Valley National Bancorp

Welcome to the Valley National Bancorp earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Travis Lane. Please go ahead.

Good morning, and welcome to Valley's first quarter 2024 earnings conference call. Presenting on behalf of Valley today are CEO Ira Robbins, President Tom Iadanza, and Chief Financial Officer Mike Hagedorn. Before we begin, I would like to make everyone aware that our quarterly earnings release and supporting documents can be found on our company website at 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. Additionally, I would like to highlight slide two of our earnings presentation and remind you 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 Forms 8K, 10Q, and 10K, for a complete discussion of forward-looking statements and the factors that could cause actual results to differ from those statements. With that, I'll turn the call over to Ira Robbins.

Thank you, Travis. During the first quarter of 2024, Valley reported net income of $96 million and earnings per share of $0.18. Exclusive of non-core items, adjusted net income, and adjusted earnings per share were $99 million and $0.19 respectively. The quarter's results were impacted by an outsized provision for loan losses, which I will discuss shortly. On a pre-tax, pre-provision basis, we saw a positive inflection this quarter. The sequential downward trend in net interest income slowed meaningfully despite the lower day count during the quarter. This reflects the benefit of asset pricing and our efforts to better control funding costs. The income results were strong, supported by certain unique businesses, including tax credit advisory. Finally, non-interest expenses were extremely well controlled, despite the seasonal headwind associated with higher payroll taxes. Despite the continuation of the inverted yield curve and other environmental challenges, I am pleased with the stronger pre-tax, pre-provision earnings results this quarter. I'm also pleased with the quarter's balance sheet strength and credit quality performance. On Flight 4, we outlined certain efforts made to curtail loan growth, enhance reserve coverage where needed in the portfolio, and incrementally optimize our funding base. Total loans declined nearly $300 million during the quarter as a result of our proactive efforts to participate out a portion of certain commercial real estate and construction loans and the sale of our commercial premium finance business. These sales transactions each occurred at or above par and incrementally benefit our commercial real estate concentration, capital ratios, and reserve levels. Our allowance for credit losses for loans as a percentage of total loans increased five basis points to 0.98% during the quarter. Meanwhile, our past due and non-accrual loans both declined as compared to December 31st, 2023. The higher provision and associated reserve coverage reflects internal risk rating migrations resulting from our continuous monitoring and rigorous stress testing of the commercial loan portfolio. During the quarter, an additional 1% of loans transitioned into either our criticized or classified loan buckets. While we remain comfortable with the sponsorship, collateral, support, and potential loss content of these loans, criticized loans require elevated reserve coverage under CECL We are comfortable with the current reserve coverage levels, but anticipate that the allowance could trend slightly higher over the next few quarters. Our focus on and expertise in commercial real estate lending has generated strong and stable risk-adjusted financial results throughout our history. The strength of our commercial real estate underwriting and the consistently industry-lost content of our portfolio has contributed to significant shareholder value creation through above-average tangible book value growth. Our strong network of borrowers have banked with Valley for decades and have performed very well in other periods of rising interest rates. We remain very confident with our capital allocation and in future credit performance of our commercial real estate portfolio. That said, I acknowledge that our perceived concentration in commercial real estate has recently amplified the volatility in our company's valuation. This volatility is based purely on perception. and is not reflective of our financial results, nor the strength of our credit quality and balance sheet. Still, we exist to serve our key stakeholders, and while I'm proud of our ability to exceed the expectations of our clients, communities, and employees, I acknowledge that the volatility experienced by our shareholders is not sustainable. Commercial real estate is a wonderful asset class, and one in which our differentiated approach continues to create incredible value We will remain active in this space, but we'll manage our concentration more efficiently going forward. Our diversifying CNI initiatives will continue to accelerate, and we will further enhance our financial flexibility. These efforts are consistent with our established strategic plan, and I believe that accelerating them will help to reduce the volatility in our valuation. With this in mind, you can see our near and intermediate term expectations for certain balance sheet metrics on slide five. We expect to have approximately 9.8% Tier 1 common equity, 440% commercial real estate to risk-based capital, an allowance coverage ratio above 1%, and a loan-to-deposit ratio around 100% by year-end 2024. These metrics are consistent with the strategy which we have discussed previously and are ongoing efforts to further strengthen our balance sheet and enhance financial flexibility. The following slide updates our previously provided guidance. The downward revision to our net interest income forecast reflects slower loan growth and the modest funding mix shift related to lower non-interest bearing deposit balances during the first quarter. We anticipate that the downward revision in net interest income for the year will be largely offset by lower non-interest expenses relative to our prior guidance. All else equal, this will lead pre-tax, pre-provision income relatively in line with current consensus expectations. On slide seven, we provide additional commentary on our base case net interest income scenario, as well as some considerations related to our exposure to changing interest rates. As we have described before, our balance sheet is generally neutral to changes in short-term interest rates. We are more sensitive to movement in longer-end rates, which impacts the repricing of roughly 60% of our loans. Before turning the call to Tom, I wanted to highlight the underlying franchise value that we continue to create despite the volatility in our valuation. Since the end of 2017, we have grown reported tangible book value by 47% versus just 38% for our regional banking peers. Including the impact of distributed dividends, this increases to 91% versus just 70% respectively. This positive variance reflects our ability to enhance our franchise without meaningfully diluting tangible book value in overpriced acquisitions or through other efforts to maximize near-term results. Customer account growth is another key metric that gauges our ability to build and optimize our franchise. Since year end 2017, we have more than doubled our number of commercial deposit accounts, which is in direct alignment with our strategic objectives. The ongoing addition of new deposit clients is critical as it supports our future earnings potential and financial consistency. This growth has been broad-based across geographies and business lines, and we continue to work hard at sustaining this momentum. We also believe there is significant value in the geographic diversity that we have developed on both the asset and liability sides of the balance sheet. At the end of 2017, nearly 80% of our commercial loans were concentrated in New York and New Jersey. That figure has declined to nearly 50% today as a result of our focus in Florida and other dynamic commercial markets. We continue to develop exceptional service-oriented banking teams across the country, which are focused on generating and enhancing the valuable commercial relationships that we have targeted. This progress has benefited the funding side of our bank as well, In 2017, 78% of our deposits were in Northeast branches. As of the end of the first quarter, that number has declined to 45%. We have diverse niche funding businesses and a robust branch network across Florida and Alabama. This diversity helps to insulate our funding base and provides unique and differentiated opportunities to further reduce our reliance on wholesale funding over time. On last quarter's call, I laid out three strategic imperatives for the coming year. Our early results indicate solid traction relative to enhancing our cost-effective core deposit funding, the de-emphasis of commercial real estate, and more revenue diversity. As mentioned, we will continue to accelerate the diversification of our loan portfolio, and I have all the confidence that we will continue to produce solid results. With that, I would turn the call over to Tom and Mike to discuss the quarter's growth and financial results. After Mike concludes his remarks, Tom, Mike, myself, and Mark Sager, our Chief Credit Officer, will be available for your questions.