley, approximately 70% of the quarter's commercial originations were from existing customers. Loan growth was split approximately 60-40 between our northern and southern regions. Growth was also well diversified across asset classes with residential real estate and consumer contributing a proportional increase to the quarter's results.

We anticipate that residential and consumer activity will slow meaningfully for the remainder of the year. C&I loans grew nearly 50% during the quarter or 9% excluding loans acquired from Bank Leumi. Meanwhile, CRE loans grew 19% during the quarter or 4% excluding loans acquired from Bank Leumi.

While our pipeline remains strong at approximately $4.9 billion, which includes nearly $1 billion for legacy Bank Leumi lenders, underwriting standards have begun to time as rates have risen. The strong first half results position us to meaningfully exceed the full year 2022 growth guidance that we presented previously.

Finally, on this slide, you can see that origination yields increased approximately 76 basis points during the quarter. As you would expect, origination yields increased each month as rates moved higher. We anticipate that origination yields will continue to ascend as the Fed raises rates.

Turning to Slide 8. We are pleased that deposit growth was also very strong during the quarter. Total deposits increased nearly $8.3 billion with approximately $7 billion of that coming from Bank Leumi balances acquired on April 1. Organic deposit growth trends were strong during the quarter and benefited from activity in our niche national deposits in cannabis segments.

Traditional commercial checking account growth remained strong and contributed to the increase in noninterest-bearing deposits during the quarter. We acknowledge that rapidly higher interest rates has created pressure in certain segments of our deposit business.

However, we have strategically built and acquired differentiated funding verticals for exactly this type of environment. We are pleased with the deposit story and our ability to manage low betas across the portfolio to this point.

We continue to focus meaningful time and energy for the deposit gathering side of our business to ensure that deposit betas outperformed our prior experience.

With that, I will turn the call over to Mike Hagedorn to provide more insight on the quarter's financials.

Thank you, Tom. Slide 9 illustrates Valley's recent net interest income and margin trends. Net interest income increased over $101 million from the linked quarter. Approximately $65 million of this increase was from Bank Leumi resources. The remaining organic increase was the result of strong organic loan growth and the impact of higher interest rates on our asset-sensitive balance sheet. Our reported net interest margin increased 27 basis points to 3.43% from the first quarter of 2022.

Exclusive of the linked quarter impact of PPP loans, the margin expansion was closer to 31 basis points. The linked quarter net interest margin increase also reflected a 33 basis point increase in earning asset yields driven by the repricing of our adjustable loans and higher yields on new originations.

Inclusive of the benefit from higher noninterest-bearing deposit balances, Valley's total cost of funds increased to modest 6 basis points in the quarter. We are very pleased with our ability to manage funding beta so far.

As Tom mentioned, though, we are cognizant of competitive pressures around us and acknowledge that funding costs will remain in focus for the remainder of the year.

Moving to Slide 10. We generated over $58 million of noninterest income for the quarter as compared to $39 million in the first quarter. The increase was primarily the result of the bank leading the acquisition, which enhanced wealth management and loan fees and foreign exchange revenue. From an organic perspective, the anticipated reduction in commercial loan spot revenue was largely offset by an increase in gains on mortgage loan sales.

It is likely that gain on sale revenue will decline from current levels, but we are very excited about the growth opportunities that exist in other noninterest income areas including those contributed by Bank Leumi. We are very pleased with the noninterest income growth we have achieved in the last few years and remain focused on maintaining our momentum.

On Slide 11, you can see that our noninterest expenses were approximately $300 million for the quarter or $242 million on an adjusted basis. The linked quarter increase in adjusted expenses was primarily the result of Bank Leumi and higher intangible amortization costs associated with the transaction. Legacy Valley expense growth was relatively muted.

The quarter's strong revenue growth helped drive our efficiency ratio to 50.8% from 53.2% in the first quarter. As Ira mentioned earlier, we anticipate generating an efficiency ratio around 50% for the second half of the year.

Turning to Slide 12. You can see our credit trends for the last 5 quarters. Our allowance for credit losses as a percent of total loans increased to 1.13% at June 30 from 1.07% at March 31. This level of reserve coverage remains well above the 0.89% day one reserve we established upon the adoption of CECL.

Neither our earnings or capital levels have benefited from recent reserve releases which differentiates us from many of our peers. For the fourth consecutive quarter, we recognized de minimis non-PCD net charge-offs totaling just $2 million. Approximately $70 million of the $82 million linked quarter increase in nonaccrual loans were for loans acquired from Bank Leumi.

Reported nonaccrual loans increased to 0.72% from 0.65% of total loans and remain well within our recent historical range.

On Slide 13, you can see that tangible book value declined approximately 2.8% for the quarter. This was mainly the result of the acquisition of Bank Leumi and the negative OCI impact associated with our available-for-sale securities portfolio.

Relative to peers, this OCI headwind remains manageable as a result of our relatively small securities portfolio and modest AFS exposure, which reflects our continued focus on tangible book value preservation.

Tangible common equity to tangible assets declined to 7.5% from 8.0% in the prior quarter, primarily as a result of our organic loan growth. Our risk-based regulatory ratios declined at a somewhat faster pace as the average risk weighting for our loan portfolio ticked up as a result of the growth composition.

With that, I'll turn the call back to the operator to begin Q&A. Thank you.

(Operator Instructions) And one moment for questions. And our first question comes from Michael Perito from KBW.

Not to be nitpicky, but just to clarify, I heard 2 different things. The efficiency guide is it below 50% or at 50% for the back half of the year? And then maybe just a step below that. Can you give us any commentary you're willing to share about kind of the dollar expense run rate from here on a core basis and whether there's maybe some things that could impact that up or down as we look to the back half of the year?

So I'll give the updated guide, I mean, it is below 50% as to where we think the efficiency ratio will be for the second half of the year. And then maybe Mike will talk a little bit about sort of what the focus is on the noninterest expense figure.

Sure. Thanks, Ira. From an efficiency perspective, we're fairly confident in our guide given our outlook for revenue growth and we'll expect to lag expense growth and drive positive operating leverage through the second half of '22 and keep in mind that the quarterly expense growth was entirely the result of the addition of Bank Leumi's operations and higher intangible amortization costs, which were up $7 million over Q1. So legacy Valley expenses were effectively flat in the quarter.

Is there any kind of movement in some of like the deal closing and whether that's -- I'm sure you guys flagged a lot of it in that $55 million of onetime, but is there anything else that we should be mindful of that could normalize or may be elevated or nothing comes in mind?

Mike, this is Travis. So there's some additional integration costs associated with Leumi which are kind of for the ongoing investments that we needed to make in their ongoing business, things like rewiring their offices and other things. Those costs in the quarter were relatively minimal, but those will decline over time.

And I think if you think about the trajectory of expenses from here, there is some, I'd say, inflation-based increase that we anticipate to offset the majority of with further cost saves and efficiencies on the Valley side.

Got it. Okay. And so no change to the kind of the cost saving expectations whether from a dollar amount or a timing standpoint at this time?

No.

Okay. Great. And then on the deposit side, I appreciate Tom's comments about trying to keep the beta lower. It sounds like some of the deposit niches are going to be really critical to that. I was curious if you guys are willing to maybe provide some micro updates on a handful of those.

The venture banking. I know I think you guys have discussed last quarter had some good growth. Obviously, that market had a much more volatile second quarter. Just curious, kind of where some of those deposit niches stand today and which opportunities you think could be the most material near term?

Yes, Michael, it's Tom. (inaudible) give some highlights there. On the tech business, the deposit dropped to 67% since we announced the deal on 32% year-to-date. So we are seeing that continued growth there.

More importantly or not equally importantly, our relationship-driven strategy of driving our commercial deposits is working. Those deposits are up over $300 million for the quarter. That, combined with our HOA, cannabis and national deposit business, all of which are growing in double-digit percentages are contributing to our ability to fund our loan growth.

And has the kind of cost of those niches had it been as resilient kind of as you would have expected? Or I mean, obviously, there competitors looking for kind of lower cost deposit growth? I mean, are you seeing any change in that? Or do you still feel like there's some room for market share taking in several of those targeted niches?

I mean I'll answer a portion of that and then Ira will chime in here. On that commercially driven relationship part, 61% of that growth is noninterest bearing. We expect that to continue. Ira, if you want to comment...

We made a real concerted effort over the last 4.5 years to really focus on diversifying the funding book that we have. So as certain segments of the deposit book become more data sensitive, we have alternatives to raise deposits from other niche categories. Some of the cannabis business obviously has a very low cost basis.

And even as Tom mentioned on the tech business, it was one thing that we acquired Bank Leumi's international tech business, but we've organically decided to grow the domestic piece of it as well. So we think we have enough different alternatives even from a retail funding perspective that provides us a pretty good segment and pretty good outlets to continue to raise the deposits that we need to support the active loan growth we have at a manageable rate from a funding perspective that we think will be much less than where we were last time around.

Great. And then just last for me and I'll step back. Just on the kind of go-forward provision and credit environment here. Loan growth obviously going to continue with the guide that you guys provided. Just at least as it stands today, what type of kind of reserve are you allocating against incremental loan growth?

And is it is the unemployment rate still one of the bigger drivers of the CECL model here in the Moody's forecast? Or is there anything else we should be mindful of as we try to think about how that will trend into what's obviously a pretty uncertain 6 to 12 months?

Yes, I'll take a crack at this. Valley now stands at 1.13% and the median for banks is now 1.15% so just like Ira's comments earlier regarding the change in deposit funding or funding in general, how it's not the valley of old, you can see the allowance is also that same way.

The bias, if you will, in provisioning, if all things were to stay equal, which they're probably not going to in the economy. But if they did, I would say the bias is towards even smaller provisions, and here's why. Most of the loss history that would have been more negative than the current is dropping off, right? This is the 2020 pandemic-related law.

So the loss history is the largest driver of the model. Now having said that, considering the loan growth that we put up, we're going to continue to keep pace based on that loss history with any loan growth that we continue to book.

Great. Appreciate the color, guys.

And one moment for our next question. And our next question comes from Steven Alexopoulos from JPMorgan. Your line is open. Hello, Steven are you on mute? Hello, Steven? One moment, please. And our next question comes from Frank Schiraldi from Piper Sandler.

Sort of follow-up on the deposit side, actually, and I'm not sure if I missed this, but in terms of the cannabis business, where balances at this point? And I think you talked about maybe double-digit growth. Just wondering where you think you can ramp that up I assume it's still pretty early in building out that business, where you think you can ramp that up, call it, by year-end?

Frank, thanks for the question. We really haven't provided much guidance with regard to specific deposits, and I think we'll probably keep it that way at this point. I will tell you, the number of accounts have continued to grow dramatically. We're up 40% number of accounts from where we were previously, which is a pretty big effort when you think about the growing industry that we have here.

We now bank 7 of the top 10 multistate operators were in 25 states and we're continuing to be very excited about the opportunities associated with the cannabis business.

Okay. And then I don't know maybe if you can provide this. On the tech -- the niche tech business, or just the tech business. In terms of -- I think, Tom, you gave since the deal was announced and since the beginning of the year. Just wondering if you have after close, how that's trended? Has it been pretty much stable with that year-to-date number? Or has it accelerated? Or any sort of color on just the second quarter there.

Yes, sure. It's been stable to up since the close. And to keep in mind, the business is deposit driven. It was really focused on Israeli venture firms. We have staffed and added people and brought in the encashment of the not just Israeli venture firms. So we expect to see that business to continue to grow.

Okay. Just so I understand, when you said stable top you're talking about in line with the growth rate you gave prior or you're just saying balances were, in general, were stable to up in the quarter?

Balances in general.

And one moment for questions. And our next question comes from Matthew Breese from Stephens.

I wanted to go to the organic loan growth guide for the back half of the year, the 8% to 10%. Could you just talk a little bit about the composition of the pipeline and the composition of that 8% to 10% expected growth. Yes, I'll leave it there.

Okay. Matt, it's Tom. The first half, we benefited from the strong residential consumer growth. That was about 20% of our organic growth. We expect the second half those levels to be negligible. It's just not going to -- it's not going to grow, okay?

On the commercial side, our pipeline remains strong. However, we're dealing with a rapidly changing interest environment as well as potential economic slowdown so that's likely to reduce our pull-through in our work in process pipeline.

We do believe that we have solid growth opportunities across all our markets, which we've seen in the first half of the year. So that should support the loan growth guidance that we provided for the second half.

And I just want to point out, in this growth, we have never compromised our credit standards with still a very diverse granular production shop.

Yes. Along those lines, I wanted to maybe get some color on how the underwriting has changed or how you've adapted to the current environment, which seemed like a little bit more tenuous?

And are you asking more of your borrowers in terms of additional equity or more recourse or personal guarantees when it comes to originating loans. Curious there.

Yes. It's totally above. And keep in mind that 70% of our business is repeat business with long-time valued strong existing customers that have been through the cycle. So there's a level of capability and credibility that they have built.

That being said, we stressed loans at a much higher interest rate, which we began several months ago. We stressed high-risk industries on a regular basis and constantly look at the portfolio. On the consumer side, we changed our requirements on FICO, on loan-to-value.

Our average loan-to-value on our real estate related loans is in the 60s for the most part. We have always taken a much more conservative approach with regards to cap rates than others. And if you look at the book of business, it reflects that because it is very diversified by type, by region and all.

Our average production, our average loan of real estate was $4.8 million for this past quarter, and C&I was about $1 million on average for each loan. So we will maintain those standards. We're looking at constantly adjusting FICO scores on the consumer side and loan to values on the commercial side.

Got it. Okay. And then turning to the NIM, could you provide what the purchase accounting benefits were that flow through the NIM this quarter and the expectations on that over the next year?

Sure. This is Mike. I'll give you the recon because we anticipated that this question would be asked. So in Q1, that number was $5 million. That obviously excluded Leumi. In Q2, it was $15 million, but of that $15 million, $2.5 million of that was related to payoffs. And so the run rate for Q3, we would expect to be about $12.5 million.

Okay and a year from now, what is that expected to be? Just so I have my kind of cadence of decline, right?

I think it would be about the same.

Okay. I did want to address fee income a little bit. I get the sense that swap fees could be a bit volatile. Curious, overall, if this kind of $58.5 million run rate is a good one? Or do you think you can grow off that?

Yes. I think we believe that, that is a fairly good go-forward run rate. You got to consider that swap fees are going to be impacted by the general interest rate environment. And I think that will probably get tougher as people look at the individual coverage of their own debt service, but we'll see how that pans out.

Tom's comments earlier regarding resi mortgage, it's probably going to be challenged as well. But what's exciting about the change here is Bank Leumi brought in some opportunities for us to kind of counterweight or balance out some of those other items. And so I think we feel right now that a mid-50s to 60 per quarter is reasonable.

Okay. And then last one when we announced or when you announced Leumi, it's one of those things where we build in the cost saves, but not on the revenue synergies. Once you're -- now that you're fully integrated, could you just talk a little bit about those revenue synergies where are you most excited to grow the business?

Yes. It's Matt again. Sorry about that. I forgot who I was for a second there. I think just to remind you, when we entered into the transaction, we retained all of the customer-facing front line people -- that also includes the credit people, the administrative side, anyone that touched the customer was retained as part of this.

So we have effectively seen a relatively seamless adjustment on the commercial side, and that's evidenced by the 24% commercial loan growth in the quarter. So that is all operating positively. We identified a small group of health care loans that we wanted to exit and Leumi had begun that exit strategy during this transition.

[Valley] are the only customers that we have lost in any material way since we started this. I think the balance sheet, and they came into this with a pretty robust pipeline and the balance sheet that we now have together gives them the ability to retain customers that previously had to go to other banks because they were topped out at Leumi and that should continue.

The tech piece is an exciting piece for us. We gave you the numbers on that, that grows. We're staffed there. We have added staff in all of the markets Chicago, L.A. and Florida on the Leumi side will continue to opportunistically add staff there. The greatest opportunity continues to be not only on the VC tech piece, but on the consumer piece. There has been a regular flow of referrals from the Valley to the Leumi Private Bank side and from Leumi Idemitsu to the Valley consumer side, that has been probably on a similar or larger scale than we had anticipated.

And that flow of business from Leumi and Israel for their international clients as well as their participation in our real estate loans that we originate here, that continues on the pace that we expected.

I think, Matt, some of the other stuff that we've looked at is really what Leumi didn't offer customer base that really Valley as a full-service commercial bank is able to really do.

We have a very strong consumer set product as well that we're able to offer to many of their customers so we've seen a lot of referrals on the residential side as well as the retail deposit side just having a branch network as well as having a strong international group there as well for us. So we think there's boundless opportunities.

We've seen significant referrals across the organizations already branch network as well as having a strong international group there as well for us. So we think there's boundless opportunities we've seen significant referrals across the organizations already. And like you said, well, we didn't model in any of the revenue synergies we're already beginning to see a lot of them.

And one moment for questions. And our next question comes from David Bishop from Hovde Group.

Quick question. In terms of the loan growth, I may have missed this in the preamble, but from a legacy basis, just curious how the southern market, some of the newer markets there this year and maybe the outlook for growth into the second half of the year in 2023?

Sure. One -- it's Tom again, David. On the segments or the regions, the production is 60% 40% south. That's been growing in the South. The loan growth in the south is at an accelerated pace to the north. It's growing at around 25%.

If you remember back in 2020, we began bringing in a team of people in all of the major markets in the South, we brought in 15 lenders, mostly C&I. They produce about 20% of our organic growth in this last 6 months and 90% of what they produced in this past quarter was C&I related.

So it's -- we're seeing faster growth in the South, but very solid, stable growth, up north with the strong customer base that we have here.

And is it safe to assume that those C&I customers off to bringing in commercial deposits as well with these relationships?

Absolutely. We referred to that earlier that $300 million growth in quarter-to-quarter and most of that 60-plus percent being noninterest-bearing. And you've seen that in both North and South at growth in deposits.

Okay. Got it. Got it. And then maybe just one final question. Now that the acquisition is behind you. Share buybacks? Does that enter into the playbook as you enter into the second half?

I think we built such a wonderful organic engine here that any incremental capital we have, we think we can put back into the business and give the shareholders a much better return.

And our next question comes from Steven Alexopoulos from JPMorgan. Hello, Steven?

And our next question comes from Jon Arfstrom from RBC Capital Markets.

I think the phone lines are down at JPMorgan. That must be a feel bad for the guy. You may have just answered this on David Bishop's question, but you talked about 70% of growth from existing clients. Is that the story with the other 30% that's the southern markets and the new hires? Or is there something else to call out there?

No. It's 70% of our business are the people who have done business with us in the past, 30% would be a customer that is brand new to the bank. That 30% is spread out, but it's more larger in the south.

Okay. Got it. Question on margin momentum, and I don't need to pin you down on a number, but just longer-term thinking. And it kind of goes to the deposit base comments. How long does it take a hike, a rate hike to fully cycle through your earning asset yields?

I think one of the easier way to handle that, Jon is approximately 40% of our loan book is tied to prime LIBOR or SOFR. So that would be the stuff to reprice the quickest I don't know that's a direct answer to your question, but I think that's kind of where you start.

And then just also point out like the pace with which origination yields rose throughout the quarter, so origination yields had increased to 4.5% by the time we got to June. They were closer to 310 in February. So if you think in that 4 or 5 months whatever it is, origination yields went up 140 basis points and that time Fed funds have gone up 150 basis points.

So that we're able to pass through the borrowers relatively quickly. And then again, with the remaining 40% of the loans tied to prime LIBOR SOFR, that component is very sensitive as well.

Okay. That is helpful. Just with your deposit base strength, it just feels like there's a lot of momentum coming in your margins. So that's good.

I think definitely, Jon, just to follow up on that, right? Obviously, there is a lot of strength there. But I think from an industry perspective, not just Valley, right? There's going to be a lag here and there's going to be deposit pressure that really begins to hit many banks, and that's going to happen, whether it's 2 more quarters from now or whether it's sooner.

It's definitely going to impact the overall industry, which is why one of the things we've done over the last few years is really try to diversify the funding base that we have and not just have it from a retail or a broker business, but have it in a multitude of different segments.

So we think while there's going to be pressure on the deposit side at some point based on where interest rates have gone, we do believe that there's a multiple of different funding sources here that's going to be positive on that funding data.

Yes. I agree with that. Most of your peers didn't have the kind of deposit growth you have. So it's clearly on a relative basis, I think you look better.

Jon, just following up on that, we've seen deposit growth just through July already more than outpace where we are on June loan growth. So that trend that we showed for the second quarter has already continued through the month of July.

And our total funding beta for the second quarter was 1/3 of what we modeled. So we still have a long ways to go to make up just what we're modeling.

And then just one very big picture. Your credit numbers look good. You clearly have some cautionary comments filtered throughout your answers on Q&A. But there's a lot of cross currents. And are you guys seeing anything that bothers you at this point from an economic point of view? I know you're trying to be cautious, but just curious if there's anything you would call out and flag that might be bothering you?

No, we're not experiencing any underlying areas of credit concern. We're not really seeing the stress of the weakness in the customer base. And remembering, we've got a long history with many of our customers that we do this business with.

But we are cautious -- we are underwriting differently, stressing at a much higher cap rate than we had in the past. And as we talked about before, we do portfolio reviews on a constant basis and really focus on the high-risk industries in that.

And I'm showing no further questions. I would now like to turn the call back over to Ira Robbins for closing remarks.

Thank you very much, and thank you for the interest in Valley today. We obviously generated a very strong performance, and we are excited about the opportunities continue to move into the second half of 2022. Thank you.

This concludes today's call. Thank you for participating. You may now disconnect.