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Valley National Bancorp (NASDAQ:VLY)
Q3 2019 Earnings Call
Oct 24, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2019 Valley National Bancorp Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Rick Kraemer, Director of Corporate Finance. Sir, please go ahead.

Rick Kraemer -- Director of Corporate Finance

Thank you, Michel. Good morning, and welcome to the Valley Third Quarter 2019 Earnings Conference Call. On the call today is Ira Robbins, President and CEO; Mike Hagedorn, CFO; and Tom Iadanza, CBO.

Before we begin, I would like to make everyone aware that you can find our third quarter earnings release and supporting documents on our Company website, 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 to GAAP results.

Additionally, I would like to direct you to Slide 2 of our 3Q '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.

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

Ira Robbins -- President and Chief Executive Officer

Thank you, Rick. Good morning and welcome. Our third quarter results reflect continued progress toward achieving our previously stated goals of consistent growth, greater operating efficiency and stronger contributions from fee-generating businesses. Organic loan growth remains impressive totaling 12% on an annualized linked-quarter basis and slightly over 8% year-to-date consistent with the full-year loan growth targets we previously established, albeit at the higher end. The growth drivers in the current quarter were well diversified across loan categories as shown on Slide 8 of our earnings presentation. Our efforts to establish ourselves as a leading middle-market C&I business lender within our footprint continues to take hold, and I'm proud of the substantial progress we continue to make.

While the loan growth has had a tenancy to overshadow the deposit story, we are seeing some solid trends there as well. For instance, our branch deposits are growing at a rate of almost 5% annualized with over 25% of that growth coming in non-interest-bearing deposits. This is even more impressive considering that we closed 15 branches in 2019 to-date.

As we've mentioned in prior quarterly calls, we continue to emphasize improving operating leverage while acknowledging expenses can remain volatile on a quarter-to-quarter basis. Year-to-date, 2019 adjusted revenue has increased 3.2% and adjusted expenses declined 4% compared to the same period last year, thus producing positive operating leverage of over 400 basis points on an expanding balance sheet. We remain extremely focused on reallocating resources toward business lines, products and people that give us the greatest returns on our expense base.

Non-interest income saw a significant boost from the prior quarter, driven primarily by an $8.5 million increase in swap-related fee income. Our active marketing efforts and education among our sales team and clients continue to make this a substantial contributor to the bottom line, once again consistent with our strategy of enhancing values in middle market presence. Additionally, our mortgage gain on sale business saw a nice rebound from the previous quarter, aided in part by increases in refinance activity.

Looking at Slide 4 and the third quarter highlights, Valley reported GAAP and adjusted earnings per share of $0.24, up 14% from the third quarter of last year. As previously stated, we are encouraged with many of the underlying trends we witnessed during the quarter, such as strong loan growth and continued diversification; solid branch core deposit growth, both in dollars and unit of accounts; relatively flat core expense trends; and most importantly at Valley, sound credit quality metrics.

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

Michael Hagedorn -- Chief Financial Officer

Thank you, Ira. To begin, I'll continue on the topic of the income statement. Turning to Slide 5 and quarterly net interest income and margin trends. As Ira mentioned, our net interest margin declined 5 basis points from the prior quarter to 2.91%. While interest rate spread only declined 4 basis points from the previous period, we experienced higher amortization expense during the quarter, which led to an additional 1 basis point of NIM compression. Though the current environment continues to place pressure on net interest income, we remain encouraged by our forward repricing gap as illustrated on the left hand side of Slide 6. We have continued to place more emphasis on the shorter end of the curve on liabilities over the past 18 plus months. This was done in part due to the increasing floating rate nature of our loan portfolio and was accelerated as the Fed was signaling the end of the tightening cycle.

Additionally, as you can see from the 12-month forward maturity schedule on Slide 6, there should be substantial ability to reprice both retail CDs and other wholesale borrowings meaningfully lower should the current rate outlook remain. As illustrated on Slide 9, we have already begun to see the efforts of lower repricing begin to affect our monthly deposit rate averages. This trend should only become more prevalent in coming quarters. Furthermore, the addition of Oritani's balance sheet should position the combined NAV to a more liability sensitive direction.

Moving to assets, we expect the current environment will continue to negatively impact portfolio yields. While approximately 55% of our loans are adjustable rate at the end of the quarter, only 32% of total loans are scheduled to reset within the next 12 months. Approximately 16% of total loans are indexed to one-month LIBOR and another 12% are tied to prime, which reprice either daily or monthly. Additionally, almost 21% of loans priced off of varying CMT indices, the bulk of which contractually reprice every five years. As you can see on the bottom left chart on Slide 8, lower LIBOR rates over the past six-plus months had a more defined negative impact on the new loan yields we've been originating in more recent quarters. While much of this is driven by market pressures, we are actively adding lower yielding with shorter duration jumbo residential mortgages to the balance sheet. This is a deliberate action to offset the lower reinvestment yields we are facing in our investment portfolio. While there is some capital impact of these actions, we believe the comparable risk versus the relative rate are currently a better alternative to many Securities.

Moving on, our non-interest income grew 49% linked quarter, driven by strong swap fee generation, improved mortgage gain on sale and trust and investment services. As a percentage of adjustable operating revenue, adjustable fee income was 16%, which is a significant improvement from the prior quarter's 12% level. While this quarter's outcome was in line with our long-term goals of 15% to 20%, we recognize the volatility in the stronger contributing product lines during the period.

Diving into the results in more detail, we generated record swap volume during the third quarter of 2019, originating back to back swaps on approximately $455 million of notional underlying collateral. This is almost 3 times the prior two-quarter levels, which is driven in part by volatility in the rate environment. While this product will continue to be a driver of fees in near future, it's important to note we believe this quarter's swap results will most likely not be repeatable in the near term.

Our mortgage gain on sale income increased 32% from the second quarter of 2019. These results were boosted in part from one portfolio bulk sale of jumbo mortgages. This was a proactive and opportunistic transaction allowing us to sell longer-duration mortgages with high prepayment characteristics at favorable pricing levels. We have seen a pickup in conforming business, primarily due to elevated levels of refinance activity given the decline in interest rates. Our conforming gain on sale margins improved approximately 30 basis points from the prior quarter.

Moving on to Slide 7 and an overview of operating expenses, our reported expenses increased approximately $4 million from the prior quarter. Included in that number are infrequent items related to merger expenses equaling approximately $1.4 million. Our adjusted expenses exclusive of tax credit, amortization and previously mentioned infrequent items, were up $3 million from the previous quarter. Approximately $2 million of this can be seen in the quarterly salary lines driven by increases from higher levels of bonus accruals and mortgage origination commissions. As previously mentioned, mortgage gain on sale income far outpaced the elevated commissioned during the quarter.

Other notable differences in operating expenses from the previous quarter were an increase in net loans on other real estate owned of $1.3 million and a pickup in telecom expenses related to the relocation of our next-gen data center. These two items collectively added about $1.6 million to operating expense from the previous quarter.

While we continue to look for and find ways to invest in initiatives that drive positive operating leverage, it's important to note that our efforts to maintain, innovate and grow, and can add volatility expenses on a quarterly basis. That said, our adjusted efficiency ratio was 53.5% for the quarter, down 109 basis points from second quarter 2019 and below our full year target of 55%. More impressively, this quarter our adjusted efficiency ratio was down 436 basis points from the same period just one year ago.

Our loan growth for the quarter was an annualized 12%, well above our previously cited target of 6% to 8% for the year. As illustrated on Slide 8, much of this growth came in commercial real estate, C&I and auto. This is more evidence of the great momentum we continue to build in our C&I vertical, which has certainly been aided by our ability to hire strong talent. Our indirect auto business continues to experience significant growth through expansion of our dealer networks. As a reminder, the quality of this portfolio is pristine with the average FICO score above 750 during the quarter and charge-offs being de minimis.

From a geographic perspective, our growth was well distributed. Approximately 41% of total quarterly commercial growth came from Florida and Alabama, while New York and New Jersey made up approximately 52% with the balance coming international commercial leasing lines. It's worth noting that while New Jersey growth has been materially slower than the other geographies for some time, the area has been demonstrating signs of improvement in economic activity. For example, the labor force participation rate has been rising in New Jersey reaching a two-year high in September, which is historically correlated to higher home ownership levels. This bodes well for our residential mortgage group, which realized increased volume and gain on sale income during the quarter driven primarily from a tailwind of lower interest rates and increased refinance activity.

We sold approximately $220 million in loans, approximately 39% of which came in the form of a jumbo portfolio bulk sale in which we retained servicing. Conforming loans sold increased 29% from the previous quarter, which generated the balance of gains by sales through our standard GSE outlet.

Deposit trends were more mix during the quarter. On the favorable side, non-interest bearing deposits grew 3.3% annually for the quarter, while our core branch deposits have grown almost 5% year-to-date annualized. Time deposits expanded 29% on a quarterly annualized rate; however, much of the growth came in the form of brokered CDs. Notably, we witnessed accelerated loan closings toward the end of the quarter, which exacerbated the use of brokered CDs. That said, we recognized a favorable term relative to other forms of wholesale funding that fit well within our interest rate positioning.

As illustrated in the average deposit balance and rate trends chart on Slide 9, we've been managing deposit rates lower across both business and retail segments. As shown on the monthly average rates for Savings, NOW and Money Market Accounts have declined for five of the past six months, while CDs have begun to show signs of low repricing as well. Worth mentioning is our ability to consistently realize retention rates well above 80% for the related CD maturities. With that said, the use of brokered CDs may continue to be a useful tool to offset any future slippage as we continue to realign our core deposit pricing.

Finally, where there is always a lag to the effects of lower pricing has seen in the averages, we do expect more noticeable declines over the course of the next few quarters given the forward repricing dynamic, as we previously highlighted on Slide 6.

During the quarter, we saw our reliance on short-term borrowings diminished by approximately $562 million, driven by a combination of adding modest duration at favorable long-term funding rates combined with the addition of $300 million of inverse floating rate repo to the balance sheet. The impact of these actions can be seen in the linked quarter decline of our average long-term funding costs of 41 basis points and the average balance increase of $536 million. On a combined basis, we saw total short- and long-term borrowings including brokered CDs increased only 100 basis points to 19.6% of total assets.

Moving to Slide 10, I want to spend a few minutes talking about credit and the anticipated impact of CECL. Our total non-performing assets increased approximately $4 million from the previous quarter; the majority of this increase was related to one commercial real estate loan, which we believe is well collateralized in the event of further degradation. Our accruing past due loans saw more noticeable increase from the previous quarter; however, most of this was due to non-credit-related issues delaying a few large loan renewals. While we are required to report these matured performing loans as accruing past due loans, we believe the loans are well secured in the process of collection and do not present a material negative trend in our credit quality trends. Notably, the bulk of the increase from the quarter-end has since been returned to current status.

During the third quarter of 2019, we recorded an $8.7 million provision for credit losses. This was an increase of $6.6 million from the previous quarter. As we had mentioned on previous calls, we are anticipating an additional allocation of reserves related to non-impaired taxi medallion loans previously identified as TDR loans coming up for renewal in the third quarter of 2019. Accordingly, these actions drove approximately $4.7 million of the quarterly increase. Currently, we do not expect a similar provision related to medallion loans for the fourth quarter.

As you know, we're approaching the adoption of CECL, the new accounting standard for credit losses, which will go into effect January 1, 2020. We've completed our third parallel test today and based on our expectation of the forecasted economic conditions and portfolio balances as of September 30, 2019, we estimate that CECL could result in an increase to our non-PCI allowance of approximately $50 million to $70 million as compared to our current reserve levels. This addition would be exclusive of the balance sheet transfer that occurs within the PCI-related credit portion that exist today. The PCI-related reclassification will not have any impact on the pro forma capital or regulatory phase-in period. We continue to expect the increase in reserves to be driven by several factors including our economic outlook and geographic diversification. Notably, the estimated impact is also exclusive of potential impacts from Oritani; however, based on our previous diligence, we do not expect a material deviation on a relative basis. Importantly, this remains in approximation and we'll further refine this estimate through year-end.

Finally, moving to Slide 11 of our presentation to cover some targets and outlook. You'll notice, we are narrowing and revising the range for our net interest income projection for the full year from 4.5% to 6.5% to a range of 3.5% to 4.5%, which encompasses a greater emphasis on a prolonged flat yield curve environment. This range does not encompass any potential impacts for Oritani should the transaction close in the fourth quarter. Additionally, we are lowering our fourth quarter effective tax rate range to 24% to 26% from the previous range of 25% to 27%.

Now, I will turn the call back over to Ira for some additional commentary.

Ira Robbins -- President and Chief Executive Officer

Thanks, Mike. I'd like to give a brief update regarding our announced acquisition of Oritani. Let me start by saying, we are extremely excited and well prepared to welcome the customers and employees of Oritani into Valley. Our planning and outreach have been remarkable and we remain highly confident in the success of this integration.

As previously disclosed, Valley has received regulatory approval from the OCC to complete the merger. The merger remains subject to additional regulatory action by the Fed and approval by the shareholders of both Valley and Oritani. We remain hopeful in our ability to close this transaction within the original timeline of the fourth quarter of 2019. When we announced the transaction, we had not included any branch consolidations into the cost save estimate. Subsequent to announcement, we filed a public regulatory application and disclosed our plans to consolidate nine branches upon conversion. These include six Oritani branches and three legacy Valley branches. We plan to give updates on saves associated with these consolidations as we are closer to conversion, most likely in the first or second quarter of 2020.

Importantly, we do not expect any of these additional consolidations to impact the timing of the existing 10 closures identified in our stand-alone branch transformation plan, which we discussed last quarter. As we strive to achieve a more relevant retail experience, you should expect the continued rationalization, relocation and improvement of our physical branch network for many years to come. For reference, over the past five years, we have closed 59 branches, while maintaining and improving retention rates on deposits.

In closing, this quarter's results demonstrated many of the efforts we have been working toward over the past two years. Valley has a renewed focus on sustainable and responsible growth driven by greater diversification of product and talent. The bank's transformation from manual to more automated processes combined with the streamline delivery systems are creating greater operating efficiencies. The revenue distribution away from net interest income is showing increasing signs of stabilization and growth. I'm extremely proud of all the outcomes and believe over time, these will continue to have a greater positive impact on shareholder return while reinforcing our commitment to community, employees, innovation and acquiring new talent.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Ken Zerbe with Morgan Stanley. Your line is open, please go ahead.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Great, thank you. I guess, just starting up with taxi, in terms of the additional provisioning put up against that. Was there to start, I guess, next quarter or the quarter after, if additional taxi loans mature and they're not able to pay back to loans, could we see a repeat of this, we're building additional reserves for those other loans? Thanks.

Thomas Iadanza -- Chief Banking Officer

Yeah. Thanks. This is Tom Iadanza. Thanks for the question. We don't have any significant maturities of the taxi portfolio in the fourth quarter or through 2020. Mindful, that we review values; 85% of our portfolio is on impaired status. But we don't expect this year -- in this past quarter, we had about $14 million that came up for renewal. We don't have that in the fourth quarter or through most of 2020.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. And then I guess staying with taxi, I think a lot of your peers or some of the bigger taxi lenders, I must say, effectively dealt with their taxi exposures. They wrote down to just very low levels. Do you guys feel good about the levels that you're currently holding the taxi loans at and is there -- if we use market values, I guess, where are you marking these loans down to on your books right now? Thanks.

Thomas Iadanza -- Chief Banking Officer

Yeah, OK. We were using a six-month trailing average of sales; we're marked down to about 212,000 [Phonetic] on the New York City, 31,000 [Phonetic] on the Chicago; keep in mind, 67% of our portfolio is on non-accrual status, while only 16% is actually not paying and is a group in that 16% that we're in the process of renewing and bringing back to current part of that renewal will be bringing it to current status that will continue to carried on non-accrual, it's less than 1% of our total portfolio. When we do renew, we tend to get more guarantee, sometimes side collateral. We think we're better off just managing as we are at this stage.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it. Okay. And then just one final question. In terms of the swap activity, I understand that this quarter is very strong, and is unlikely to repeat next quarter, but are you doing anything different in that business that is driving the higher amounts or was this just solely driven by interest rates and that should fall back down at some point, back down to more normal levels that we've seen in the past?

Michael Hagedorn -- Chief Financial Officer

I think as you're highlighting, Ken, it's obviously a little bit higher than what it's historically been. But I think it's consistent with their focus we've had on ensuring middle-market lending across the entire organization. We've begun to really train our staff and target and allocate resources toward specific customers as well. So we think this is a concerted effort that we've done internally to really drive the specific business. Obviously, part of it's a function of where interest rates are as well, but this was definitely a strategy internally.

Ira Robbins -- President and Chief Executive Officer

Yeah, I just add, this is just really nothing unusual. We do -- most of our business is below 10-year maturity. There is some slightly above that, but it's nothing unusual and it's really across the board within our portfolio in all four of our states.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Okay. Great. Thank you very much.

Operator

Thank you. And our next question comes from the line of Frank Schiraldi with Sandler O'Neill. Your line is open. Please go ahead.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Good morning. Just wanted to start on or focus on the NIM. In terms of -- obviously, you got pretty challenging yield curve as well as, as rates moving lower but, based on your GAAP analysis, it seems like your messaging here is that you can defend the NIM at these levels. Is that the message? And then secondly attached to that, when you guys announced Oritani, you were asked about pro forma NIM and you gave a number of down 3 basis points. Just wondering if there is any significant change there. Thanks.

Michael Hagedorn -- Chief Financial Officer

Thanks for the question. This is Mike. I'm going to reference you back to Slide 6 in my prepared comments that one of the things that will provide a tailwind to value in the coming quarters is just the sheer level of cumulative negative gap that we have as we reprice large portions of our funding sources including core deposits. So I think that's a huge advantage, maybe relative to some other competitors.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. Sure. And then just on the Oritani part of the question, any change there?

Michael Hagedorn -- Chief Financial Officer

No. Nothing to add there.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. And then just finally on loan growth, Ira, as you mentioned, you're trending at the high end or slightly above the high end of full year guide, just kind of curious what the -- why we should expect normalization in 4Q to sort of stay in that guide. Is it just seasonal or more than anything else or can you give us any color on your thoughts given what the pipeline looks like here?

Thomas Iadanza -- Chief Banking Officer

Yeah. It's Tom, again, Frank. Our growth through the first nine months, when you annualize that, it's just over 8% -- it's 8.2%; third quarter has traditionally been our strongest quarter of production and growth. We have different options of what we can and will do with regards to loan sales and such to our syndication and secondary marketing desks. Our growth again is well diversified. The new production, the average loan size is no different than what we've historically had on the balance sheet at around $3 million [Phonetic] loan size for CRE and about $1 million [Phonetic] size for C&I. So the focus has really been on relationship driven, not volume driven. And when you look at that deposit growth, and Ira mentioned the 5% on pace for the 5% growth, our business deposits year-to-date grew 6.5%. So when you look at that C&I growth combined with that business deposit growth, that's what's really fueling both ends of that. So I think we're comfortable with the 6% to 8% guidance for the year probably closer to that upper range.

Ira Robbins -- President and Chief Executive Officer

Frank, this is Ira. Being a finance guy, right, you'd love to be able to see something on a linear basis. That's how budget should look and everything else just to make things a lot easier. But Tom and team tell me that there's customers and relationships involved and unfortunately everything doesn't necessarily close at the same time that we anticipate. But we're comfortable with that full-year guidance of 6% to 8% as we attempt to manage profitability versus loan growth as well.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Got you. Okay. Thank you.

Thomas Iadanza -- Chief Banking Officer

Thanks, Frank.

Operator

[Operator Instructions] Our next question comes from the line of David Chiaverini with Wedbush Securities. Your line is open. Please go ahead.

David Chiaverini -- Wedbush Securities -- Analyst

Hi, thanks. Couple of questions for you. So sticking with Slide 6, I just want to make sure I understand the gap analysis. This essentially is representing how much in liabilities or repricing in each of the quarters versus how much in assets are being repriced in those respective quarters, right?

Michael Hagedorn -- Chief Financial Officer

That's correct. That's the dark blue versus the light blue bars.

David Chiaverini -- Wedbush Securities -- Analyst

Yeah, OK. And then on the right hand side, with the CD rates, do you have an estimation as to how much you expect the CD rates to improve in each of these quarters?

Michael Hagedorn -- Chief Financial Officer

Well, I'll point you back to our overall deposit betas, which in the prior or the past quarter were only 7% and I don't think that's reflective of what has gone on and will go on in the future. Actually, when you go back to June to September, those deposit betas are closer to 21%. So I think as the Fed continues to decrease rates, as we expect, we could see meaningful repricing somewhere in the neighborhood of the first and second quarters of 2020 probably around 50 basis points.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. That's helpful. And then shifting back to the swap fees, I was curious as to who's taking on the counterparty risk, because I'm assuming that the borrowers are swapping fixed for floating.

Michael Hagedorn -- Chief Financial Officer

Most of this is cleared through the exchanges.

David Chiaverini -- Wedbush Securities -- Analyst

Got it, got it. Okay. And then the final question for me is on new account openings. You mentioned about how the branch deposits have grown 5% annualized year-to-date. In last quarter, you had a couple of interesting stats about new account openings and so forth. I was curious, any updates if that momentum continued into the third quarter.

Thomas Iadanza -- Chief Banking Officer

Yeah. Absolutely, it has. When I talked about the business accounts, we had 65 new account -- 65,00 new accounts opened up, sorry, for the first nine months. On the positive side, Florida, demand (ph) deposits were up over 10%, Alabama up over 13%. The biggest increase in deposit and commercial deposit openings and dollars is coming out of the New York market. And on a year-to-year basis, we've had $450 million of deposit growth in our branch system into the New Jersey market. So you're really seeing that very consistent, commercial deposit driven activity and all around what we talked about over the last couple of years building a treasury solutions product, hiring a sales force, matching it with the lenders to make sure we have relationship-driven business going on in all our markets.

David Chiaverini -- Wedbush Securities -- Analyst

That's very helpful and next --

Michael Hagedorn -- Chief Financial Officer

Sorry, David, if I can just add on to what Tom is saying. To me, I look at it over a relative basis from a period of maybe a little bit longer time. But if you look at annualize the new account business growth -- business accounts for this year-to-date, we're up 16% and new accounts on businesses, which is a big number. But when you go back versus two years ago, that's over 50% new business accounts that we're generating in this organization than where we were in 2017, which is a massive testament to this, the shift in culture and shift in strategy within this organization and we think these are going to have positive benefits as we continue to grow the deposit book.

David Chiaverini -- Wedbush Securities -- Analyst

That's very helpful. And actually one more clarification question, on the expenses, the year-to-date range on an adjusted basis has been $136 million to $140 million. When you say that the foreseeable future will see expenses in this range, you're referring to the adjusted range, right?

Michael Hagedorn -- Chief Financial Officer

Well, I think we're referring back to first quarter of '19 where you started $147 million -- almost $148 million, through third quarter to almost $146 million. But if you look at the adjusted numbers that number for the first quarter is more or like $136 million and as we stated in our prepared remarks in the third quarter of this year was $140 million. So I think that is probably closer to the range that we are going to experience.

David Chiaverini -- Wedbush Securities -- Analyst

So adjusted should be in the $136 million to $140 million range going forward?

Michael Hagedorn -- Chief Financial Officer

Correct.

David Chiaverini -- Wedbush Securities -- Analyst

Okay. Thanks very much.

Michael Hagedorn -- Chief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Collyn Gilbert with KBW. Your line is open. Please go ahead.

Collyn Gilbert -- KBW -- Analyst

Thanks, good morning everyone.

Ira Robbins -- President and Chief Executive Officer

Hi, good morning.

Collyn Gilbert -- KBW -- Analyst

I apologize if you guys covered this, I unfortunately to hop on late, but just in terms of the large swing in the swap fees this quarter, did you already indicate what was the driver of that?

Thomas Iadanza -- Chief Banking Officer

We talked a little bit about it, but the logic on, it's a focus in turn that we've had on targeting middle market customers, reengaging with our staff to make sure they understand the benefits and having conversations with our relationship customers as to the benefit. Obviously, there is a function of that's attributable to where interest rates are. That said, we're attempting to manage the interest rate risk within our balance sheet as well. So it's a combination of where interest rates are, a combination of the focus we've had on targeting specific customers. And I think more of a testament to the wonderful efforts of our staff.

Collyn Gilbert -- KBW -- Analyst

Okay. And in your slide deck, I know you indicated that it's not likely to repeat. Was there any -- I mean, just in terms of that, was it volume driven or was there any one large relationship that was in there? I mean, I'm just trying to quantify when you say not likely to repeat like how.

Michael Hagedorn -- Chief Financial Officer

It was all -- it was all volume very granular, a large number of trades and pretty much spread equally in North and South of our regions.

Collyn Gilbert -- KBW -- Analyst

Okay. That's very helpful. Great. Okay, thank you. And then just one last small item, the uptick in the CRE non-accrual that you saw this quarter, was that in the Florida market or New Jersey market?

Michael Hagedorn -- Chief Financial Officer

No, no, no. It was the past due by paying -- it was one relationship at $22 million that was current for all payments, not a credit issue, we were going to process of renewing and we didn't renew until the first week of October. That was removed. There was also a $4 million substandard loan that was moved to non-accrual secured by two pieces of property up here in the New Jersey, market which has value well above our loan amount.

Ira Robbins -- President and Chief Executive Officer

And that was up here --

Michael Hagedorn -- Chief Financial Officer

And that was up here in New Jersey.

Collyn Gilbert -- KBW -- Analyst

Okay. So everything was up here in New Jersey?

Ira Robbins -- President and Chief Executive Officer

Yes.

Collyn Gilbert -- KBW -- Analyst

Got it.

Ira Robbins -- President and Chief Executive Officer

They've been long time customers.

Collyn Gilbert -- KBW -- Analyst

Okay. Very good. I'll leave it there. Thanks guys.

Michael Hagedorn -- Chief Financial Officer

Thanks.

Operator

Thank you. And our next question comes from the line of Steven Duong with RBC Capital Markets . Your line is open. Please go ahead.

Steven Duong -- RBC Capital Markets -- Analyst

Hey, good morning, guys. Apologize, I'm jumping on late as well. So just wanted to follow up on the new business accounts. Do you guys have a breakout between the Florida versus the New York metro area?

Thomas Iadanza -- Chief Banking Officer

We do, I don't have it handy. As I mentioned, the majority of the new business accounts on the commercial side are being opened in the New York market, but I don't have that information in front of me with regards to the other. But what the important part is, we are seeing growth in non-interest bearing and in total deposits in each region with Florida and Alabama being above 10% primarily driven by commercial.

Steven Duong -- RBC Capital Markets -- Analyst

That's good to hear you, guys. And then just appreciate your guidance on CECL. How does that affect your 2020 accretion expectations?

Michael Hagedorn -- Chief Financial Officer

So our expectation right now at the levels that I gave you and I want to caveat again at those levels could change between now and the end of the year. We don't expect a material change in the accretion as a result of CECL.

Steven Duong -- RBC Capital Markets -- Analyst

All right. Great. That'll be it for me. Thanks again, guys.

Michael Hagedorn -- Chief Financial Officer

Thanks, Steve.

Ira Robbins -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. Rich Kraemer for any further remarks.

Rick Kraemer -- Director of Corporate Finance

Thank you all for joining us today. If you need additional information, please reach out to Mike Hagedorn or myself. And we look forward to talking again next quarter. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Rick Kraemer -- Director of Corporate Finance

Ira Robbins -- President and Chief Executive Officer

Michael Hagedorn -- Chief Financial Officer

Thomas Iadanza -- Chief Banking Officer

Kenneth Zerbe -- Morgan Stanley -- Analyst

Frank Schiraldi -- Sandler O'Neill -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

Collyn Gilbert -- KBW -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

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