Valley National Bancorp

Good day, and thank you for standing by. Welcome to the Q4 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 that 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 turn the conference over to your speaker today, Travis Lance. Please go ahead.

Good morning, and welcome to Valley's fourth quarter 2024 earnings conference call. I am joined today by CEO Ira Robbins, President Tom Iadanza, and Chief Credit Officer Mark Sager. 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 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 fourth quarter of 2024, Valley reported net income of approximately 116 million and diluted earnings per share of 20 cents. This compared to net income and earnings per share of 98 million and 18 cents a quarter ago. Sequential growth in reported net income reflected a reversal of an income tax reserve due to the expiration of the statutes of limitations associated with certain prior tax credits. This was partially offset by an elevated loan loss provision associated with higher loan charge-offs. Pre-tax, pre-provision earnings were stable, as strong net interest income growth was generally offset by a handful of discrete expenses. As you are aware, our efforts in 2024 focused on strengthening the balance sheet and normalizing certain metrics that were outliers relative to peers. The progress that we have made is significant, and we outperformed the preliminary year-end targets which we laid out back in April. As a result of our focused execution, we entered 2025 with a fortified balance sheet that will enable us to operate from a position of financial flexibility and strength. While our strategic priorities remain consistent, the specific initiatives that support our goals continue to evolve. From a deposit perspective, we are focused on leveraging our specialty verticals and enhancing our commercial customer base. We expect to supplement these efforts with branch deposit growth as we reprioritize retail delivery and customer acquisition. On the loan side, expected runoff of certain transactional CRE loans should be offset by focused origination efforts in the C&I, owner-occupied, and consumer areas. We anticipate that this will support a methodical reduction in our CREE concentration ratio in 2025. Finally, we continue to prioritize our suite of value-add commercially adjacent products and services that support our fee income growth. While most of our dialogue around our 2023 core conversion was focused on the expense synergies that we have realized, it also set the foundation for a significant enhancement in our product offerings and service capabilities. A great example of this is on the Treasury Solutions side, where we have augmented and upskilled the talent base with a streamlined operating model and the technology to better serve our commercial clients. We've formally rolled out a new service and pricing model in 2024, and we couldn't be more excited about the early results. On an annualized basis, deposit service revenue in the second half of 2024 was a full $11 million higher than for the same period a year ago, representing a 27% increase. Despite external volatility throughout the year, Our transaction deposits at December 31, 2024, were $1.7 billion, or 5% higher than a year ago, largely owing to the commercial account onboarding to the Treasury platform. While less impactful from an absolute dollar perspective, we have seen similarly strong returns from our investment in enhanced FX capabilities. The annualized run rate for FX fees was $4 million higher in the second half of 2024 than the second half of 2023. This represents over 50% growth and has helped to offset softer swap fees in our capital market business, reflecting the pullback in loan originations. In 2025, we will preserve our balance sheet position and increase our focus on enhancing profitability. With this in mind, we have laid out preliminary 2025 guidance on slide six of our investor deck. We anticipate continued net interest income momentum as a result of earning asset growth and funding cost improvement against the backdrop of positively sloping yield curve. The continuation of our fee income progress and the maintenance of our expense control will underpin the expected normalization of pre-provision profitability as the year unfolds. From a credit perspective, We are confident that our proactive efforts throughout 2024 and in the fourth quarter specifically will lead to a meaningfully lower credit cost in 2025. We believe the rapid expansion of our allowance coverage in 2024 is likely behind us, and we expect more modest allowance coverage growth going forward. Slide 7 provides additional detail on our net interest income forecast. While we traditionally utilize the year-end implied forward curve to forecast, We acknowledge that longer end rates move sharply higher at the end of the year. As such, our net interest income guidance range captures a variety of downside rate scenarios. All else equal, we would expect a continuation of higher interest rates to be incrementally additive to our forecast. The resulting profitability expectations associated with our guidance are laid out in slide eight. The light blue bars indicate our forecast for the full year of 2025, as well as the fourth quarter of 2025 specifically. This should help inform the ramp that we expect through the year as our asset repricing tailwind continues to play out. Similarly, we anticipate that both net charge-offs and our provision will decline significantly as the year progresses. I'm extremely excited about the opportunities ahead of us in 2025. The interest rate environment has normalized, and our customers are feeling optimistic about the economy. We are confident in our ability to improve profitability throughout the year, and we will continue to diligently manage the balance sheet while we execute on our strategic priorities. Slide nine illustrates the longer-term value that we continue to create for our stakeholders. Our tangible book value inclusive of dividends has now doubled in the last seven years, and our greater growth continues to outpace peers. We remain focused on customer acquisition in both the commercial and consumer areas. These customers contribute to our long-term revenue opportunities and the future performance of our institution. As we have continuously discussed, we are a much more diverse bank today than when I took over as CEO. Our evolution into new business lines and geographies has created opportunities that were previously unavailable to us. Going forward, we will continue to evolve with an internal focus on optimizing our customer network and balance sheet to become a better bank for our employees, our clients, and our shareholders. Before I turn the call over to Tom, I wanted to offer our team's thoughts to those individuals that have been impacted by the wildfires in California. While we have minimal direct loan exposure to the impacted areas, we are committed to the greater Los Angeles market where we have recently opened a branch in Beverly Hills. We are always there for those in need and offer support to communities, customers, and employees that have been impacted by these tragic events. With that, I would turn the call over to Tom and Travis to talk through the quarter's financial highlights and results. After Travis concludes his remarks, Tom, Travis, myself, and Mark Sager, our Chief Credit Officer, will be available for your questions. Thank you, Ira.