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.