VALLEY NATIONAL BANCORP Q2 FY2024 earnings call

• Ira Robbins highlighted net income results, progress on balance sheet goals including CRE reclassification and capital ratio improvement, franchise value growth (reportable tangible book value grew 47% since 2017 vs 36% for peers), and deposit/loan growth.
• Tom Iadanza discussed deposit trends (total deposits up $1B), branch expansion plans (new branches in Beverly Hills and Staten Island), and loan growth drivers (C&I growth and shift from investor to owner-occupied CRE).
• Mike Hagedorn talked about net interest income growth potential, non-interest income recovery expectations, non-interest expense control, allowance coverage trends, and tangible book value and capital ratio growth.

During the second quarter of 2024, Valley reported net income of $70 million and diluted earnings per share of $0.13. The commercial real estate (CRE) concentration ratio was reduced to the full-year 2024 target of around 440% by reclassifying certain healthcare loans. The allowance coverage ratio expanded to above 1% and is expected to reach around 1.10% by the end of 2024. Total loans increased almost $400 million, driven by ~16% annualized C&I growth. Total deposits increased $1 billion compared to the first quarter, with commercial deposit accounts remaining strong.

• Anticipate low single-digit annualized loan growth for the rest of 2024, tilted towards C&I and owner-occupied CRE.
• Expect up to 3% quarterly growth in net interest income for the rest of the year.
• Non-interest income to recover as capital markets activity picks up.
• Tax rate likely between 25% and 26% for the rest of the year.
• Net charge-offs likely to remain around current levels, with provisioning expected to have peaked and trend lower.

• Impact of market conditions on CRE, potentially leading to migration of loans to criticized categories.
• Dependence on personal guarantees in loan risk ratings, though they are seen as useful but market conditions could affect outcomes.
• Interest rate changes that could impact net interest income and loan performance.

Q: Frank Schiraldi asked about the reserve to loan ratio and mix shift towards C&I.

A: Mark Sagaer responded that criticized/classified migration was lower, C&I has higher provisioning but they're comfortable with the 1.10% ratio and CRE may have modest migration.

Q: Steven Alexopoulos inquired about net interest income outlook and CRE repricing.

A: Travis Lan said NII guidance is unannualized quarterly growth factoring in two rate cuts, and Mark Sagaer discussed CRE loans being repriced at current market rates with modified structures as needed.

Q: Matthew Breese asked about CRE loan sales/securitization and deposit costs.

A: Ira Robbins said they weigh balance sheet mix and earnings profile, Mike Hagedorn discussed deposit cost trends with customer deposits having cost declines, and Tom Iadanza talked about C&I underwriting maintaining credit quality.

Q: Manan Gosalia asked about reserve building and charge-offs.

A: Mark Sagaer said they foresee staying at the 1.1% reserve ratio, and charge-offs were driven by a few credits with no broad portfolio read across.

Q: Steve McGrady asked about criticized/classified loans.

A: Travis Lan said there was a migration of around $350 million this quarter, down from prior quarters.

Q: Stephen Moss asked about liquidity and capital.

A: Travis Lan discussed securities portfolio growth in a capital-efficient way, and Ira Robbins mentioned focusing on CET1 over 10% in the long term.

Q: Jared Shaw asked about criticized/classified loans and deposits.

A: Mark Sagaer said migration was related to personal guarantee approach, and Travis Lan noted customer deposits in July are higher than end of second quarter.