Valley National Bancorp
NASDAQ:VLY
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Valley National Bancorp
Earnings Call Analysis
Q3-2023 Analysis
Valley National Bancorp
Valley reported a net income of $141 million and an earnings per share (EPS) of $0.27 for the third quarter of 2023. After adjusting for non-core items, the figures were slightly lower at $136 million and $0.26 EPS.
Despite a challenging interest rate environment with an inverted yield curve pressing on traditional banking models, Valley maintains its foundational business approach. The company sees net interest income (NII) decline slowing, indicating it may be reaching its lowest point, all else being equal.
Valley completed a transformational conversion of its core operating system, a strategic move to build a more flexible and scalable infrastructure. This technology upgrade positions the bank to leverage growth opportunities in a normalized environment, with expected revenue scale and expense efficiencies in 2024.
The bank witnessed approximately $300 million in total deposit growth, with a mix shift toward interest-bearing products. Although annualized loan growth eased and loan originations declined due to higher spread requirements, Valley's loan portfolio stayed diversified with better origination yields and sound collateral positions.
The bank saw a $7 million sequential decline in NII, a modest drop compared to previous quarters. Expectations are set for NII to remain stable in the fourth quarter. Adjusted non-interest expenses also decreased despite technology investments. The bank focuses on controlling expenses amid revenue pressures from the inverted yield curve.
Valley's management reassures stakeholders of its prudent risk management and ability to shield its tangible capital from market headwinds. The asset quality stays stable with flat non-accrual loans and early-stage delinquencies below the average of the last twelve months.
There are limited expectations for cost savings realization in the fourth quarter, with the majority anticipated in the first half of 2024. The company also aims to return to mid-single-digit expense growth levels from its historical high single digits. Asset repricing, with another $600 million forecasted over six months, will contribute to stable and potentially increased NII heading into 2024.
Valley's conservative upfront underwriting standards, with typical debt service coverage and LTV ratios, provide confidence about the resilience of its loan portfolio. Organic growth remains promising with specialized deposits reaching $7 billion, underscoring the bank's potential without reliance on mergers or FDIC deals, despite openness to opportunities.
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Good day and thank you for standing by. Welcome to the third Quarter 2023 Valley National Bancorp Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Travis Lan, Head of Investor Relations.
Good morning, and welcome to Valley's third Quarter 2023 Earnings Conference Call. Presenting on behalf of Valley today, our 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 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 forms 8-K, 10-Q and 10-K for complete discussion of forward-looking statements and the factors that could cause actual results to differ from those statements. With that, I'll turn the call over to Ira Robbins.
Thank you, Travis. In the third quarter of 2023, Valley reported net income of $141 million and earnings per share of $0.27. Exclusive of non-core items, adjusted net income and EPS were $136 million and $0.26 respectively. Our quarterly results were highlighted by organic capital growth, sound asset quality metrics, improved core deposit flows and solid expense control. The current interest rate environment, reflective of an inverted curve, has challenged traditional banking models and we have not been insulated from these pressures. That said, while the duration of the current inversion has exceeded original expectations and is anticipated to continue for the foreseeable future, we do not intend to change our foundational business model. Our net interest income decline at a much slower pace than in recent quarters, and we believe that NAI is near the bottom of its decline all else equal while the external environment remains fluid. Our focus on executing our strategic initiatives remain steadfast. One of our strategic efforts in the last few years has been to transform our core operating environment to allow flexibility in integrating unique delivery channels, enhancing FinTech integrations and positioning the bank for scalability without the traditional technology expense hurdles. I'm pleased to report that during the first weekend of October, our team worked tirelessly to complete the transformational conversion of our core operating system. This was a massive undertaking, which required months of planning, development and testing. Valley's now operating on a single system with bespoke delivery channels, and I couldn't be prouder of our discipline and belief to execute on this project, which I reiterate was done in the phase of an extremely challenging operating environment. This technology conversion is the natural progression of a cultural evolution that has occurred over the last few years. We have collectively developed a growth-oriented mindset, which has been evident in our recent financial results. To support this mindset, we continuously strengthen and develop our capabilities to bring us more in line with our largest players in our industry. Our bankers now have a more robust infrastructure and we expect to see significant opportunities to leverage these new technologies and drive additional growth as the environment normalizes.Our successful conversion was yet another example of our discipline and provability to execute. As we enter 2024, we anticipate generating both expense efficiencies and revenue scale resulting from our common core platform. As we have moved to a cloud-based infrastructure, we're not burdened with the massive hardware costs that are typically associated with type of technology investment. We are more nimble today than we were a month ago, and the opportunities ahead of us remain significant.With that, I'll turn the call over to Tom and Mike to discuss the quarter's growth and financial results.
Thank you, Ira. Slide 4 illustrates approximately $300 million of total deposit growth during the quarter. We experienced strong growth in interest bearing transaction accounts and retail CDs, which offset non-interest bearing deposit declines and indirect CD maturities. The pace of non-interest bearing deposit runoff has flowed but mix shift to interest-bearing products has continued to weigh an our total deposit cost. Slide 5 provides more detail on the continued diversity of our deposit portfolio. During the quarter, we benefited from stability in our branch-based deposits and strong growth in our specialized verticals. Inflows were particularly strong in our national deposits business and through our online channel. These dynamics enabled us to pay off some maturing indirect CDs during the quarter. We also continued to reduce our adjusted uninsured deposit exposure and have significant coverage with cash and high quality liquidity.Slide 6 further illustrates the diversity and granularity of our deposit base. No single commercial industry accounts for more than 7% of our deposits. Our government portfolio remains diversified across our footprint and is fully collateralized relative to state collateral requirements.Now turning to Slide 7, you can see an overview of our loan growth and portfolio composition. Annualized loan growth on a year-to-date basis has slowed consistently as the year has progressed. Originations decline meaningfully during the quarter as we require wider spreads on new loans. These efforts continue to result in higher new origination yields.Slide 8 breaks down the diversity of our commercial real estate portfolio by collateral type and geography. As a reminder, we have an extremely granular loan portfolio with an average loan size of roughly $5 million. From a metric perspective, our weighted average LTV remains at 58%. As interest rates have increased, net service coverage ratios have declined somewhat to 1.7x. We continue to closely monitor pools of maturing and resetting loans and believe that our borrowers are well-positioned to absorb the pass through of higher rates. This reflects consistent underwriting discipline at conservative cap rates and significant stress testing efforts at origination. The following slide illustrates the continued strong metrics and granular composition of our diverse office portfolio.With that, I will turn the call over to Mike Hagedorn to provide additional insight on the quarter's financials.
Thanks, Tom. Slide 10. Illustrates Valley's recent quarterly net interest income and margin trends. The sequential $7 million decline in net interest income was less than half of the reduction experienced in the second quarter of the year. While asset yields continue to improve continued pricing competition and mixed shift drove funding costs higher. On the second quarter call, we indicated that we were observing signs of net interest income stabilization. During the quarter, monthly net interest income was generally stable and higher than the June level. Our fully tax equivalent net interest margin declined a modest 3 basis points on a linked quarter basis versus 22 basis points in the second quarter of 2023 and has been generally stable over the last few months. All else equal, we expect fourth quarter net interest income to be relatively in line with the third quarter level. By the end of the quarter, our liquidity position has been effectively normalized. Absent abnormal environmental factors, we expect cash to remain generally consistent with third quarter levels.Moving to Slide 11, we generated nearly $59 million of non-interest income for the quarter as compared to $60 million in the second quarter. Exclusive of approximately $6 million of non-core items, adjusted non-interest income was closer to $52 million for the quarter. The decline was primarily related to lower capital markets fees associated with our slower loan growth. Other business lines were generally stable.On Slide 12, you can see that our non-interest expenses were approximately $267 million for the quarter or approximately $264 million on an adjusted basis. Adjusted expenses declined from the prior quarter despite an increase in certain technology costs partially associated with our successful core conversion. Specifically, we began to see the benefits of recent headcount reductions about midway through the quarter. FDIC assessment costs and outside consulting fees also declined on a sequential basis. We continue to execute on previously identified efforts to slow future expense growth. Legacy Valley and Leumi have now joined on a common core. After a certain adjustment period, we expect the core conversion to result in the next wave of previously announced cost savings early in the new year. To reiterate, our focus is on controlling expenses in the face of revenue pressures which have resulted from the inverted yield curve.Turning to Slide 13, you can see our asset quality trends for the last 5 quarters. Non-accrual loans have been effectively flat for the last 3 quarters. Early stage delinquencies ticked up during the quarter, but remain well below the average level of the last 12 months. Third quarter net charge-offs declined somewhat from recent levels.On Slide 14, you can see that tangible book value increased approximately 1.4% for the quarter and is up nearly 10% from a year ago. Our balance sheet positioning has enabled us to avoid the significant challenges that other peers have faced related to the OCI impact associated with available for sale securities. We manage all risk areas prudently and are proud in our ability to insulate tangible capital from this headwind. Tangible common equity to tangible assets increased to 7.4% during the quarter as a result of our normalized cash position. As loan growth slowed, our risk-based regulatory capital ratios have increased between 16 and 18 basis points as compared to the second quarter of 2023. We continue to prioritize organic capital growth in this challenging environment and are prudently managing our balance sheet to incrementally strengthen our position.With that, I'll turn the call back to the operator to begin Q&A.
At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Frank Schiraldi with Piper Sandler.
Just on the trajectory of NII/NIM, I mean, you talked about the hopeful trough here. In a higher-for-longer scenario, just thinking out into 2024, do you think there's some stabilization in NIM and then you get a reversal from there so you get a little bit of a trajectory upwards? Or is it more sort of like in higher-for-longer sort of bouncing along the bottom for a period of time? Just wondering your general thoughts there.
Frank, it's Mike. I think that when you look at the trajectory of NIM in 2023, as we said in our prepared remarks, we've been in that mid-290s to low 290 range since April, and when you look at the cost of deposits, you'll notice that from fourth quarter to first quarter, they were up 60 basis points. From first quarter '23 to second quarter of '23, they were up 49 and they were up 49 into third quarter as well. So we're starting to see a normalization both in the cost but also in the NIM. In a higher-for-longer rate environment, I think a couple things would happen that would all things being equal result in a slightly higher NII and slightly higher NIM. The first of those and it's been true for all of 2023, the biggest driver of the compression on our NIM has been the rotation out of non-interest bearing and into interest-bearing product. So I would think in a higher-for-longer environment, there's some place, some equilibrium that we see a plateau in that. Second, you got to keep in mind that we've had a very large liquidity build both at the end of the first quarter and throughout the second quarter as a result of all the chaos that was created with the bank failures earlier this year that is completely off our balance sheet as of 930. And then when you go forward and you kind of think about deposits stabilizing, I think the thing that will drive, at least in our current modeling, the thing that will drive NIM expansion and NII increases is going to be the repricing on our assets, earning assets, but more specifically loans. And as we look at our modeling, we know what our fixed rate book repricing is, along with the repricing opportunities that we have throughout 2024 in the adjustable rate book. So we would expect that to be the main driver of a NIM expansion next year.
Appreciate all the color, Mike. And then just as a follow up to that, in terms of the broker balances, it looks like you guys have had some really good success raising customer deposits. And so you've let these roll off. I guess do you expect that to continue? And if so, as you look out at the maturization table, when do you expect or how quickly do you expect brokered balances to kind of fall here?
Yes, so our current thinking and our current modeling is that we will see further reduction in our brokerage balances, and that's certainly one of our goals, but I want to make sure everybody understands how we've been using broker. We've been using broker throughout '23 to fill the gaps, especially earlier in the year when we had much higher loan growth to fill the gaps on the balance sheet expansion while also paying very close attention that we're not repricing the back book of our core deposit base. And the second thing that we've done is we've used that in the stopgap measures. We've used both duration and rate in that portfolio to help manage our NIM and NII. And so I know they have a bad connotation sometimes. They've been a very effective and the market has been excellent for us to use that certain times, in certain circumstances and very effectively.
And just lastly on that front in terms of, as you look at the indirect market versus what you're able to get directly from customers here, is there much of a difference in terms of pricing in terms of new broker versus new direct?
Yes, the inversion of the curve probably is the biggest impact on that. If you're talking about exactly the same duration, I would say the incremental cost of deposits is fairly close to one another. So there may be 10 basis point difference, but it's not that remarkably different. So I think, again, go back to my previous comments is if you want to use that for both rate and duration, but in that case that you're asking about, you probably want to manage duration in this inverted curve.
Frank, this Ira. I would just add to that when we think about the incremental piece of deposits, as Mike alluded to earlier, there was significant demand for us to put some of those incremental deposits based on the loan growth we were seeing. And that obviously ratcheted up the incremental cost of some of these deposits. As we now have scaled back some of the loan growth, the demand for those broker deposits and higher cost CDs have actually come a bit down and we're still originating for deposits. I think as we spoke about last time on the call, the overall deposit originations for this quarter were around 370, 380-ish. So on a blended basis, marginal deposits are coming in much cheaper than what the indirects are. And as we curtail the loan growth, we definitely anticipate some expansion on margin based on that incremental loan that's coming out to our products.
Our next question comes from Matthew Breeze with Stevens.
Maybe just sticking with the NIM, can you provide what the monthly NIM was across the quarter and is the September NIM a good launch point into fourth quarter about where it could shake out for the fourth quarter?
And Matt, this is Travis. Just on a monthly basis, July with 291, August 292 and September with 291. So when we say it was pretty stable throughout the quarter, I mean, we really mean it. So September and the quarter were the same number. But yes, that's a good launch point.
And then I was hoping also for some additional color on additional near-term loan growth outlook and maybe perhaps when you would feel comfortable reaccelerating loan growth.
Matt, it's Tom. The loan growth the fact of slowing it down and really customer related, the uncertainty of the rate market as well as widening spreads has slowed down their activity. We still service those valued real estate customers when they need it, and we continue to grow that portfolio just at a much slower base. I just want to point out our C&I portfolio has grown 12% over the last year, so our focus is really just on that relationship driven C&I piece. We're still getting higher percent growth in the Florida market and stable growth here in the Northeast. I would expect C&I, that growth in the fourth quarter to be in a similar fashion to the third quarter, and we'll be in that range of 7% to 9% for the year.
And then Ira just acknowledging yours and Valley's relationship with Bank Leumi and first just wishing everybody on your end and on Leumi's end the best as they deal with the horrific events over in Israel. In light of that, I was curious if events overseas will have, and because of the partnership, any impact on your bank balance sheet or private client group in any way?
This is Ira. I know for all of our employees and clients, it's been a very difficult time. That said, Bank Leumi obviously is a significant partner for us on the participation side. We haven't seen any interruption as of yet, and we continue to anticipate business as usual. But definitely difficult for a lot of people. We still think we're going to continue to move forward and not be impacted by it.
Matt, it's Tom. Just give you a little context here. The only direct loan exposure we have is to high net worth US citizens and it's secured by State of Israel bonds and it's a very, very small portfolio. Otherwise we help finance domestic subsidiaries of Israeli companies, but it's all done here in the US-based and entities. The back and forth and flow of business slowed down really based on natural economic conditions, but it's business as usual in working with them on partner transactions.
And then could you give us some update as to where we are in the previously mentioned cost saving plan, I believe it was like $40 million identified? Last we spoke it was expected to progress over 4 quarters. How is execution matching up versus planning? Is there anything else you've uncovered as you've kind of looked into this in terms of additional cost saves?
Yes, Matt, it's Travis. In the quarter, I'd say you probably got 20% to 25% of on an annualized basis what we had anticipated. I don't expect much incrementally in the fourth quarter. Post-conversion, we're keeping, it's 14 staffed up and running. But then as we get into the first half of 2024, I think that's where you get the next wave which will come from a combination of third party vendors and some additional resource efficiencies. So I don't anticipate much in the fourth quarter. But again, once we get to the first half of 2024, I think that's where you see you the bulk of what's remaining. We are still looking obviously post-conversion at opportunities that we hadn't previously identified. And so we'll continue to dig there.
Yes. And we should be thinking of expense plan as one that slows down the natural pickup and expenses versus one that dollar for dollar lowers the run rate? Correct?
That's correct. So I mean, if you think, and this is just high level, and I don't mean for these to be numbers to take away, but historically we've run kind of high single digits from an operating expense growth perspective as a growth company. There are obviously headwinds from an inflation perspective, FDIC cost regulatory perspective on top of that. And then we're just trying to work our way back into kind of that mid-single digit expense growth level based on these initiatives.
Last one for me is just I don't know if you have one or not, but could you just comment if you do on syndicated loan exposure? What's the size of that book? How is it performing? Any other metrics we should be aware of there?
Yes, sure, Matt, it is Tom again. The portfolio is about $1.4 billion spread over a number of loans. We're not HLC lenders, we don't really have leverage transactions in there. They're mostly club deals with a small group of banks, direct contact relationships with any of the borrowers, and they're all in market.
We lead a lot of those transactions also. We're not participant. We tend to be the lead bank in over 50% of that.
Our next question comes from Michael Perito with KBW.
Just taking into context of all the commentary you guys have given around NII and the expense plan kind of execution. Is it fair for us to be thinking about the third quarter of '23 as probably the peak in the efficiency ratio here and are you guys at this point able to provide any kind of context around the type of year-on-year improvement you're hoping the expense plan can drive assuming your NII projections kind of play out as you expect them today?
So I don't think there's any bank CFO that would say that third quarter would tend to be their peak. I think fourth quarter tends to be the peak for a lot of reasons, right? You have year-end expenses that get pushed through. There's some bonus accrual work sometimes in the fourth quarter that might drive costs up. So I wouldn't necessarily agree with that it's third quarter, but I would point you back to Travis's comments right before that. If it is fourth quarter, that's actually the peak. Again in the first half of '24, we expect to realize the vast majority, the remainder and the vast majority of our previously announced cost savings initiatives, which in turn would then drive down our efficiency ratio.
That's helpful. And then just a couple more quick ones on, I think the kind of New York, New Jersey area credit, commercial real estate dynamics, we probably beat the dead horse on that for quite some time now, but just curious if you guys can maybe provide some context about updated demographics and trends you're seeing in the Florida and Alabama market. I mean, are there similar kind of supply and demand dynamics? Is there still kind of inflow of population growth? And just wondering kind of what the demographics are down there more recently?
Yes, sure. Michael this is Tom. Yes, the impacts of slowing and higher interest rates are affecting them also. The metrics on the transactions we do aren't any different. They're below 60% loan to value, usually 1.6% or 1.7% debt service coverage. So we're still generating transactions with those similar metrics. We are seeing continued growth in those markets. The population migration has slowed, but there's still migration into that Florida market. Our consumer business is strong down there, but probably half of what it was in the earlier part of this year. It is still a growth market for us in all cases. But I'll continue to point out, we underwrite very conservatively in all markets. We have floors that are cap rates in all markets. We track those cap rates. We are more suburban than urban. We're not big players in the Miami market. We're more spread around the 6 or 7 other major areas of Florida.
And then just the last one for me. Just once again, kind of taking into context all your other commentaries, it's fair for us to be thinking about kind of the asset base to be pretty stable here for the next several quarters and then possibly some lift beyond that, assuming the environment is permitting kind of growth reaccelerating, is that similar to how you guys are budgeting it? Or is there anything that you would point to that could make a difference?
No, I think you have it generally right, Mike. I mean, I think end of the third quarter, our cash position was normalized. I think Tom referenced the growth that we anticipate in the fourth quarter and then kind of picking up maybe somewhat in 2024, but I don't think there's any type of significant other changes that you would see on the balance sheet.
Our next question comes from Jon Arfstrom with RBC capital markets.
Maybe a question for you, Mike. On Slide 11, you show the fee income numbers and capital markets being down and you tied it to loan growth. What kind of expectations should we have for capital markets? And then also curious if there's any kind of expense offset how much bottom line impact there is to lower capital markets fees?
Jon, it's Tom. Yes. The capital markets for us has really been driven by gain on sale in the consumer readily space as well as swaps in the commercial space. We expect that to be flat going forward. We don't expect any lift there. We have other avenues and we have a tax advisory business. We get this slight uptick in the fourth quarter to get things closed by year-end. We continue to build out our FX and trades, which shows progress quarter-to-quarter, but we're expecting flat into next year.
Credit looks great, but some of the accruing path dues are up sequentially. Anything to note there? Anything that you're thinking about there that we should be aware of?
No. I'm looking at really it is coming out of the consumer and [indiscernible] buckets. On the consumer side, it's primarily our cash surrender value life insurance business. It's a matter of liquidating and collecting on there. So that's not going to be problematic from any potential loss standpoint. On the [indiscernible] side, I just want to point out our 2Q levels were abnormally low. We are still below where we were a year ago. At this point, we're about $99 million in the third quarter of '22 or $79 million in third quarter of '23. So we're really gravitating to more normal levels. So no, we don't anticipate any problems.
And then Mike, you referenced Slide 4, that upper right chart with the deposit cost increases and what do you think that looks like in a quarter or 2? I mean that you referenced the $49 and $49 for the last 2 quarters, but is that curve bending at all from the $49?
If it's bending, it is ever slow slide? I think you'll see the real bend inflection point happen early next year, but you still see some migration if it is slowed considerably, but you still see some migration from non-interest sparing into interest bearing from an incremental next dollar cost of deposit funding. And for more broadly even liability funding, that is definitely stabilized in that mid 5-ish range.
Our next question comes from Manan Gosalia with Morgan Stanley.
You spoke about getting high yields on new originations and that fixed rate loan repricing will be one of the main drivers of NIM expansion from here. Could you give us a more color on what level of loans are repricing? At what level loans are repricing at over the currently? And if you could size the amount of fixed rate loans that are coming due over the next year or so?
Yes, it's Tom here. Give you some context. We repriced about $1.8 billion of loans for the first 9 months of this year. This spread, it really depends on asset class, but the spreads are in the mid-350, around the 350 or so range. We expect that to continue. Looking forward, there's probably another $600 million on reprices over the next 6 months. We expect those spreads to be the same. There's also a lot of renewing loans that will mature. So it tends to be that $1 billion dollar or so range over the next 6 months in total.
Yes, I think that that number's a little bit overstated, right? So we have or a little bit understated, excuse me. So we have a $20 billion fixed rate portfolio. Average life has extended to about 5 years. So if you do the math, I mean, just assuming all else equal, you'll get about $4 billion a year of fixed rate loans that come due and would ultimately reprice higher. And I think the one other thing, if you look at I forget what slide is, maybe the Slide 7, you can look at the credit spreads, right? So if you go back to just 3 quarter of '22 and you look at where the new origination yield was versus where the index was, you're sitting around a 200 basis point spread and you do the same map just today you're sitting at about 270 basis point spread. So new originations are coming on definitely at a higher spread. And as Travis and Tom both alluded to the repricing is probably going to come on at 300 basis to 400 basis points above where current rates are today on those. So there's a significant pickup when you think about the $4 billion plus or minus as to what's going to be new next year.
And this is Mike. I'll just add to what Ira said. So the simple average of new loan originations in the second quarter was 7.38%, and for the third quarter it was 7.89% and the last month September and that quarter finished just over 8%. So clearly we're seeing repricing on new loan originations, both from the spread increases that both Ira and Tom mentioned, and then also just because of the discipline that we have around here to make sure that we're getting paid for the risk we're taking.
And can we just, I mean I think this is an important piece, right? When we think about sort of our overall portfolio and how we've managed the balance sheet, obviously based on sort of the sensitivity that we have there was a decline in the NIM maybe earlier than what some of our peers were, but we do have a significant amount of tailwind coming from the assets that are going to be priced. So once we get into a more stable environment, whether it is higher for longer or just stable from where we are today, there is that tailwind that's going to come from a significant amount of assets. And I think that will be a significant positive for us.
And maybe just on the flip side, on the funding side, the 360 or so pricing that you mentioned that deposits are coming on at right now, would you be able to provide a breakdown between CDs and savings accounts and what those are coming on at right now? Also if there's any update to your through the cycle deposit data guide of around mid-50s?
So on regular savings accounts, you're probably in the mid 3-ish type category, but we also have a high yield savings account out there in our direct channel, which is in the mid-5s, maybe at actually low-5s. And while we don't have a new CD special, we haven't had a new one for a while. We're retaining anywhere from about 92% up of all maturing CDs. So I think that when you think, as I said earlier when I talked about the incremental cost of the next dollar of funding, it's going to be in that mid-to-low 5 range, but you got to realize that it's in certain pockets within our deposit pricing where we've had some growth that are a little more competitive, and that's just for that incremental CD that's coming on. I think the bigger piece is we had our strongest quarter today of new account opening. So though you're seeing a mixed shift still continuing, an average coming out of the non-interest bearing, the number of accounts in non-interest bearing continuing to escalate significantly. And we were able to grow both consumer and commercial. And just as an example, in the month of September, it was a blended commercial that came on with that a rate of 248 for overall deposit base. So while Mike's correct in looking at some of those CDs and what the specials are, and keep in mind we're still originating an opening core account in this organization, like we haven't ever historically be before and that will have seen have a positive impact on how we think about what those marginal funding costs are. So the marginal funding costs that we saw of $360, $370-ish for the quarter on that blend is something we anticipate to continue assuming interest rates they at their current levels.
And through the cycle mid-50s, any update on that?
I mean, we're far through the cycle estimate was for the fourth quarter of '23 year through the third quarter of '23. We're in the mid-50s, so it's likely that we'll end up above that, but that's factored into all the commentary that we've already given about stable NII in the near-term and opportunity to expand NII as we get into 2024.
Our next question comes from Steve Moss with Raymond James.
Maybe just more on credit here and just the dynamic of fixed rate loans repricing, just curious what you all are seeing for the impact on debt service coverage ratios and what's the dynamic of how many clients have to put up additional cash to support a loan or a project?
Yes, sure. Steve, it's Tom. As I mentioned earlier, we repriced in 2023 or reset the rate of 2023 on $1.8 billion of our loans. We did not have to modify the contractual payment terms on any of them. They just reset flow through with continued P&I payments, no cash upfront. The customer did need it. I want to point out our upfront underwriting underwrites more conservatively typically a 1.6, 1.7 average debt service coverage, a 60% LTV. So there creates cushion in our upfront analysis.
And but just given that rates have moved up quite a bit here in the last month or 2, you still expect that dynamic to play out into 2024?
Yes, I think I mentioned earlier, but I think there's another $600 million that will reset over the next 6 months. We do a forward analysis of this. We don't expect any different results or modifications based on that analysis today.
Maybe just highlighting what Tom said and he said it twice now and I just want to make sure everyone is hearing what he said. We did $1.8 billion and now one client had to come and bring additional equity into it. They reset us to what they were. And I think that's something significant when we look at how we underwrite loans day 1, how we think about resetting these loans and the capacity of our clients to pay. And I think that's a big distinction with versus what you're seeing at other organizations today.
And then just in terms of as we think about the outlook going forward here, just curious Ira, I know you said you're focused on organic growth and internally, but are you seeing more M&A opportunities or has any thought process changed here just given the more volatile macro environment?
I think on the backend, what we're seeing with regards to the curve there's going to be more, definitely a lot more opportunities based on some of the challenges that many banks have. That said, I think we've been very diligent and disciplined around our tangible book value and to have a deal work in this environment becomes very, very challenging. So some of the economics need to change. If you go back to the tangible book value, we had $330 of 2018, which was the first quarter that this management team took over. We were sitting at $5.64. Say we're sitting at $8.63, which is pretty much $3 of incremental tangible book value. When you add in the dividends that we paid out of $2.86 during that same period, we have effectively doubled the tangible book value is a $5.5 year period. And I think that's something that this management team is very, very proud of. We want to make sure as we think about potential acquisitions as we move forward, that we're not denigrating that kind of track record.
Our next question comes from Matthew Breese with Stevens.
Just one follow up M&A question. Obviously the intensity of the events from March have subsided, but doesn't feel like we're quite out of the woods yet. Just wanted to make sure that when we talk about whole bank M&A versus organic growth, Ira, I would love your thoughts on FDIC assisted deals or if that were to still come about, would that be something you were interested in?
I think that we've been an active player in FDIC deals before but they have to make economic and those strategic sense for us. And I think those are still 2 variables that are important to us as we think about those as potential avenues for growth. And that said, there is tremendous internal opportunities that we have today as we focused organically on, like I mentioned earlier, change the core here is something that's been significant to us. The growth that we're seeing in C&I has been phenomenal here. If you look at the deposit page, we're up to $8.7 billion in differentiated, specialized deposits today. I mean, that has been significant for us and there's a lot of opportunities still for organic there. So while I think there's definitely opportunities we should look at it, there is something from an FDIC that said I couldn't be more excited about what we're doing here organically and what those outcomes could potentially look like for us.
I'm showing no further questions at this time. I'd now like to turn it back to Ira Robbins for closing remarks.
Thank you. And I just want to thank everyone for taking the time to listen to our call today and we look forward to speaking to you in 3 months.
Thank you for your participation in today's conference. This concludes the program. You may now disconnect.