Valley National Bancorp Q1 2025 Earnings Call Transcript

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April 24, 2025
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Operator

Good day, and thank you for standing by. Welcome to the Q1 twenty twenty five 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 hand the conference over to your speaker today, Travis Lam. Please go ahead.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Good morning, and welcome to Valley's First Quarter twenty twenty five Earnings Conference Call. I'm joined today by CEO, Ira Robbins 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
SEVP & CFO at Valley National Bancorp

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. Valley encourages all participants to refer to our SEC filings, including those found on Forms eight 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 first quarter of twenty twenty five, net income on both reported and adjusted basis was approximately $106,000,000 or $0.18 per diluted share. This compared to $116,000,000 and $0.20 on a reported basis or $76.13 on an adjusted basis a quarter ago. The sequential growth in adjusted earnings reflects revenue stability, lower operating expenses and a smaller loan loss provision. Clearly, much has changed since we spoke to you three months ago.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Tariff uncertainty has driven most economic growth estimates lower, while inflation expectations are rising. Volatility in the interest rate and equity markets has increased and the market now anticipates more cuts during the year. Despite this backdrop, we feel well positioned to improve further on this quarter's results. While our commercial real estate exposure has been a focus over the last eighteen months, this sizable portfolio is relatively insulated from potential tariff disruption and our ongoing CRE credit improvement should continue. More broadly, our commercial customers remain generally resolute with little direct exposure to the import and export business expected to be impacted by changing tariff policy.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

From a growth perspective, our consistent C and I expansion has primarily come from small and middle market businesses where demand continues to percolate. While increased competition has resulted in incremental spread compression, we are optimistic that we have sufficient opportunity to grow profitability throughout the year. As such, there are no changes to our return expectations on Slide five. On Slide six, we do provide a more granular directional update to the 2025 guidance items that we presented a few months ago. We anticipate that both loan growth and net interest income will be at the lower end of our expected range for 2025.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

However, this should be mostly offset by non interest expenses coming in towards the low end as well. There is no meaningful adjustment to our expectations for annual fee income or our tax rate. While charge offs and provisions were both somewhat elevated during the quarter, there is no change to our full year expectations for a roughly 50% decline in each metric from 2024. Slide seven illustrates the long 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 rate of growth continues to outpace peers.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

We remain focused on organic customer acquisition in both the commercial and consumer areas. These customers represent longer term revenue opportunities and will contribute meaningfully to the future performance of our institution. As we have continually 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. We continue to evolve with an internal focus on optimizing our operations, customer network and balance sheet to become a better, more profitable bank for our employees, our clients and our shareholders.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

While economic uncertainty may present incremental headwinds for the industry, I am confident that Vale is well positioned to navigate this most recent period of disruption as we continue to execute on our strategic imperatives. With that, I will turn the call back to Travis to discuss the quarter's financial highlights. After Travis concludes his remarks, Mark, Travis and I will be available for your questions.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Thank you, Ira. Slide eight illustrates the quarter's deposit growth and rate trends. Core customer deposits increased 600,000,000 which enabled the repayment of $700,000,000 of higher cost brokered balances. This is in addition to the $2,000,000,000 of brokered deposits, which matured and were repaid during the fourth quarter. Non interest deposit balances increased for the third consecutive quarter and now stand at the highest level since September of twenty twenty three.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

In addition to our strong growth, we continue to successfully reprice deposit costs lower. During the quarter, our average cost of deposits declined by 29 basis points. Our repricing actions have driven a total deposit beta of 53 since the Federal Reserve started reducing the Fed funds target rate in September of twenty twenty four. The quarter's net interest margin improvement was largely the result of our ability to reduce deposit costs and incrementally improve our funding mix. Slide 10 illustrates the components of the quarter's lending activity.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

We continue to manage the runoff of certain transactional investor CRE and construction loans, which contributed to a $350,000,000 decline in regulatory CRE during the quarter. As of 03/31/2025, our CRE concentration ratio was 353% versus three sixty two percent a quarter ago and 474% at the end of twenty twenty three. We anticipate that CRE originations will begin to pick up, which should slow the pace of runoff throughout the remainder of the year. While the first quarter tends to be seasonally slow, we are pleased with the 9% annualized C and I growth that we achieved. Similarly, we saw strong results within our prime indirect auto lending business.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

We expect the continued growth in these lending lines will support low single digit loan growth for the year. Slide 11 highlights the quarter's net interest income and net interest margin results. Net interest income declined modestly as a result of lower day count during the quarter. We estimate that the lower day count represented an approximate $9,000,000 headwind on the quarter's net interest income. Net interest margin increased for the fourth consecutive quarter, bolstered by the positive deposit composition and cost trends described earlier.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

As Ira mentioned, we now expect to be towards the lower end of our 9% to 12% net interest income growth range for 2025. While the interest rate environment remains generally in line with our expectations, lower loan growth and continued lending spread compression represent modest headwinds to our initial forecast. That said, we continue to expect that net interest margin will increase throughout the year as funding costs decline and the fixed rate asset repricing tailwind helps to mitigate potential asset exposure to lower interest rates. The next slide illustrates the quarter's stability in adjusted non interest income. Lower wealth and trust fees reflect a modest slowdown in tax credit advisory revenue.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Within capital markets, swap activity moderated somewhat, while FX and syndication fees both grew sequentially. We continue to believe that the midpoint of our 6% to 10% guided growth range remains reasonable for 2025. On Slide 13, you can see that adjusted non interest expenses of $267,000,000 were 3% lower than the fourth quarter and virtually flat as compared to a year ago. The sequential decline was mainly driven by lower technology, consulting and marketing expenses, which were partially offset by the seasonal uptick in payroll taxes. We remain focused on managing future expense growth to ensure that incremental revenue gains generate positive operating leverage and support our profitability improvement over time.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

As Ira mentioned, we believe that 2025 expense growth will likely fall to the lower end of our initial guidance range. Slide 14 illustrates our asset quality and reserve trends. Non accrual loans decreased modestly during the quarter. Accruing past due loans declined to 11 basis points as a pair of CRE loans, which had previously been delinquent for idiosyncratic reasons, became current again. There were no new material additions to accruing past due loans during the quarter.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Net loan charge offs and loan loss provision both declined meaningfully from the fourth quarter with the provision falling to the lowest level in the last twelve months. Given our current expectations for the credit environment, we anticipate that net charge offs and provision will continue to compare favorably to 2024 throughout the remainder of the year. During the quarter, our allowance coverage ratio increased five basis points to 1.22% and stands at the highest level of the past five years. We anticipate general stability in our allowance coverage going forward, all else equal. Turning to Slide 15.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Tangible book value increased as a result of retained earnings and a favorable OCI impact associated with our available for sale portfolio. Our regulatory capital ratios at 03/31/2025 were generally stable as compared to 12/31/2024. As Ira mentioned, we are extremely well positioned from a capital perspective have the financial flexibility to support our profitability goals throughout the year. With that, I will turn the call back to the operator to begin Q and A. Thank you.

Operator

Thank Our first question is going to come from the line of Frank Schiraldi with Piper Sandler. Your line is open. Please go ahead.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Thanks. Good morning.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Good morning, Frank.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Just last quarter, think you guys were talking about, if I'm not mistaken, commercial loan originations coming on in the 7% range. Just wondered if you can maybe talk about how that's progressed, where that is, where the back book's repricing currently?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes, Frank. New originations this quarter were slightly lower than the 7% level. I think on average, we were about six eighty. I think it's a combination of obviously lower benchmark rates and some compression in spreads that's pretty consistent with what we're seeing across the industry.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. And then obviously, you made a lot of progress on the CRE concentration levels over the last twelve months. You're basically at that three fifty threshold here. I think you talked about maybe the compression or the contraction slowing over this year. Just curious if you could talk about kind of longer term target?

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

And where do you think that non or when do you think that non owner occupied, pre balances, sort of stabilize here? And within that, just wondered if you talk about, the pickup in growth to offset that if you still think you can get, close to that double digit C and I growth this year.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Yeah, think let me start with just the C and I. Think we're definitely real positive about what we've seen there. The continued double digit growth is something that we anticipate to continue throughout the organization. We laid a really strong foundation for that over the last few years based on hirings and different industries that we've entered into. So that will definitely help as we think about the moderation of the CRE concentration that sits within the entire organization.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I think that said, we are getting generally pretty comfortable with where we are today. And some of the significant reductions that we've seen in the CRE portfolio are probably going to begin to stabilize, as we begin to see a little bit more uptick in some of the originations on that CRE book. So over a long period of time, the CRE concentration will definitely come down. But it'd be largely more attributable to growth in other areas, outside of us really reducing what we're seeing in that CRE portfolio.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Great. Okay. I appreciate the color. Thanks.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Chris McGratty with KBW.

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

Travis,

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

on the expense guide, you did great this quarter. To get to the updated guide it would imply a bit of a ramp. So I'm interested in your thoughts there or are you just being conservative at this point? It feels like low end or even a touch below might be in play. Thanks.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes, I think that's pretty reasonable. I think we've been consistently conservative with respect to our expense guide to give ourselves the flexibility to invest in revenue generating opportunities that we identify. I would say this quarter, we would anticipate obviously payroll taxes will normalize about $4,000,000 in the second quarter. But I do think that will be offset by higher kind of marketing and business development spend as the year goes on. And then professional fees were also fairly low this quarter and we managed that very tightly, but some opportunity there for that to be higher as the year goes on too.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

So I agree with your general sentiment, but those are some of the moving pieces. And all that said, mean, expenses remain very well controlled in general and certainly expect further positive operating leverage as the year goes on and further efficiency gains.

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

Awesome. And then in terms of deposit growth, interesting kind of what your updated thoughts are for the rest of the year and ultimately trying to land it, what you're going do with the bond portfolio and cash, those levels? Thanks.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes, sure. I think, look, we had very strong core customer deposit growth this quarter. Anticipate the momentum there will continue throughout the year, enabling us. I think first, our focus would be to pay off some amount of brokered, continue that positive trend that we've seen in the last two or three quarters. I think the cash position is in a pretty good place here.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Obviously, some room for to put additional funds to work. But again, our priority would be improvement of the brokered deposit portfolio. And then from a securities perspective, I think still going to grow a couple of hundred million dollars a quarter likely. The portfolio is at 12% of the balance sheet today. Over time, that trend is higher.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

But the toggle there will be loan growth. So if loan growth doesn't necessarily materialize, then we have more flexibility for the securities portfolio.

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

Great. Thanks, Ben.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is open. Please go ahead.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Hi, good morning. Ira, you noted that your CRE portfolio is insulated from tariff disruptions. Can you talk a little bit more about that? And also how you're thinking about which industries or which sectors might be under a little bit more stress here?

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Yes, definitely. I think having a CRE concentration as we continue to move forward some of the volatility might not be the worst thing in the world. Obviously, it's not a place we want to manage with the concentration by any means. But that said, I think when we think about the asset classes that are going to be impacted, if rates do come down on the long end, that would be a positive for us as we think about where we sit with the criticized assets, where we sit with the reserve coverage ratios, etcetera. So generally, the commercial clients that we have are more sensitive to interest rates than where they are on tariffs.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

As we think about building and some of the development that comes into it, the two factors that really impact development on the CRE side are really interest rates and labor. And both of those seem to be a little bit more controlled versus where they were before. So the tariff conversations, as we think about steel and some of the other things for the size borrowers that we do and for the projects that they have, really would have less of an impact as other ones. Obviously, there's industries that are going to be potentially more impacted than others based off of what we're seeing with the tariffs and some of the uncertainty. That said, we feel really strong about what our positions are.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

The equipment leasing business that we have on the industrial space is pretty small. The size of the clients are pretty small as well. So generally speaking, we think we're pretty insulated on an aggregate basis.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Great. That's very helpful. And maybe one for you, Travis. I think you noted spread compression a couple of times. It sounds like you're seeing more competition.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

I guess question there is, where is that coming from? And, are you expecting more spread compression in your guide?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes. So the guide does expect a little bit more spread compression than what we've seen. I think actually it was fairly benign at the end of twenty twenty four and we've seen some incremental pressure in the first quarter here. So that I think you do see competition for our high quality commercial deals in particular, something that we're not unfamiliar with. And we do have a variety of levers to pull depending on where the competition is greatest and where we view the opportunity to be.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

So whether that's the geographic diversity that we have between the Northeast and the Southeast or some of the nationwide businesses. Mean, mentioned equipment leasing, our healthcare business as well, fund finance. So we have a variety of levers to pull to make sure that we can continue to grow profitably in a more competitive world.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Is that coming more from the banks or from private credit?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

On the commercial side, I would say it's more from the banks. On CRE, I think private credit has gotten more active. As noted by the transaction we put on last year, there's still demand for CRE assets moving into private credit. But what we're talking about in general is more on the C and I side.

Manan Gosalia
Manan Gosalia
Analyst at Morgan Stanley

Got it. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Anthony Ilian with JPMorgan. Your line is open. Please go ahead.

Anthony Elian
Anthony Elian
Equity Research – Banks at J.P. Morgan

Hi, everyone. You reiterated the loan guide of up 3% to 5%, but you expect the low end now. I'm wondering, Travis, can 2Q actually be a loan growth quarter? Or will most of that growth you expect to

Anthony Elian
Anthony Elian
Equity Research – Banks at J.P. Morgan

be in the back half of the year?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

No, I think the second quarter can absolutely be a loan growth quarter. I mean, you look at what we did this quarter, I think the kind of headwind that we faced was pre originations were a little bit lighter than what we had anticipated. Payoffs were generally in line and then the growth we saw in C and I and consumer was in line with our strong expectations. So I think there's consistency and momentum in those last two areas being C and I and consumer. And then as CRE originations pick up, which we're beginning to see and we've seen an uptick in the pipeline on both the CRE and C and I side, we feel pretty good about growth here in the second and third quarter.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Maybe just to give you a

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

little bit more clarity on what that pipeline is, just in the commercial space, when you look at all components of where the pipeline sits, whether it's an approved or pre approved, we were sitting around $2,000,000,000 at last quarter end. Today, we're north of $2,700,000,000 Now obviously, we don't pull through all of that, but generally a lot more activity. And the anticipation is to have strong growth as we think about Q2, Q3 and Q4.

Anthony Elian
Anthony Elian
Equity Research – Banks at J.P. Morgan

Thank you. And then my follow-up for Mark. Last quarter, you called out some large loan relationships that drove the increase in fourth quarter commercial real estate and C and I non performers. I'm just wondering if you could provide us with an update on those loans. Thank you.

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

I'm sure. All of those loans have been written down and taken care of and no lingering on any of those fourth quarter issues. The charge offs this quarter were associated with two C and I credits predominantly making up the bulk of that portfolio. We are very comfortable with the guidance that we're giving on both provision and charge offs for the remaining portion of the year.

Anthony Elian
Anthony Elian
Equity Research – Banks at J.P. Morgan

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matthew Breese with Stephens Inc. Your line is open. Please go ahead.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Hey, good morning.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Good morning, Matt.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

I was hoping you could talk a bit about funding and core deposit growth expectations for the year. I'm also curious what's left on broker deposits to run off.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Yes. Maybe just let me start. I think just how we think about funding in general, Matt. And it's great to talk about the liability side of the balance sheet, but to talk about it in isolation without what we're doing on the asset side, I think, would probably be a little bit of a miss here. And one of the things we've been having to do across the entire organization is how we think about growth, right?

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

And we've seen organic growth on the loan side around double digits on a year over year basis. So obviously, as we grow the loan book between the 3% to 5%, there's a far less demand that's required from deposit originations. So some of the consistency that we've had in deposit originations will now provide a larger funding base for what we're doing on the loan side. In addition to that, obviously, we spent a lot of time thinking about some of the systems across the organization. We did a significant core conversion in October of twenty twenty three, which enabled us to put on a very large treasury platform here.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

That's now up and running. So we think we have a strong foundation and capabilities to continue to grow the funding side of the book, which will really support more on at least a one for one basis what we're doing on the loan side. But know Chad should have a bit more details on that.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes, for sure. Mean, Matt, coming into the year, our expectation for core customer deposit growth was 6%. This quarter was 5.5% on an annualized basis. So feel pretty good about being on track with those expectations. We do put in the investor deck on the page, I think Slide 11, the bottom right illustrates maturing CDs and FHLB borrowings.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

We still have a pool of $6,000,000,000 of brokered CDs, the majority of which are maturing over the next twelve months and create an opportunity to refinance lower into core customer deposits. And that's benefited the funding cost of the deposit betas so far as rates have come down and anticipate that, that will continue.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Got it. Okay. And then the other one is just on loan yields. The movement this quarter relative to Fed funds just struck me as quite a bit. So could you maybe help us out with the extent of spread compression?

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Because without it, the decline suggests there's just a really significant move lower in fixed or adjustable loan yields and just trying to suss that out.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes. I think part of the impact for the first quarter on margin and then within that asset yields and deposit costs is the fewer days. So with two fewer days, right, you're accreting less interest income, which has an impact on the way the yield presents itself. While we've talked about spreads tightening somewhat here, I don't think it's sufficient enough to create a meaningful move in the loan yield this quarter.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Got it. Okay. If I could sneak in

Matt Breese
Managing Director & Research Analyst at Stephens Inc

one more. Do you have the end of

Matt Breese
Managing Director & Research Analyst at Stephens Inc

period or most recent cost of deposits just to help us out directionally?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

I don't in front of me, Matt. I could follow-up. It's I don't in front of me.

Matt Breese
Managing Director & Research Analyst at Stephens Inc

Got it. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jared Shaw with Barclays. Your line is open. Please go ahead.

Jared Shaw
Jared Shaw
Managing Director at Barclays

Thanks. Good morning. I guess maybe sticking with the yield and cost, as we look at margin moving through the year, do you still feel that at the end of the year we can be at or exceeding the $310,000,000 level?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes. Jared, we absolutely do. And I think that's reiterated in some of the guidance pages that we provided here. I think for the full year, we're looking at a margin today of around $3.00 5,000,000 give or take. Obviously, that's dragged down by the first quarter at 2.96%.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

So by the time we get to the end of the year, we do anticipate 3.1%. I think the key drivers there, as we've talked about, is continued rotation on the funding side out of brokered into lower cost core, the opportunity to potentially reprice deposits again. And then the fixed rate asset repricing tailwind on the loan side. So those factors kind of coming together is what support that guidance.

Jared Shaw
Jared Shaw
Managing Director at Barclays

Okay. Thanks. And then on the credit discussion, just the build of the allowance this quarter, did you is that more qualitative overlay that you added to the allowance? Or is that did you actually use a more a change from the baseline Moody's assumption or more adverse So

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

predominantly the direction there, if you saw again, our CRE portfolio strength slightly, C and I increased. We've mentioned in the past that our reserve coverage for C and I is higher than for CRE and that directionally led to the build. We did keep our outlook from Moody's scenario similar to the prior year. And that's predominantly because all of the Moody's scenarios did take into account the tariff environment and expectations of tariffs going into place. So with that, we continue to keep our weightings the same, noting that we have a higher weighting on downside scenario than upside scenario in our model.

Jared Shaw
Jared Shaw
Managing Director at Barclays

Okay. All right. Thanks. And then just finally, I guess, what's the appetite for any additional CRE loan sales from here? You referenced sort of the strength of private equity, private capital.

Jared Shaw
Jared Shaw
Managing Director at Barclays

Is there an opportunity to do any more loan sales? Are you comfortable with sort of normal attrition from here?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

I think we're pretty comfortable with where the portfolio stands today. There's a lot of dialogue and a lot of inbound inquiries given the strength of our portfolio. But the reality is, I think we feel pretty confident about where we stand and about the path forward for us organically.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

And I think

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

just adding to that, when you look at the guidance we gave on that CRE concentration number, we feel pretty comfortable with operating around that number for a period of time. So we're pretty much right there, right now. And I think similarly, just going back to where the reserve coverage is, I think you'll notice we didn't adjust any of the guidance numbers targets for the reserve for the creep quarters this year, excuse me, this quarter versus in prior years. So, we've pretty much already met what that CECL number looks like for us for the year or where we think that the ACL coverage is. So obviously, we're expecting a lot less of a build as we move into the rest of the year.

Jared Shaw
Jared Shaw
Managing Director at Barclays

Great. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question is going to be from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Steve Moss
Steve Moss
Director at Raymond James Financial

Good morning.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Morning.

Steve Moss
Steve Moss
Director at Raymond James Financial

Maybe just following up on credit here. Know, just kind of curious where are your criticizing class sides as of March 31?

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

So as of March, we had a slight increase in migration, but still at a reduced level from what we saw in 2024. And we expect that trend of modest increase or reduction to go forward into 2025. During the quarter, we actually got repaid on $160,000,000 of criticized assets. All of those transactions were done at par and paid in full. I think we've mentioned in the past that primary driver of migration in portfolio had been our treatment of guarantor and how that impacts on the risk rating.

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

So in spite of the elevated level of criticized, we show very strong metrics with an improvement in non accrual numbers and at 11 basis points of the thirty to ninety day delinquency being one of the lowest levels that we've had in the ten years that I've been at the bank anyway, which shows that the portfolio is in a very strong performance standpoint.

Steve Moss
Steve Moss
Director at Raymond James Financial

Okay. And then, I guess, given the charge off guide implies lower charge offs going forward here. I guess I'm struck by you continue to have some commercial real estate formation, not performing formation. You still have elevated C and I loans kind of like what gives you a comfort just given where NPLs are that charge offs still remain at this higher level versus the guidance?

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

Yes. And I think I would point to that early stage delinquency number as really an important number about the overall performance in the portfolio and the modest decline that we're seeing on the non accrual side. In addition, just in general, in the CRE environment, as was mentioned with the spread, we're seeing much more activity in the market today with more options for real estate owners to sell properties at competitive prices, more refinance options than we saw in 2024.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Let me just add to that. I think as Mark said, some of what you're seeing in those criticized and classified numbers were a function of, as Mark alluded to, the guarantee as opposed to the underlying conditions of the individual asset. So some of those do migrate into non performing numbers. And there are some of those non performing numbers that are current to payment.

Steve Moss
Steve Moss
Director at Raymond James Financial

Great. Okay. To hear that, especially on the activity side as well. And then, I guess, terms of okay, and just in terms of the C and I charge offs here for the quarter, just give a little more color as to what type C and I loans were charged off?

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

Yeah, two unique situations, both of them. The charge off amount was almost entirely related to events of fraud in this situations, unique situations on the two credits and not something systemic that we could point to any other softness in the portfolio. So, unique to these two opportunities.

Steve Moss
Steve Moss
Director at Raymond James Financial

Okay, great. Appreciate all the color there. Thanks.

Operator

You. And one moment for our next question. Next question comes from the line of Jon Arfstrom with RBC Capital Markets. Your line is open. Please go ahead.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Thanks. Good morning.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

Good morning, John.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Ira, can can we go back to the pipeline and can you talk a little bit about how it's changed maybe over the last four or five weeks? And are you seeing any kind of, I guess, fading in some of the uncertainty and the pause by borrowers?

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

So no, it hasn't changed. We've obviously had a lot of conversations with our borrowers based on their perspective. I've listened to a lot of calls over the last couple of days just to hear what other CEOs are seeing in from their sentiment as they've talked to their clients. For us, it's been a pretty significant range. We have almost an equal number of clients that are positive and excited about what the long term implications are from a tariff perspective versus others that are obviously uncertain based on what's going to happen.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I would say, largely speaking, I'm not quite sure that we're giving enough credit to some of these small and entrepreneurial businesses, the ones that we bank, as to their ability to be resilient towards this actual environment. I spoke to one this morning. He was talking about his ability to already have total ability to reduce any potential increase based on expense reductions. And he had a document on his desk from his team earlier in the week. And other ones sat there and told me that they just put out their COVID playbook and they're ready to actually move forward.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

So I think we're hearing a little bit of uncertainty on an absolute basis. I would say though for many of our borrowers, they felt like they've had to operate in that environment since what we saw with COVID. But we aren't seeing anything from a fundamental perspective that will lead pipelines to really decline at this point. So we'll see whether perspective really comes up different than behavior this time.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay, fair enough. Anything you guys would call out on non interest income in terms of the drivers of the outlook? And then just curious how you're feeling about wealth and the outlook for growth there?

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Yes, John, thank you. Look, I think there's a strong outlook for wealth, particularly when you factor in tax credit advisory revenue that hits that line. First quarter was a little bit softer, but the pipeline for deals there is building and should benefit us in the second and third quarter. And then on the capital markets side, I mean, FX continues to be a strong growth driver, although in aggregate, it's a relatively small contributor, but still very good trends there. And then as CRE originations pick up, we would expect to see some additional swap activity as well supporting the capital markets line.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

So I think there's some good trends there on the deposit service charge side. Again, increased the pricing in the middle of last year. Full year benefit of that in 2025 will be another supporter of the outlook. So feel good about some of the opportunities and momentum that we have on the fee side.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. Thank you.

Travis Lan
Travis Lan
SEVP & CFO at Valley National Bancorp

Thanks, John.

Operator

Thank you. And I would like to hand the conference back over to Ira Robbins for further remarks.

Ira Robbins
Ira Robbins
Chairman & CEO at Valley National Bancorp

I just want to thank everyone for taking the time to listen to us today, and we look forward to reporting you positive results for next quarter. Thank you.

Operator

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

Executives
    • Travis Lan
      Travis Lan
      SEVP & CFO
    • Ira Robbins
      Ira Robbins
      Chairman & CEO
    • Mark Saeger
      Mark Saeger
      Executive VP & Chief Credit Officer
Analysts
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Earnings Conference Call
Valley National Bancorp Q1 2025
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