Valley National Bancorp Q4 FY2024 earnings call

• In 2024, Valley focused on strengthening the balance sheet and outperformed year-end targets. - On deposits, focused on leveraging specialty verticals, enhancing commercial customer base, and branch deposit growth. - On loans, expected run-off of transactional CRE loans offset by C&I, owner occupied, and consumer origination. - Augmented Treasury Solutions and FX capabilities, with FX fees seeing over 50% growth in H2 2024. - Adjusted non-interest expenses controlled, with focus on optimizing customer network and balance sheet.

In the fourth quarter of 2024, Valley reported net income of approximately $116 million and diluted earnings per share of $0.20. Direct customer deposits grew $1.7 billion during the quarter, enabling a $2 billion reduction in higher-cost indirect deposits. Non-interest deposit balances comprised 23% of total deposits, up from 22% a quarter ago. Loans saw managed runoff of transactional CRE loans, with C&I and owner-occupied CRE loans increasing 17% in 2024. Indirect auto loans also increased 17%. Net interest income increased 3% from the third quarter and was 6% higher than a year ago. Annualized adjusted non-interest income for the second-half of 2024 was $236 million, 13% higher than the second-half of 2023 annualized.

• 2025 net interest income guidance 9%-12%, with expectation to migrate towards upper end if rates remain elevated. - Anticipates net charge-offs and provision to decline significantly in 2025. - Tangible book value doubled in the last seven years, with focus on customer acquisition in commercial and consumer areas.

• Interest rate fluctuations could impact net interest income outlook. - Volatility in loan originations affecting swap fees. - Potential impact of external events (like wildfires) on loan exposure.

Q: Good morning. This is Brian Wilczynski filling in for Manan. Can you update us on what impact the shape of the yield curve is having on your NII outlook?

A: Yes, Brian, this is Travis. Thanks for the question. So, as we've talked about in the past, we are more neutral to the front-end of the curve and positively exposed to the longer end of the curve. So, the shape of the curve as it stood at the end of the year relative to 9/30 was more beneficial for a net interest income outlook. So, that was one of the key drivers of the upward revision. The other key driver is the funding position at year-end was much stronger than it was at 9/30. We talked about the $1.7 billion of direct deposit growth that enabled us to pay off $2 billion of brokered during the quarter. So, we are much better positioned from that perspective. We were also more successful reducing deposit costs in our customer base in the wake of the Fed cuts. And so, that the combination of those three things sets us up for a better NII outlook for '25 than we had previously discussed.

Q: Hi, everyone. Just a follow-up on the reserves, can you talk about the cadence of the reserve build you expect this year? Should we expect most of the build to happen in the first-half, or should that be evenly patterned out through this year?

A: This is Mark Saeger. Hey, Anthony. On the reserve, we would anticipate that there would be a little more growth at the beginning of the year and tapering off through the end, just anticipating how that will flow out.

Q: Great, thanks. Ira, given the actions you took to really strengthen the balance sheet in 2024. How are you thinking about the medium-term ROE potential of the company, return on tangible?

A: I think from a longer-term perspective, I think we gave some highlights as to sort of where we think we're going to end the year at a little north of 11%. I think long-term, we should definitely be operating north of 15% with an ROA that's above 120 as well. And I think those are some of the long-term performance targets that we've outlined here, and we think we have a good pathway towards this.

Q: Hey, good morning. I was hoping to start just on the cash position of the balance sheet. It's a bit elevated. I was hoping you could help me out with the deployment timeline strategy. And then, second, but related securities assets have been steadily climbing. Now at 11% of total assets, where do you want that to be? Where do you want the securities portfolio to be as a percentage of assets?

A: Yes, Matt, this is Travis. Thanks. You're right, the cash was elevated at the end of the year and it was for a very good reason, right? We talked about the core deposit growth. We also had the net proceeds from the loan sale and the equity offering. And so, we tried to put those to work as much as possible in terms of paying off maturing broker deposits. And obviously we added about $700 million net to the securities portfolio, but we're still left in an elevated cash position. So, we do expect that cash will normalize throughout the year, but the first quarter from a loan growth perspective is likely to be a little bit slower. So, it's possible that cash remains somewhat elevated early in the year and then gets put to work as the year proceeds. From a securities perspective, and we've grown the portfolio about, I think $1.5 billion to $2 billion last year. It's been significant. I think longer term, we appreciate and acknowledge that we'll continue to increase as a percentage of assets, but that plays out over a relatively long period of time. So, we're factoring in today, call it $500-plus million of growth this year in the securities portfolio to begin that process.

Q: Good morning. Just, Ira, wondering if you could, your level of confidence in getting to that ROA of 1% by the end of the year, you mentioned the -- Travis, you mentioned the, the steeper yield curve obviously helping the NII outlook. Is that the greatest risk if we get longer-term rates coming down, or do you feel like there's some offsets, maybe delay investment or so forth to still get to that 1 percent level by the fourth quarter?

A: Frank, I appreciate it. I think the NII guidance range that we gave, I mean, the implied curve is candidly the upper end of that range. I mean, we more conservatively believe the lower midpoint of that to the degree that rates pull back, but that still captures a range that would get you to a 1% plus ROA at the end of the year. The other consideration there is the provision guidance that we've given is not necessarily linear. So, we anticipate that charge-offs and provisions will be higher in the beginning of the year and then taper off as the year goes on, but still getting within the guidance range that we've provided. So, in combination, those things, primarily the reduction in the provision as the year plays out, as well as the net interest margin expansion as the year goes on, we did our expectation that we can be exiting 2025 with an ROA above one. And I think just to reiterate a little bit what Travis mentioned earlier, right, in the guide that we're giving you on where the NII is going to end up falling, we're effectively only using 80% betas versus what we actually received or what we actually recognized just this last quarter. That said, we were able to be very aggressive in the deposit pricing, and we also saw one of our strongest deposit growth quarters ever at Valley. So, that's something that makes me feel really, really confident about what we're seeing here and being able to really grow deposits while at the same time pushing through significant deposit cost reductions is something that we haven't been able to really do here and we've seen tremendous success.