VALLEY NATIONAL BANCORP Q3 FY2024 earnings call

Key Points - Net income improved due to top line revenue expansion and expense management. - Provision for loan losses exceeded guidance due to C&I loan growth, unfunded commitments, and Hurricane Helene reserve, but would have been in line excluding these factors. - Progress made towards balance sheet goals, including a 53 percentage point year-to-date reduction in CRE concentration ratio. - Expect to sell $800 million of performing commercial real estate loans in Q4 at a 1% discount, aiding balance sheet goals. - Deposit costs reduced by ~22 basis points since September Fed rate cut, with direct customer balances trending higher. - C&I loans grew mid-teens annually, while multifamily and investor CRE loans declined $700 million due to prepayments. - Commercial real estate portfolio remains healthy, though a few select loans may impact Q4 net charge-offs.

During the third quarter of 2024, Valley reported net income of approximately $98 million and diluted earnings per share of $0.18. Total deposits increased approximately $300 million compared to the second quarter, with non-interest deposit balances growing and 25,000 new deposit accounts added. C&I loan growth remained in the mid-teens on an annualized basis for the second consecutive quarter. Organic capital growth and a recent preferred stock issuance contributed to balance sheet progress. A $800 million sale of performing commercial real estate loans is expected in the fourth quarter.

Forward-Looking Statements - Expect ~$800 million sale of CRE loans in Q4, closing in Q4. - Target CET1 goal of approximately 9.8% by end of 2024. - Anticipate CRE concentration ratio to be ~375% by end 2025 vs prior goal of 400%. - Allowance coverage ratio expected to be ~1.25% by end 2025 vs current 1.14%. - Low single-digit annualized loan growth expected in Q4. - Net interest income to decline somewhat in Q4 due to CRE sale, but exclusive of sale would grow modestly. - Non-interest income and non-interest expense generally unchanged from prior quarter guidance. - Potential higher net charge-offs in Q4 due to Hurricane Helene, Milton, and isolated CRE loans, leading to year-end allowance coverage ratio ~1.20%.

Potential higher net charge-offs in the fourth quarter due to the impacts of Hurricane Helene and Milton, as well as isolated issues with certain commercial real estate loans.

Q: What does the normalization in 2025 for provision levels mean?

A: Ira Robbins stated it means net charge-off numbers will be much lower than current quarter, with only incremental reserve build needed, aligning with historical Valley levels.

Q: Can you provide more color on 4Q NII guide regarding deposit costs?

A: Travis Lan mentioned they bake in 50% beta on interest-bearing nonmaterial deposits and 35% when including non-interest-bearing, outperformed with first Fed rate cut, and expect to outperform going forward with mid-to-high single-digit NII growth in 2025 if beta continues to outperform.

Q: What's the outlook for loan to deposit ratio in the long term?

A: Ira Robbins suggested the low-90s range makes sense a few years out, with continued deposit growth aiding this goal.

Q: What's the yield on the CRE loan portfolio sold?

A: Ira Robbins stated it's slightly above 7%.

Q: How are client reactions to deposit cost compression?

A: Ira Robbins mentioned deposits increased even with aggressive rate reductions, showing real pricing ability and optimism about future deposit trends.