Valley National Bancorp

Good day, and thank you for standing by. Welcome to the second quarter 2024 Valley National Bank Corp Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Travis Land. Please go ahead.

Good morning, and welcome to Valley's second quarter 2024 earnings conference call. Presenting on behalf of Valley Today are CEO Ira Robbins, President Tom Iadanza, and Chief Financial Officer Mike Hagenhorne. 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 in 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 second quarter of 2024, Valley reported net income of $70 million and diluted earnings per share of 13 cents. The sequential reduction in net income was the result of stable pre-tax, pre-provision net revenue supported by the positive inflection in net interest income and the elevated loan loss provision. While this provision is outside our normal range, we believe that this quarter will represent the relative peak in our provisioning. Last quarter, I outlined the planned acceleration of our strategic initiatives aimed at normalizing certain balance sheet metrics which are outliers to peers. I am extremely pleased with the significant progress that we have quickly made relative to each of our stated balance sheet goals. Importantly, we have begun to execute on these initiatives without diminishing our future earnings capacity. In fact, we believe that the further strengthening of our balance sheet will drive stability in our performance and relative value in the market. Our progress is illustrated in detail in slide four. By the end of the second quarter, both our CREE concentration and allowance coverage ratios have already reached the year-end expectations that we laid out just three months ago. By limiting our investor CREE and multifamily originations and reclassifying certain healthcare loans to the owner-occupied bucket, we were able to reduce our commercial real estate concentration ratio to our full-year 2024 target of around 440%. With the backdrop of strong credit performance and stable past due and non-accrual loan metrics during the quarter, our reserve coverage expanded to our near-term targeted level of above 1%. We now anticipate reaching our intermediate term expectation of around 1.10% by the end of 2024. To be clear, there is no change to our belief that a coverage ratio of about 1.10% is appropriate for our risk profile given our analysis of the portfolio and current backdrop. This quarter's elevated provision in the context of strong credit performance was the result of our conservative decision to place less value on personal guarantees as a mitigating factor in our internal loan risk ratings. This shift drove additional loan downgrades into our criticized and classified buckets, which each carry higher reserve requirements under our methodology. our criticized and classified loans continue to perform and remain current with regards to payment activity. While this conservative approach to personal guarantees is reasonable given the current market environment, we continue to believe personal guarantees are useful in influencing borrower behavior and in cases of stress. These guarantees have proven very useful in limiting charge-offs and enhancing recoveries throughout our history. For this reason, We anticipate that in practice, personal guarantees will continue to be valuable in minimizing the lost content of our portfolio going forward. Turning to capital, our risk-based ratios improved meaningfully during the quarter despite strong non-CRE balance sheet growth and only modest retained earnings. This growth was primarily the result of a synthetic risk transfer which we executed during the quarter. This transaction reduced the risk-weighted assets associated with our indirect auto loan business by approximately $1 billion. We remain very comfortable with our regulatory capital levels and the significant expansion we have generated on both a quarter-over-quarter and year-over-year basis. Slide six lays out our expectations for the remainder of 2024. We anticipate low single-digit annualized loan growth for the rest of the year. Consistent with this quarter's strong results, Future loan growth will likely be tilted towards C&I and owner-occupied CRE as new investor CRE originations remain well-controlled. We anticipate that this growth and the continued repricing of existing assets will support up to 3% growth in net interest income on a quarterly basis for the rest of the year. Non-interest income should recover from current levels as capital markets activity picks up and we continue to expand our treasury management capabilities. Non-interest expense remains well controlled, though we will see a full quarter's impact to the premium expense associated with our risk trade in the third and fourth quarters. Our tax rate is likely to come in between 25 and 26% for the rest of the year. From a credit perspective, net charge-offs are likely to remain around current levels for the rest of the year. However, I will reiterate that we are confident our provision has peaked and that a level between the first and second quarter's provision is a more reasonable quarterly expectation for the remainder of the year. These expectations combined with our loan growth outlook implies we will end the year with an ACL to loan ratio of around 1.10%. Before turning the call over to Tom, I wanted to highlight the underlying franchise value that we continue to create at Valley. Since the end of 2017, we have grown reportable tangible book value by 47% versus 36% for our regional banking peers. Including the impact of distributed dividends, this increases to 93% growth versus 70% respectively. This variance reflects our ability to enhance our franchise value 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 value. Commercial deposit account growth remains strong during the quarter. and our stable deposit levels on a quarterly average balance indicates significant stability despite some late quarter movement that temporary impacted spot balances at the end of the quarter. Average balances in July have rebounded, which further underpins our confidence that net interest income growth will continue. We also believe that there is significant value in the geographic diversity that we have developed on both the asset and liability side 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 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 valuable commercial relationships that we have targeted. Meanwhile, at the end of 2017, 78% of our deposits were in Northeast branches. As of the end of the second quarter, that number has declined to just 43%. We have diverse funding niche businesses and a robust branch network across Florida and Alabama. This diversity helps to inflate our funding base and provides unique and differentiated opportunities to reduce our reliance on wholesale funding over time. In conclusion, I am extremely pleased with the progress that we have already made towards achieving our stated balance sheet goals. We continue to work hard to further position ourselves for growth and high performance as the environment normalizes. I am confident that given what we know, our provision has already peaked. With continued net interest income momentum, fee normalization, and expense control, we expect that our earnings will expand throughout the rest of the year and set us up for continued improvement in 2025. With that, I will 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.