Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Valley National Bancorp (VLY, Financial) reported a significant increase in net income to $98 million and diluted earnings per share of $0.18, compared to $70 million and $0.13 in the previous quarter.
- The company successfully reduced its commercial real estate (CRE) concentration ratio by 53 percentage points year-to-date, enhancing balance sheet metrics.
- Valley National Bancorp (VLY) plans to sell $800 million of performing CRE loans at a 1% discount, which is expected to improve regulatory capital ratios by 16 to 20 basis points.
- The company experienced strong growth in C&I loans, contributing to a rebound in pre-provision revenue and positioning for further profitability improvement.
- Valley National Bancorp (VLY) achieved a $300 million increase in total deposits, with a notable rise in non-interest-bearing deposit accounts.
Negative Points
- Provision for loan losses exceeded third-quarter guidance due to growth in C&I loans and potential impacts from Hurricane Helene.
- Net interest income is expected to decline in the fourth quarter due to the anticipated CRE loan sale.
- Higher net charge-offs are anticipated in the fourth quarter due to lingering credit issues and hurricane impacts.
- The company faces a slower pace of reserve build, with allowance coverage expected to reach 1.25% by the end of 2025.
- Valley National Bancorp (VLY) anticipates a decline in net interest income by approximately $5 million in the fourth quarter due to the CRE loan sale.
Q & A Highlights
Q: Can you elaborate on the expected normalization of provision and reserves in 2025?
A: Ira Robbins, CEO, explained that the company anticipates a normalization of credit costs in 2025, with net charge-offs expected to be lower than current levels. The reserve build will be more about the mix of loans, particularly the growth in C&I loans, which require higher reserves than CRE loans.
Q: Are there any further adjustments expected to your targets for 2025, particularly regarding CRE ratios and capital levels?
A: Ira Robbins, CEO, stated that the current intermediate targets are comfortable and achievable within the outlined timeframe. The adjustments made reflect the current strategic initiatives and market conditions.
Q: How has the market's appetite for assets changed given the recent rate movements, and how did you achieve a 1% discount on the CRE loan sale?
A: Travis Lan, IR Contact Officer, noted consistent demand from private equity for core assets. The narrowing gap between the bank's valuation and private equity's view allowed for the attractive 1% discount, driven by rate factors rather than credit issues.
Q: What are your expectations for deposit costs and NII growth in the near term and into 2025?
A: Travis Lan, IR Contact Officer, indicated that the bank expects to outperform its modeled deposit beta, with potential for mid-to-high single-digit NII growth in 2025. The reduction in deposit costs following the Fed rate cut supports this outlook.
Q: What is the outlook for loan growth, particularly after reaching the targeted CRE concentration?
A: Thomas Iadanza, President, anticipates mid-single-digit loan growth, with continued emphasis on C&I growth in the low to mid-double digits, offset by managing CRE concentration.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
