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Valley National Bancorp (VLY -2.96%)
Q1 2019 Earnings Call
April 25, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Q1 2019 Valley National Bancorp Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions for how to participate will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Mr. Rick Kraemer, Director of Corporate Finance. Sir, you may begin.
Rick Kraemer -- Director of Corporate Finance
Thank you, Jamie. Good morning and welcome to the Valley's First Quarter 2019 Earnings Conference Call. Leading our call today will be Valley's President and CEO, Ira Robbins, also joining our call is Valley's Chief Financial Officer, Alan Eskow; and Valley's Chief Banking Officer, Tom Iadanza.
Before we get started, I would like to make everyone aware. You can find our first quarter earnings release and supporting documents on our Company website valley.com. Additionally, I would like you to direct you to Slide number 2 of our 1Q '19 earnings presentation with a reminder 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.
And now it's my pleasure to turn the call over to Ira Robbins.
Ira D. Robbins -- President and Chief Executive Officer
Thank you, Rick. Good morning and thank you for joining us. Over 15 months ago, we identified and presented three key operating things we believe would be critical initiatives necessary to improve Valley's earnings profile and generate shareholder value over the long term. Number one, was to change the growth trajectory of the organization on both sides of the balance sheet. The practice of reliance on transactional loan purchases to achieve incremental growth targets would be replaced with a culture driven and incentivized to generate organic loans funded by core deposits.
Number two was to improve the operating efficiency with a stated goal of not only driving down the absolute operating expenses, but doing so while simultaneously investing in technology across the entire organization in a manner that will foster continuous improvement and ultimately in efficiency ratio, better than our peers.
Thirdly, we acknowledge the need for greater revenue diversification as a predominance of Valley's revenues were sourced from net interest income and inevitably closely correlated with market interest rates. These themes have become operating mantras within Valley and our progress to date is highlighted on Slide 3 of our first quarter 2019 earnings presentation. We are incredibly pleased by the progress that has been achieved so far in most categories and encouraged with the improved operating trends.
As you can see, we have made significant gains in terms of approving the growth profile of the bank and creating greater efficiencies over the course of the past five quarters despite the challenging yield curve environment impacting the revenue stream. As to our first objective. Organic loan growth, less purchased and acquired PCI loans for the five years prior to 2008 average approximately 5.2%, as compared to our 2018 organic loan growth rate of 13.5% and first quarter annualized 2019 of 6.2%, which prior to loan sales would have been 9.3%.
I might add that the first quarter is seasonally light period due to lower commercial line usage in our Northeast footprint. That said in just five quarters we have instilled a sense of accountability throughout the entire organization to all of our banking streams and the results speak for themselves. Also encouraging are the deposit trends, we have recently witnessed. For the past three quarters, we have experienced stronger core deposit trends with first quarter of 2019 coming in at almost 9% annualized. Additionally, our net new account openings have been trending positively and the average balances associated with new accounts were up over 58% in 2018 from 2017 levels. And we continue to see growth of average balances in 2019. As for our second objective, to improve the operating efficiency, I'm thrilled with our progress to date and more importantly the positive momentum.
Our adjusted efficiency ratio for the five years prior to 2018 was 64.4%, while our 2018 adjusted efficiency ratio was 57.9% and our first quarter of 2019 came in at just 54.8%, a decline of almost 1,000 basis points from the pre-2018 levels. To put this in a different context, that would equate to an increase in operating leverage over the prior five years of approximately $40 million on an annual basis and this was done in just five quarters. This execution and accomplishment is presented on Slide 6, where we provided graphical view of the five quarter trend in adjusted operating expense.
For the first quarter of 2018, adjusted operating expense was $144.5 million and ended the first quarter of 2019 at a $135.8 million. A quarterly year-over-year reduction of $8.7 million. In the linked quarter alone, we drove nearly a $7 million reduction in core operating expenses during the reporting period, which is typically a higher cost operating quarter resulting from payroll taxes and facility expenses.
Keep in mind, all these trends occurred while incrementally investing over $20 million of additional expense in new technology back into the bank during 2018. Further, this reduction in efficiency ratio was delivered in a challenging market interest rate and net interest margin environment. Admittedly, our efforts surrounding our third objective to build a revenue stream that is less reliant on interest income has demonstrated slower progress, yet we remain dedicated to fulfilling that goal in time. While the percentage of non-interest income to operating revenues has declined modestly, the efficiency trends we are seeing in the contributing business lines have mostly been improving.
We are focused on not only improving the absolute level of fee revenues generated, but the profitability of those businesses as well. Focused internal efforts to drive both employee and business line accountability are fostering better allocation of capital and enhance resource allocation throughout the entire organization.
Now moving to Slide 4 in the first quarter highlights. Valley reported earnings per share of $0.33 and an adjusted earnings per share of $0.22. As previously stated, we are encouraged with many of the underlying trends we witnessed during the quarter, most notably was our 19% linked quarter annualized decline in operating expense and our linked quarter annualized non-interest deposit growth of over 11% and linked quarter core deposit growth of 8.8%. Those data points are extremely gratifying as they support much of the groundwork that has been laid out, over the past 12 months to 15 months.
Additionally, the first quarter, which is essentially the slowest for our loan growth was an annualized 6.2% after sales and within our target range of 6% to 8% for the year. While we did experience margin pressure during the quarter we still managed to grow linked-quarter adjusted annualized net income 13%. Some of the margin decline is due to the seasonal nature of the first quarter related to day count and slower prepay speeds, which should work in our favor over the next two quarters -- over the next few quarters.
On Slide 5, we provide an adjusted margin of 3.05%, reflective of these impacts. We believe we could see some alleviation of funding pressure in the second quarter of 2019. Additionally, our net new loan origination spread during the quarter was 10 basis points greater than our reported net interest margin and higher on a quarter-over-quarter basis. Despite the current quarter decline in the margin, our net interest income showed growth of over 5% from the same period last year. Right in line with the targeted annual range we previously provided.
We recognize the need to continue to perform and execute upon our stated goals. We are encouraged by the results we have been able to achieve over the past five quarters and are excited to build on that progress in the future. In the interest of the time we will be deviating slightly from our previous quarter's earnings call format and moving directly to the question and answer portion of the call.
Before we do so, I would like to point everyone's attention to Slide 10 of our presentation to cover some of the targets and outlooks. As you can see the targets we previously presented in terms of loan growth, net interest income and efficiency ratio all remain unchanged. We are giving new guidance for the tax rate however. For the remaining three quarters of the year, we expect the tax rate to be in a range from 25.5% to 27.5%, which is up from the previously anticipated range of 22% to 24%. This change is due to our anticipation of utilizing fewer tax credit investments going forward.
However, as a result of this strategy, we should not see the seasonal increase in tax credit amortization in the fourth quarter that we have historically experienced. As such, on a relative basis the tax credit amortization expense in the fourth quarter of 2019 should be significantly less than the expense recognized in the fourth quarter of 2018. The trajectory of tax credit, amortization throughout the entire year is expected to be much flatter.
With that I would like to turn the call over to the operator to begin Q&A. Thank you.
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question comes from Frank Schiraldi with Sandler O'Neill. Your line is now open.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Good morning.
Rick Kraemer -- Director of Corporate Finance
Good Morning.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Just wanted to start with the loan growth. Ira you mentioned 6%, but if you reverse the sales even 9% growth in the quarter and it's a seasonally slower quarter, right. So just trying to think about you obviously didn't change guidance I mean, is it reasonable at this point to already think about maybe the higher end of the guidance being a better expectation?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Hey Frank, it's Tom Iadanza.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Hey, Tom.
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
I think we are comfortable with that 6% to 8% guidance that we've given to the annual loan growth. We're right where we expected to be at this quarter. The yield curve is really going to limit what we're going to do on the resi mortgage side more so this year than last year, but we are seeing the same levels of growth coming out of our commercial portfolio. So we're encouraged by that.
Our pipelines are healthy and we are much more focused on how we going to grow from a profitability standpoint really, really looking at relationship driven the way we started talking about a couple of years back and you really saw that this quarter with that deposit growth much of which was commercially driven deposit growth. So you're going to see a lot -- the same focus on relationship profit-driven growth and I think that 6% to 8% is a comfortable zone for us.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Okay. And then on the -- and then just back to the margin, you mentioned Ira the adjusted margin -- goes up to -- show here's obviously, you get a balance in the reported just given the day count into 2Q, but it also sounded like, I think you've noted that new NIM -- NIM on new growth was basically up 10 bps versus the reported margin in the quarter. So just wondering if you think -- if we just think about the core NIM and forget about the adjustments. Are you guys anticipating at this point that you'll see core NIM growth from 1Q into 2Q?
Alan Eskow -- Chief Financial Officer
Yeah. This is Alan, Frank. Yes, we do -- we do expect that and I think what Ira said about, what we're seeing come in is at a better margin than what we saw in the first quarter. So I think that's very positive for us. That being said, we have a yield curve out there and we all know what that is and we're fighting that, but we do believe that we do expect to see some growth coming back in the second quarter.
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Frank, I think one of the things we didn't get credit for this quarter was the significant shift in funding composition. If you are going to look at back at the average balances for the quarter between 4Q and 1Q, non-interest-bearing averages were down about $150 million on average, which obviously impacted the net interest margin. But in point in time, we grew $176 million in non-interest-bearing deposit accounts. That's a $300 million swing in non-interest funding that when you look at it from the margin perspective is probably funded with FHLBs that we already think is prepaid.
So I think the decline in the margin for the quarter on that core basis is partly attributable from not only the seasonality in some of the prepayment fees that we mentioned, but just the timing of when the deposits came on. So we weren't happy to see that 298 by any means, but we're still pretty encouraged with the prospects for 2019.
Frank Schiraldi -- Sandler O'Neill -- Analyst
Great. Okay. Thank you.
Rick Kraemer -- Director of Corporate Finance
Thanks Frank.
Operator
Thank you. And our next question comes from Steven Alexopoulos with JPMorgan. Your line is now open.
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
Hey, good morning everybody.
Alan Eskow -- Chief Financial Officer
Good morning.
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
Alan, just to follow-up so that the NIM expansion you're expecting in 2Q, is that off the 298 or the 305 adjusted?
Alan Eskow -- Chief Financial Officer
No, no, it's was the 298.
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
Okay. I mean the prior message you had for us was to expect core NIM pressure, which I think we saw this quarter after we get this bounce back in 2Q, do you expect pressure to then resume in the back half of this year.
Alan Eskow -- Chief Financial Officer
No, not really. But again, a lot of that's going to be dependent on the yield curve. So if things stay the way they are, I think everybody is going to continue to feel some pressure on that. Going into -- coming out at the end of the year, I'm not sure any of this will sure the direction of the Fed and what was going to be happening with that curve. So it definitely has an impact, but we do see some positive light at this point.
Ira D. Robbins -- President and Chief Executive Officer
Steve I think one of things we're excited about is what we've been generating on the funding base and largely I think that came on this quarter was the core deposit, which is a significant improvement for us. When we look at what we did on -- I think it's on Slide 8 of the presentation, you can look at what happened with our commercial originations during the quarter. In the last three quarters our commercial originations were 73 basis points, 72 basis points and 73 basis points, but when you look up above you can see what happened on the consumer deposit origination and that came down 11 basis points in just the one quarter on the origination. But more importantly when you look at the composition much more as Tom alluded to earlier is coming from the commercial deposit base.
So we think these are real underlying trends that are positive for us. Look, it didn't show up in the 298 margin for the quarter I get it. But if you look at the underlying trends, you look at the unit account growth that we've been referencing for the last two quarters. The size of the deposits that have been coming on, look at the composition as to what we've been originating in deposits when it's more focused on that commercial space. And we think it's going to be really in line with what we did on the loan side and we're optimistic about what we're seeing.
Alan Eskow -- Chief Financial Officer
Just to add to the commercial side of it, we've got this Q2 treasury solutions coming on board for some of our -- New Jersey, New York legacy customers. And we believe that solution is going to add -- and be a big benefit to us on the commercial deposit side, as well as the way we have structured some of the compensation plans to get people to bring in more commercial deposits.
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
And just to kind of elaborate a little on that, going back a year we reported that we had to improve the quality of our products and with regards to cash management, that's what Alan is relating here. We spent a lot of time building their product, now we're going after market. A lot of this improvement you seen in those commercial deposit is related to that and we expect that to go even further through the course of this year. It accomplishes not only a better product set, more salespeople, more feet on the street selling it. Selling the product a lot of joy calling between the retail staff, the commercial staff and the cash management staff.
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
So if we think through that, your interest bearing deposit loss have been up 10 or 15 basis points per quarter for the past year. How much easing should we anticipate over the next few quarters there?
Ira D. Robbins -- President and Chief Executive Officer
I'm not sure we're going to get specific guidance on that to be honest with you Steve. And I think we're trying to migrate more toward net interest income guidance as we begin to move forward. I think from my perspective over China, give a little bit of underlying trends here as to what we think are those drivers as to what's going to be providing that growth in net interest income and everything we're seeing is a real positive here.
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
Okay. That's helpful. And then just one last one that obviously very good commercial loan growth. How much of that was a change in line utilization in the quarter? Was that a meaningful driver of the loan growth?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
No, if anything-it's the complete opposite, we had seasonal paydowns in excess of $100 million in the quarter and even net of that and net of the residential mortgage loan sales were up at that 6.2% growth. We expect some of that utilization to come back as year rolls on. We typically get those seasonal paydowns in the first quarter.
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
Okay, thanks for the color.
Ira D. Robbins -- President and Chief Executive Officer
Thanks, Steve.
Operator
Thank you. And our next question comes from Arren Cyganovich with Citi. Your line is now open.
Arren Cyganovich -- Citi -- Analyst
Just wanted to discuss the strong deposit growth, was there anything in particular from the geographic standpoint or customer mixed standpoint any new programs that were driving that was just surprised by the strength there?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
On the commercial side you seeing it across the board. Florida, New York were probably the leaders in that commercial deposit growth. I think on the consumer it's pretty evenly spread across keeping an eye we have a much larger infrastructure branches in New Jersey. So you'll naturally see a little bit more on the consumer side coming out of New Jersey, but it's pretty well dispersed among the geographies.
Ira D. Robbins -- President and Chief Executive Officer
Arren just one thing I like to add and this doesn't happens by any means overnight. I mean these are concerted effort that we have put forth that we've been talking about for the last five quarters now. How we're looking at driving relationship banking for many of our customers that were focused on transactions. Changing the pricing as to what the loans look like and have been operating with the deposit relationships and generating real bankers here as opposed to just lenders.
And I think Tom and his team have done a tremendous job with that and we're now finally beginning to see some of the benefits as to what we've been attempting to execute here for the last five quarters. So once again, I'll harp on, I know the topline margin didn't come across great for this specific quarter, but if you're really focusing on the underlying trends, we are actually moving in the right direction.
Arren Cyganovich -- Citi -- Analyst
Great. And then you have some branch closures that happened in the fourth quarter some of the first -- I didn't know it's still early days and clearly the deposits ended up into good shape. But are you seeing any attrition numbers that are coming in either better or worse than what you had modeled?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Yes, slightly better, but it's still early in the process. We're coming in retention of about 89% on those and little better than what we had expected. But again lot of this is just still early stage for us, but we have a program where we have a reach out before we close any branch to the primary customers. We have many contacts before the branch is actually closed, so we monitor it very closely.
Arren Cyganovich -- Citi -- Analyst
Okay, thank you.
Ira D. Robbins -- President and Chief Executive Officer
Thanks Arren.
Operator
Thank you. And our next question comes from Brody Preston with Piper Jaffray. Your line is now open.
Broderick Preston -- Piper Jaffray -- Analyst
Good morning, everyone. How are you?
Ira D. Robbins -- President and Chief Executive Officer
Hey, Brody. How are you? Good morning.
Broderick Preston -- Piper Jaffray -- Analyst
Just wanted to follow-up on the NIM question. I appreciate the net interest income guide hasn't changed and the loan growth guide hasn't changed, but it sort of implies from there that you're expecting the NIM to sort of stay 3% or above throughout the rest of the year would that be fair to say?
Alan Eskow -- Chief Financial Officer
I think that's a reasonably fair expectation at this point.
Broderick Preston -- Piper Jaffray -- Analyst
Okay. Okay, and then on expenses, if you exclude the severance charge, the salaries came in, what sub $80 million really for the quarter and I guess if you layer in the $5 million in savings, you get down to like the $77 million range. Does that run rate sound correct, or do you think that could move lower throughout the rest of the year?
Alan Eskow -- Chief Financial Officer
I think that's a reasonable number. Remember that number is including all the taxes and benefits and so forth. And the first quarter was always the highest quarter in terms of taxes. So you're going to definitely see that number go down just as a result of the salary numbers leveling and the taxes going down. So it should definitely be in that area.
Ira D. Robbins -- President and Chief Executive Officer
Probably, maybe I can just address the overall expense numbers in general. Look we are absolutely thrilled and pleased to be able to demonstrate $135.8 million, which is pretty much in line with what we previously had guided. Part of that really is the completion of lift for us. We were a quarter late I think in delivering this and probably achievable to the USAB acquisition. But I think our management team definitely demonstrated the ability to execute in what we outlined here. That said we are absolutely not comfortable with where we are and we need to go further. So across the entire organization it continues to be an effort to make sure that we continuously improve processes, procedures and make sure that we have a real cost-efficient focus throughout the entire organization. So while we are happy with where we are today, this is not where we intend to end up.
Broderick Preston -- Piper Jaffray -- Analyst
Okay. Okay. And on the amortization of the tax credits appreciate the seasonality comments, but I just wanted to understand-are you going to be utilizing less tax credits moving forward to that line item should be less than the $5 million or so that we have been thinking or is that going to be the right level moving forward?
Alan Eskow -- Chief Financial Officer
I think the big numbers going to be the fact that the fourth quarter, which is typically spiked fairly high mainly as a result of the types of credits -- solar credits et cetera that we use, historically is going to come way back down again. The balance of the credits depending on what we put on if we put on new ones or not should generally drip somewhat downward as we go forward. So not just the fourth quarter, but all of it will drift somewhat down as we continue to move forward. So you're going to see that come down even though the tax rate is going up and to some extent that will offset one another.
Broderick Preston -- Piper Jaffray -- Analyst
Okay, all right. And then maybe one or two more from me, thinking about the tax stuff, specific to the DC solar, the uncertain tax positions. I think you guys in the press release noted that it was $28.8 million and that was inclusive of the $12.1 million that you took this quarter and the tax line item. That seems to be about $6 million higher than the $22.8 million in benefits that you said you recognized in the 10-K. I just wanted to know what was driving the Delta there?
Alan Eskow -- Chief Financial Officer
Yes some of that is the interest that you have to calculate in there, that would be due on the settlement.
Broderick Preston -- Piper Jaffray -- Analyst
Okay.
Ira D. Robbins -- President and Chief Executive Officer
Remember, that goes back and is calculated from day one of the transaction. So our transactions started in '13 and we're now in 2019, so you've got to include all the related taxes -- interest on that.
Broderick Preston -- Piper Jaffray -- Analyst
And then one last one. With the high end of your new tax rate guide, does that include the full loss of the $28.8 million or if you lost the $28.8 million in totality would it be somewhere higher than that?
Ira D. Robbins -- President and Chief Executive Officer
No, that does not include the balance of the $28 million. At this point in time, we've taken what we believe is an appropriate reserve regarding this thing. However, at this point this could last for some time before we know any more information to adjust that number one way or the other. So we're comfortable where we are, but it is not included in any numbers for the rest of the year.
Broderick Preston -- Piper Jaffray -- Analyst
Okay, great, thank you very much for the questions, guys.
Ira D. Robbins -- President and Chief Executive Officer
Okay.
Operator
Thank you. And our next question comes from Collyn Gilbert with KBW. Your line is now open.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Thanks, good morning gentlemen.
Rick Kraemer -- Director of Corporate Finance
Good morning.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
I apologize, I missed your opening comments, so if you covered this and I know you guys -- some of this is in your slide deck. But I just wanted to clarify some of the movement on the fee and OpEx side, so the drop in insurance, I mean, overall fees were down linked quarter kind of across the board and it looks like mortgage was obviously the strong point. But can you talk a little bit about the dynamics that are going on there in terms of outlook for mortgage, outlook for insurance and why some of the other fee lines would have been down on a linked quarter basis?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Yes, it's Tom. On the insurance side, the first quarter is not typically a strong quarter for them. It's a little -- it's better than what we did this quarter. We still expect the commissions to come in, and I would say for the year in that $10 million range, which will be slightly below what we reported for last year. And on the gain on sale, we gave guidance of around $9.5 million to $10 million the year, we expect to be at that level for the year.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay. And then on the expense side, the big and again, if you've covered this, I apologize. But the big drop in other expense on a linked quarter basis, what was attributable to that?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
I think a couple of items, lot of operating expenses, some advertising expense. We're looking to make sure we utilize advertising. Hopefully, when we use it. I think FDIC is separate, that was down a little over $1 million during the quarter as a result of the settlement. The extra charges from the FDIC going away. But in general, our operating expenses beyond that were down. So there is no one specific number there.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
So that I think --
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
I think a lot of this is efforts that we put in place over the last five quarters to really drive that from a sustainable perspective. So the expectation is you're not going back up from here, is that we continue to drive this number lower as we continue to implement some of the cost saving initiatives throughout the entire organization. So we think now $135.8 million is the base that we should be working off of when we move forward.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay. And that is -- so the difference between the 135 and what you reported was what again?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
There is about $4.8 million of severance in that number.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Yes, okay. Yes, aside from the severance and the tax is that it? Those are the only two?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Yes.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay. So that $135.8 million is what is the run rate going forward. Got it, Okay. And then just on to the NIM discussion -- so I know in the slide deck you have the pipeline yield of I think -- if I'm reading it right that the origination yield this quarter was 3.90% -- I'm sorry 4.91%, down from fourth quarter. Just curious why the yield would have been down, just given a little bit of benefit from the Fed hike and improving mix ?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Yes, it depends on the composition of that first quarter production. The treasuries were flattened down to help a lot third quarter for somewhat volatile. So we were more fixed than floating, you might have seen that slight drop because of that. Our spreads have been relatively constant. So it's really the cost of funds that had the impact.
Ira D. Robbins -- President and Chief Executive Officer
And I think, when you look at some of that composition currently -- construction linked quarter was down about 9% on an annualized basis for us. Those had historically been a little bit higher yielding assets. And I think we continue to be focused on what that duration is that we're putting on. Our intent is not to put on CRA only, that's going to have a longer duration from an asset perspective. I think we're trying to match with what we're able to do on the funding side from a core basis. So it's really a blend of what both of those look like for us.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay. And then just sticking on the NIM discussion for a minute, I know Alan, you kind of said when the question was asked the range are higher than 3%, but I guess if we -- if you're sticking to the NII guidance and you're sticking to the loan guidance, I mean it has to be above 3%, I mean, okay--
Alan Eskow -- Chief Financial Officer
We are sticking to our guidance on a 5% NII growth.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay, got it. And you're sticking to your loan growth. And I guess the question then is there something that we're missing maybe on the security side? Is there -- or other parts of the balance sheet that you intend to meaningfully change?
Alan Eskow -- Chief Financial Officer
No, no, I don't think so.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay. And just back to Tom. I just want to confirm, on the mortgage banking line, you guys are assuming -- for mortgage banking total for the full year 2019, you're assuming $9.5 million to $10 million?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
On the gain on sale, yes. One of the positive components of what we've done in the last several months thereis that we're seeing a lot more on the saleable side. We've been focusing our sales staff on the conforming saleable piece. We've seen that part of our pipeline grow. You probably -- last year was probably 65/35 or 70/30 jumbo to conforming. Now it's more 55/45, 60/40. So we do expect to come in those numbers.
Alan Eskow -- Chief Financial Officer
And Collyn, just one point of clarification for you. So when you're looking at the income statement there and you're seeing about $4.5 million, that is not our mortgage gain. There's SBA gains in there, some other gains that we have. So I wouldn't sit there and extrapolate and say you're only going to get $5.5 million for the rest of the year, that's not what we're intending by any means. We still continue to anticipate strong SBA gains and some other stuff as well. So don't just take $5.5 million divide by 3 and spread that over that. That's absolutely not correct.
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
Okay, there's more in there than -- I didn't realize that. Okay, that's helpful. I'll leave it there then. Thank you.
Ira D. Robbins -- President and Chief Executive Officer
Thanks Collyn.
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Thanks.
Operator
Thank you. And our next question comes from David Chiaverini with Wedbush Securities. Your line is now open.
David Chiaverini -- Wedbush Securities -- Analyst
Hi, thanks. Couple of questions for you. So first, just following up on the net interest margin. So looking at the adjusted NIM on Slide 5, I just want to make sure what you're adjusting? Is that simply using a flat day account adjustment only or you also adjusting for lower interest recovery income as well?
Rick Kraemer -- Director of Corporate Finance
David, it's Rick, it's predominantly day count.
David Chiaverini -- Wedbush Securities -- Analyst
Okay. And then shifting to back to the securities, when I look at the yield on taxable investment securities, it is about 3.1%. But then when I look at the rate you're paying on your long-term borrowings, it's 3.5%. So you're earning 40 basis points lower between the two. Have you considered -- can you just walk through why you wouldn't pay down some borrowings by selling some of those securities?
Rick Kraemer -- Director of Corporate Finance
You know I think one of the things is that we have in there some legacy borrowings that are pushing that number up. Prepayment penalty on that is quite substantial. And so while theoretically the idea is a great thing to do, the loss on it would be way beyond what we're willing to take.
David Chiaverini -- Wedbush Securities -- Analyst
That makes sense. Okay, and then in terms of securities portfolio growth from here, how are you thinking about that? Should we expect securities to kind of be flat from here or should we expect some growth in that portfolio?
Alan Eskow -- Chief Financial Officer
We'll see some growth in it. I don't think we'll see a huge amount, but there will be some growth as we move through the year. Obviously, putting loans on at a higher yield makes a lot more sense. However, from a liquidity standpoint, it makes sense to keep that investment portfolio growing somewhat as well. Yes, and the loan growth is relatively strong. And when the loan growth is in that 6% to 8% range, we would rather put it there. And if it doesn't make sense to put into investments, we could theoretically take some of those pay downs and use it to fund loan growth as well.
David Chiaverini -- Wedbush Securities -- Analyst
Okay, great and then one question on when you referring the presentation about revamping of the compensation structure, creating more alignment; are you referring to the changed incentives of the bankers to bring in more DDA deposits, is that what you're referring to or is this something separate from that?
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
No, our comp plans have really migrated from all production based plans many-many years ago to deposit growth, deposit production. And equal amount of our plan is weighted on deposits than on loans. And it's also a team and growth perspective, not just a production perspective. So whether the retail people are focused on deposit growth, the commercial people have equal deposit and loan growth components to their compensation plans.
Ira D. Robbins -- President and Chief Executive Officer
One of the things I might want to talk about is, is not just what we've done with the individual teams, but also on the executives throughout the entire organization. We have weighted a significant amount more of our compensation tied to the performance of the stock. So a lot less on just pure bonuses, a lot less just in restricted stock, but a lot more ties to the relative performance of our stock compared to our peers.
There's been a genuine shift throughout the entire organization that accountability is what we're driving for, and that starts at the top. My compensation has changed, every other Executive Vice President compensation in the organization has changed. And to be honest with you, for our compensation plans, we have accelerated the component of stock that we give out to many of our employees as well. Every single one in the organization understands that we need to deliver on stock performance to really garner the appropriate results here.
David Chiaverini -- Wedbush Securities -- Analyst
Okay, great, thanks for that. And then shifting to non-interest expenses. So looking at your adjusted efficiency goal of less than 55% for the year, you are already below that in the first quarter, and you've kind of been talking through how to expect better expense trends through the rest of the year. So any thought of -- it seems as if you're going to come in well below the 55%? Any reason as to why you didn't kind of lower it or is it really just you don't want to be giving quarter-to-quarter change guidance on that line?
Alan Eskow -- Chief Financial Officer
Yes, I think we would rather not do that. And as you just pointed out, and just use what we put out there at this point. We're certainly working very hard to get it below that number and keep it below that number. But to warn you, yeah, we got a few more quarters to go. And as I said, we're working hard to keep it at below that 55% number.
Ira D. Robbins -- President and Chief Executive Officer
And just (inaudible) because we put it there does not mean we're happy. As I mentioned earlier, I'm happy where we are today but this is not where we need to end up as an organization. And there continues to be significant emphasis and push to drive that number lower.
David Chiaverini -- Wedbush Securities -- Analyst
Okay. One clarification on that efficiency goal. So it's less than 55%, I know that's the adjusted efficiency goal of less than 55%, which excludes tax credit amortization. But the 2020 efficiency goal of less than 51%, does that also exclude the tax credit amortization or is that inclusive?
Alan Eskow -- Chief Financial Officer
No. we would exclude it.
David Chiaverini -- Wedbush Securities -- Analyst
Okay, thanks very much.
Alan Eskow -- Chief Financial Officer
Thank you.
Operator
Thank you. And I am showing no further questions in the queue at this time. I'd like to turn the call back to Rick Kraemer for any closing remarks.
Rick Kraemer -- Director of Corporate Finance
I'd like to thank you all for taking part in our first quarter earnings conference call. If you have any additional questions, please feel free to reach out to Alan Eskow or myself. Have a good day.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program and you may all disconnect. Everyone have a great day.
Duration: 48 minutes
Call participants:
Rick Kraemer -- Director of Corporate Finance
Ira D. Robbins -- President and Chief Executive Officer
Frank Schiraldi -- Sandler O'Neill -- Analyst
Thomas A. Iadanza -- Senior Executive Vice President and Chief Lending Officer
Alan Eskow -- Chief Financial Officer
Steven Alexopoulos -- JP Morgan Chase & Co -- Analyst
Arren Cyganovich -- Citi -- Analyst
Broderick Preston -- Piper Jaffray -- Analyst
Collyn Gilbert -- Keefe, Bruyette, & Woods, Inc. -- Analyst
David Chiaverini -- Wedbush Securities -- Analyst
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