Valley National Bancorp Q1 FY2025 earnings call

• Net income on reported and adjusted basis was approximately $106 million or $0.18 per diluted share. • Commercial real estate portfolio is relatively insulated from tariff disruption, with ongoing CRE credit improvement. • Consistent C&I expansion from small and middle market businesses, optimistic about profitability growth. • 2025 guidance: Loan growth and net interest income at lower end of range, non-interest expenses at low end, no change to fee income or tax rate. • Tangible book value has doubled in the last seven years, focus on organic customer acquisition. • Deposit growth with core deposits up and brokered balances repaid, average cost of deposits reduced. • Lending managed CRE runoff and saw strong C&I growth. • Net interest margin increased due to deposit cost reduction and funding mix improvement. • Non-interest income stable with some segments growing, non-interest expenses controlled. • Asset quality improved with lower non-accrual loans and higher allowance coverage ratio.

Core customer deposits increased $600 million, enabling repayment of $700 million of higher-cost brokered balances. Non-interest deposit balances are at the highest level since September 2023, and average cost of deposits declined by 29 basis points. Lending activity saw a $350 million decline in regulatory CRE during the quarter, with 9% annualized C&I growth. Net interest income declined modestly but net interest margin increased for the fourth consecutive quarter. Adjusted non-interest expenses were $267 million, 3% lower than the fourth quarter. Non-accrual loans decreased modestly, and the allowance coverage ratio increased to 1.22%, the highest in the past five years.

• Loan growth and net interest income are expected to be at the lower end of the 2025 range. • Non-interest expenses are anticipated to come in towards the low end. • No meaningful adjustment to expectations for annual fee income or tax rate. • Full year expectations for charge-offs and provisions are a roughly 50% decline from 2024.

• Tariff uncertainty driving economic growth estimates lower and inflation expectations rising. • Volatility in interest rate and equity markets, with more rate cuts anticipated. • Increased competition leading to spread compression. • Potential impact of CRE concentration and related risks on the portfolio.

Q: Last quarter, talked about commercial loan originations in 7% range, how has it progressed?

A: New originations this quarter were slightly lower than 7% level, average about 6.80, due to lower benchmark rates and spread compression.

Q: Thoughts on CRE concentration levels and C&I growth?

A: Positive on C&I double-digit growth, CRE concentration likely to stabilize as originations pick up, with growth in other areas contributing to reduction.

Q: On expense guide, thoughts on ramp and flexibility?

A: Expense guide has been conservative, payroll tax to normalize, marketing and business development spend to increase, professional fees may be higher, but expenses well controlled.

Q: Deposit growth expectations and bond portfolio?

A: Core customer deposit growth momentum to continue, focus on repaying broker deposits, cash position good, securities portfolio likely to grow with loan growth impact.

Q: CRE portfolio insulation from tariffs and sectors under stress?

A: Commercial clients more sensitive to interest rates than tariffs, CRE development impacted by interest rates and labor, generally insulated on aggregate, some industries more impacted by tariffs.

Q: Spread compression and competition?

A: Guide expects more spread compression, competition for high-quality commercial deals, with various levers to pull for profitable growth.

Q: Loan growth expectations for rest of the year?

A: Second and third quarter growth expected with uptick in CRE and C&I pipeline, pipeline north of $2.7 billion now.

Q: Update on large loan relationships for non-performers?

A: All large loan relationships from fourth quarter have been written down and taken care of, charge-offs this quarter from two C&I credits.

Q: Funding and core deposit growth expectations, broker deposits runoff?

A: Core deposit growth on track, $6 billion of brokered CDs maturing over next twelve months, opportunity to refinance to core deposits.

Q: Loan yields and spread compression impact?

A: First quarter impact due to fewer days, spreads tightening but not causing significant move in loan yields.

Q: Allowance build, qualitative overlay vs Moody's scenario?

A: Predominantly due to CRE portfolio shrinkage and C&I reserve coverage, outlook from Moody's scenarios similar to prior year, higher weighting on downside scenario.

Q: CRE loan sales appetite?

A: Comfortable with current CRE portfolio, strong portfolio attracting inbound inquiries, but confident in organic path forward.