Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Valley National Bancorp Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker, Mr. Travis Lan, Director of Investor Relations. Please go ahead.

Good morning, and welcome to Valley’s first 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 your first quarter 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 may 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 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. Good morning, and welcome to those of you that have joined the call today. On behalf of the Valley team, we hope that you and your families remain safe and healthy during this challenging time. This morning, I will update you on efforts that we have taken to support our employees, clients and communities amidst the COVID-19 pandemic. Mike will then offer details on the financial results, CECL implementation and our recent liquidity initiatives before opening the call up to your questions. The global health crisis brought on by the spread of COVID-19 has quickly changed our world in many ways. For the first time, our management team is hosting this quarterly call remotely. This is consistent with our business continuity plan, as well as the social distancing guidelines and work-from-home procedures that have become the norm. COVID-19 has also brought significant and rapid changes to the operating environment for our company. For the last few years, we have emphasized our ongoing technology transformation and leveraged the significant strength, diversity and depth of our management team. Over the last two months, these forces have come together and driven Valley’s swift and decisive crisis response. Our agile technology enabled a quick and effective work-from-home transition for 93% of our non-retail employees. Further, we leveraged our technology platform to create an efficient digital application process for the SBA’s Paycheck Protection Program, which I will highlight in more detail momentarily. In February and early March, our finance and treasury teams were quick to lower deposit costs in response to declining interest rates. These efforts were made possible by an engaged and flexible response from our deposit operations team and branch network and helped to offset earning asset yield pressure and insulate our net interest margin during the quarter. While we were well ahead of our local competitors in our deposit repricing actions, we still saw strong growth this quarter in our non-interest bearing, transaction and savings balances, which speaks to the underlying strength of our entire deposit franchise. These actions position us well from a margin perspective entering the second quarter. Our experienced management team also quickly identified potential industry-wide liquidity stresses and acted to fortify our liquidity position. These actions and so many others in the last few months directly validate our strategic technology focus and our longer-term efforts to deepen and diversify our management team. Further, I believe the current environment, coupled with our success over the last couple of months, reinforces the strategic vision that we have outlined, one which encompasses leading technology infrastructure to support the human element of banking. Banks like Valley are meaningful, meaningful to our economy, meaningful to our communities. We provide a differentiated customer experience, which blends technology with live bankers. It’s not difficult to look to the future and understand the value of having a motivated and knowledgeable team, supported by leading-edge technology to drive relationship banking. Before I turn the call over to Mike, I want to highlight a few of our other key responses to the COVID-19 environment. With regard to our employees, I previously mentioned that 93% of our non-retail employees have been enabled to work remotely. This has required a coordinated distribution of laptops, other hardware and remote support. Valley has also paid $1.8 million in special bonuses to our hourly and part-time employees and agreed to cover 100% of out-of-pocket medical costs associated with the COVID-19 virus. From an operations perspective, approximately 36% of our branches are currently closed, with the rest offering either drive-up service or lobby service by appointment. We quickly adopted a rotational staffing model in our branches, which has helped us manage health risk and maximize our ability to consistently serve our clients. There are three other key initiatives that I would like to discuss, which illustrate our team’s dedication to servicing our clients in these unprecedented times. We are helping our commercial and small business clients take advantage of the various government support programs available to them, most notably, the Paycheck Protection Program, or PPP. As details of this program emerged, we mobilized to develop an online application solution. This eased the application process for our customers and helped us effectively manage the loan submission process to the SBA. By the time the initial phase of the PPP was exhausted a few weeks ago, Valley had originated over 5,000 SBA approved loans, totaling $1.6 billion of volume. To put the success in perspective, our $1.6 billion of volume is more than 2.5 times the amount of PPP originations that would be expected based on Valley’s asset size. Our median originated loan size was approximately $100,000, and roughly one-third of all of our applications were for those below $50,000. This gives us a sense of our efforts to assist the smaller companies most at risk in the current environment. We continue to work with our most challenged commercial and retail clients on forbearance solutions. As of April 26, we had approved forbearance requests on nearly 2,600 commercial loans, covering $2.6 billion. As you can see on Slide 5, excluding taxi medallion deferrals, 97% of the approved commercial deferral balances were for pass rated loans. We have also approved over 3,600 consumer forbearance requests for nearly $450 million of principal balances. While we continue to work with our at-risk borrowers, the inflow of forbearance requests has noticeably slowed in recent weeks. Earlier this month, we proudly launched our community recovery CD program. This online-only CD opportunity furthers social distancing efforts and provides an attractive rate to new and existing deposit customers. Valley is donating 50 basis points of deposits raised under this program back to those in our communities most directly impacted by COVID-19. We believe this is the first deposit promotion of its kind. We have currently raised nearly $45 million in deposits under this program, equating to a direct donation of $225,000 back to our local communities. We look forward to further marketing this program across our entire footprint and driving additional financial support back into our communities. In addition to the community recovery CD, we have committed to invest $2 million in New Jersey Community Capital’s Garden State Relief Fund to further support New Jersey small businesses. We’ve also donated $200,000 to food banks in our footprint, which have provided over 2 million meals to those in need. Throughout this presentation, we will provide additional information on our exposure to industries potentially impacted by the virus and thoughts on the other potential implications to our businesses and mitigating efforts we have taken to address those impacts head on. Transitioning now to the financial results. In the first quarter of 2020, Valley reported net income of $87 million and earnings per share of $0.21. These results include approximately $1 million of after-tax merger expenses related to the acquisition of Oritani and over $2 million of infrequent expenses associated with Valley’s response to COVID-19. On a pre-provision basis, results reflect continued progress on our stated goals of consistent growth and improved operating efficiency. On a year-over-year basis, we generated 24% growth in adjusted revenue, against only an 11% increase in adjusted expenses. Exceptional progress on these fronts was mitigated in the quarter by a larger provision, reflecting the impact of COVID on the economic outlook. While Mike will provide additional details, we recognized a $35 million provision in the quarter, of which roughly 50% was related to incorporating a weaker economic forecast into our reserve methodology at the end of the quarter. Even with this significant provision, our adjusted earnings per share decreased only modestly from the first quarter of 2019. Overall, we are proud of our COVID-19 response and our first quarter achievements. Despite the challenges of the current environment, we will continue to operate the bank in the conservative manner that investors have come to expect and that has served us so well over our history. Our credit losses in the prior crisis were lower than our peers as a result of a strong credit culture and prudent approach to underwriting. While our geography has expanded since the last crisis, our conservative lending philosophy remains unchanged. We operate in resilient demographic markets that we expect will be quick to bounce back as the environment normalizes. With this in mind, we will continue to manage items under our control and position ourselves for sustainability and success as we emerge from these challenging times. Now I’d like to turn the call over to Mike Hagedorn for some additional financial highlights during the quarter.

Thank you, Ira. Turning to Slide 7, highlighting our quarterly net interest income and margin trends. Valley’s reported net interest margin increased to 3.07% from 2.96% in the fourth quarter of 2019. The first quarter’s margin includes 9 basis points of benefit from higher accretion on purchased credit deteriorated loans that resulted from the implementation of CECL. Exclusive of this, net interest margin on an adjusted basis was 2.98%, up 2 basis points sequentially. This is a continuation of the upward trend experienced in the fourth quarter of 2019, and reflects our success in quickly reducing non-maturity deposit costs, as benchmark interest rates declined in the quarter. On the deposit side, we continue to experience customer rotation out of CDs and into non-interest and transaction accounts. Going forward, we believe that there’s additional room to reprice CDs and wholesale funding sources lower as these liabilities mature. This opportunity is outlined on Slide 8. Earlier Ira mentioned certain initiatives that we undertook during the quarter to build liquidity and ensure we have the balance sheet resources necessary to respond to our customers’ needs during these uncertain times. In the last two weeks of March, we added $1.4 billion of FHLB advances with a weighted average term of 4.5 months. By utilizing swaps on a portion of the advances, the all-in cost of these advances will be roughly 20 basis points. Subsequent to quarter-end, we added an additional $400 million of short-term FHLB advances and over $1.4 billion in brokerage CDs, with a weighted average term of 8.5 months and a weighted average cost of 1.2%. As a result of our liquidity actions, quarter-end cash and equivalents exceed $1 billion. While this excess liquidity may produce a modest near-term drag on our net interest margin, we firmly believe that these efforts are prudent, given the uncertain environment we currently face. Slide 12 illustrates the swift reduction in non-maturity deposit costs that we drove in March. CD rates also trended lower in the quarter. And as you saw from the 12-month forward maturity schedule on Slide 8, additional opportunities exist to reprice retail CDs and wholesale funding costs lower should the current rate environment persist. On the asset side, as you would expect, we continue to see yields under pressure. During the quarter, reported loan yields declined 7 basis points, despite a 10 basis point benefit from accelerated PCD loan accretion. Origination yields declined 17 basis points from the fourth quarter of 2019, as a result of the significant reduction in benchmark rates in the second-half of the first quarter. Despite this pressure new origination spreads increased 12 basis points in the quarter and are up nearly 30 basis points in the last six months. Moving on, our non-interest income increased 9% from the linked fourth quarter, driven primarily by a $4 million increase in swap fees. Despite strong sequential growth, adjusted fee income was 13.5% of adjusted operating revenue during the quarter, slightly below the prior quarter’s 13.8% level. This decline in the ratio was largely a product of strong net interest income growth, partially attributable to a full quarter’s impact from the acquisition of Oritani. Swap fees were approximately $14 million during the quarter, as we originated back-to-back swaps on approximately $505 million of notional loans, up from $400 million in the prior quarter. Going forward, we would expect swap fees to return to a lower level, reflecting less overall activity. Our net residential mortgage gain on sale income declined 13% sequentially, as the volume of loans sold declined to approximately $200 million from $300 million in the fourth quarter of 2019. On a positive note, gain on sale margin increased more than 50 basis points to 2.46%, which partially mitigated the volume decline. Slide 9 provides an overview of our quarterly operating expenses and the significant progress we have made on the efficiency front. Our reported expenses decreased approximately $40 million from the prior quarter. This quarter’s reported figure includes $1.3 million of merger-related expenses, compared to approximately $47 million of infrequent expenses in the prior quarter. The pre-tax amortization of tax credit investments was roughly $3 million for the first quarter of 2020, down from $4 million in the prior quarter. Our adjusted expenses, exclusive of tax credit amortization and previously mentioned infrequent items, were $151 million, up $6 million, or approximately 4% from the previous quarter. Roughly, one-third of the sequential expense increase is due to $2 million of COVID-related special bonus and cleaning costs accrued during the quarter. As the Oritani systems conversion occurred in mid-February, we expect full synergies to be recognized in the second quarter. Last quarter, we told you that we were on track to achieve our adjusted efficiency goal below 51% during 2020. As you can see, we hit that mark this quarter with an adjusted efficiency ratio of 49.3%. As Ira mentioned, on a year-over-year basis, we have generated 24% revenue growth, with only an 11% increase in adjusted operating expenses. While the COVID operating environment is uncertain, our management team remains focused on efficiently allocating personnel and financial resources to business lines and products that provide the greatest returns on our expense base. Total loans increased 10% on an annualized basis to $30.4 billion. Growth was strongest in our commercial categories, with CRE and C&I increasing 11% and 14% annualized. As one would expect, given the environment, we did see commercial line utilization, which includes construction, tick up to 46% at the end of the quarter from 44% in the fourth quarter of 2019. The most significant increase was noted in our Florida markets. Since the end of the quarter, line utilization has been relatively stable. Meanwhile, our non-mortgage consumer portfolio declined 3% on an annualized basis, as both home equity and automobile balances fell. From a timing perspective, growth accelerated throughout the quarter and peaked at an annualized rate of 16% in March. Loan originations in the first quarter totaled approximately $1.4 billion, up 11% from the first quarter of 2019. Since the end of the quarter, COVID-related economic shutdowns in our markets have slowed both new originations and unexpected pay downs. As traditional origination activity has slowed, we have diverted resources to managing the demands of the Paycheck Protection Program. We received approximately 13,000 loan requests under the PPP, and under the first phase of the program, we originated 5,100 loans, totaling $1.6 billion. Our median loan size was approximately $100,000. Our expectation is that a large amount between 80% and 85% of loans made under this program will be forgiven and off our balance sheet in the near-term. The remainder could remain on-balance sheet for two years. As a reminder, loans originated under this program are fully guaranteed by the government. While the loans carry a modest 1% yield, the SBA will pay lenders processing fees of between 1% and 5% per loan based on the size of each originated loan. These fees will accrete through interest income over the life of each loan. Valley originated $1.6 billion of SBA approved loans in the initial phase of this program and has generated approximately $47 million in expected processing fees from the SBA. This was an extremely successful initiative for Valley and reflected the dedication and efforts of a significant portion of our team. The overwhelming majority of our borrowers in this program had a preexisting value relationship. However, in select instances, we leveraged our PPP strength to service new clients. In many cases, these new clients brought significant deposit relationships to Valley. On Slide 11, we detail our outstanding loans to industries, which have primary or secondary pandemic exposure. Approximately $2 billion, or 7% of our loans are to industries that have primary exposure to the pandemic. These include non-essential doctor and surgery centers, the hospitality and foodservices industries, and retail companies. You will know that 95% of our loans in these segments are currently rated pass under our credit methodology, and we approved deferral requests on approximately 28% of these loans. We also have identified our exposure to industries such as manufacturing and education, which may be less impacted by the virus. Again, you will note the overwhelming majority of these credits are pass rated, indicating strong positioning prior to the COVID outbreak. While total deposits declined modestly in the quarter, underlying trends were strong as customers rotated out of CDs and into non-interest and transaction accounts. Non-interest bearing deposits increased 14% sequentially on an annualized basis to comprise 24% of total deposits, up from 23% in the fourth quarter of 2019. Similarly, interest-bearing non-CD deposits rose 23% on an annualized basis. As a result of the quarter’s strong loan growth, our loan to deposit ratio increased to 104.9% from 101.8% at the end of the fourth quarter. While total CDs declined $1.2 billion from December 31, approximately 75% of that was due to the roll off of brokered CDs, which we opted to replace with lower cost FHLB advances. Overall, retail deposit retention has been favorable. As mentioned, subsequent to quarter-end and consistent with our multi-phased liquidity plan, we added $1.4 billion of brokerage CDs at favorable terms. For the quarter, interest-bearing deposit costs fell 19 basis points to 1.40%. This improvement reflects our decision to aggressively manage non-maturity deposit costs lower as interest rates fell. However, as deposit cost reductions occurred late in the quarter, it may be more useful to point out that in April, our funding costs are trending approximately 50 basis points lower than the first quarter. Largely as a result of enacting our liquidity plan, total borrowings increased by $1.7 billion in the quarter, with the majority of that growth coming late in the quarter. Specifically, in the last two weeks of the quarter, we added $1.4 billion of FHLB advances, with a weighted average maturity of 4.5 months. As a result of utilizing swaps on a portion of the advances, the net cost to this $1.4 billion is just 20 basis points. This quarter, we have approximately $2 billion of CDs at a weighted average cost of 2.1% and $2.5 billion of brokered CDs at a weighted average cost of 1.7% expected to mature. Assuming market rates remain relatively stable, we would expect an additional repricing benefit from these maturities, even as we continue to ladder out our funding sources to remain relatively neutral from an interest rate risk position. Slide 13 of our presentation details our CECL implementation. Our allowance for credit losses increased nearly $130 million between December 31 and March 31, with the increase coming in two phases. On January 1, our allowance for credit losses increased by $100 million as a result of day one CECL adjustments. This was comprised of $38 million for non-PCD loans and unfunded commitments and $62 million for acquired PCD loans. Exclusive of the PCD reclassification, the transition from incurred loss methodology to life of loan loss methodology added approximately 13 basis points to our reserve. Then during the quarter, we saw an additional $30 million reserve build, which increased our allowance inclusive of PCD to 0.96% of loans. This reflects a $34.7 million provision and $4.8 million of net charge-offs. Roughly $6 million of the quarter’s provision was related to lower valuations on taxi medallion loans. Another 50% was due to the incorporation of updated economic forecasts from Moody’s inclusive of the effects of COVID-19 into our multi-scenario CECL model, as well as the conservative reweighting towards Moody’s recession scenarios. In general, our economic forecast assumes a steep drop in GDP in the second quarter of 2020 and a relatively gradual U- or L-shaped recovery taking several quarters. From an unemployment perspective, our forecast generally assumes double-digit unemployment for the next few quarters. Future provisioning activity will be largely dependent on the degree that economic outcomes track our expectations. Slide 14 provides an insight into the quarter’s credit metrics. On a reported basis, our non-accrual loans more than doubled to $206 million, or 0.68% of total loans. Roughly 65% of the sequential increase, accounting for $74 million was due to the reclassification of acquired PCI loan pools to individual PCD loans with related loan reserves under the CECL methodology. An additional 33% of the non-performing asset increase was due to the transition of $37 million of previously accruing taxi medallion loans to non-accrual status during the quarter. Exclusive of these two items, non-accrual loans would have been unchanged at 0.31%. You can see the growth in our capital ratios and tangible book value on Slide 15. Our tangible common equity ratio declined to 7.3% from 7.5% at December 31, but remained significantly higher than 6.6% a year ago. The reduction from December is primarily a result of strong asset growth in our excess liquidity position. We estimate that our excess liquidity dragged on our tangible common equity ratio by approximately 11 basis points. Recall that the tangible common equity ratio was also impacted by about $28 million as a result of the non-PCD portion of our day one CECL adjustments. We believe that we have sufficient capital to support our growth opportunities and to absorb additional provisions should our economic outlook deteriorate further. Depending on the timing of PPP loan forgiveness, we could see further tangible equity capital ratio declines in the second quarter. All else equal, we estimate that each $500 million of PPP loans remaining on the balance sheet would temporarily reduce our tangible common equity ratio by 10 basis points. However, we expect the majority of these loans to be forgiven in the near-term, and there will be no impact to regulatory ratios. Last quarter, we provided 2020 guidance for key elements of our business. On an annualized basis, our first quarter results exceeded our guidance for loan growth, net interest income growth and efficiency putting us on track for a very strong year. However, with the backdrop of this global health crisis, we have decided to eliminate our guidance. While we continue to learn more each day about the potential impact of this global health crisis on the banking industry and Valley specifically, there’s simply too much uncertainty to confidently provide financial guidance to our analysts and investors. With that, I’ll now turn the call back over to Ira for some closing commentary.

Thanks, Mike. Obviously, our prepared remarks this quarter are somewhat different from what we have provided in the past. These are unique and challenging times. However, I would like to reiterate that on all fronts, Valley’s response to the crisis has been swift and decisive and early outcomes have been positive, all largely reflective of a strong leadership team we have assembled. I firmly believe in times like this, our ability to be agile, proactive in our focus, steadfast in our strategy and commitment to Valley’s combination being an unbelievable differentiator for Valley and our shareholders. We will continue to operate with a sense of urgency and navigate the uncertain future with an eye to the future and the unbridled opportunities now available. With that, I’d now like to turn the call back over to the operator to begin Q&A. Thank you.

Thank you. Our first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.

Good morning, guys. Just on – I wonder if you could talk a little bit about your provisioning – your thoughts on provisioning going forward. It sounds like you’ve captured sort of a lot of what the models are spinning out right now in terms of this first quarter provision. But is there another leg up in your mind later in the year when you start to see some of these quantitative factors form in terms of if it’s – whether it’s increased NPAs or ultimately increased charge-offs? Thanks.

Hi, Frank, it’s Mike. I’ll take a stab at this one. The CECL models, regardless of who has them, are primarily dependent upon the loss history. So these are probability of default, and then loss given default models. So the loss history that you have built into your model is going to be the primary driver of what your future life-of-loan loss would be. However, I do want to point out, and I hopefully talked about this in my prepared remarks, we made a change late in the quarter to look at a more severe scenario as more and more information was coming out related to COVID. And so we used a blended model of various economic forecasts from Moody’s to come up with that economic forecast. And in the end, that change resulted in GDP reductions of 24% in the second quarter and U3 unemployment of 12.5%, which we think right now should cover, as we see it today, the loan losses.

And maybe just following up a bit on that, Frank, if we were to use the Moody’s model as of mid-April, we would have only seen about a $5.5 million increase when that reserve number was calculated. So I think we were pretty aggressive. Back to your point regarding the quantitative metrics, I think that’s the challenge for all of us in looking at what the reserves look like today. We’re not going to know until the third quarter, until many of these loans come off of deferral, as to what the impact is to some of these quantitative metrics that Mike talked about before.

All right. Okay. And then just a follow-up. In terms of – as you guys are doing your internal stress testing, when you look at your severely adverse scenario, anything you can share with us in terms of how comfortable you are with what sort of capital cushion you’re left with after losses in that scenario? And how comfortable you are with the dividend in a scenario like that? Thanks.

Sure. So if you look backwards at the 2018 severely adverse scenario, we believe, based upon that, that our 0.96% reserve would cover approximately 0.87 times the cumulative severe loss rate. From our looking at other people that have reported so far, we think their numbers are closer to 0.5x or 0.6x. So we think we’re in a pretty good position there. And I would say, ultimately, the Moody’s S3, which would be the more significantly adverse scenario, we’re at 0.91. So on a relative basis, we feel pretty good about where we came out.

Okay. And then the dividend in terms of in those scenarios, I would assume, given where you come out that the dividend is part of that stress testing?

Absolutely and we run, obviously, as Mike alluded to, a lot of different stress tests over the years, a lot of them based on the severely adverse scenarios that were provided by the Federal Reserve, as well as our own internal stress tests focused on some of the other variables that we think drive performance within the organization. Right now, when we look at those stress performances, we think we have sufficient capital. I’ll just highlight. Last year, at this time, we were sitting at 6.63% tangible common equity. Today, we’re sitting at 7.30%–7.31%. Our Tier 1 leverage ratio went from 7.58% to 8.24%. Tier 1 risk-based went to 9.38% to 9.95%. If you go back to when we started back in the 2007 timeframe, we were only sitting at a tangible common equity of 6% when we entered the last major recession. So I think, as an organization, we’re in a much stronger position than we were previously.

Thank you. Our next question will come from Steven Alexopoulos with JPMorgan. Please go ahead.

Hi, good morning. This is Alex Lau on for Steve. First question on NIM. So with pressure coming on from the earning asset yield side, how do you think about how much deposit costs can offset this? And what do you think about the trajectory of net interest income and NIM into the next quarter?

Good morning, Alex.

So first, I would say that we’re working hard to protect our NIM, and we have some tailwinds, I think, that make us a little unique right now in the space. First, as you see on Slide 8, you can see the repricing that we have that’s going to occur in the second quarter for both our originated CD book, as well as the brokerage CD book. When you look at that and combine it with the non-maturity and, frankly, all other deposit repricing that we did, and we did that early when the Fed reduced rates and we were fairly aggressive. And as I said in my prepared remarks, we went from a total cost on the non-maturity side of 1.04% down by another 50 basis points. We think we are doing about as good a job there as we can to protect the NIM. While admitting clearly that on the earning asset side, yields are going to go down, but also we put floors in to kind of protect the NIM there as well.

Thanks for that. And then just on your Slide 11, where you give COVID exposures by loan segments, you mentioned that there’s 70% of that are secured by real estate. In this breakdown, in this table, are there any segments that have a larger exposure to those not secured by real estate? And could you give some color on credit quality if there is?

Yes, sure. This is Tom Iadanza. Looking at those high-risk segments and I’ll just pick the hotel and hospitality as the first one: 45% of our portfolio has requested and has been approved for deferment. 100% of that portfolio is secured by real estate, with an original loan-to-value of 59%. When you go down each of these, the only one that probably has a lower percentage secured by real estate is retail trade, which represents auto dealerships. A little over 50% of that portfolio is real estate secured, the balance is floor plan. But in general, it’s not a big portion of the deferment, it’s not a big portion of our overall portfolio. In the restaurant space, very similar trend to the hotel space, pretty much 100% secured by real estate, loan-to-value more in the 65% range. In each of these categories, we carry personal guarantees. So we believe it’s fairly well protected. But there’s still uncertainty as to when they come out. In Florida, they announced the governor will allow restaurants to open shortly, but with a lower occupancy than they would normally be permitted to have.

Thank you. Our next question will come from Matthew Breese with Stevens. Please go ahead.

Hey, good morning. Just going back to the reserve. Is there any unamortized marks that you have? And could you quantify that?

Well, there are $6.3 billion of PCD loans remaining in the mark and that is $87 million over eight years. Other than that, no. So if you think about that, that’s going to—we think that’s going to level off. Obviously, we don’t control those loans prepaying and you’d accelerate. But no, we think that’s going to level off.

Okay. And should we think about that $87 million combined with the allowance as it stands today?

You certainly could if you want to. It obviously doesn’t go through allowance. It goes through interest income and then finds its way hopefully to retained earnings. But you could.

It does go into tax calculations on that. So when you look at how we’re thinking about it, when you look at LGDs and PDs and what we think we need to reserve, that $87 million is definitely not a component of it.

Thank you. Our next question comes from Collyn Gilbert with KBW. Please go ahead.

Thanks. Good morning, everyone. Just to touch on the reserves and your CECL outlook. As you had indicated, so much of what drives the CECL model is your historic loss rates. Overall, when you gave that 91% or so of the reserve now accounts for the Moody’s S3 forecast, that’s really impressive. I guess my question is, just how are you quantifying the change in the book, right? I know, Ira, and I know the culture at Valley—you guys are so committed to your conservative underwriting standards. But the reality of it is the book changed, right? You’ve moved into different geographies, a lot of the growth—you’ve accelerated your growth over the last couple of years. So you could argue late cycle asset adds. Just kind of walk us through that, how you’re thinking about the change in the portfolio today relative to what it was pre- and post-crisis?

Let me just start and then I’ll turn it over to Mike and Tom. Look, we’re definitely acknowledging we are in some different geographies than what we were in prior. But keep in mind when we went into Florida, we were pretty selective about the banks that we looked to acquire and even further selective as to the assets that we put on. If you recall on the CNL transaction, we actually ran off about 15% of the book just because it was asset classes that we weren’t comfortable with. We have a specific asset credit philosophy within this organization, and that does not change irrespective of what geography we’re in. The borrowers that we look to are the people that are supporting the individual loan. It’s not a transaction; it’s what the borrower’s exposure is when it comes to contingent liabilities, what their liquidity looks like. These are our core philosophies that we have within the entire organization that we applied across the entire geography that we’re in. I think we’ve been in some of these geographies for a long enough time that the book represents how we lend, who we are and not necessarily what traditional experience would have been for some other lenders in these markets. Mike and Tom have some other thoughts.

Coming into this earnings season, we knew that people were going to have a difficulty, and when I say people, I mean the analyst community, we’re going to have difficulty trying to look at what does a 0.96% allowance coverage ratio at Valley mean when you look at it across the universe of other mid-size banks. I would just point you to the fact that our allowance as a percent of loans increased 75% from fourth quarter to first quarter. By our estimation, our peer group only was up 50%. Why is there a 25% differential? Two things mostly driving this. One, the fact that we used a pretty severe Moody’s economic forecast, a combination of several of their forecasts. And then maybe more importantly, to your question Collyn, we also use a qualitative overlay on top of the model as well to account for things that aren’t accounted for in the history in the portfolio. One of those being the Florida portfolio, as an example. So we put on additional loss history for the industry, because we don’t have it ourselves, to increase our reserves as well.

And just to add a little bit to that, Collyn. When you look at the metrics of our portfolio, there is no concentration by region, by loan type, by size; we’re still very granular. Our production in the first quarter: our average real estate loan is less than $3 million and our average C&I loan is less than $1 million. So we continue to do the same things that we’ve always done. Over 50% of our business is generated from long-term valued customers. The balance comes from new customers that we have been soliciting for years and are all well known to people within the bank. So it is about relationship banking. It is about knowing and it is about being very granular in how we proceed and how we do our business.

Okay. That’s great additional color. And then just my one follow-up to that would be, and you sort of touched on this, but just as we look at your Slide 11, where you go through the exposed loan segments, obviously how Florida and New Jersey and New York are behaving through this pandemic are very different. Just curious as to if you have the geographic split between what’s up in these markets versus what’s in Florida in terms of your loan exposures, and then also to where you’re seeing deferral requests?

Yes, sure. The deferral requests are pretty much along the lines of the percentage of portfolio we have in each market. We’re not seeing any higher in any one of the regions. Our hotel portfolio, which I described earlier being real estate secured with lower loan-to-value going into this, is for the most part more Florida-related than New York or New Jersey-related, as is our restaurant portfolio, which again I described as reliant on real estate at a 65% loan-to-value. Other than that, it’s as dispersed as you would expect within the regions.

Thank you. Our next question comes from Steven Duong with RBC Capital Markets. Please go ahead.

Hi, good morning, guys. Just going on that regional breakout, do you guys have the breakout of what’s actually in New York City itself for that COVID exposure?

Yes. We have it broken out by location and by type. The largest exposure in New York City that we’re seeing are ambulatory centers. We don’t have a big restaurant or hotel exposure in New York City, if any at all. So it’s mostly ambulatory centers, which is a relatively small dollar amount. I think it’s in the $90 million range where we have those in the Manhattan market. We break it into three: 80% of it is affiliated with large hospital systems or necessary care being cancer treatment or knee replacement, and 20% is broken into elective surgery. So when you look at that, the hospital affiliations will be fine and they’ll come back. The necessary care will be fine and they’ll come back. The cosmetic care will take a little bit longer to come back. Each of that portfolio is secured, that portfolio carries guarantees from the hospital systems, as well as the physicians in the latter category. But we haven’t really seen much in office. We haven’t really seen much in multifamily coming out of the Manhattan market.

Great. That’s appreciated color on that. And then your CET1 ratio just declined a little bit. Was that just purely the adoption of CECL?

I think that was a little bit of the adoption of CECL. But keep in mind also we put on additional liquidity during the period and the additional liquidity had a negative impact as well during that first quarter.

Great. Thanks, Ira.

Thank you. Our next question will come from David Chiaverini with Wedbush Securities. Please go ahead.

Hi, thanks. A couple of questions. Starting with the discussion on NIM. It was mentioned earlier in the call about how the deposit inflows position Valley well for the second quarter. And then later on it was mentioned about how the excess liquidity that’s coming on the balance sheet could pressure NIM in the second quarter and then furthermore, April funding costs being down 50 basis points, certainly a good thing. So long way of saying, are you willing to disclose how much—when we look at April, the earning asset yield, are you able to disclose how much the earning asset yield is expected to come down thus far in April?

Not at this point, obviously, because we’re disclosing first quarter results. But clearly, the pressure of just rates coming down generally are putting pressure on our earning asset yields. And as we said, we have a lot of cash built up. You might ask, why did we do that? Early on in this crisis, we decided that putting on some amount of liquidity was just prudent, because it was so uncertain as to where this was going to go. And keep in mind that was before things like the PPP Liquidity Facility even existed. So one of the things that we feel pretty strong about is we have the ability right now to fund all of our PPP loans with the liquidity we’ve built up without even using any of the government’s facilities. Now we may do that. I’m not saying we wouldn’t use it. I’m just saying that our liquidity build put us in a position where we had options.

That’s helpful. Thanks. And then my follow-up is on expenses. You mentioned about how the full synergies from Oritani should be achieved in the second quarter with the conversion—the systems conversion in the first quarter. Can you remind us how much in expense savings you’re expecting to get from that?

We’ll have to get back to you with an exact number. I can give you one of the main components of it that I think you would probably care to know about. Oritani salary expense for the month of December, remember, we only had them for about one month in the fourth quarter, was $1.3 million. And so on a quarterly basis, that would be $3.9 million. But the Oritani salary expense in the first quarter was only $1.8 million, so that’s roughly 54%. And I know on a total basis, our total cost savings right now are running around 70% just in the first quarter. So we’re almost all the way there and we’ll get the rest of that in the second quarter.

Yes, and just to add, we identified between Oritani and Valley nine branches to be closed through the integration and merger, and those branches weren’t closed until March.

And if you keep in mind those numbers weren’t even in the forecast, the cost saves that we provided. So we’ve already well achieved many of the cost saves or actually all the cost saves that we identified when we announced the merger. I think to Tom’s and Mike’s point, the economic benefit is going to be much more recognized in the second quarter than what it is in the first quarter.

I’m showing no further questions in the queue at this time. I would now like to turn the call back over to management for any further remarks.

So we want to thank you for taking the time to listen in. I know our prepared comments were a little bit longer than what they usually are. I know the document that we provided is a little bit longer as well. But we wanted to make sure that there was transparency with the entire investor community as to what’s going on in our organization, so that you have a clear look through as to what’s happening here. I want to thank Travis Lan who recently joined us for putting together a lot of the information and Rick Kraemer for all your help as well. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect and have a wonderful day.