Valley National Bancorp Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 23, 2025

Key Takeaways

  • Valley reported sequential net income growth to $116 million and EPS of $0.20 in Q4, up from $98 million and $0.18 in Q3.
  • Net interest income rose 3% QoQ (6% YoY) and is guided to grow 9–12% in 2025 on earning asset growth, improved funding costs and a favorable yield curve.
  • Fee income momentum accelerated with annualized H2 2024 deposit service revenue up $11 million (+27%) and FX fees up $4 million (+50%), supporting future noninterest income targets.
  • Direct customer deposits grew $1.7 billion in Q4, enabling a $2 billion reduction in higher-cost funding; noninterest deposits now comprise 23% of total and deposit costs fell 31 bps.
  • Loan loss provision was elevated in Q4 due to higher charge-offs, partially offsetting earnings despite allowance coverage rising to a five-year high of 1.17%; credit costs are expected to decline in 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Valley National Bancorp Q4 2024
00:00 / 00:00

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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 speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one 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 Lan. Please go ahead.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

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 Saeger. 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 Bancorp and the banking industry.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

Thank you, Travis. During the fourth quarter of 2024, Valley reported net income of approximately $116 million and delivered earnings per share of $0.20. This compared to net income and earnings per share of $98 million and $0.18 a quarter ago. Sequential growth in reported net income reflects the 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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.

Ira Robbins
Ira Robbins
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&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-added 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

We 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 31st, 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 some really 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.

Ira Robbins
Ira Robbins
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 six of our investor deck. We anticipate continued net interest income momentum as a result of earning asset growth and funding cost improvement against a 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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 seven 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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 a 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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 Saeger, our Chief Credit Officer, will be available for your questions.

Tom Iadanza
Tom Iadanza
President at Valley National Bancorp

Thank you, Ira. Slide 10 illustrates the quarter's deposit trends. Direct customer deposits grew $1.7 billion during the quarter, which enabled a $2 billion reduction in higher-cost indirect deposits. Non-interest deposit balances increased for the second consecutive quarter and now comprise 23% of total deposits, up from 22% a quarter ago. For the second consecutive quarter, we opened over 25,000 new deposit accounts, including over 10,000 new non-interest accounts. 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.

Tom Iadanza
Tom Iadanza
President at Valley National Bancorp

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 four% and specialty deposits increasing closer to five%. The majority of our special deposit growth was in 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 investor CRE, which declined over $600 million during the quarter. Construction balances declined another $350 million, partially as a result of completed projects transitioning to permanent owner-occupied loans. As of December 31st, 2024, our CRE concentration ratio was 362% versus 421% a quarter ago and 474% at the end of 2023. I am extremely proud of the significant progress that we have made in improving this metric.

Tom Iadanza
Tom Iadanza
President at Valley National Bancorp

From a longer-term perspective, the combination of C&I and owner-occupied CRE 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. 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.

Tom Iadanza
Tom Iadanza
President at Valley National Bancorp

The 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 with a cleaner slate from a credit perspective. As Ira stated earlier, and you can see on our slide six 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
Head of Investor Relations at Valley National Bancorp

Thank you, Tom. I'll jump to slide 17, which highlights the third consecutive quarter of both net interest income growth and net interest margin expansion. Net interest income increased 3% from the third quarter and is now 6% higher than a year ago. The quarter's strong core deposit growth enabled the repayment of nearly $2 billion 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. Our guidance of 9%-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.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

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 million loss associated with our CRE loan sale. The majority of this charge was related to transaction costs. Despite the quarter's 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 2024 was $236 million, or 13% higher than $208 million for the second half of 2023 annualized. Ira highlighted a few key drivers of this progress in his remarks.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

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 million were 4.5% higher than the third quarter and approximately 1% higher than the fourth quarter of 2023. 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.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

The increase in non-accrual loans at December 31st, 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. 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 two larger CRE and C&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 five 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
Head of Investor Relations 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&A. Thank you.

Operator

Certainly. As a reminder, to ask a question, please press star 11 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, and one moment for our first question. Our first question will be coming from Manan Gosalia at Morgan Stanley. Your line is open.

Brian Wilczynski
Brian Wilczynski
Analyst at Morgan Stanley

Hi, good morning. This is Brian Wilczynski filling in for Manan. 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. 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
Head of Investor Relations at Valley National Bancorp

Yeah, 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's fit at the end of the year relative to 930 was more beneficial for a net interest income outlook. So, that was one of the key drivers of the upwards revision. The other key driver is the funding position at year-end was much stronger than it was at 930. We talked about the $1.7 billion of direct deposit growth that enabled us to pay off $2 billion of brokered during the quarter. So, we were 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.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

And so, 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
Analyst at Morgan Stanley

That's really helpful. Thank you. And then just to follow up is on the updated reserve target. So, you're now targeting a range of 1.2-1.25 for the end of this year. I think previously you had communicated about 1.25. I was wondering, should we interpret that range to mean that your reserve ratio doesn't have to go above 1.25 beyond this year? Is that sort of a good normalized reserve ratio for us to think about for Valley?

Travis Lan
Travis Lan
Head of Investor Relations 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 in criticized assets during the quarter, as well as the fact that ultimately we will be transitioning from CRE and into C&I. And that's kind of what you see from getting us that 117 today to that slightly higher range at the end of the year. But again, with the slowdown in migration and criticized assets, the reserve target's a little bit lower than it had been.

Brian Wilczynski
Brian Wilczynski
Analyst at Morgan Stanley

Appreciate it. Thank you for taking my questions.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Thank you.

Operator

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

Anthony Elian
Anthony Elian
Analyst at JPMorgan

Hi, everyone. Just to 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
Chief Credit Officer at Valley National Bancorp

I think this is Mark Saeger. 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
Analyst at JPMorgan

Okay. Thank you. And then my follow-up, can you talk about the success you called on the press release on the direct customer deposit channel? You know that deposits increased about $1.7 billion from this segment. Is this the area you expect to drive most of the deposit growth in 2025? Thank you.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Yeah. To be clear, we said direct deposits is a catch-all for customer deposit activity. So, the $1.7 billion 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. 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
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 Valley. One of them obviously was the Treasury solution here.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

And if you look at clients just between third and fourth quarter that used our Treasury product, deposit balances in those accounts increased about $500 million 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. 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
Analyst at JPMorgan

Yep. Thank you for the color.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Thanks.

Operator

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

Chris McGratty
Chris McGratty
Analyst at KBW

Oh, 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
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, a 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.

Chris McGratty
Chris McGratty
Analyst at KBW

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

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

Obviously, I think it really starts with just growing customer accounts and what that shift of 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. And 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. So, I don't think it's as big as the lift as maybe as what one would look at from the outside. There's a lot of positive tailwinds here.

Chris McGratty
Chris McGratty
Analyst at 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&I growth. I guess maybe I'd love to hear a little bit more color on that. And then would any portfolio purchases be considered? Because that's a pretty good growth rate relative to some of your peers.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Yeah. Chris, this is Travis. Thanks for the question. I think our guide on C&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&I loans $700 million this year, but that includes a $300 million headwind from the sale of our commercial premium finance business. So, if you exclude that, I mean, we would have grown on a net basis $1 billion in C&I. I mean, kind of organic owner-occupied CRE would have grown another $500 million. It looks like it's up $1.6 billion when you look at the loan table. But we did reclassify some investor CRE into that bucket mid-year. So, between C&I and kind of owner-occupied CRE, in 2024, we were up $1.5 billion.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

And then residential and consumer would have combined for another couple $100 million 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&I pipeline's up over $600 million at 12/31/2024 versus a year ago. 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 two areas that have been key contributors to growth in 2024. And we expect continued momentum there in 2025.

Chris McGratty
Chris McGratty
Analyst at KBW

That's great. Thanks, Travis.

Operator

And as a reminder, if you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. Our next question will be coming from Matthew Breese of Stephens. Your line is open.

Matthew Breese
Matthew Breese
Analyst at Stephens

Hey, good morning.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Morning, Matt.

Matthew Breese
Matthew Breese
Analyst at Stephens

I was hoping to start just 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? Where do you want the securities portfolio to be as a percentage of assets?

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Yeah. 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? 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 million 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 first quarter, from a loan growth perspective, is likely to be a little bit slower. So, it's possible that cash remains somewhat elevated early in the year and then gets put to work as the year proceeds.

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

From a securities perspective, I mean, we've grown the portfolio about, I think, $1.5 billion-$2 billion last year. It's been significant. I think longer term, we appreciate and acknowledge that it will 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+ million of growth this year in the securities portfolio to begin that process.

Matthew Breese
Matthew Breese
Analyst at Stephens

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

Travis Lan
Travis Lan
Head of Investor Relations at Valley National Bancorp

Yeah. Our December average cost of total deposits was 2.87%. So, that was about seven 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 billion of brokered. So, I don't think you'd get the full benefit in that amount. 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. And so, to the degree we continue to outperform, there would be additional NII upside relative to the guidance that we've laid out.

Matthew Breese
Matthew Breese
Analyst at Stephens

Great, and then last one, Ira. I couldn't help but notice you mentioned a return to, or I should say, a rekindled 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? And is that part of the expense guidance for 2025?

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

I think the number is 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. 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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.

Matthew Breese
Matthew Breese
Analyst at Stephens

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

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

Thanks, Matt.

Operator

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
Analyst at Piper Sandler

Good morning. Just, Ira, wondering if you could your level of confidence in getting to that ROA of 1% by the end of the year? You mentioned, 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 fourth quarter?

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

Yeah. 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.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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 our expectation that we can be exiting 2025 with an ROA above one.

Ira Robbins
Ira Robbins
CEO at Valley National Bancorp

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. We also saw one of our strongest deposit growth quarters ever at Valley. That's something that makes me feel really, really confident about what we're seeing here in being able to really grow deposits while at the same time pushing through significant deposit cost reductions is something that we haven't been able to really do here. We've seen tremendous success.

Frank Schiraldi
Frank Schiraldi
Analyst at Piper Sandler

Great. Okay. Thank you.

Ira Robbins
Ira Robbins
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
CEO at Valley National Bancorp

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

Operator

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

Executives
    • Travis Lan
      Travis Lan
      Head of Investor Relations
    • Ira Robbins
      Ira Robbins
      CEO
    • Tom Iadanza
      Tom Iadanza
      President
    • Mark Saeger
      Mark Saeger
      Chief Credit Officer
Analysts
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