Valley National Bancorp

Good day and thank you for standing by. Welcome to the third quarter 2024 Valley National Bancorp 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 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 speaker today. Travis Land, please go ahead.

Good morning, and welcome to Valley's third quarter 2024 earnings conference call. Presenting on behalf of Valley today are CEO Ira Robbins, President Tom Iadanza, and Chief Financial Officer Mike Hagedom. 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 Bank Corp and the banking industry. Valley encourages all participants to refer to our SEC filings, including those found on Forms 8-K, 10-Q, and 10-K, 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 third quarter of 2024, Valley reported net income of approximately $98 million and deleted earnings per share of 18 cents. This compared to net income and EPS of 70 million and 13 cents a quarter ago. The significant improvement in earnings was broad-based and primarily the result of top-line revenue expansion and continued expense management. Our provision for loan losses declined during the quarter but exceeded our third quarter guidance primarily as a result of the significant growth in C&I loans and unfunded CNI commitments, as well as a discrete reserve for the potential impacts of Hurricane Helena. Exclusive of these variables, the third quarter provision would have been in line with our prior guidance. I'm extremely pleased with the financial progress made during the quarter. The continued improvement in our balance sheet metrics has been achieved in conjunction with a solid rebound in pre-provision revenue. Tom and Mike will detail the key contributing factors to this improvement, but as we work through our 2025 financial plans, We anticipate further profitability improvement reflecting an anticipated net interest income tailwind and the normalization of credit costs. Slide 4 illustrates the significant progress that we continue to make towards our balance sheet goals. Our diligent management of new commercial real estate originations and renewals has contributed meaningfully to the 53 percentage point year-to-date reduction in our stated CRE concentration ratio at September 30th. This progress has been supplemented by organic capital growth and our recent preferred stock issuance. Throughout the year, we have patiently monitored the market for potential sale of CRE loans to further accelerate our progress relative to CRE concentration, capital, and funding flexibility. I'm pleased to report that in the fourth quarter, we expect to sell upwards of $800 million of performing commercial real estate loans to a single investor an extremely attractive 1% discount. The characteristics of the pool that we expect to sell are consistent with our broader portfolio in many ways. The underwriting and credit metrics are very similar, though these loans tend to be somewhat larger. From an asset class perspective, there is a tilt towards more industrial and less office, as you may expect, though the pool is geographically diverse, consistent with our broader portfolio. This transaction is expected to close in the fourth quarter and reflects the underlying credit strength of our portfolio and our continued ability to enhance our balance sheet in shareholder-friendly ways. As I previously stated, commercial real estate is a terrific asset class and one that has provided excellent risk-adjusted returns for our company. While the transactional elements of our portfolio continue to wind down, we remain focused on supporting the clients that have more holistic banking relationships with Allie. there are opportunities to further penetrate these banking relationships and expand this client base without applying undue pressure to our balance sheet. While the transfer of loans to held for sale helped to improve our period and loan-to-deposit ratio, we anticipate using a significant portion of loan sale proceeds to repay maturing broker deposits in the fourth quarter of 2024. Regulatory capital ratios are expected to benefit by 16 to 20 basis points as a result of the sale, all else equal, and this transaction positions us to achieve our near-term C21 goal of approximately 9.8% by the end of 2024. The ongoing execution of our strategic initiatives positions us to exceed most of our previously announced intermediate term balance sheet goals sooner than anticipated. To this end, we now expect that our Cree concentration ratio will be approximately 375% by the end of 2025 as compared to our prior intermediate term goal of 400%. Similarly, and largely as a result of our recent and anticipated future CNI growth, we now expect that our allowance coverage ratio will be approximately 1.25% by the end of 2025 relative to our current 1.14% coverage level. This implies a much slower pace of reserve bill over the next five quarters, and particularly throughout the course of 2025. Slide six highlights our expectations for the fourth quarter of 2024. We anticipate that continued growth in our CNI and consumer portfolios will contribute to low single-digit annualized loan growth during the quarter. As a result of the anticipated Cree loan sale, we expect net interest income will decline somewhat in the fourth quarter. However, exclusive of the sale, net interest income will likely grow modestly as our recent experience in reducing customer deposit costs following the September Fed action offset the impact of lower front end rates on our floating rate loans. Our expectations for non-interest income and non-interest expense are generally unchanged from the prior quarter's guidance. From a credit perspective, The general improvement in the commercial real estate backdrop has helped to isolate the few lingering issues that may result in credit losses. Our ongoing analysis of these situations and the potential impact of hurricanes Helene and Milton could result in higher net charge-offs during the fourth quarter. These factors, combined with our continued CNI growth expectations, are likely to result in a year-end allowance coverage ratio of approximately 1.20%. With all of this in mind, we expect to be well positioned for credit performance normalization in 2025. Finally, I want to offer our team's thoughts to the Valley customers, employees, and communities that have been impacted by the recent hurricanes in our Southeast markets. Unfortunately, we have all been through many of these weather events, and we know the toll that can take upon individuals and businesses. Valley is always there for those in need, and we have proactively offered our support to the communities that have been in the path of these storms. With that, I would turn the call over to Tom and Mike to discuss the quarter's financial highlights and results. After Mike concludes his remarks, Tom, Mike, myself, and Mark Sager, our Chief Credit Officer, will be available for your questions.

Thank you, Ira. Slide 9 illustrates the quarter's deposit trends. Total deposits increased approximately $300 million compared to the second quarter, largely due to higher levels of direct customer deposits. We are very pleased that a portion of this growth was the result of expansion in non-interest deposit balances. During the quarter, we added roughly 25,000 new deposit accounts, with nearly 11,000 of these being on the non-interest bearing side. While there was very little impact on the quarter's results, we have now reduced customer deposit costs by approximately 22 basis points since the September Fed rate cut. This implies a 44 percent total deposit data, which is somewhat better than our modeling. Importantly, direct customer balances have continued to trend higher during October. The next slide provides more detail on a composition of our deposit portfolio by delivery channel and business line. Growth trends in our international technology segment and other commercial verticals were strong during the quarter. Slide 11 illustrates the components of the quarter's lending activity. We continue to execute on our strategic initiative to enhance CNI and de-emphasize multifamily and investor-free loans. CNI growth remained in the mid-teens on an annualized basis for the second consecutive quarter and remains broad-based across our geographies and business lines. On an organic basis, multifamily and investor CRE declined by $700 million during the quarter as we experienced an uptick in prepayment activity as interest rates have fallen. IRA provided details on the additional transfer of over $800 million of high-quality CRE loans to held for sale during the quarter. We are extremely pleased with the pricing on this transaction, which will help to accelerate our strategic initiatives. While new origination yields have declined in line with border interest rates, our portfolio yield continues to climb. As a reminder, 40% of our loan portfolio floats based on shorter-term rate indices. This makes us modestly asset-sensitive from a structural perspective, but incremental origination activity and the opportunity to outperform our deposit betas should offset some of this headwind. Slide 12 provides additional detail on a composition of our commercial real estate portfolio by property type and geography as adjusted for the transfer of loans to help for sale in the third quarter. In general, the commercial real estate markets and borrower performance across our footprint remain healthy. Ira previously mentioned that a few select loans will likely impact our net charge-off experience in the fourth quarter. These are identified and isolated situations, and we are beginning to see the underpinnings of stability in terms of criticized and classified migration. With that, I will turn the call over to Mike Hagedorn to provide additional insight into the quarter's financials. Thank you, Tom.

Staying on the Crete topic for a moment, slide 15 illustrates the contractual maturities of our commercial real estate portfolio. We've included the LTV, DSCR, and rate by maturity bucket for your benefit. This maturity schedule continues to illustrate the minimal near-term repricing risk that exists in our portfolio. Slide 16 highlights the continued expansion in both net interest income and net interest margin during the third quarter. Net interest income is now generally in line with the level a year ago. As Ira mentioned, we expect to close on the sale of over $800 million of commercial real estate loans during this quarter. We anticipate that a significant portion of these proceeds will pay off maturing broker deposits. Consequently, we expect this sale to weigh on net interest income by approximately $5 million during the fourth quarter of all LCPO. To reiterate, we were very quick to lower deposit costs across the franchise in the wake of the September Fed actions. In total, we reduced deposit costs by roughly 22 basis points on our $40-plus billion of customer deposits. As customer deposits have continued to grow, we remain confident in our ability to quickly follow additional Fed rate cuts which may occur. Turning to the next slide, you can see the detail on our non-interest income. Adjusted non-interest income for the quarter excludes both a $7 million benefit for litigation settlement and a $6 million negative mark-to-market adjustment on the transfer of loans to help for sale. Exclusive of these items, adjusted non-interest income increased significantly as compared to the second quarter of 2024. This was primarily due to increases in tax credit advisory, service charges on deposits, and other income. Deposit service charges benefited from fees related to updated pricing on Treasury services capabilities, which started in mid-August, and we expect additional tailwinds in this area on a go-forward basis. On the following slide, you can see that our non-interest expenses were approximately $270 million for the quarter. Exclusive of the amortization of tax credit investments, adjusted non-interest expenses were approximately $264 million. This represents a decrease from the second quarter of 2024 and general stability relative to the third quarter of 2023. Expenses benefited from a decrease in technology-related and compensation costs. Our ability to control operating expenses without sacrificing necessary investment opportunities remains a hallmark of our organization. We continue to model modest expense growth to support our aspirations, but will work to offset these investments as we have done recently. On slide 19, you can see the continued and notable stability in our non-accrual loans. Roughly 85% of the sequential increase in past due loans was related to a pair of pre-loans. Both loans are well secured, and we anticipate near-term resolution without loss of principal. The next slide illustrates the trend in allowance coverage, charge-offs, and provision. Our allowance coverage ratio increased eight basis points for the second consecutive quarter, partially driven by substantial growth in CNI loans and unfunded CNI commitments, as well as the allowance set aside for Hurricane Helene. We expect that allowance coverage will expand towards 1.2 percent in the fourth quarter, primarily as a result of these same factors. From a longer-term perspective, we believe that credit costs will normalize meaningfully in 2025 and result in a much slower pace of reserve build. The next slide illustrates the sequential increase in our tangible book value and capital ratios. Tangible book value benefited from a reduction in the OCI impact associated with our Available for Sale portfolio during the quarter. Our Tier 1 and total risk-based capital ratios increased as a result of our Series C preferred stock issuance during the third quarter. As Ira mentioned, the CRE sale planned for November will likely add to an additional 16 to 20 basis points to each risk-based capital ratio. With that, I'll turn the call back to the operator to begin Q&A. Thank you.

As a reminder, to ask a question, please press star 1-1 on your telephone. and wait for your name to be announced. To withdraw your question, please press star 11 again.

Please stand by while we compile the Q&A roster.

Our first question comes from John Armstrong with RBC Capital Markets. Your line is open.

Hey, thanks. Good morning, guys.

Morning, John.

This all looks good, but maybe Mike or Ira on the last comment, you were talking about provision and reserves and maybe more normalizing in 2025. What does that really mean and look like? Is that a return to provision levels that are more like pre-second quarter? Is that what you're signaling to us?

Yeah, I don't have a second quarter in front of me, so I'm not quite sure. But I think we spent a lot of time during the course of the year looking at our portfolio and really assessing what type of credits we have in there today. And as we really begin to see the environment normalize a little bit, we feel really strong and confident about what those numbers begin to look like. I think as we've guided towards what 2025 is going to look like, I think we had some internal thoughts regarding what those net charge-off numbers are going to be, which are much lower than what you're seeing this quarter. And then there's only an incremental bill really needed to get to that 125, so much more in line, I think, with what you would have historically seen at Valley, which really creates optimism within the organization as we see the tailwind on the margin and tailwind regarding what the credit's going to look like as well.

Okay. So the reserve building is going forward, more about the mix of loans and not necessarily about any need to build for the existing portfolio? Is that fair?

And I'll let Mark maybe address that a little bit. But, you know, I think as we have emphasized the shift in building some C&I loans within the organization, which I will remind you was, you know, a multi-year sort of strategic initiative that we put forth a few years ago, you know, the growth has been tremendous, which is a real positive. So that should help us as we think about the recalibration, what the balance sheet looks like. That said, they do come on at a higher reserve level than what the CRE loans look like. So as that mix shifts, there's going to mandatorily be a requirement to increase the reserve purely of what that composition of loan looks like.

Yeah, John, Ira is spot on. Oops, sorry, John. Go ahead. Yeah, no, just reiterating what Ira was mentioning there. There's a substantial premium to CNI from a loss perspective to Cree, and as we continue that shift successfully, we will see a slight build along those lines, but really just related to the price.

John, are you still there?

Yeah, I'm all set, guys. Thank you very much.

Okay, thanks. Thanks, John.

Thank you. Our next question comes from Chris McGrady with KBW. Your line is open.

Oh, great. I may have missed this, but Ira, beyond the adjustments you're making to your targets for 2025, do you think this is this is all the adjustments that we'll likely see, meaning the CRE ratio, reserve, capital levels, anything else that might be on the horizon beyond this, or is this kind of where you're thinking is more appropriate with lower rates?

Thanks. I think with everything we sort of understand now, how we're thinking about the balance sheet, how we're thinking about some of the strategic initiatives that we're putting forth, I think those intermediate targets are some that we're very, very comfortable with. and we feel very confident we'll be able to achieve them within the timeframe outlined. Perfect.

And then maybe overall, I guess, liquidity for assets. I mean, the 1% mark is really, really a great execution, it looks like. Any comments on how liquidity may have changed for the market's appetite for assets given rates are moving down? Thanks.

Yeah, look, I think we've seen, Chris, we've seen pretty consistent demand from the private equity side in terms of the CRE assets that we have, and we've had those discussions as the year has gone on. I think earlier in the year, given the backdrop at that point in time, there was just a very wide gap between what we viewed to be, you know, the value of our portfolio versus the way a private equity investor may look at it. And as time has gone on, that gap is obviously narrowed to a point where, you know, I think a 1% discount, we're all thrilled with the execution there. and that would include, you know, nothing on the credit side as well. It's all rate-driven. So, you know, I think there's been demand out there. I think we're happy to be able to execute something like this, but it's not just value, right? You've seen other banking organizations execute not only loan sales, but also, you know, arrangements going forward to help offload bank assets into the private equity markets, and that's likely to continue.

Thanks, Ross. Thank you.

Thank you. Our next question comes from Manon Casalio with Morgan Stanley. Your line is open.

Hi, good morning. It's good to hear that the customer deposit costs are going down, you know, that 22 basis point reduction that you pointed out. Can you give us some more color on what you're baking in in your 4Q NII guide in terms of total deposit costs and especially going into 2025 as well? because it seems like your all-in deposit beta can be a little bit higher as you pay down those broker deposits. So any call on that near-term trajectory would be great.

So, Manan, I think this is Travis. I think that's pretty insightful, and we generally agree with you. So, you know, we still bake into the model relative to non-maturity deposits of 50% beta on interest-bearing, and when you factor in non-interest-bearing, that goes down to 35%. We did outperform that with the first Fed rate cut, We think there are additional opportunities to outperform that going forward, not only, you know, impacting the fourth quarter, but into 2025 as well. And so as we think about NII in 2025, you know, our base case, we're still working through the plans, but the base case would kind of be mid to high single digit NII growth in 2025. And to the degree we can continue to outperform from a beta perspective, you know, you would move to the higher end of that range.

Got it. And on NIB deposits, those were roughly flat queue on queue. You noted you've increased the number of accounts that you've put on as well. Do you think you had a trough there? And anything you've noticed in the underlying data that would point to more acceleration going forward?

So I think, you know, while they were stable, there was a slight uptick in non-interest-bearing deposits, which was the first time we've seen that since the middle of 2022. So if you look at this two and a half years later, or give or take, you know, I think it's a very positive sign for us. On an average basis, you know, NIB was, from a daily perspective, a little bit higher, I think, than where it had been in the prior quarters. And we continue to see that tailwind here, you know, quarter to date in October. So I think there's optimism there. We do anticipate that 22% of total deposits will be the bottom of NIB. We've been there two quarters in a row and anticipate that it will continue to increase relative to the total.

Great. And if I can just clarify, the 22 basis points reduction in deposit costs since the Fed rate cut, those are total deposit costs including NIB?

Yes, that's correct. So the actual data on the interest-bearing side was higher.

Got it. Thank you.

Thank you. And our next question comes from Matthew Brees with Stevens. Your line is open.

Hey, good morning. I appreciate your... insights on deposit betas. Just stepping back a little bit, you know, we've kind of defined the balance sheet as a tad asset sensitive. And then we have, you know, an NII guide for 2025 early, albeit in the mid to high single digit range. You know, given we're in a rate cutting environment, could you just discuss a little bit the NIM outlook and how that kind of fits with the asset sensitive balance sheet? It feels like the NIM should expand from here, but Just wanted to hear you clarify a little bit.

Yeah, I think that's generally right. I mean, we are structurally asset sensitive, but that assumes the lower beta in the model. And again, our ability to outperform after the first cut, should that continue, would provide additional upside. Regardless of that, I mean, we do anticipate that the margin will continue to expand and You know, we are, as we've said in the past, generally neutral to the front end of the curve, more sensitive to the longer end, and that fixed-rate asset repricing opportunity will continue to exist as we get into 2025 and move through the year. And on that front, I mean, the shape of the curve has definitely improved, you know, since we've ran our preliminary numbers in September 30th. The 5- and 10-year points are 40 to 50 basis points higher today than they would have been at that point in time, you know, which supports that as well. You know, similar to what I said on the beta side, sustainability or improvement in those longer-term rates, I think, would definitely support us getting to the higher end of that range I laid out.

And, Matt, I just want to add, I think, you know, one piece of when you look at an asset sensitivity balance sheet, you know, you're not looking at the rate of change as to what those assets are, right? So when you think about the longer-end commercial real estate that we have, even though those loans are actually repricing, they're not repricing down based on where they were originally struck at. So those may be asset sensitive assets that are being shown, but they're going to reprice higher based on where those repricing rates are today versus where they were when those loans were originated. So there's a lot of tailwind coming on those longer commercial real estate loans and other longer dated loans as well.

Got it. Okay. The other one I had was just on the fee income guide for the fourth quarter. It suggests kind of a flattish move from the third quarter. And the reason it stands out is usually the fourth quarter is strong for you given the tax advisory business. So I was hoping you could talk a little bit about some of the moving parts and where you expect reductions in fee income to kind of get to the guide.

I think you're going to get tailwinds on the tax credit side and also on deposit service charges. I think it gets a little bit offset or mitigated by some of the other income stuff that's bucketed in a single line. You know, there can be lumpiness there relative to recoveries or other things that move around. So it's generally that. And look, I think longer term, there's absolute tailwinds behind us to grow fee income. But, you know, I think there was some positive events that benefited the third quarter and just want to make sure that we're, you know, appropriately conservative heading into the fourth.

And keep in mind that on the fee income side, as we've said before, the growth for the future is really going to be driven around our treasury management offering that we've talked about before. And then also with lower interest rates, we would expect that gain on sale would pick up as the resi mortgage business increases as well.

Okay. Last one for me. It just feels like you're pretty well set up for operating leverage here over the next 12 to 18 months. When do you think you can get back above a 1% ROA on a sustainable basis?

I think when you normalize credit and look at where the margin's going, I don't think it's that long.

I'll leave it there. Thank you. Thanks, Matt.

Thank you. And our next question comes from Ben Gerlinger with Citi. Your line is open.

Morning, everyone. Morning. So on page four, I know these are kind of longer-term targets, and you're not going to give me a a detailed or finite answer, which is fine. But when you say loan-to-deposit ratio below 100%, by the end of 25, I mean, when you just kind of think hypothetical, like 26 or 27 or whatever down the road, are we talking closer to like 90 or 95? Or what would be like the optimal range? I get that you're not going to press the gas to get there, but like where would you want this to be three years from now?

I think the low 90s probably makes sense on where we think we'll end up being three-ish years or so from now. It doesn't have to be a linear path as to how we get there either. We have a lot of initiatives internally as to how we think about deposit growth across the organization. We've been pleased with the new account generation that we've seen here at Valley. And we anticipate continuing strong deposit growth. That will help get us to those numbers that we've identified. But I think sort of where you're describing in the low 90s probably makes sense a few years out.

Gotcha. That's helpful. And then when you think about just the behavioral response from clients, it seems like across the industry with limited loan growth, it's pretty easy to price down deposits. I mean, the first 100 basis points is probably the easiest 100 – trimming aspects, but when you kind of pivot, have people pushed back on anything? Have you seen a mix shift or any kind of frustration from the clients, or is it just kind of willingly taking the compression given that we don't have a huge amount of demand for loans? You don't really necessarily need to keep every deposit.

It's funny. I think the people that are more sensitive to deposits are are the analysts and our internal bankers as to what they think the client reaction is going to end up being. I think we were very aggressive as to how we thought about deposit repricing. That said, we've seen deposits increase, even though we've been reducing balances. That's on what you would define as direct deposit accounts from a digital perspective as well as sort of longer-term relationships. So across the board, we've seen real pricing ability here. So we are definitely optimistic about what the future of that looks like. And once again, you know, deposits, balances were up even though we were aggressive and reducing rates.

Gotcha. Yeah, that's helpful. Thank you. I'll step back. Thank you, Ben.

Thank you. Our next question comes from Jared Shaw with Barclays. Your line is open.

Hey, good morning. Maybe first on the loan sales, do you have the yield, the blended yield on that portfolio?

Yeah, it was slightly above 7%.

Okay. And then when I look at the gain loss on sale of loans, what's the difference between the loss you called out on this portfolio and what's in the income statement? Were there other loans sold as well? And what should we expect for the pace of loan sales going forward beyond this?

Yeah, so that line in the income statement also includes our traditional gain on resi mortgage sale. That was about $2 million this quarter, which was up somewhat from the prior quarter.

Okay. And then in terms of the ability to or the desire to sell more of these CREs in a pool like that, what's the appetite for additional sales?

I think we've been pretty consistent on this front that we didn't feel like we had a gun to our head from a CRE perspective or any other action that we've taken this year. So we were patient, methodical, and allowed it to play out. And we reached a point where I think the discount was extremely attractive for us. And all it does is help accelerate kind of the strategic progress we've been discussing on the balance sheet side. So I don't anticipate that there will be more pre-sales, candidly, but, you know, we always monitor the environment for all of these opportunities and, you know, are willing to do what's best for the shareholders at that given point in time.

Okay. Great. Thanks. And then just finally for me on the expenses, you know, you've had good success as the, you know, the broader expense base has been able to come down. Is there anything that, you know, when we look at technology and equipment expense Anything that's sort of unique there or at what point do you need to start, I guess, maybe reinvesting in technology or where we could see that number start to increase?

I think we're always reinvesting in what technology and other areas to what our future looks like. We went through a pretty significant core transformation about a year ago. And as we mentioned at that time, sometimes it does take a while to sort of bleed through what some of those expense saves are going to look like. It's not just the immediate expense, say, with the third-party vendor, but what your internal processes look like and how you begin to rearrange how you service a client. So there's always opportunities to reassess what that looks like. I think if you go back and look at where third-quarter expenses were a year ago, I think we're almost flat, really, on an operating basis. When you add in the fact that FGIC insurance is up $7 million, if you then layer in the fact that we have a CRT trade that we didn't have before that added a few million dollars as well, We've actually, on an operating basis, contracted $10 million in core operating expenses just in a year, and we continue to believe that we have opportunity to further improve the efficiency within this organization.

Great. Thanks very much.

Thank you. Thank you. Our next question comes from Anthony Elliott with J.P. Morgan. Your line is open.

Hi, good morning. On slide 10, you called out specialized deposits at about $11 billion, which I think shows about a billion growth sequentially. I think most of those segments showed growth versus the prior quarter. Could you just talk about what's driving the recent growth, specifically in the technology buckets?

Yeah, technology, I mean, we continue to have, you know, a good pipeline of companies that we bank on that side. And, you know, progress there can be relatively lumpy, but there have been significant growth opportunities to be capitalized on this quarter. You know, other commercial deposits is kind of the traditional banking that you would anticipate. Our online account, despite the fact that we've cut the rate there, you know, a handful of times and now have a 425 rate out there, continue to see growth in balances. So, I think it's pretty diverse and broad-based, but as we've said now for a year or so, these are the lines that are going to provide above-average deposit growth for us as we look forward. So you have a quarter like this where you see each of those contributors continue to grow, and I think it's generally in line with what we've been talking about.

Thank you. And then my follow-up, you're guiding to low single-digits annualized loan growth in 4Q, but you call out the mid-teens growth you saw in CNI this quarter. I guess once you get down to your CRE concentration of 375 and loan growth for the industry returns more broadly, what do you think is a more normalized level of loan growth for the company as a whole? Thank you.

Yeah, I think it's Tom.

I think when you look forward, it'll be in that mid-single-digit level. We'll continue to manage the Cree concentration through 2025. And, you know, we've experienced this CNI growth for really the five-plus years in that, you know, low to mid-double-digit level. And our pipelines tell us that that should continue into the fourth quarter and into the next year, but somewhat offset by what we're going to do with our Cree concentration.

Thank you.

Thank you. Our next question comes from Steve Moss with Raymond James. Your line is open.

Good morning. On the C&I portfolio here, you know, you guys have experienced two good quarters of growth. Just curious kind of, you know, where you're seeing the drivers of growth and if there's any component that's either participation driven or your national credit.

No, no. I mean, our SNCC portfolio is very small, less than 3% of our total, and we're aging on 30-plus percent of that. So we're not getting that through buying participations in any way. I just want to remind everyone, and Iris said it earlier, we have experienced this level of growth for five-plus years in that low double-digit level. And that goes back to when we started bringing in teams emphasizing the Florida markets and bringing in teams of C of 9 lenders in Florida and opportunistically bringing in people in the Northeast, and we still do. So a lot of this is coming from that middle market business banking local regional. It's steady growth there, accelerated in Florida versus what we're seeing in the Northeast. And then the specialties, many of which we have had for years and some that have come through acquisitions, have added growth on top of that. But it's that continued sales process, relationship-driven, middle-market-type business.

Okay, great. And then just also noticed kind of – I know you guys have been building reserves broadly, but the CNI bucket has always had a high reserve. It's up 26 base points year-over-year to 170 as a reserve as a percentage of loans. Just curious kind of what are the drivers for that portfolio in terms of high reserves?

So within the CNI portfolio, really, you know, at the end of the day, that portfolio, as can be expected, has a slightly higher loss given default than our CREE portfolio. That's really the primary differentiator between the end reserve rates on that portfolio. As we've migrated throughout this past year in a higher interest rate environment, there has been some stress on portfolio. So on the C&I portfolio, as a CRE portfolio, there was some migration, which contributes to that increase as well, as criticized assets carry a higher reserve than pass rated.

Okay. And to that point on criticizing classified, I think I heard the comment that the increase is moderated. Just kind of curious, is that kind of like DRE stabilizing here and maybe the driver that criticizes B&I or just kind of the dynamics there that you guys are seeing?

So we absolutely believe that the interest rate environment has shown some easing, and we anticipate that the migration that we've seen over the past year in criticized classified assets should definitely abate with likelihood at some point in 2025, potentially towards the end of the year versus the beginning, that we should see some positive migration in the portfolio.

Okay, great. Thank you very much. Thank you.

Thank you. And our next question comes from Matthew Brees with Stevens. Your line is open.

Hey, just a quick follow-up. We discussed on the call expectations for kind of elevated charge-offs in the fourth quarter. Can you just give us some sense for how lumpy that could be?

What are we talking here?

So as it relates to potential charge-offs, we have an isolated group of loans that we've been tracking that we have our eyes on for potential losses. Not definite. We expect that there is a chance that that level could be elevated from what we've seen, but materially not a level for the year, which is out of line with anything that we've seen at a quarter level as a percent of portfolio.

Okay. I guess I'll leave it there. Thank you.

Thanks, Matt. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Ira Robbins for closing remarks.

Thank you for taking the time to listen to our call today and the interest in Valley, and we're excited and looking forward to talking to you next quarter.

This concludes today's conference call. Thank you for participating. You may now