Valley National Bancorp Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 23, 2025
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Operator

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 speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to turn the conference over to your speaker today, Travis Lamb. Please go ahead.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Good morning, and welcome to Valley's Q4 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.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Additionally, I would like to highlight Slide 2 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 on Forms 8 ks, 10 Q and 10 ks 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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Thank you, Travis. During the Q4 of 2024, Valley reported net income of approximately $116,000,000 and diluted earnings per share of $0.20 This compared to net income and earnings per share of $98,000,000 $0.18 a

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

quarter

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

On the loan side, expected runoff of certain transactional CRE loans should be offset by focused origination efforts in the C and I, owner occupied and consumer areas. We anticipate that this will support a methodical reduction in our CRE 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 Trezi solution side where we have augmented and upskilled the talent base with a streamlined operating model and the technology to better serve our commercial clients.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

We formally rolled out a new service and pricing model in mid-twenty 24 and we couldn't be more excited about the early results. On an annualized basis, deposit service revenue in the second half of twenty twenty four was a full $11,000,000 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 $1,700,000,000 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 some very strong returns from our investment in enhanced FX capabilities. The annualized run rate for FX fees was $4,000,000 higher in the second half of twenty twenty four than the second half of twenty twenty three.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

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 6 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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

From a credit perspective,

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

we are confident that our proactive efforts throughout 2024 and in the Q4 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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

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 on Slide 8. The light blue bars indicate our forecast for the full year of 2025 as well as the Q4 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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I'm extremely excited about the opportunities ahead 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 We will continue to diligently manage the balance sheet while we execute on our strategic priorities. Slide 9 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 7 years and our greater growth continues to outpace peers.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

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.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Before I turn the call over to Tom, I want to offer our team's thoughts to these 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 our offer of support to the communities, customers and employees that have been impacted by these tragic events. With that, I will 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 Zager, our Chief Credit Officer will be available for your questions.

Thomas Iadanza
Thomas Iadanza
President & Chief Banking Officer at Valley National Bancorp

Thank you, Ira. Slide 10 illustrates the quarter's deposit trends. Direct customer deposits grew $1,700,000,000 during the quarter, which enabled a $2,000,000,000 reduction in higher cost indirect deposits. Non interest deposit balances increased for the 2nd consecutive quarter and now comprise 23% of total deposits, up from 22% a quarter ago. For the 2nd consecutive quarter, we opened over 25,000 new deposit accounts, including over 10,000 new non interest accounts.

Thomas Iadanza
Thomas Iadanza
President & Chief Banking Officer at Valley National Bancorp

In addition to our strong growth, we have been extremely successful in reducing deposit costs in the wake of Fed funds target rate reductions. During the quarter, we reduced deposit costs by 31 basis points, which resulted in a strong deposit beta of 51%. We estimate that our average cost of deposits was 2.87% for the month of December, which includes only a partial benefit from the reductions implemented in the wake of the final Fed action of the year. The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business line. Growth during the quarter was broad based with branch deposits increasing 4% and specialty deposits increasing closer to 5%.

Thomas Iadanza
Thomas Iadanza
President & Chief Banking Officer at Valley National Bancorp

The majority of our special deposit growth was at our international and technology business lines. Slide 12 illustrates the components of the quarter's lending activity. We continue to manage the runoff of transactional multifamily and Investecree, which declined over $600,000,000 during the quarter. Construction balances declined another $350,000,000 partially as a result of completed projects transitioning to permanent owner occupied loans. As of December 31, 2024, our CRE concentration ratio was 3 62 percent versus 4 21 percent a quarter ago and 4 74% at the end of 2023.

Thomas Iadanza
Thomas Iadanza
President & Chief Banking Officer at Valley National Bancorp

I am extremely proud of the significant progress that we have made in improving this metric. From a longer term perspective, the combination of C and I and owner occupied pre loans increased 17% during the year. Diverse activity across our geographic footprint and nationwide businesses supports our expectation for high single digit to low teens growth in those asset classes for 2025. Similarly, indirect auto loans increased 17% in 2024. These are super prime loans with a low loss history that provide additional diverse growth opportunities to the bank.

Thomas Iadanza
Thomas Iadanza
President & Chief Banking Officer at Valley National Bancorp

While new origination yields have declined in line with broader interest rates, our portfolio yield declined more modestly given the 40% of our loan portfolio that is fixed. Our quarterly loan beta of 39% compares favorably to the 51% deposit beta that I referenced earlier. Slide 13 provides additional detail on the composition of our commercial real estate portfolio by property type and geography. Portfolio remains diverse by geography and asset class and our borrower base remains generally strong and well positioned. During the quarter, we proactively addressed a handful of CRE loans, which enables us to enter 2025 the cleanest slate from a credit perspective.

Thomas Iadanza
Thomas Iadanza
President & Chief Banking Officer at Valley National Bancorp

As Eira stated earlier, and you can see on our Slide 6 guidance, we believe that most of the CRE charge offs are now behind us. With that, I will turn the call over to Travis to provide additional insight into the quarter's financials.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Thank you, Tom. I'll jump to Slide 17, which highlights the 3rd consecutive quarter of both net interest income growth and net interest margin expansion. Net interest income increased 3% from the 3rd quarter and is now 6% higher than a year ago. The quarter's strong core deposit growth enabled the repayment of nearly $2,000,000,000 of higher cost maturing indirect CDs. This combined with our success in reducing customer deposit costs in the wake of Fed cuts enabled us to more than offset the interest income headwind associated with adjustable loan repricing and the mid quarter CRE loan sale.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Our guidance of 9% to 12% net interest income growth in 2025 conservatively reflects a lower rate environment. We would expect to migrate towards or beyond the upper end of this range if interest rates were to remain elevated or increase further all else equal. Our net interest margin should increase throughout the year as funding costs decline and we benefit from the asset repricing tailwind on the fixed rate component of our loan portfolio. The next slide illustrates the quarter's stability in adjusted non interest income exclusive of an $8,000,000 loss associated with our CRE loan sale. The majority of this charge was related to transaction costs.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Despite the quarter stability, underlying trends were more positive as revenues in our capital markets, wealth and insurance areas offset lower BOLI income and a negative valuation adjustment on our FinTech investment portfolio. Annualized adjusted non interest income for the second half of twenty twenty four was $236,000,000 or 13% higher than $208,000,000 for the second half of twenty twenty three annualized. Ira highlighted a few key drivers of this progress in his remarks. We plan to further leverage the investments that we have made in our treasury solutions, FX and syndication platforms and drive additional growth contributions from swaps and wealth management throughout 2025, which should further contribute to our profitability normalization. On Slide 19, you can see that adjusted non interest expenses of $276,000,000 were 4.5% higher than the Q3 and approximately 1% higher than the Q4 of 2023.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Most expense line items remained very well controlled during the quarter and the higher technology costs were partially the result of a few discrete items. For the year, adjusted expenses increased less than 1%. We remain focused on controlling future expense growth to ensure that incremental revenue gains support our profitability improvement. Slide 20 illustrates our asset quality and reserve trends. The increase in non accrual loans at December 31, 2024 was partially the result of a few larger criticized CRE relationships, which importantly are performing as contractually obligated and continue to pay on schedule.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Accruing past due loans declined to 20 basis points as a pair of CRE loans, which we discussed last quarter, were repaid and brought current respectively. Net loan charge offs increased from the linked quarter mainly as a result of 2 larger CRE and C and I credits. During the quarter, our allowance coverage ratio increased 3 basis points to 1.17% and stands at the highest level in the past 5 years. We expect the pace of allowance coverage growth to slow meaningfully in 2025 supporting the expected provision decline, which Ira referenced. The next slide illustrates the sequential increase in our tangible book value and capital ratios.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Tangible book value increased despite headwinds from the OCI impact associated with our available for sale securities portfolio. Our risk based capital ratios increased significantly during the quarter as a result of strong reported earnings, the common equity offering and our executed loan sale. We are extremely well positioned from a capital perspective and have the financial flexibility to execute on our strategic initiatives while preserving our balance sheet strength in the coming year. With that, I will turn the call back to the operator to begin Q and A. Thank you.

Operator

Certainly.

Operator

Our

Operator

Our first question will be coming from Manon Gaceliad Morgan Stanley. Your line is open.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

Hi, good morning. This is Brian Wilsinski filling in for Manon. Can you update us on what impact the shape of the yield curve is having on your NII outlook? I know previously you talked about mid to high single digit growth. Since then, we've seen a couple of cuts get taken out of the short end of the curve.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

The long end of the curve is now higher. Can you just unpack the impact that that has on your outlook? Thanks.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Yes, Brian, this is Travis. Thanks for the question. So as we've talked about in the past, we are more neutral to the front end of the curve and positively exposed to the longer end of the curve. So the shape of the curve as it stood at the end of the year relative to ninethirty was more beneficial for a net interest income outlook. So that was one of the key drivers of the upwards revision.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

The other key driver is the funding position at year end was much stronger than it was at ninethirty. We talked about the $1,700,000,000 of direct deposit growth that enabled us to pay off $2,000,000,000 of brokered during the quarter. So we're much better positioned from that perspective. We were also more successful reducing deposit costs in our customer base in the wake of the Fed cuts. And so that the combination of those three things sets us up for a better NII outlook for 2025 than we had previously discussed.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

That's really helpful. Thank you. And then just a follow-up is on the updated reserve targets. So you're now targeting a range of 1.2 to 1.25 for the end of this year. I think previously you had communicated about 125.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

I was wondering should we interpret that range to mean that your reserve ratio doesn't have to go above 125 beyond this year? Is that sort of a good normalized reserve ratio for us to think about for Valley?

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

I think that's correct. So I think the addition of a range that's a little bit below that 125 reflects the slowdown in migration that we saw on criticized assets during the quarter, as well as the fact that ultimately we will be transitioning from CRE and into C and I and that's kind of what you see from getting us that $117,000,000 today to that slightly higher range at the end of the year. But again, with the slowdown in migration and criticized assets, the reserve targets a little bit lower than it had been.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

Appreciate it. Thank you for taking my questions.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Thank you,

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Aman.

Operator

One

Operator

moment for our next question. Our next question will be coming from Anthony Ilean of JPMorgan. Your line is open.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Hi, everyone. Just a follow-up on the reserves. Can you talk about the cadence of the reserve build you expect this year? Should we expect most of the build to happen in the first half? Or should that be evenly patterned out through this year?

Mark Saeger
Mark Saeger
Executive VP & Chief Credit Officer at Valley National Bancorp

So I think this is Mark Sager. Hey, Anthony. On the reserve, we would anticipate that there would be a little more growth at the beginning of the year and tapering off through the end, just anticipating how that will flow out.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Okay. Thank you. And then my follow-up, can you talk about the success you called out in the press release on the direct customer deposit channel? You know that deposits increased about $1,700,000,000 from this segment. Is this the area you expect to drive most of the deposit growth in 2025?

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Thank you.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

To be clear, we said direct deposits is a catchall for customer deposit activity. So the $1,700,000,000 of growth was very broad based across the franchise. So branch deposits increased around 4% and our specialty niches increased around 5%. Within specialty, we continue to see good activity in international and technology. Despite a significant reduction in the rate that we offer in our online channel, we still see growth there.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

And then in the branches, it's been more diverse and broad based. It's a combination of consumer and commercial and to some degree municipal activity as well.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

And just to add, I think one of the things that we've seen is the outcome of some of the positive investments that we've been making in technology and some of the products and services that we've been looking at, at Bali. And one of them obviously was the treasury solution here. And if you look at clients just between 3rd Q4 that used our treasury product, deposit balances in those accounts increased about $500,000,000 as well. So we're seeing real receptivity towards those individual products. And because of the functionality, we're seeing an increase in deposit balance there.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

In addition, we were able to grow net new business accounts about $10,000 this year. So really it's comprehensive across the entire balance sheet.

Anthony Elian
Anthony Elian
Equity Research Analyst at JP Morgan

Yes. Thank you for the color. Thanks.

Operator

One moment for our next question. And our next question will be coming from Chris McGratty of KBW. Your line is open.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Great. Thanks. Ira, given the actions you took to really strengthen the balance sheet in 2024, How are you thinking about the medium term ROE potential of the company return on tangible?

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I think from a longer term perspective, I think we gave some highlights as to sort of where we think we're going to end the year at, little north of 11%. I think long term, we should definitely be operating north of 15% with an ROA that's above 120% as well. And I think those are some of the long term performance targets that we've outlined here. And we think we have a good pathway towards this.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay. So just to break, I mean, there's a pretty big gap. And I guess, how do you bridge that 400 basis points?

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Obviously, I think it really starts with just growing customer accounts and what that shift to the balance sheet looks like. So an improving margin is going to definitely help. We think there's improved non interest income that's going to come out of some of the initiatives that we've been investing in obviously, managing the operating expenses, which we've been doing a very good job. So a lot through positive operating leverage. Overall, we think we're in a good capital position.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

So I don't think it's as big as the lift. It may be as what one will look at from the outside. There is a lot of positive tailwinds here.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay, great. And then just coming back to the loan growth guide. I think in your prepared remarks, you talked about, I think it was mid teens C and I growth. Is I guess maybe I'd love to hear a little bit more color on that. And then would any portfolio purchases be considered because it's a pretty good growth rate relative to some of your peers?

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Yes. Chris, this is Travis. Thanks for the question. I think our guide on C and I was high single digits to maybe low teens, not mid teens. But I think if you zoom out and consider what happened in 2024, I mean, we grew C and I loans $700,000,000 this year, but that includes a $300,000,000 headwind from the sale of our commercial premium finance business.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

So if you exclude that, I mean, we would have grown on a net basis $1,000,000,000 in C and I. And kind of organic owner occupied CRE would have grown another $500,000,000 It looks like it's up $1,600,000,000 when you look at the loan table, but we did reclassify some investor CRE into that bucket mid year. So between C and I and kind of owner occupied CRE, in 2024 we were up $1,500,000,000 and then residential and consumer would have combined for another couple of $100,000,000 as well. So just kind of with no additional growth tailwind, I mean, you can replicate those types of results. And then consider that the C and I pipeline is up over $600,000,000 at twelvethirty onetwenty 4 versus a year ago.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

And so look, we're seeing good trends across the franchise both geographically and in terms of our specialty niches. Healthcare and fund finance are 2 areas that have been key contributors to growth in 2024 and we expect continued momentum there in 2025.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

That's great. Thanks,

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Jeff.

Operator

Our next question will be coming from Matthew Breese of Stephens. Your line is open.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Hey, good morning.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Good morning, Matt.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

I was hoping to start just

Matt Breese
Managing Director & Research Analyst at Stephens Inc

on the cash position of the balance sheet. It's a bit elevated. I was hoping you could help me out with the deployment timeline strategy. And then second, but related securities assets have been steadily climbing now at 11% of total assets. Where do you want that to be?

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Where do you want the securities portfolio to be as a percentage of assets?

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Yes. Matt, this is Travis. Thanks. Look, you're right, the cash was elevated at the end of the year. I mean, it's for a very good reason, right?

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

We talked about the core deposit growth. We also had the net proceeds from the loan sale and the equity offering. And so we tried to put those to work as much as possible in terms of paying off excuse me, paying off maturing brokered deposits and obviously we added about $700,000,000 net to the securities portfolio, but we're still left in an elevated cash position. So we do expect that cash will normalize throughout the year. But the Q1 from a loan growth perspective is likely to be a little bit slower.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

So it's possible that cash remains somewhat elevated early in the year and then gets put to work as the year proceeds. From a securities perspective and we've grown the portfolio about I think $1,500,000,000 $2,000,000,000 last year. It's been significant. I think longer term we appreciate and acknowledge that we'll continue to increase as a percentage of assets, but that plays out over a relatively long period of time. So we're factoring in today, call it $500,000,000 plus of growth this year in the securities portfolio, to begin that process.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Great. And then, I was hoping you could provide an update either year end or in January of the total cost deposits and maybe help us out with some of your deposit beta expectations for this year?

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Yes. Our December average cost of total deposits was 2.87%. So that was about 7 basis points lower than the average for the quarter. I would say though that that doesn't capture I mean in December we paid off $1,000,000,000 of brokered. So I don't think you'd get the full benefit in that amount.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

And you also had the Fed cut occur pretty late in the month of December. So I don't think you pick up much benefit there either. So the model assumes a 60% downside beta on interest bearing non maturity deposits. When you factor in non interest, you get to about 50%. And so we've actually outperformed that in the wake of the first three Fed cuts of the cycle.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

And so to the degree we continue to outperform, there would be additional NII upside relative to the guidance that we've laid out.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Great. And then last one, Ira, I couldn't help but notice you mentioned the return to or I should say a rekindle focus on retail branch banking perhaps in adding some branches. Does this envision any sort of market footprint expansion? If so, where? If not, where do you intend to add more branches?

Matt Breese
Managing Director & Research Analyst at Stephens Inc

And is that part of the expense guidance for 2025?

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I think the numbers definitely baked in for what we're looking at doing within the retail footprint. I think there's a lot of opportunity just sitting within the New Jersey market. There's been some tremendous disruption with some of our competitors here and their ability to really reinvest back into this footprint. So we've seen strong growth just in our footprint here. I think in New Jersey, just account growth was up about 4% in 2024.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

So there's a pretty good tailwind there on the consumer side, not even to mention what we're doing on the small business side. In Florida, probably there's an opportunity to maybe think about what branch expansion looks like. I think we just opened a new one in Staten Island and as Travis or as I referenced earlier, we have the one in Beverly Hills also. So we are seeing real positive outcomes by reinvesting in some of those branches. But that said, I think there's a lot of opportunity just in our core footprint here.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Great. I appreciate taking all my questions. Thank you.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Thanks, Matt.

Operator

And I am showing one last question. One moment. Our next question will be coming from Frank Schiraldi of Piper Sandler. Your line is open, Frank.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Good morning. Just I was wondering if you could your level of confidence in getting to that ROA of 1% by the end of the year. You mentioned the Travis, you mentioned the steeper yield curve obviously helping the NII outlook. Is that the greatest risk if we get longer term rates coming down? Or do you feel like there's some offsets, maybe delay investment or so forth to still get to that 1% level by the 4th quarter?

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

Frank, I appreciate it. Look, I think the NII guidance range that we gave, I mean, the implied curve is candidly the upper end of that range. I mean, we more conservatively believe the lower or midpoint of that to the degree that rates pull back, but that still captures a range that would get you to a 1% plus ROA at the end of the year. The other consideration there is the provision guidance that we've given is not necessarily linear. So we anticipate that charge offs and provisions will be higher in the beginning of the year and then taper off as the year goes on, but still getting within the guidance range that we've provided.

Travis Lan
Travis Lan
EVP & Deputy CFO at Valley National Bancorp

So I think a combination of those things, primarily the reduction in the provision as the year plays out as well as the net interest margin expansion as the year goes on, leads to our expectation that we can be exiting 2025 with an ROA above 1.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

And I think just to reiterate a little bit what Travis mentioned earlier, right, in the guide that we're giving you on where the NII is going to end up falling, we're effectively only using 80% betas versus what we actually received or what we actually recognized just this last quarter. That said, we were able to be very aggressive in the deposit pricing And we also saw one of our strongest deposit growth quarters ever at Valley. So that's something that makes me feel really, really confident about what we're seeing here and being able to really grow deposits while at the same time pushing through significant deposit cost reductions is something we haven't been able to really do here and we've seen tremendous success.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Great. Okay, thank you.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Thanks, Frank.

Operator

I would now like to turn the conference back to Ira Robbins for closing remarks.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I just want to thank everyone for taking the time to spend with us this morning and look forward to talking to you again next quarter. Thank you.

Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Travis Lan
      Travis Lan
      EVP & Deputy CFO
    • Ira Robbins
      Ira Robbins
      Chairman & CEO
    • Thomas Iadanza
      Thomas Iadanza
      President & Chief Banking Officer
    • Mark Saeger
      Mark Saeger
      Executive VP & Chief Credit Officer
Analysts
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Earnings Conference Call
Valley National Bancorp Q4 2024
00:00 / 00:00

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