Q2 2024 Valley National Bancorp Earnings Call

Good day and thank you for standing by. Welcome to the second quarter 2024 Valley National Bank Corp earnings conference call. At this time all participants are in the listen-only mode.

Operator: Bank Corp. Earnings Conference At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.

Operator: You will then hear an automated message advising your hand is raised; to adjourn, 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 for today, Travis Lan. Please go ahead.

Travis P. Lan: Good morning, and welcome to Valley's second quarter 2024 earnings conference call. Presenting on behalf of Valley today are our CEO Ira Robbins, President Thomas Iadanza, and Chief Financial Officer Mike Hagedorn. 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.

Good morning, and welcome to valleys second quarter 2024 earnings conference call presenting on behalf of Valley today are CEO IRA Robbins, President Thomas <unk>, and Chief Financial Officer before we begin I would like to make everyone aware that our quarterly earnings release and supporting documents can be found at our company website at <unk> Dot 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 Valley encourages.

Travis P. Lan: Please refer to today's earnings release for reconciliations of these non-GAAP measures. Additionally, I would like to highlight slide two of our earnings presentation and remind you that comments made during this call may contain forward-looking statements relating to Valley National Bank and the banking industry. Valley encourages all participants to refer to our SEC filings, including those found in Forms 8K, 10Q, and 10K, for a complete discussion of forward-looking statements and the factors that could cause actual results to differ from those statements. With that, we'll turn the call over to Ira Robbins. Thank you, Travis.

Ira D. Robbins: During the second quarter of 2024, Valley reported net income of $70 million and diluted earnings per share of $0.13. The sequential reduction in net income was the result of stable pre-tax, pre-provision net revenue supported by a positive inflection in net interest income and the elevated loan loss provision. While this provision is outside our normal range, we believe that this quarter will represent the relative peak in our provisioning. Last quarter, I outlined the planned acceleration of our strategic initiatives aimed at normalizing certain balance sheet metrics, which are outliers to peers.

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 conference call over to IRA Robbins.

Thank you Travis joining.

During the second quarter of 2020 for Valley reported net income of $70 million and diluted earnings per share of <unk> 13 cents.

The sequential reduction in net income was the result of stable pre tax pre provision net revenue supported by the positive inflection in net interest income and the elevated loan loss provision.

While this provision is outside our normal range, we believe that this quarter will represent the relative peak in our provisioning.

Last quarter I outlined the planned acceleration of our strategic initiatives aimed at normalizing certain balance sheet metrics, which are outliers to peers.

Ira D. Robbins: I am extremely pleased with the significant progress that we have quickly made relative to each of our state of balance sheet goals. Importantly, we have begun to execute on these initiatives without diminishing our future earnings capacity. In fact, we believe that the further strengthening of our balance sheet will drive stability in our performance and relative value in the market. Our progress is illustrated in detail on slide four. By the end of the second quarter, both our CRE concentration and allowance coverage ratios had already reached the year-end expectations that we laid out just three months ago.

Im extremely pleased with the significant progress that we have quickly made relative to each of our stated balance sheet goals.

Fortunately, we have begun to execute on these initiatives without diminishing our future earnings capacity.

In fact, we believe that the further strengthening of our balance sheet will drive stability in our performance and relative value in the market.

Our progress is illustrated in detail on slide four.

But at the end of the second quarter those are Cree concentration and allowance coverage ratios have already reached a year end expectations that we laid out just three months ago.

Ira D. Robbins: By limiting our invest decree and multifamily originations and reclassifying certain health care loans to the owner-occupied bucket, we were able to reduce our commercial real estate concentration ratio to our full-year 2024 target of around 440%. Additionally, with the backdrop of strong credit performance and stable past-due and non-accrual loan metrics during the quarter, our reserve coverage expanded to our near-term targeted level of above 1%. We now anticipate reaching our intermediate-term expectation of around 1.10% by the end of 2024.

By limiting our investor Cree and multifamily originations and reclassifying certain health care loans to the owner occupied bucket, we were able to reduce our commercial real estate concentration ratio to our full year 2024 target of around 440%.

With the backdrop of a strong credit performance and stable past due and nonaccrual loan metrics during the quarter, our reserve coverage expanded to our near term targeted level of about 1% San Francisco, We now anticipate reaching our intermediate term expectation of around 110% by the end of 2024.

Ira D. Robbins: To be clear, there is no change to our belief that a coverage ratio of about 1.10% is appropriate for our risk profile given our analysis of the portfolio and current backdrop. This quarter's elevated provision in the context of strong credit performance was the result of our conservative decision to place less value on personal guarantees as a mitigating factor in our internal loan risk ratings. This shift drove additional loan downgrades into our criticized and classified buckets, which each carry higher reserve requirements under our methodology.

To be clear there is no change to our belief that a coverage ratio of about 110% is appropriate for our risk profile given our analysis of the portfolio and current backdrop.

This quarters elevated provision in the context of strong credit performance was the result of our conservative decision to place less value on personal guarantees as a mitigating factor in our internal loan risk ratings. This shift drove additional loan downgrades into criticized and classified buckets, which each carry higher <unk>.

There are requirements under our methodology.

Ira D. Robbins: Our Criticize and Classify loans continue to perform and remain current with regard to payment activity. While this conservative approach to personal guarantees is reasonable given the current market environment, we continue to believe personal guarantees are useful in influencing borrower behavior and in cases of stress. These guarantees have proven very useful in limiting charge-offs and enhancing recoveries throughout our history. For this reason, we anticipate that, in practice, personal guarantees will continue to be valuable in minimizing the lost content of our portfolio going forward.

Our criticized and classified loans continued to perform and remain current with regards to payment activity.

While this conservative approach to personal guarantees is reasonable given the current market environment. We continue to believe personal guarantees are useful and is influencing borrower behavior and in cases of stress. These guarantees have proven very useful and limiting charge offs and enhancing recoveries throughout our history.

For this reason, we anticipate that in practice personal guarantees will continue to be valuable and minimizing the loss content of our portfolio going forward.

Ira D. Robbins: Turning to capital, our risk-based ratios improved meaningfully during the quarter despite strong non-cree balance sheet growth and only modest retained earnings. This growth was primarily the result of a synthetic risk transfer which we executed during the quarter. This transaction reduced the risk-weighted assets associated with our indirect auto loan business by approximately $1 billion.

Turning to capital our risk based ratios improved meaningfully during the quarter. Despite strong non core balance sheet growth and only modest retained earnings.

This growth was primarily the result of a synthetic risk transfer, which we executed during the quarter.

This transaction reduced the risk weighted assets associated with our indirect auto loan business by approximately $1 billion.

Ira D. Robbins: We remain very comfortable with our regulatory capital levels and the significant expansion we have generated on both a quarter over quarter and year over year basis. Slide six lays out our expectations for the remainder of 2024. We anticipate low single-digit annualized loan growth for the rest of the year.

We remain very comfortable with our regulatory capital levels and the significant expansion, we have generated on both a quarter over quarter and year over year basis.

Slide six lays out our expectations for the remainder of 2024.

We anticipate low single digit annualized loan growth for the rest of the year.

Ira D. Robbins: Consistent with this quarter's strong results, future loan growth will likely be tilted towards C&I and owner-occupied residential mortgages, as new investor residential mortgage originations remain well controlled. We anticipate that this growth and the continued repricing of existing assets will support up to 3% growth in net interest income on a quarterly basis for the rest of the year. Non-interest income should recover from current levels as capital markets activity picks up and we continue to expand our treasury management capabilities.

Consistent with this quarter's strong results future loan growth will likely be tilted towards C&I and owner occupied Cree as new Investor Cree originations remained well controlled.

We anticipate that this growth and the continued re pricing of existing assets will support up to 3% growth in net interest income on a quarterly basis for the rest of the year.

Noninterest income should recover from current levels as capital markets activity picks up and we continue to expand our treasury management capabilities.

Ira D. Robbins: Non-interest expense remains well controlled, though we will see a full quarter's impact of the premium expense associated with our risk trade in the third and fourth quarters. Our tax rate is likely to come in between 25 and 26 percent for the rest of the year.

Noninterest expense remained well controlled though we will see a full quarter's impact of the premium expense associated with a risk trade in the third and fourth quarters.

Our tax rate is likely to come in between 25 and 26% for the rest of the year.

Ira D. Robbins: From a credit perspective, net charge-offs are likely to remain around current levels for the rest of the year. However, I will reiterate that we are confident our provision has peaked and that a level between the first and second quarters' provision is a more reasonable quarterly expectation for the remainder of the year. These expectations, combined with our loan growth outlook, implies we will end the year with an ACL-to-loan ratio of around 1.10%.

From a credit perspective, net charge offs are likely to remain around current levels for the rest of the year. However, I will reiterate that we are confident our provision is peak and then a level between the first and second quarters provision is a more reasonable quarterly expectation for the remainder of the year.

These expectations combined with our loan growth outlook implies we will end the year within our within ACL to loan ratio of around 110%.

Ira D. Robbins: Before turning the call over to Tom, I wanted to highlight the underlying franchise value that we continue to create at Valley. Since the end of 2017, we have grown reportable tangible book value by 47% versus 36% for our regional banking peers. Including the impact of distributed dividends, this increases to 93% growth versus 70%, respectively.

Before turning the call over to Tom I wanted to highlight the underlying franchise value that we continue to create a valley.

Since the end of 2017, we have grown reportable tangible book value by 47% versus 36% for our regional banking peers.

Including the impact of distributed dividends this increases to 93% growth versus 70% respectively.

Ira D. Robbins: This variance reflects our ability to enhance our franchise value without meaningfully diluting tangible book value and overpriced acquisitions or entrusting other experts to maximize near-term results. Customer account growth is another key metric that gauges our ability to build and optimize our franchise value. Commercial deposit account growth remains strong during the quarter, and our stable deposit levels on a quarterly average balance indicate significant stability, despite some late-quarter movement that temporarily impacts spot balances at the end of the quarter.

This variance reflects our ability to enhance our franchise value without meaningfully diluting tangible book value and overpriced acquisitions or whoever aspects to maximize near term results.

Customer account growth is another key metric the gauges, our ability to build and optimize our franchise value.

Commercial deposit account growth remained strong during the quarter and our stable deposit levels on a quarterly average balance indicates significant stability. Despite some late quarter movement that temporary impacted spot balances at the end of the quarter.

Ira D. Robbins: Average balances in July have rebounded, which further underpins our confidence that net interest income growth will continue. We also believe that there is significant value in the geographic diversity that we have developed on both the asset and liability sides of the balance sheet. At the end of 2017, nearly 80% of our commercial loans were concentrated in New York and New Jersey.

Average balances in July have rebounded, which further underpins our confidence that net interest income growth will continue.

We also believe that there is significant value in the geographic diversity that we have developed on both the asset and liability side of the balance sheet.

At the end of 2017, nearly 80% of our commercial loans were concentrated in New York and New Jersey.

Ira D. Robbins: That figure has declined to 50% today as a result of our focus on Florida and other dynamic commercial markets. We continue to develop exceptional service-oriented banking teams across the country, which are focused on generating and enhancing valuable commercial relationships that we have targeted. Meanwhile, at the end of 2017, 78% of our deposits were in Northeast branches. As of the end of the second quarter, that number has declined to just 43%.

That figure has declined to 50% today as a result of our focus in Florida and other dynamic commercial markets.

We continue to develop exceptional service oriented banking teams across the country, which are focused on generating and enhancing valuable commercial relationships that we have targeted.

Meanwhile, at the end of 2017, 78% of our deposits were in northeast branches.

As of the end of the second quarter that number has declined to just 43%.

Thomas A. Iadanza: We have diverse funding niche businesses and a robust branch network across Florida and Alabama. This diversity helps to insulate our funding base and provides unique and differentiated opportunities to reduce our reliance on wholesale funding over time. In conclusion, I am extremely pleased with the progress that we have already made towards achieving our stated balance sheet goals. We continue to work hard to further position ourselves for growth and high performance as the environment normalizes.

We have diverse funding niche businesses and a robust branch network across Florida and Alabama.

This diversity helps to insulate our funding base and provides unique and differentiated opportunities to reduce our reliance on wholesale funding over time.

In conclusion I am extremely pleased with the progress that we have already made towards achieving our stated balance sheet goals.

We continue to work hard to further position ourselves for growth and high performance as the environment normalizes.

Thomas A. Iadanza: I am confident that given what we know, our provision has already peaked with continued net interest income momentum, fee normalization, and expense control. We expect that our earnings will expand throughout the rest of the year and set us up for continued improvement in 2025. With that, I will turn the call over to Tom and Mike to discuss the Corps' growth and financial results. After Mike concludes his remarks, Tom, Mike, myself, and Mark Saeger, our Chief Credit Officer, will be available for your questions. Thank you, Ira.

I'm confident that given what we know our provision has already peaked with continued net interest income momentum.

The normalization and expense control, we expect that our earnings will expand throughout the rest of the year and set us up for continued improvement in 2025.

With that I will turn the call over to Tom and Mike to discuss the quarters growth and financial results.

After Mike concludes his remarks, Tom Mike myself, and Mark CAGR, our Chief credit officer will be available for your questions.

Thomas A. Iadanza: Slide nine illustrates the quarter's deposit trends. Total deposits increased $1 billion compared to the first quarter, largely due to higher levels of indirect deposits. Meanwhile, customer balances, including on the non-interest-bearing side, were generally stable throughout the quarter. This stability enabled us to largely hold the line for the third consecutive quarter from a pricing perspective. The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business line.

Thank you IRA slide nine illustrates the quarter's deposit trends total deposits increased $1 billion compared to the first quarter largely due to higher levels of indirect deposits.

Meanwhile, customer balances, including on the noninterest bearing side were generally stable throughout the quarter. This stability enabled us to largely hold the line.

<unk> third consecutive quarter from a pricing perspective.

The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business line growth trends in our specialty commercial verticals and private banking business were strong during the quarter and partially mitigated late quarter run off in branch deposits.

Thomas A. Iadanza: Growth trends in our specialty commercial verticals and private banking business were strong during the quarter and partially mitigated the late quarter runoff in branch deposits. Average deposit balances in July are running higher than second quarter levels as customer activity has rebounded from a brief quarter-end dip.

Average deposit balances in July are running higher than second quarter levels as customer activity has rebounded from a brief quarter and depth.

Thomas A. Iadanza: While we do not typically reference deposit team additions as they occur, we recently received approval to open a new branch office in Beverly Hills, California. This location will be overseen by experienced in-market leadership and will supplement the delivery of our financial products and services to our existing customers. We are also planning a new branch opening in Staten Island, which is contiguous to our existing Metro New York footprint.

While we do not typically referenced deposit team additions as they occur. We recently received approval to open a new branch office in Beverly Hills, California.

This location will be overseen by experienced and market leadership and will supplement the delivery of our financial products and services to our existing customer base.

We are also planning a new branch opening in Staten Island, which is contiguous to our existing Metro New York footprint, we have over 2000 customers in this market already and are extremely excited about the market leadership that we have attracted to accelerate our business development efforts.

Thomas A. Iadanza: We have over 2000 customers in this market already and are extremely excited about the market leadership that we have attracted to accelerate our business development efforts. Both initiatives will enhance our name recognition in our markets and are expected to contribute to future deposit growth. In addition to growing deposits through our specialty commercial vertical, which I previously mentioned, we believe selective branch expansion, supported by experienced in-market leaders, is an attractive option to grow core deposits at a reasonable all-in cost, and we anticipate a few additional opportunities to come to fruition. Slide 11 illustrates the drivers of loan growth during the quarter. Total loans increased by almost $400 million, driven by roughly 16% annualized C&I growth.

Both initiatives will enhance our name recognition in our markets and are expected to contribute to future deposit growth.

In addition to growing deposits through our specialty commercial vertical which I previously mentioned, we believe selective branch expansion supported by experienced and market leaders as an attractive option to grow core deposits at a reasonable all in costs and we anticipate a few additional opt.

<unk> to come to fruition.

Slide 11 illustrates the drivers of loan growth during the quarter total loans increased almost $400 million.

It's driven by a roughly 16% annualized C&I growth.

Thomas A. Iadanza: Our focus on CNI has been a strategic imperative as we work to further diversify our balance sheet. This quarter's growth came across multiple business lines and geographies, and while future growth may be lumpy, there are significant opportunities for longer-term growth in this asset class. On the commercial real estate side, we saw a meaningful shift from investor real estate to owner-occupied real estate during the quarter. While the majority of this transition was the result of the reclassification of approximately $1 billion of health care loans, we continued to benefit from this strategic de-emphasis on investor real estate origination. This focus will continue to result in lower real estate concentration going forward.

Our focus on C&I has been a strategic imperative as we work to further diversify our balance sheet.

This quarter's growth CAGR across multiple business lines and geographies and while future growth may be lumpy there are significant opportunities for longer term growth in this asset class.

On the commercial real estate side, we saw a meaningful shift from investor real estate to owner occupied real estate during the quarter. While the majority of this transition was the result of the reclassification of approximately $1 billion of healthcare loans, we continued to benefit from this strategic DFS.

<unk> of Investor Real estate originations. This focus will continue to result in lower real estate concentration going forward.

Thomas A. Iadanza: Slide 12 provides additional detail on the composition of our commercial real estate portfolio by property type and geography. In general, the commercial real estate markets and borrower performance across our footprint remain healthy. With that, I will turn the call over to Mike Hagedorn to provide additional insight into the quarter's finances. Thank you, Tom.

Slide 12 provides additional detail on the composition of our commercial real estate portfolio by.

By property type and geography.

In general the commercial real estate markets and borrower performance across our footprint remain healthy.

With that I will turn the call over to Mike Hagadorn to provide additional insight into the quarter's financials.

Michael D. Hagedorn: Staying on the CRE topic for a moment, slide 15 illustrates the contractual maturities of our commercial real estate portfolio. We have included the LTV, DSCR, and rate by maturity bucket for your benefit. This maturity schedule illustrates the minimal near-term repricing risk that exists in our portfolio. Slide 16 highlights the significant positive inflection in both net interest income and net interest margin this quarter. This strong performance was the result of both interest income growth and interest expense reductions relative to the first quarter of the year.

Thank you Tom staying on the topic for a moment slide 15 illustrates the contractual maturities of our commercial real estate portfolio. We have included the LTV DSC VR and rate by maturity bucket for your benefit this maturity schedule illustrates the minimal near term repricing risk.

That exists in our portfolio.

Slide 16 highlights the significant positive inflection in both net interest income and net interest margin this quarter.

This strong performance was the result of both interest income growth and interest expense reductions relative to the first quarter of the year.

Michael D. Hagedorn: We forecast continued net interest income growth as a result of modest balance sheet growth and the ongoing tailwind associated with asset yield expansion. On the funding side, we have benefited from targeted deposit cost reductions that were implemented over the last few quarters. Average non-interest deposits increased modestly during the quarter, and despite a brief dip at the quarter end, we are seeing additional growth in average non-interest balances already in the third quarter.

We forecast continued net interest income growth as a result of modest balance sheet growth and the ongoing tailwind associated with asset yield expansion.

On the funding side, we have benefited from targeted deposit cost reductions that were implemented over the last few quarters.

Average noninterest deposits increased modestly during the quarter and despite a brief dip at the quarter and we are seeing additional growth in average noninterest balances already in the third quarter.

Michael D. Hagedorn: Turning to the next slide, you can see that non-increased income on an adjusted basis declined compared to the first quarter of 2024. Roughly 75% of the net decline in fee income was related to the anticipated normalization of tax credit advisory revenues from the first quarter's elevated level.

Turning to the next slide you can see that noninterest income on an adjusted basis declined compared to the first quarter of 2024.

Roughly 75% of the net decline in fee income was related to the anticipated normalization.

Next credit advisory revenues from the first quarter's elevated level.

Michael D. Hagedorn: Beyond this, we were impacted by a negative valuation adjustment on certain fintech investments, which was partially offset by stronger swap fees, insurance commissions, and bank-owned life insurance income. We continue to drive growth in our capital markets, wealth management, and treasury services channels. These factors are likely to drive the anticipated growth in fee income for the rest of the year. On the following slide, you can see that our non-interest expenses were approximately $278 million for the quarter. Adjusting for our $1.4 million FDIC special assessment and certain other non-core charges, non-interest expenses were approximately $270 million on an adjusted basis.

Beyond this we were impacted by a negative valuation adjustment on certain fintech investments, which was partially offset by stronger swap fees insurance commissions and bank owned life insurance income.

We continue to drive growth in our capital markets wealth management and Treasury services channels.

These factors are likely to drive the anticipated growth in fee income for the rest of the year.

On the following slide you can see that our noninterest expenses were approximately $278 million for the quarter.

Adjusting for our $1 4 million FDIC special assessment and certain other noncore charges noninterest expenses were approximately $270 million on an adjusted basis.

Michael D. Hagedorn: This represents a very modest increase from both the first quarter of 2024 and the second quarter of 2023. This was primarily the result of costs related to the credit risk transfer that we executed and higher traditional FDIC assessment expenses. We continue to focus on headcount optimization and technology efficiencies to combat the revenue pressure that has occurred.

This represents a very modest increase from both the first quarter of 2024 in the second quarter of 2023.

This was primarily the result of costs related to the credit risk transfer that we executed and higher traditional FDIC assessment expense.

We continue to focus on head count optimization and technology efficiencies to combat the revenue pressure that has occurred.

Michael D. Hagedorn: As a reminder, our non-interest expense for the rest of the year will include roughly $6 million of premium costs related to our risk transfer transaction. On Slide 19, you can see the continued and notable stability in our non-accrual and pass-through loan category. Despite the impact of higher rates and isolated stress in the office segment, our borrowers continue to generally perform well.

As a reminder, our noninterest expense for the rest of the year will include roughly $6 million of premium costs related to our risk transfer transaction.

On Slide 19, you can see the continued and notable stability in our non accrual and past due loan categories. Despite the impact of higher rates and isolated stress in the office segment, our borrowers continue to generally perform well.

Michael D. Hagedorn: At the bottom left, you can see the lower historical loss content of our portfolio, which plays out consistently across cycles. We remain confident in our reserve coverage relative to our lost content, as illustrated in the charts on the bottom right. The next slide illustrates the trend in allowance coverage, charge-offs, and provision. Our allowance coverage ratio continues to expand towards the intermediate term target, and you heard Ira describe the drivers of this expansion during the second quarter.

At the bottom left you can see the lower historical loss content of our portfolio, which plays out consistently across cycles.

We remain confident in our reserve coverage relative to our loss content as illustrated in the chart on the bottom right.

The next slide illustrates the trend in allowance coverage charge offs and provisioning our allowance coverage ratio continues to expand towards the intermediate term target and you heard IRA described the drivers of this expansion during the second quarter.

Michael D. Hagedorn: To reiterate, we expect that the allowance-to-loan-loss ratio will reach a level of around 1.10% based on current market dynamics and our knowledge of the portfolio. This expectation implies that our provision has peaked and will likely trend lower over the next few quarters. The overwhelming majority of our loan portfolio continues to perform extremely well. Roughly 85% of the quarter's net charge-offs were the result of a single commercial real estate and single C&I credit. The C&I credit was largely covered by pre-existing specific reserves.

To reiterate we expect that the allowance to loan loss ratio will reach a level of around 110% based on current market dynamics and our knowledge of the portfolio.

This expectation implies that our provision this peak and will likely trend lower over the next few quarters.

The overwhelming majority of our loan portfolio continues to perform extremely well roughly 85% of the quarters net charge offs were the result of a single commercial real estate and single C&I credit.

The C&I credit was largely covered by pre existing specific reserve.

Operator: As Ira indicated, given the current market environment, we do anticipate that net charge-offs will remain close to current levels for the remainder of the year. The next slide illustrates the sequential increase in our tangible book value and capital ratios. The quarter's elevated provision and modest expansion headwind from the OCI impact associated with our available for sale securities portfolio weighed on tangible book value growth for the quarter. That said, we are extremely pleased with the significant growth in our risk-based capital ratios relative to both the prior quarter and the year-ago period.

As IRA indicated given the current market environment, we do anticipate that net charge offs will remain close to current levels for the remainder of the year.

IRA: The next slide illustrates the sequential increase in our tangible book value and capital ratios.

IRA: <unk> elevated provision and modest expansion of headwind from the OCI impact associated with our available for sale securities portfolio weighed on tangible book value growth for the quarter.

IRA: That said, we are extremely pleased with the significant growth in our risk based capital ratios relative to both the prior quarter and the year ago period.

Operator: We are very proud of our ability to strengthen our balance sheet and enhance financial flexibility in shareholder-friendly ways. With that, I'll turn the call back to the operator to begin the Q&A. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. As well, we ask that you wait for your name and company to be announced before continuing with your call. And our first question for today comes from Frank. Schiraldi of Piper Sendler, your line is open. Good morning.

IRA: We are very proud of our ability to strengthen our balance sheet and enhanced financial flexibility and shareholder friendly ways.

Speaker Change: With that I'll turn the call back to the operator to begin Q&A. Thank you.

Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.

Speaker Change: As well.

Speaker Change: We ask that you wait for your name and company to be announce before you proceed with your question.

Speaker Change: And our first question for today comes from Frank.

Ravi: So ravi of.

Speaker Change: Piper Sandler your line is open.

Frank Joseph Schiraldi: Ira, you mentioned the 110 reserve to loan ratio. Essentially, I guess you're just getting there early here. But in terms of a continued mixed shift towards CNI, I would think that would still tend to put additional pressure on that ratio. So sounds like you're pretty comfortable with the 110, but just kind of curious if you can walk through the thinking there. Is the idea that criticized and classified begin to moderate here as an offset? Just curious about your thoughts. I just Hey, Frank, this is Mark Saeger.

Speaker Change: Good morning.

Brian: Hi, Brian.

IRA: IRA you mentioned, the onetime reserve to loan ratio and.

Speaker Change: Sorry, I guess Youre, just getting there early here, but in terms of a continued mix shift.

Speaker Change: Towards C&I I would think that would still tend to put additional crusher.

Speaker Change: On that ratio. So it sounds like you are pretty comfortable with the one plan, but just kind of curious if you can walk through.

Speaker Change: Thank you mayor is the idea that criticized and classified again moderate here as masa.

Speaker Change: Curious your thoughts.

Mark Saeger: I think on the criticized classified front, if you see our migration, this quarter was lower than the prior quarter and very much associated with what Ira mentioned, deemphasizing a personal guarantee in our decisioning on internal risk grading. I want to make it clear, though, that we think that loans with a guarantee will ultimately have materially better outcomes for the organization, and they continue to be very important in our, really, relationship-based model within the organization. To your point about C&I, you're correct in the sense that C&I does traditionally carry a higher level of provisioning than CREE, and that's going to be a portion of the build.

Hey, Frank This is mark CAGR I think on the criticized classified Friday, if you see our migration this quarter was lower than prior quarter and very much associated with what I remember.

Speaker Change: Deemphasizing, a personal guarantee in our decisioning, an internal risk rating.

Speaker Change: I wanted to make it clear, though we think that loans with a guarantee we will ultimately have materially better outcomes for the organization and they continue to be very important and are.

Speaker Change: Really relationship based model within the organization.

Speaker Change: To your point about C&I.

Speaker Change: Correct in the sense that C&I does traditionally carry a higher higher level of provisioning.

Speaker Change: Then Cree and Thats going to be a portion of the build however.

Mark Saeger: However, in the environment that we're in right now with continued higher interest rates, there is likely to be a continued modest migration in our CREE portfolio into the criticized category. Okay, um, but just want to say you're still comfortable even in that, with that makeshift towards C&I and in the reserve loan ratio at about 110. You don't see a need for that to move higher in the near term. No, the 110 is a continuation of our bill, and we're comfortable with that level. And then, just as a follow-up.

Speaker Change: The environment that we're in right now with continued higher interest rates there is likely to be a continued modest migration and our creep portfolio into criticized categories.

Speaker Change: Okay.

Speaker Change: But just wanted to so youre still comfortable even than that.

Speaker Change: That mix shift towards C&I.

Speaker Change: Our reserve to loan ratio.

IRA: At one time.

Speaker Change: You don't see a need for that to move higher in the near term.

Speaker Change: No. The 110 is a continuation of our build and we're comfortable with that level.

IRA: Okay.

Speaker Change: And then just as a follow up.

Ira D. Robbins: You obviously worked on Cree in part through this reclassification, and I imagine that's something you guys have been more active in pursuing. Just curious if there's continued efforts here that could potentially drive more to come. And any updated thoughts about now that you're at kind of your year-end level, I guess, for concentrations on CRE, your target, any updated thoughts on where you could be by the end of or what you're targeting by the end of 2025 in terms of concentration. Thanks.

IRA: Obviously worked out on Korean part through this.

Speaker Change: Reclassification I imagine Thats something you guys have been more active pursuing just curious if theres continued efforts here that could potentially drive more to come.

Speaker Change: And and.

Speaker Change: Any updated thoughts about now that youre at kind of year end level I guess for <unk>.

Speaker Change: Concentrations on clay your target.

Speaker Change: Any any updated thoughts on where you could be.

IRA: By the end of or what you're targeting by the end of 2025 in terms of concentration. Thanks.

Ira D. Robbins: Yeah, I think we were pretty specific last quarter about where we thought from an intermediate basis and getting below 400 was pretty important to us. Obviously, accelerating it, if possible, is something that we're looking at doing. But keeping in mind, we want to make sure we keep in mind the earnings profile of the organization, and as we look to different alternatives, making sure that they're in a shareholder-friendly manner, and we're not denigrating the future earnings profile.

Speaker Change: Yes, I think we were pretty specific last quarter sort of where we thought from an intermediate basis and getting below 400 was pretty important to us.

IRA: Obviously accelerating it impossible is something that we're looking at doing but keeping in mind, we wanted to make sure we.

IRA: And keep in mind that the earnings profile of the organization and as we look to different alternatives, making sure that theyre in a shareholder friendly manner and we're not denigrating at future earnings profile. So it really is a balance for us as we continue to move forward.

Ira D. Robbins: So it really is a balance for us as we continue to move forward. We're really excited about the ability to accelerate some of those initiatives, but we have to keep in mind some of the economics associated with different alternatives as well.

IRA: Excited about the ability to accelerate some of those initiatives, but we have to keep in mind some of the economics associated with different alternatives as well.

Ira D. Robbins: Okay, and then just on the reclassification, was that like a specific sort of project to move that along? Is that largely completed? Or could we see another bucket of that next quarter?

Speaker Change: Okay, and then just on the reclassification is that.

Speaker Change: Was that specific sort of project to move that along is that largely completed or could we see another another bucket of that next quarter.

Ira D. Robbins: That was a specific project that we put together specifically related to the skilled nursing segment of the portfolio, and that was essentially completed in the second quarter. Okay, thanks. Thank you. One moment for the next question. And our next question will be coming from Stephen Alexopoulos, of JP Morgan. Your line is open. Hi, everybody. How are you?

That was a specific project that we put together specifically related to skilled nursing segment of the portfolio and that was essentially completed in the second quarter.

IRA: Great. Okay. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for the next question.

IRA: And our next question will be coming from Steven Alexopoulos.

<unk> Jpmorgan your line is open.

Steven A. Alexopoulos: Hi, everybody.

Travis P. Lan: Start I run, Outlook, the one and a half to three percent, I assume that's unannualized growth, but I want to confirm that, and then I want to ask if we get two rate cuts. Yeah, Stephen, this is Travis. So you're correct. That is unannualized growth that we're showing on a quarterly basis going forward. Our forward guidance assumes two rate cuts consistent with what the implied curve was at 630.

Steven A. Alexopoulos: How are you.

Speaker Change: IRA and the net interest income outlook wanted to up to 3%.

Steven A. Alexopoulos: Assume thats, an annualized growth, but I wanted to confirm that and then I wanted to ask if we get two rate cuts where do you think you end up in the range.

Travis P. Lan: So that's factored in there. And then I think within that range, you could also, you know, static rates are captured in that range as well as there's just not much impact or change to our NII guidance, you know, depending on the amount of rate cuts here in the near term and then on slide. The 1.1 billion of commercial real estate that matured and was retained, did you guys..., sessions there.

Travis: Yes, Stephen this is Travis. So you are correct that is an annualized growth that we're showing on a quarterly basis going forward. Our forward guidance assumes two rate cuts consistent with what the implied curve was at 630.

Speaker Change: Thats factored in there and then I think within that range. You could also now static rates, they're captured in that range as well as theres, just not much impact or change to our NII.

Speaker Change: Guidance dependent on the amount of rate cuts here in the near term.

Stephen: Got it Okay. That's helpful. And then on slide 15, the commercial real estate that sounds very helpful. The $1 1 billion of commercial real estate debt matured and was retained did you guys can you walk us through did you need to make concessions there that these move into an extension period or were these full refinance or the borrower put them.

Speaker Change: More equity in these are new commercial real estate loans.

Travis P. Lan: [inaudible] So on the retained side, all of those loans were repriced at current market rates and sized appropriately to our standards. You'll note we have the modified other of two million that really represents a modified structure, historic TDR type relationship. The million one was all at market terms. Mark, because I guess we're hearing some borrow for any of these dead.

Speaker Change: So on the retail side all of those loans were repriced at current market rates and sized appropriately to our standards. You'll note. We have modified either of $2 million Thats really represents a modified structure historic PDR type relationships.

Speaker Change: The 1 billion one whats all at market terms.

Speaker Change: Okay, Mark because I guess, we're hearing some borrowers are just looking for one year extension, if you will not necessarily refinancing the loan.

Speaker Change: Yes in nature.

Unknown Executive: Yes, yes, Stephen. Absolutely. The duration of some of these transactions was shorter than five-year renewals. However, all of them were done, again, at current market rates and with normalized amortization. Sometimes yes, sometimes no.

Speaker Change: Yes, yes, Steven absolutely the duration of some of these transactions were shorter than five year renewals. However, all of them were done.

Speaker Change: Again at current market rates and with normalized amortization.

Speaker Change: So they would need to put full equity and to get that extension basically.

Unknown Executive: Yeah, depending on where the loan stands at maturity, to the next level, we'll get, Sorry, so the equity level wouldn't need to be normal, but obviously, based on the original loan to value, many of the borrowers didn't even need to put in equity. And then final for me on the RWA Benefit and the strategy. Are you guys looking at other uses of synthetic instruments? We expect more of this in the second half. Yeah, Stephen. This is Travis.

Speaker Change: Sometimes asked sometimes now yes, depending on where the loan stands at maturity.

Speaker Change: Okay.

Speaker Change: Yeah, sorry, so the equity levels would it needed to be normal, but obviously based on the original loan to value many of the borrowers didn't even need to put in equity.

Speaker Change: Got it Okay, and then final for me.

Speaker Change: The <unk> benefit and the strategy on the auto loans. This quarter you guys looking at other use of synthetic instruments should we expect more of this in the second half or is it done.

Travis P. Lan: I mean, we always kind of analyze what's out there and available. I mean, I think you see more of these risk transfers being done in the industry. It's not necessarily unique to Valley.

Speaker Change: Yes, Stephen this is Travis.

Travis: We always kind of analyze what's out there and available I mean, I think you see more of these risk transfer is being done in the industry not unique to valley necessarily I.

Travis: I think the auto portfolio is the low hanging fruit to be honest, but we continue to analyze other opportunities in other asset classes as well. So I think again not just for value, but for the rest of the industry Youll see these being used to generate capital efficiency on a go forward basis.

Speaker Change: Got it okay. Thanks for taking my questions.

David: Thanks, David.

Speaker Change: Okay.

Speaker Change: A moment, while we prepare for the next question.

Speaker Change: And the next question will be coming from Matthew Breese of Stephens.

Travis P. Lan: I think the auto portfolio was the low-hanging fruit, to be honest, but we, you know, continue to analyze other opportunities and other asset classes as well. So I think, again, not just for Valley, but for the rest of the industry, you'll see these being used to generate capital efficiency on a go forward basis.

Matthew M. Breese: Hey, good morning.

Matthew M. Breese: Thank you good morning, everybody.

Travis P. Lan: Okay. Thanks for taking my questions. Thanks, Stephen. All right, one moment while we prepare for the next question. And the next question will be coming from Matthew Breese of Stevens. Hey, good morning. Thank you. Good morning, everybody. Ira, I think you hinted at this, but I was hoping to get your thoughts on either selling commercial real estate loans or securitizing loans to accelerate and lower that CRE concentration. How likely is that type of outcome?

Matt: Right Matt.

Matthew M. Breese: Alright. Thank you hinted at this but I was hoping to get your thoughts on either selling in commercial real estate loans securitizing loans to accelerate and lower that CRE concentration how likely is that type of outcome.

Ira D. Robbins: and if you do end up going that route, what would you be willing to tell us in terms of, you know, earnings or tangible book value impacts that you'd be willing to absorb to achieve those goals fast? I think you highlighted the appropriate guardrails, Matt, right? I think we've done a good job for a long period of time prioritizing growth and tangible book value and demonstrating that tangible book value is something that's important to us and really what that threshold is.

Speaker Change: And if you do end up going that route.

Speaker Change: What would you be willing to tell us in terms of.

Speaker Change: Earnings our tangible book value impacts that you'd be able to absorb to achieve those goals faster.

Speaker Change: So I think you highlighted the appropriate guardrails, Matt right I think we've done a good job for a long period of time prioritizing growth in tangible book value and denigrating that tangible book value.

Speaker Change: That's important to us and really what that threshold is and once again, maintaining an earnings profile. That's that's really set to continue to grow based on where we're seeing the balance sheet as well as the net interest margin becomes important to us. So it is a toggle as to how we think about the acceleration that said, we do think there continues to be a lot of.

Ira D. Robbins: And once again, maintaining an earnings profile that's really set to continue to grow based on where we're seeing the balance sheet as well as the net interest margin become important to us. So it is a toggle as to how we think about the acceleration.

Ira D. Robbins: That said, we do think there continue to be a lot of opportunities as to how we can reposition the balance sheet a little bit quicker without denigrating what that earnings profile is. So there are opportunities, and we continue to weigh them, and we will execute on them when we think it makes good sense, not just from a balance sheet mixed perspective but also from an earnings perspective. Okay. And I know you all over the past handful of quarters have taken a much more hands-on approach to deposit costs. They were only up two basis points quarter to quarter. Can we see deposit costs fall next quarter and have interest-bearing liabilities peaked for the cycle? Good question.

<unk> as to how we can reposition the balance sheet, a little bit quicker when that to integrating what that earnings profile is so.

Speaker Change: There are opportunities and we continue to weigh them and we will execute on them. When we think it makes good sense not just from a balance sheet mix perspective, but also from an earnings profile perspective.

Speaker Change: Okay.

Speaker Change: And I know you all over the past handful of quarters and taken a much more hands on approach to deposit cost they were only up two basis points quarter over quarter.

Speaker Change: Can we see deposit cost for next quarter and have interest bearing liabilities peaks of the cycle.

Unknown Executive: And, you know, I think our results for the quarter kind of speak to themselves, and we're strong. When you look at total deposits increasing by a billion dollars, and you look at the cost makeup of those deposits, total deposit costs, as we mentioned earlier, were only up two basis points. But in that category of total deposits, brokered costs were flat at 505 for both quarters.

Speaker Change: Yes, it's a good question and I think our results for the quarter kind of speak for themselves and for strong when you look at total deposits increased.

Speaker Change: $1 billion and you look at the cost makeup of those deposits.

Speaker Change: Total the total deposit costs as we mentioned earlier were only up two basis points within that category of total deposits brokered costs were flat at 505 for both quarters and customer costs actually declined two basis points.

Unknown Executive: Customer Costs Actually Declined to Basis Points. And when you look at the inside of that customer portion of it, you know, we raised $1.3 billion in customer deposits at a cost of $324 million. So I think it kind of speaks for itself that, you know, the cost reductions that we did, along with our ability to generate from our various sources that we've built over the years, were very strong. And you see that in the numbers.

Speaker Change: And when you look at inside of that customer portion of it.

Speaker Change: Raised $1 $3 billion of customer deposits at a cost of $3 24.

Speaker Change: I think it kind of speaks for itself.

Speaker Change: The cost reductions that we did.

Speaker Change: Along with our ability to generate from our various sources that we built over the years was.

Speaker Change: He was very strong and you see that in the numbers this quarter.

Unknown Executive: And then, you know, you're not the only bank that is de-emphasizing commercial real estate and working towards more C&I loan votes. Are you seeing any deterioration in underwriting of commercial loans? Are you seeing some loan covenants being given away or tighter spreads? I'd love some commentary on that. Hey Matt, it's Tom.

Speaker Change: Okay and then.

Speaker Change: Youre not the only bank that is deemphasizing commercial real estate and working towards more C&I loan growth.

Speaker Change: Are you seeing any.

Speaker Change: Deterioration in underwriting of a promotional loans are you seeing.

Speaker Change: Loan covenants being given away or tighter spreads I'd love some commentary on that.

Thomas A. Iadanza: Now we are underwriting in our C&I portfolio on these originations, but it's similar terms and credit metrics that we've underwritten to in the past. You know, we've always said we're not going to sacrifice credit quality for quick growth. And we've been growing C&I for the last six years at around 10% annualized, and this quarter, it's at 16% annualized. And it's coming primarily from our specialty niches, where we have experience and a reputation in the market, as well as in our Florida region, which is still experiencing solid growth.

Hey, Matt its Tom now, where our underwriting in our C&I portfolio on the originations I bet, it's similar terms and credit metrics that we've underwritten to in the past. We've always said, we're not going to sacrifice credit quality for quick growth and we've been growing C&I for the last six years at around 10% annualized.

Speaker Change: And this quarter, it's a 60% annualize and it's coming primarily from our <unk>.

Speaker Change: Specialty niches, where we have experienced in our reputation in the market as well as in our Florida region, which is still experiencing solid.

Speaker Change: Both.

Thomas A. Iadanza: Okay, last one for me, you know, you have 100, I think 115 million of subdebt reaching its reset date next year. Any plans there paid off yet? Or should we expect some sort of preemptive raise to get ahead of it? Matt, we always monitor debt capital markets. I mean, I think we've kind of issued sub-debt every 18 months, obviously, with some of the dynamics in the industry last year, right, that the sub-debt market and debt capital markets, in general, have been a little bit slower, seeing some strengthening today, but you know, I think on a regular basis, sub-debt will be kind of a part of the capital stack.

Speaker Change: Got it Okay last one for me you have a 100 I think of $115 million of sub debt, reaching its reset date next year.

Speaker Change: Any plans there paid off or should we expect some sort of preemptive rates.

Thomas A. Iadanza: And we're always monitoring, you know, shareholder-friendly ways to enhance the balance sheet. I'll leave it there. Thanks for taking my questions. Thanks, Matt. Thank you. The next question will be coming from Mama. Gosalia of Morgan State, line is open.

Speaker Change: To get ahead of it.

And that we always monitor the debt capital markets I mean, I think we've kind of issued sub debt every 18 months, obviously with some of the dynamics in the industry last year right that the sub debt market in debt capital markets. In general have has been a little bit slower seeing some strengthening today, but I think on a regular basis sub debt will be kind of a part of the capital stack.

Speaker Change: <unk>.

Speaker Change: And we're always monitoring shareholder friendly ways to enhance the balance sheet.

Speaker Change: I'll leave it there thanks for taking my questions.

Matt: Thanks, Matt.

Speaker Change: Thank you.

Speaker Change: The next question.

Speaker Change: Will be coming from.

Speaker Change: Manner.

Speaker Change: The failure of Morgan Stanley Your line is open.

Manan Gosalia: Hi, good morning. Could you talk about what drove the decision to accelerate the reserve bill this quarter? And specifically, what does that mean for 2025?

Speaker Change: Hi, good morning.

Speaker Change: Good morning.

Speaker Change: I wanted to follow up on the reserve question could you talk about what drove the decision to accelerate the reserve build this quarter and.

Unknown Executive: Are there any specific reserves embedded in that that could drive a reserve bleed next year if charge-offs come through, or do you expect to stay in that 1.1% range for the foreseeable future? So there are some specific reserves in there, but we foresee staying within the 1.1 ratio going forward, and we're very comfortable at that level.

Speaker Change: Specifically, what does that mean for 2025 are there any specific reserves embedded in that that could drive a reserve bleed next year of charge offs came through or do you expect to stay in that one 1% range for the foreseeable future.

Speaker Change: So there are some specific reserves in there, but we foresee staying within the one one ratio on a go forward and we're very comfortable at that level manner.

Unknown Executive: And then in terms of the charge-off this quarter, if you could speak to a couple of credits, is there any read across to the rest of the portfolio? And as I look at the forward NCO guide, I think the midpoint of that range is pretty much in line with the second quarter. It's a little bit higher than the prior quarter, so I just wanted to check if you know, does that come from planned actions to reduce concentration?

Speaker Change: Great.

Speaker Change: Then.

Speaker Change: Tom.

Speaker Change: The charge offs this quarter, if you could speak to.

Speaker Change: The couple of credits.

Speaker Change: Any is there any read across to the rest of the portfolio.

And then as I look at the forward.

Speaker Change: Guide I think at the midpoint of that range is pretty much in line with the second quarter.

Speaker Change: It's a little bit higher than the prior quarter. So I just wanted to check is.

Speaker Change: Does that come from planned actions to reduce concentration.

Unknown Executive: Is there anything you're seeing in the portfolio, or is it just conservatism? Thanks. As in the remarks by Ira, again, two credits really drove the level of charge-offs that we saw this quarter. One of them, on the CRE side, was an office building.

Speaker Change: Is there anything youre seeing in the portfolio or is it just conservatism.

IRA: So as in the remarks by IRA.

Speaker Change: Then two credits really drove the level of charge offs that we see this quarter.

Speaker Change: One of them on the <unk> side was a office building.

Unknown Executive: I point to the granularity that we have in our office portfolio with a 3.3 average loan. This loan was a larger CRE loan, just north of $30 million. I would note that, in addition to the granularity, we have a very small number of larger loans. We only have six office loans that are over $50 million.

I point to the granularity that we have in our office portfolio with $3 three average loan.

Speaker Change: This loan was a larger loan just north of $30 million.

Speaker Change: I would note that.

Speaker Change: In addition to the granularity we have a very small number of larger loans. We only have six office loans that are over $50 million.

Unknown Executive: One of them is our headquarters, and of those six, we just have one that's classified. So, we continue to monitor the office portfolio on a regular basis, updating metrics on all of our office loans, north of $10 million. And the migration in the portfolio throughout this year has been disproportionate to office, although in the second quarter, that has moderated in the office portfolio. And in terms of the forward NCOs. Does the slightly higher level on NCOs come from reduced concentration or reduced concentration of the CRE book, or is it just that some conservators have been better than that?

Speaker Change: One of them is our headquarters.

Speaker Change: And of those six we just have one of those classified so we continue to monitor the office portfolio.

Speaker Change: Are they.

Speaker Change: <unk> basis updating metrics on <unk>.

Speaker Change: All of our office loans north of $10 million.

Speaker Change: And the migration in the portfolio.

Speaker Change: Yes.

Speaker Change: Through throughout this year has been disproportionate to office, although in the second quarter that that has has moderated in the office portfolio.

Speaker Change: Got it and in terms of the forward Ncis.

Speaker Change: Does that does slightly higher level of Antero has come from.

Speaker Change: Yeah.

Speaker Change: Concentration reducing concentration to the CRE book or is it just some conservatism embedded in there.

Unknown Executive: It is more Cree focused on what we're looking at potential charge-offs. Customers that are on our radar that have the potential for rollover risk in the future, which could deteriorate debt service coverage on a go-forward basis. So we continue to keep those on our radar and note that they may or may not lead to future charge-offs down the road.

Speaker Change: It is more Cree focused on what we're looking at potential charge offs.

Speaker Change: Customers that are on our radar.

Speaker Change: Potential for rollover risk in the future, which could deteriorate.

Speaker Change: Debt service coverage on that on a go forward basis. So we continue to keep those on our on our radar.

And note that that they may or may not lead to future charge offs down there.

Speaker Change: Got it thank you.

Unknown Executive: Thank you. Thank you. One moment for the next question. And our next question will be coming from Steve McGrady of the KBW. I'm sorry, KBW, your line is open. Great, thanks.

Speaker Change: Thank you one moment to the next question.

Speaker Change: And our next question will be coming from these mcgratty of <unk>.

Speaker Change: <unk> I'm sorry, <unk> your line is open.

Unknown Executive: There was a lot of discussion from some of your competitors this quarter and last quarter just about portfolio reviews in terms of provisioning and reserve build outlooks. I'm interested in kind of what you've done, not only this quarter but in the last couple quarters to give a deeper look into some of the CRE book to get to that peak provision. So, if you recall from our first quarter call, we looked at the vast majority of the portfolio through the end of the first quarter with updated information on all those customers.

Speaker Change: Great. Thanks.

Dees McGratty: A lot of discussion from some of your competitors this quarter and last quarter I was just about portfolio reviews.

Speaker Change: In terms of provisioning and reserve build outlooks.

Speaker Change: I'm interested in kind of what you've done not only this quarter, but in the last couple of quarters to give.

Speaker Change: A deeper look into some of the CRE book to get to that peak provision comment. Thanks.

So if you recall from our first quarter call.

Speaker Change: Looked at the vast majority of the portfolio.

Speaker Change: Through the end of the first quarter with updated information on all of those customers the migration this quarter.

Unknown Executive: The migration this quarter, again, as mentioned, was related to our view of the benefit of a personal guarantee within risk grading and really de-emphasizing that on a go-forward basis. So our review was proactive and mostly completed in the first quarter, and we've essentially gone through the vast majority of our exposure to date. I think one of the things that I would add to it is, you know, this isn't just internally Valley looking at it.

Speaker Change: As mentioned was related to our view of the benefit of a personal guarantee within risk rating and really deemphasizing that on a go forward basis.

Speaker Change: So our review was proactive in mostly completed in the first quarter and we've essentially gone through.

Speaker Change: The vast majority of our exposure to date.

Speaker Change #100: I think one of the thing that I would add to it is this isn't just internally valley looking at and we've engaged with third parties to come in and assess.

Unknown Executive: We've engaged with third parties to come in and assess the portfolio as well, just to make sure that our view is aligned with the outside view as well. Great, thank you. And then, as a follow-up, could you provide the criticized classifieds for the late quarter and also this quarter? I don't know if I saw it in the deck.

Speaker Change #100: As portfolio as well just to make sure that that our view is.

Speaker Change #100: <unk> is aligned with the outside view as well.

Speaker Change #101: Great. Thank you and then just a follow up.

Speaker Change #102: Could you provide the criticized classified the linked quarter and also this quarter I don't know if I saw it in the deck.

Unknown Executive: Thanks. Yeah, it'll come out in the queue. We had migration of around 350 million this quarter, which is down from 600 million in the prior quarter, and more details on that will be in the Q&A. All right. Thanks.

Speaker Change #103: Yes, it will come out in the Q, we had migration of around $350 million this quarter, which is down from $600 million in the prior quarter.

Speaker Change #102: <unk>.

Speaker Change #104: And more details on that will be in the queue.

Speaker Change #105: Alright, thanks, guys.

Stephen M. Moss: Thank you. One moment for the next question. And our next question will be coming from Steve Moss of Raymond James. Your line is open. Good morning. Good morning, Steve.

Speaker Change #106: Thank you one moment for the next question.

Speaker Change #108: And our next question will be coming from Steve Moss of Raymond James Your line is open.

Stephen M. Moss: Good morning.

Stephen M. Moss: Good morning. Starting on the liquidity bill here, you guys added broker deposits and investment securities. Kind of curious, you know, how much higher do you expect to take the investment securities portfolio and maybe continue to add broker deposits. I think in general, there will be a growth tailwind on the securities portfolio. But this quarter was certainly more outsized than what you've seen.

Stephen M. Moss: Wednesday's.

Speaker Change #109: Starting on the liquidity build here.

Stephen M. Moss: You guys added broker deposits and investment securities kind of curious.

Speaker Change #110: How much higher do you expect to take.

Speaker Change #110: To take the investment securities portfolio, maybe continue to add broker deposits.

Speaker Change #111: I think in general there will be a growth tailwind on the securities portfolio, but this quarter was certainly more outsized than what <unk> seen.

Unknown Executive: Look, I think part of the reason for that is we have this additional cost associated with the risk transfer trade. So a small, modest leverage strategy to help offset the cost there was on our mind. It's done in a capital efficient way; we're buying Ginnie Mae securities with zero risk weight.

Speaker Change #112: Look I think part of the reason for that is we have this additional costs associated with the risk transfer trades. So a small modest leverage strategy to help offset the cost there was on our mind, it's done in a capital efficient way, we're buying Ginnie Mae securities with zero risk weight.

Unknown Executive: So that's kind of important to what we're doing here. So I think over time, it migrates higher, but I don't think there will be any rash actions candidly on the securities portfolio. Okay. Appreciate that. And then on.

Speaker Change #112: So thats kind of important to what we're doing here. So I think over time, it migrates higher but I don't think there'll be any rash actions candidly on our securities portfolio.

Speaker Change #112: Okay.

Speaker Change #113: That and then on.

Unknown Executive: Going back to total capital here, you guys are 12.2% as of quarter end. Just curious, you know, do you have any short or intermediate term targets as to where you want that to go? I think from a macro basis, we're definitely pretty pleased with where the regulatory capital ratios are. We did get some guidance as to where we think the CT1 number needs to get to, and we're still focused on making sure, from a longer term perspective, that we get to over 10%. Okay, I appreciate that.

Speaker Change #114: Going back to total capital here you guys are 12, 2% as of as of.

Speaker Change #115: Quarter ended just curious do you have any short or intermediate term targets as to where you want that to go.

Speaker Change #116: I think from a macro basis, we are definitely pretty pleased with where the regulatory capital ratios are we did give some guidance as to where we think the CET one number needs to get to and we're still focused on making sure from a longer term perspective that we get to over over 10% on that number.

Unknown Executive: And then in terms of the Commercial Real Estate that repriced this quarter, you know, just maybe just going back to that kind of curious question, what is your view of full market rate or fair market rate for commercial real estate repricing? Yeah, it's Tom, Steve. It really depends on the asset class and segment, the metrics on loan-to-value, debt service coverage, and such. You know, we have spreads in those classes as high as 400 basis points, probably as low, and no lower than 250 basis points. It really depends on the asset class, the ratio, and the metrics.

Speaker Change #115: Okay.

Okay.

Speaker Change #115: That and then in terms of the.

Speaker Change #115: The commercial real estate that reprice this quarter.

Speaker Change #117: Just maybe just going back to that kind of curious what is the what is your view of full market radar fair market rate for commercial real estate re pricing these days.

Tom: It's Tom Steve It really depends on the asset class and segment the metrics on loan to value debt service coverage and such.

Speaker Change #119: We have spreads in those classes as high as 400 basis points, probably as low no lower than 250 basis points, but it really depends on the asset class duration of metrics and I think on a macro basis. The average spread that was about $3 50. So we think thats, probably indicative and I think as we.

Unknown Executive: And I think, on a macro basis, the average spread that we put was about 350, so we think that's probably indicative. And I think, you know, as we alluded to earlier, these were done at market terms when it comes to what the loan-to-value coverage should look like, the debt service coverage ratio, as well as what those spreads should look like. Okay. I appreciate that and maybe, just kind of, circling back to the de-emphasis here on the personal guarantee. You know, was that done?

Speaker Change #120: You alluded to earlier.

Speaker Change #120: These were done at market terms when it comes to what the loan to value coverage should look like the debt service coverage ratio.

Speaker Change #120: As well as what those spreads should look like.

Speaker Change #120: Okay.

Speaker Change #121: I appreciate that and maybe just kind of.

Speaker Change #121: Circling back to the de emphasis here of the personal guarantee.

Unknown Executive: Are you kind of just curious as to the rationalization there? Was it, you know, regulatory driven? Or is it just that you're seeing, you know, customer borrower cash flows deteriorate here? And, you know, what's the dynamics there to make that change? And this, this is Mark. We really took that option to have a conservative look at the portfolio while historically, The performance that we have and what we're seeing to date for loans with a guarantee versus those without is clearly stronger. We focused our risk ratings on an unadjusted primary source of repayment and so really hyper focused on debt service coverage as being a primary driver of our rate. Okay, great. I really appreciate all the answers.

Speaker Change #121: Yeah.

Speaker Change #122: That's done.

Speaker Change #123: I'm just curious as to the rationalization there was it.

Speaker Change #124: Regulatory driven or is it just that youre seeing customer borrower cash flows deteriorate here and whats.

Speaker Change #124: What's the dynamic there.

Speaker Change #127: To make that change here.

Mark: This is mark.

We really took that option.

Speaker Change #126: To have a conservative look at portfolio, while historically.

Speaker Change #126: The performance that we have and what we're seeing to date for loans with the guarantee.

Speaker Change #128: First those without is clearly stronger.

Speaker Change #128: We focused our risk ratings on an unadjusted primary source of repayment and so really hyper focused our debt service coverage as being a primary driver of our ratings.

Speaker Change #129: Okay great.

We appreciate all.

Speaker Change #129: The answers thank you.

Speaker Change #130: Thank you.

Speaker Change #135: Thank you one moment for the next question.

Unknown Executive: Thank you. Thank you. Thank you. One moment for the next question. Next, we have a question from Jon Arfstrom of RBC Capital Markets. Your line is open. Hey, thanks. Good morning. Can you hear me OK?

Speaker Change #130: Next spring.

Speaker Change #131: I'm, John <unk> of RBC capital markets. Your line is open.

Speaker Change #132: Great. Thanks, Good morning can you hear me okay.

Jon Glenn Arfstrom: Yeah, definitely. Okay. Maybe for Mark or Tom back on slide 15.

Speaker Change #130: Yes.

Speaker Change #130: Okay.

Speaker Change #136: Maybe for Mark or Tom back on Slide 15.

Unknown Executive: And that upper left box, it seems like a good outcome with only 2 million modified. Curious if that outcome was surprising at all to you, and when you look at the cadence of... What's coming? Do you expect similar-type outcomes over the next few quarters than what you just experienced this past quarter? I think it's not a surprise for us who live with a portfolio in a forward-looking way. We point to our conservative underwriting, our initial sizing of loans, so that by time of maturity, we see a reduced principal amount through amortization, and improved NOI on the majority of asset classes. Outside of office and rent-stabilized multifamily, we're seeing strong metrics in retail, industrial, and market rate multifamily in our primary

Speaker Change #133: In the upper left box it seems like a good outcome.

Speaker Change #134: With only $2 million modified.

Speaker Change #140: Curious if that outcome was surprising at all to you and when you look at the cadence of.

Speaker Change #137: Whats coming due you expect similar type outcomes over the next few quarters than what you just experienced this past quarter.

Speaker Change #138: I think not a surprise for us who live with a portfolio and a forward looking way, we point to our conservative underwriting our initial sizing of loans, so that by time of maturity.

Speaker Change #139: We see.

Speaker Change #141: Reduced principal amount through amortization and improved NOI on the majority of asset classes outside of office and rent stabilized multifamily were seeing strong metrics and retail industrial and market rate multifamily and our primary market.

Speaker Change #141: So NOI growth, coupled with with prudent sizing.

Unknown Executive: So NOI growth, coupled with prudent sizing at origination on these loans, we're not so surprised by the good results that we're seeing on the refinancing side. Maybe, Jon, just one thing I wanted to add to that.

Speaker Change #143: At origination on these loans.

Speaker Change #141: We're not we're not so surprised by the good results that we're seeing in the refinancing side.

Ira D. Robbins: I think when you look at the bottom of that chart, we talk about the borrower contractual rate there. And I know that's been a big issue for many within the industry, because there's been a significant increase in what that rate is for many of these borrowers as they readjust. You know, for us, you're looking at a rate, obviously, for what's coming to in the third quarter of 24 at 763. So, there really isn't a huge adjustment for many of the borrowers.

Speaker Change #141: John just one thing I wanted to add to that I think when you look at the bottom of that chart. We talk about the bar contractual rate there and I know that's been a big issue for many within the industry is theres been a significant increase in what that.

Speaker Change #142: Right. It is for many of these borrowers as they readjust for.

Speaker Change #144: So youre looking at a rate of Odyssey for what's coming through in third quarter of 2763. So there really isn't a huge adjustment for many of the borrowers and you can see what that looks like as we continue to move forward. So I think one of the.

Unknown Executive: And you can see what that looks like as we continue to move forward. So, I think one of the common issues for many of our peers out there, as they have to reset these borrowers to higher rates and what that does to the underlying debt service coverage ratio, really isn't as significant for us. Okay, that's a good point. Maybe for Mike or Travis, maybe an obvious answer, but the higher end and the lower end of the quarterly NII growth.

Speaker Change #144: The common issues for many of our peers out there as they have to reset. These these borrowers to higher rates and what that does to the underlying debt service coverage ratio are really isn't that significant for us.

Speaker Change #145: Okay. Okay. That's a good point.

Travis: Maybe for micro Travis.

Speaker Change #146: Maybe an obvious answer but the higher end on the lower end of the quarterly NII growth.

Unknown Executive: Anything you would call out for us to think about in terms of how you get to the higher end or the lower end of that guide? Now, we just know there's a diversity of opinion maybe on the outcome for interest rates, and there's only a slight impact on our NII at the end of the day, but there's nothing material. I mean, also, the other factor would obviously be giving ourselves a range of growth.

Speaker Change #147: You would call out for us to think about in terms of how you get to the higher end or the lower end.

Speaker Change #148: I'd now we just know there is a diversity of opinion may be on the outcome for interest rates and there's only had a slight impact on our NII at the end of the day, but yes.

Speaker Change #149: There is nothing material I mean also the other the other factor would obviously be giving ourselves a range of growth. We gave you growth guidance of low single digits and so that can mean, a couple of different things and that would be factored in there as well.

Unknown Executive: We gave you growth guidance of low single digits, and so that can mean a couple different things, and that would be factored in there as well. Okay, and then just last one. You guys talked earlier about CNI growth maybe being more lumpy or erratic. Can you talk a little bit about the pipelines there and what it feels like it's going to be commercially driven loan growth in that series? So just help us understand what the pipeline looks like. Thank you. Okay, Jon, it's Tom.

Speaker Change #148: Okay.

Speaker Change #150: And then just last one.

Speaker Change #151: You guys talked earlier about the C&I growth.

Speaker Change #152: Maybe being more lumpy.

Speaker Change #152: Roddick.

Speaker Change #153: Can you talk a little bit about the pipeline there and what that is.

Speaker Change #153: Feels like it's going to be commercial driven loan growth without CRE. So just help us understand what the pipeline looks like thank you.

Thomas A. Iadanza: Pipeline actually increased 30% quarter over quarter, and the pipeline is very stable and growing. We're seeing a lot of it coming out of those relationships, specialty national businesses, as well as our Florida region, steady in the Northeast, but a higher percent growth on both what we originated in the past quarter and what our pipeline's looking at going forward. So we expect to maintain the guidance of what we put out in that low single digits for the second half of the year, driven primarily by C&I.

Jonathan: Yes, Jonathan.

Tom Steve: Tom pipeline.

Speaker Change #156: Pipeline actually increased 30% quarter over quarter, and our pipeline is very stable growing.

Speaker Change #157: We're seeing a lot of it coming out of those relationships specialty national businesses as well as our Florida region steady in the northeast, but a higher percent growth on both what we originate in the past quarter and what our pipeline is looking at going forward. So we expect to maintain the guidance of what we what we.

Speaker Change #158: Avnet low single digits for the second half of the year driven primarily by C&I.

Thomas A. Iadanza: Okay, thanks guys. Thank you. One moment for the next question. And our next question will be coming from Jared Shaw. Your line is open. Hey, good morning.

Speaker Change #159: Okay. Okay. Thanks, guys.

Speaker Change #160: Thank you.

Speaker Change #161: One moment for the next question.

Speaker Change #161: And our next question will be coming from Jared Shaw claim.

Speaker Change #162: Your line is open.

Jared Shaw: Maybe just going back to the criticism and classification, what would the growth have been without the reclassification of personal guarantee? Hey, Jared, this is this is Mark. I don't have the breakout specifically, but the majority of the migration this quarter was related to our approach on personal guarantees. Okay, all right. That's good. Thanks.

Speaker Change #163: Hey, good morning.

Speaker Change #162: Thanks.

Maybe just going back to the criticizing classified what was the what would the growth have been without the <unk>.

Speaker Change #164: <unk> suffocation of personal guarantee.

Speaker Change #164: Hey, Jared this is mark I don't have the.

Jared Shaw: Breakout specifically, but the majority of the migration this quarter was related to our approach on personal guarantees.

Speaker Change #166: Okay, Alright, that's good thanks, and then just sort of following up on Chris's question.

Mark Saeger: And I'm just sort of following up on Chris's question. Did you see, have you seen weaker performance than expected maybe on some of the loans that have gone non-performing with personal guarantees? Was that part of the driver of that change? No, absolutely not.

Speaker Change #166: Does the.

Speaker Change #167: Did you see have you seen weaker performance than expected maybe on some of the loans.

Speaker Change #167: Nonperforming.

Speaker Change #168: With personal guarantees was that was that part of the driver of that change.

Unknown Executive: Now, absolutely not.

Speaker Change #169: No absolutely not again this is just a conservative approach to risk grading and specific provisioning.

Frank Schiraldi: Again, this is just a conservative approach to risk grading and specific provisioning. What we seem to date is consistent with our historic record that those loans with guarantees do have more positive outcomes, and it continues to be an important part of our credit structure and will continue to be in a go forward basis.

Mark Saeger: Again, this is just a conservative approach to risk grading and specific provisioning. What we've seen to date is consistent with our historic record that those loans with guarantees do have more positive outcomes, and it continues to be an important part of our credit structure and will continue to be on a go-forward basis. Okay, thanks for that. Now, shifting to the deposits. I think Thomas said that July averages were trending higher. Was that trending higher than the average second quarter or the end of period second quarter, or both, maybe on the deposit side? Yeah, it's a relative term.

Speaker Change #169: What we've seen to date is consistent with our historic record.

Speaker Change #169: Those loans with with guarantees do you have more positive outcomes and it continues to be an important part of our credit structure and we will continue to be on a go forward basis.

Thomas Iadanza: Now, shifting to the deposits, I think Thomas said that July averages were trending higher.

Speaker Change #170: Okay. Thanks for that.

Speaker Change #171: Shifting to the deposits.

Speaker Change #172: I think Tom had said that July averages were trending higher was that did that trend higher than the average second quarter or the end of period second quarter.

Unknown Executive: Was that trending higher than the average second quarter, or the end of period second quarter, or both maybe on the deposit side?

Both maybe on the deposit side.

Frank Schiraldi: Yeah, it's relative; we were, we made this statement relative to the average for the second quarter, and from a customer perspective, that would be for the end of period as well. So customer deposit and average basis in July are slightly higher than the end of quarter.

Unknown Executive: We were We made the statement relative to the average for the second quarter. And from a customer perspective, that would be for the end of the period as well. So customer deposits on an average basis in July are slightly higher than the end of the quarter. Okay, and then just finally, for me, you know, when you look at the delta and the rates that you're getting on your customer deposits versus your brokered deposits, and then I just, you know, checking what your specials are at sort of 450, why not pay up a little bit more on the customer side?

Speaker Change #173: Yeah, it's relative we made the statement relative to the average for the second quarter and from a customer perspective that would be.

Speaker Change #174: End of period as well so customer deposits on average basis in July are slightly higher than the end of this quarter.

Unknown Executive: Okay, and then just finally for me, you know, when you look at the Delta and the rates that you're getting on your customer deposits versus your broker deposits, and then I just, you know, what your specials are at sort of 450, why not pay up a little bit more on the customer side, because it feels, you know, it seems like you'd be able to get something so cheaper than the brokered side? Is there a reason that you're leaning in more on the broker side here versus paying up a little bit more on core customer account?

Unknown Executive: Because it feels, I don't know, it seems like you'd be able to get something still cheaper than the brokered side. Is there a reason that you're leaning in more on the brokered side here versus paying up a little bit more? Or on core customer accounts?

Speaker Change #174: Okay.

Speaker Change #175: And then just finally for me when you look at the the Delta and the rates that youre getting on your customer deposits versus your broker deposits and then I just I was checking what your what your specials are sort of $4 50 why not.

Speaker Change #176: Pay up a little bit more on the customer side.

Speaker Change #177: It feels.

Speaker Change #177: It seems like you'd be able to get something still cheaper than than the brokerage side is there a reason that you're leaning in more on the brokerage side here versus paying up a little bit more on on core customer accounts.

Unknown Executive: It's obviously a conversation we have a lot internally with regard to our deposit pricing committees. I think a lot of it has to do with what potential migration looks like from a relationship client perspective. Keep in mind, many of these clients have been here for a very long time. They have sizable deposits with us. And if they see a higher rate, many of them want that higher rate as well.

Frank Schiraldi: I, obviously, at conversation, we have a lot internally with regard to our deposit pricing committees. You know, I think a lot of it has to do on what potential migration looks like from a relationship client perspective. You know, keep in mind, many of these clients have been here for a very long time. They have sizable deposits with us, and if they see a higher rate, many of them want that higher rate as well.

Speaker Change #178: It's obviously a conversation we have a lot internally with regard to our deposit pricing committees I think a lot of it has to deal on what potential migration looks like from a relationship client perspective keep in mind. Many of these clients have been here for a very long time, they have sizable deposits with us and if they see a higher rate and many of them want that higher rate.

Unknown Executive: I think the other piece is the broker has a shorter term duration, and the ability to think about where maybe market interest rates are going and to keep short on the curve is probably a positive for us. Okay, thanks for that. Appreciate the questions. This concludes today's Q&A. Ira Robbins, Thomas Iadanza, Stephen Moss.

Frank Schiraldi: I think the other piece is the broker had a shorter term duration and the ability to think about where maybe market interest rates are going and to keep it short on the curve is probably a positive for us.

Speaker Change #179: As well I think the other pieces is the brokered have a shorter term duration and the ability to think about where may be market interest rates are going and to keep it short on the curve is probably a positive for us.

Unknown Executive: Appreciate the questions. Thank you.

Speaker Change #180: Okay. Thanks for that I appreciate the questions. Thanks.

Speaker Change #181: Thank you this concludes today's Q&A.

Unknown Executive: I want to thank everyone for joining us today and for the interest in Valley, and we look forward to talking to you next quarter.

IRA: Thank you IRA.

Speaker Change #183: All remarks. Please go ahead.

Ira D. Robbins: I want to thank everyone for joining us today and for their interest in Valley, and we look forward to talking to you next quarter. Thank you. Thank you all for joining today's conference. You may disconnect.

Speaker Change #182: I want to thank everyone for joining us today and for the interest in valley and we look forward to talking to you next quarter. Thank you.

Unknown Executive: Thank you all for joining today's conference. You all may disconnect.

Speaker Change #182: Thank you all for joining today's conference call you may disconnect.

IRA: Okay.

Okay.