Q3 2024 Valley National Bancorp Earnings Call
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Yes.
Good day, and thank you for standing by.
Speaker Change: Welcome to the third quarter 2020 for.
Speaker Change: Valley National Bancorp earnings Conference call.
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After the speaker's presentation, there will be a question and answer session.
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Speaker Change: I would now like to hand, the conference over to your Speaker today Travis Lan. Please go ahead.
Travis Lan: Good morning, and welcome to Valley's third quarter 2024 earnings conference call presenting on behalf of Valley today are CEO IRA Robbins President Tom <unk>.
Speaker Change: And Chief Financial Officer, Mike Hagan them 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 <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.
Speaker Change: The earnings presentation, and remind you that comments made during this call may contain forward looking statements relating to valley National Bancorp and the banking industry Valley encourages all participants to refer to our SEC filings, including those found on forms 8-K, 10-Q, and 10-K for a complete discussion of forward looking statements and the factors that could cause actual results to differ from those statements.
With that I'll turn the call over to IRA Robbins.
IRA Robbins: Thank you Travis.
IRA Robbins: During the third quarter of 2020 for Valley reported net income of approximately $98 million and Lithia earnings per share of <unk>.
IRA Robbins: This compared to net income and EPS of $70 million in 13 cents a quarter ago.
IRA Robbins: The significant improvement in earnings was broad based and primarily the result of top line revenue expansion and continued expense management.
IRA Robbins: Our provision for loan losses declined during the quarter, but exceeded our third quarter guidance, primarily as a result of the significant growth in C&I loans and unfunded C&I commitments.
IRA Robbins: As well as the discrete reserve for the potential impacts of Hurricane Helene.
IRA Robbins: Inclusive of these variables that third quarter provision would have been in line with our prior guidance.
IRA Robbins: I am extremely pleased with our financial progress made during the quarter. The continued improvement in our balance sheet metrics has been achieved in conjunction with a solid rebound in pre provision revenue.
IRA Robbins: Mike will detail the key contributing factors to this improvement, but as we work through our 2025 financial plans, we anticipate further profitability improvement, reflecting an anticipated net interest income tailwind and the normalization of credit costs.
IRA Robbins: Slide four illustrates the significant progress that we continue to make towards our balance sheet goals.
IRA Robbins: Our diligent management of new commercial real estate originations and renewals has contributed meaningfully to the 53 percentage point year to date reduction in our stated Cree concentration ratio at September 30th.
IRA Robbins: This progress has been supplemented by organic capital growth and our recent preferred stock issuance.
IRA Robbins: Throughout the year, we are patiently monitor the market for potential sale of <unk> to further accelerate our progress relative to Cree concentration capital and funding flexibility.
IRA Robbins: I'm pleased to report that in the fourth quarter, we expect to sell upwards of $800 million.
IRA Robbins: Performing commercial real estate loans to a single investor at extremely attractive 1% discount.
IRA Robbins: The characteristics of the pool that we expect to sell are consistent with our broader portfolio in many ways.
IRA Robbins: The underwriting and credit metrics are very similar so these loans tend to be somewhat larger.
IRA Robbins: From an asset class perspective, there's a tilt towards more industrial and less office as you may expect though the pull is geographically diverse consistent with our broader portfolio.
IRA Robbins: This transaction is expected to close in the fourth quarter and reflects the underlying credit strength of our portfolio and our continued ability to enhance our balance sheet and shareholder friendly ways.
IRA Robbins: As I previously stated commercial real estate is a terrific asset class and one that has provided excellent risk adjusted returns for our company.
IRA Robbins: While the transactional elements of our portfolio will continue to wind down we remain focused on supporting the clients at a more holistic banking relationships with alley.
IRA Robbins: There are opportunities to further penetrate these banking relationships and expand its client base without applying undue pressure to our balance sheet.
IRA Robbins: While the transfer of loans to held for sale helped to improve our period end loan to deposit ratio, we anticipate using a significant portion of loan sale proceeds to repay maturing broker deposits in the fourth quarter of 2024.
IRA Robbins: Regulatory capital ratios are expected to benefit by 16 to 20 basis points as a result of the sale all else equal and this transaction positions us to achieve our near term CET one goal of approximately nine 8% by the end of 2024.
IRA Robbins: The ongoing execution of our strategic initiatives positions us to exceed most of our previously announced intermediate term balance sheet goals sooner than anticipated.
IRA Robbins: To this end, we now expect that our pre concentration ratio will be approximately 375% by the end of 2025 as compared to our prior intermediate term goal of 400%.
IRA Robbins: Similarly, and largely as a result of our recent and anticipated future C&I growth.
IRA Robbins: And now expect that our allowance coverage ratio will be approximately $1 two 5% by the end of 2025 relative.
IRA Robbins: Relative to our current $1, one 4% coverage level. This implies a much slower pace of reserve downward over the next five quarters and particularly throughout the course of 2025.
IRA Robbins: Slide six highlights our expectations for the fourth quarter of 2024.
IRA Robbins: We anticipate that continued growth in our C&I and consumer portfolios will contribute to low single digit annualized loan growth during the quarter.
As a result of the anticipated credit loans, we expect net interest income will decline somewhat in the fourth quarter.
IRA Robbins: However, exclusive of the sale net interest income will likely grow modestly as our recent experience and reducing customer deposit costs. Following the September fed actions offset the impact of lower front end rates on our floating rate loan.
IRA Robbins: Our expectations for noninterest income and noninterest expense are generally unchanged from the prior quarter guidance.
From a credit perspective, the general improvement in the commercial real estate backdrop has helped to isolate the few lingering issues that may result in credit losses.
Our ongoing analysis of these situations and the potential impact of Hurricanes Helene <unk> Mellon could result in higher net charge offs during the fourth quarter.
IRA Robbins: These factors combined with our continued C&I growth expectations are likely to result in a year end allowance coverage ratio of approximately $1 two zero percent.
IRA Robbins: With all of this in mind, we expect to be well positioned for credit performance normalization in 2025.
IRA Robbins: Finally, I want to offer our team's thoughts to the valley customers employees and communities that had been impacted by the recent hurricanes in our southeast markets.
IRA Robbins: Unfortunately, we have all been through many of these weather events and we know the tool that can take upon individuals and businesses.
IRA Robbins: Value is always there for those in need and we are proactively offered our support to the communities that had been in the path of the storms.
Speaker Change: With that I will turn the call over to Tom and Mike to discuss the quarters financial highlights and results.
After my concluding remarks, Tom Mike myself, and Mark <unk>, our Chief credit officer will be available for your questions.
Tom: Thank you IRA slide nine illustrates the quarter's deposit trends total deposits increased approximately 300 million.
Speaker Change: <unk> to the second quarter, largely due to higher levels of direct customer deposits. We are very pleased that a portion of this growth was the result of expansion of noninterest deposit balances.
Speaker Change: During the quarter, we added roughly 25000, new deposit accounts with nearly 11000 of these being on the non interest bearing side.
Speaker Change: While there was very little impact on our quarter's results. We have now reduced customer deposit cost by approximately 22 basis points since the September fed rate cut.
This implies a 44% total deposit beta which is somewhat better than our modeling.
Speaker Change: Importantly, direct customer balances have continued to trend higher during October.
Speaker Change: The next slide provides more detail on the composition of our deposit portfolio by delivery channel and business lines.
Speaker Change: Growth trends in our international and technology segment and other commercial verticals were strong during the quarter.
Speaker Change: Slide 11 illustrates the components of the quarter's lending activity, we continued to execute on our strategic initiatives to enhance C&I and deemphasize multifamily and investor create loans.
Speaker Change: C&I growth remained in the mid teens on an annualized basis for the second consecutive quarter and remains broad based across our geographies and business lines.
Speaker Change: On an organic basis multifamily and invest to create declined by 700 million during the quarter as we experienced an uptick in prepayment activity as interest rates have fallen.
IRA Robbins: IRA provided details on the additional transfer of over $800 million of high quality Cree loans to held for sale. During the quarter. We are extremely pleased with the pricing on this transaction, which will help to accelerate our strategic initiatives.
IRA Robbins: While new origination yields have declined in line with broader interest rates our portfolio yield continues to decline.
IRA Robbins: As a reminder, 40% of our loan portfolio floats based on shorter term rate indices. This makes us modestly asset sensitive from a structural perspective, but incremental origination activity and the opportunity to outperformance deposit betas should offset some of this headwind.
IRA Robbins: Slide 12 provides additional detail on the composition of our commercial real estate portfolio by property type and geography as adjusted for the transfer of loans to held for sale in the third quarter.
IRA Robbins: In general the commercial real estate markets and borrower performance across our footprint remain healthy IRA.
IRA Robbins: <unk> previously mentioned that a few select loans will likely impact our net charge off experienced in the fourth quarter. These are identified and isolated situations and we are beginning to see the underpinnings of stability in terms of criticized and classified migration.
Speaker Change: With that I will turn the call over to Mike Hagadorn to provide additional insight into the quarter's financials.
Mike Hagadorn: Thank you Tom.
Mike Hagadorn: Staying on the <unk> topic for a moment slide 15 illustrates the contractual maturities of our commercial real estate portfolio we.
Mike Hagadorn: We've included the LTV, the SCR and rate by maturity bucket for your benefit.
Mike Hagadorn: This maturity schedule continues to illustrate the minimal near term repricing risk that exists in our portfolio.
Mike Hagadorn: Slide 16 highlights the continued expansion in both net interest income and net interest margin during the third quarter.
Mike Hagadorn: Net interest income is now generally in line with the level a year ago.
Speaker Change: As IRA mentioned, we expect to close on the sale of over $800 million of commercial real estate loans during the quarter.
Speaker Change: We anticipate that a significant portion of these proceeds will pay off maturing broker deposits.
Speaker Change: Consequently, we expect the sale to weigh on net interest income by approximately $5 million during the fourth quarter all else equal.
Speaker Change: To reiterate we were very quick to lower deposit costs across the franchise in the wake of the September fed action.
Speaker Change: In total we reduced deposit cost by roughly 22 basis points on our 40 plus billion of customer deposits.
Speaker Change: As customer deposits have continued to grow we remain confident in our ability to quickly follow additional fed rate cuts, which may occur.
Speaker Change: Turning to the next slide you can see the detail on our noninterest income adjusted noninterest income for the quarter excludes both a $7 million benefit or litigation settlement and a $6 million negative mark to market adjustment on the transfer of loans to held for sale.
Speaker Change: Crusade of these items adjusted noninterest income increased significantly as compared to the second quarter of 2024.
Speaker Change: This was primarily due to increases in tax credit advisory service charges on deposits and other income.
Speaker Change: Deposit service charges benefited from fees related to updated pricing on Treasury services capabilities, which started in mid August and we expect additional tailwind in this area on a go forward basis.
Speaker Change: On the following slide you can see that our noninterest expenses were approximately $270 million for the quarter.
Speaker Change: Exclusive of the amortization of tax credit investments adjusted noninterest expenses were approximately $264 million.
Speaker Change: This represents a decrease from the second quarter of 2024, and general stability relative to the third quarter of 2023.
Speaker Change: Expenses benefited from a decrease in technology related and compensation costs.
Speaker Change: Our ability to control operating expenses without sacrificing necessary investment opportunities remains a hallmark of our organization.
Speaker Change: We continue to model a modest expense growth to support our aspirations, but we will work to offset these investments as we have done recently.
Speaker Change: On Slide 19, you can see the continued and notable stability in our non accrual loans roughly.
Speaker Change: Roughly 85% of the sequential increase in past due loans was related to a pair of Cree loans.
Speaker Change: Both loans are well secured and we anticipate near term resolution without loss of principal.
Speaker Change: The next slide illustrates the trend in allowance coverage charge offs and provision our allowance coverage ratio increased eight basis points for the second consecutive quarter, partially driven by substantial growth in C&I loans, and unfunded C&I commitments as well as the allowance set aside for hurricane Helene.
Speaker Change: We expect that allowance coverage will expand towards one 2% in the fourth quarter, primarily as a result of these same factors.
Speaker Change: From a longer term perspective, we believe that credit costs will normalize meaningfully in 2025 and result in a much slower pace of reserve build.
Speaker Change: The next slide illustrates the sequential increase in our tangible book value and capital ratios tangible book value benefited from a reduction in the OCI impact associated with our available for sale portfolio during the quarter.
Speaker Change: Our tier one and total risk based capital ratios increased as a result of our series C preferred stock issuance during the third quarter.
Speaker Change: As IRA mentioned, the Cree sale plan for November will likely add to an additional 16% to 20 basis points to each risk based capital ratio.
Speaker Change: With that I'll turn the call back to the operator to begin Q&A. Thank you.
Speaker Change: As a reminder to ask a question.
Speaker Change: Press Star one one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from John Armstrong with RBC capital markets. Your line is open.
John Armstrong: Hey, Thanks, good morning, guys.
Speaker Change: Okay.
John Armstrong: It looks good but maybe.
Speaker Change: Mike or IRA on the last comment.
Speaker Change: You were talking about provision and reserves and maybe.
Speaker Change: More normalizing in 2025, well what does that really mean and look like is that a return to provision levels that are more like pre second quarter is that what you're signaling to us.
Speaker Change: Yeah, I don't have a second quarter in front of me, so I'm not quite sure, but I think we spent a lot of time during the course of the year looking at our portfolio.
Speaker Change: And really assessing what type of credits we have in there today and as we really begin to see the environment normalize a little bit we feel really strong and confident about what those numbers begin to look like.
Speaker Change: I think as we've guided towards two.
Speaker Change: <unk> 2025 is going to look like.
Speaker Change: We have some internal thoughts regarding what does net charge off numbers are going to be which are much lower than what youre seeing this quarter.
Speaker Change: And then theres only an incremental build really needed to get to that 125. So much more in line I think with what you would have historically seen at valley, which really creates optimism within the organization as we see the tailwind on the margin tailwind regarding what the credit is going to look like as well.
Speaker Change: Okay.
Speaker Change: The reserve building going forward more about the mix of loans and not necessarily bought any need to build for the existing portfolio is that fair.
Speaker Change: And I'll, let mark maybe address that a little bit, but I think as we have emphasized the shift in building some C&I loans within the organization, which I will remind you was a multiyear sort of strategic initiatives that we put forth a few years ago. The growth has been tremendous which is a real positive. So that should help us as we think about the recalibration of what the balance sheet looks like.
Speaker Change: But that said they do come on at a higher reserve level than what the <unk> look like so as that mix shifts.
Speaker Change: Mandatorily be a requirement to increase our reserve purely on what that composition of loan looks like.
Speaker Change: Fair enough.
John Armstrong: IRA is the thought on Oops, sorry, John go ahead, yeah, no. It just just reiterating what IRA was mentioning there.
Speaker Change: It's a substantial premium to C&I from a loss perspective.
Speaker Change: Cree and as we continue that shift successfully we will see a slight build along those lines, but really just related to that.
Speaker Change: John are you still there.
Speaker Change: Yes.
John Armstrong: I'm all set guys. Thank you very much.
Scott: Okay. Thanks, Scott.
Speaker Change: Thank you. Our next question comes from Chris Mcgratty with <unk>. Your line is open.
Chris Mcgratty: Oh great.
Chris Mcgratty: I may have missed this but IRA beyond the adjustments, you're making to your targets.
Chris Mcgratty: For 2020 do you think this is this is all the adjustments that we'll likely see meaning the CRE ratio reserve capital levels anything else that might be on the horizon beyond this or is this kind of where you are.
Chris Mcgratty: I think it is more appropriate with lower rates.
Speaker Change: I think with everything we sort of understand now how are we thinking about the balance sheet. How we're thinking about some of the strategic initiatives that we're putting putting forth I think theres intermediate targets are something that we're very very comfortable with and we feel very confident we'll be able to achieve them within that timeframe Allied.
Speaker Change: Perfect and then maybe overall I guess liquidity for.
Speaker Change: For assets.
Speaker Change: 1% Mark is.
Speaker Change: Really really great execution, it looks like any comments on how liquidity may have changed for where the market's appetite for assets given rates moving down.
Speaker Change: Yes look I think we've seen crescent graphic we've seen pretty consistent demand from the private equity side in terms of the Cree assets that we have and we've had those discussions as the year has gone on I think earlier in the year given the backdrop at that point in time. There was just a very wide gap between what we viewed to be the value of our portfolio versus the way of <unk>.
Speaker Change: Equity Investor May look at it and as time has gone on that that gap is obviously narrowed to a point, where I think a 1% discount we're all thrilled with the with the execution there.
Speaker Change: And that would include nothing on the credit side as well its all rate driven so I think there has been demand out there I think we're happy to be able to execute something like this but it's not just valley right you've seen other other banking organizations execute not only loan sales, but also arrangements going forward to help offload bank assets into the private equity markets.
Speaker Change: Is likely to continue.
Speaker Change: Great. Thanks Ross.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Manan <unk> with Morgan Stanley. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: It's good to hear that the customer deposit costs are going down that 22 basis point reduction that you pointed out.
Speaker Change: Can you give us some more color on what youre baking in.
Speaker Change: For Q NII guide in terms of total deposit costs and especially.
Speaker Change: Going into 2025 as well.
Speaker Change: It seems like your all in deposit beta can be a little bit higher as you pay down those broker deposits. So any color on that near term trajectory would be great.
Speaker Change: Let me know and I think this is Travis I think that's pretty insightful.
Travis Lan: And we generally agree with you so we still baked into the model relative to non maturity deposits, a 50% beta on interest bearing and when you factor in noninterest bearing that goes down to 35%. We did outperform that with the first fed rate cut we think there are additional opportunities to outperform that going forward not only impacting the fourth quarter or into 2025 as well.
Travis Lan: And so as we think about NII in 2025, our base case, we're still working through the plans with the base case, so kind of mid to high single digit NII growth in 2025 and to the degree we can continue to outperform from a data perspective.
Travis Lan: You would move to the higher end of that range.
Speaker Change: Got it and.
Speaker Change: Niv deposits those were roughly flat Q on Q you noted.
Speaker Change: Increase.
Speaker Change: It increased the number of accounts that you've put on as well.
Speaker Change: At the trough there and anything.
Speaker Change: Anything you've noticed in the underlying data that would point to more acceleration going forward.
Speaker Change: So I think well.
Speaker Change: We're stable there was a slight uptick in noninterest bearing deposits, which was the first time, we've seen that since the middle of 2022. So if you look at this two five years later or give or take yes, I think it's a very positive sign for us on an average basis.
Speaker Change: It was from a daily perspective, a little bit higher I think than where it had been in the prior quarters and we continue to see that tailwind here.
Speaker Change: Quarter to date in October so I think there is optimism there we do anticipate a 22% of total deposits will be the bottom of niv. We've been there two quarters in a row and anticipate that we will continue to increase relative to the total.
Great and if I can just clarify that 22 basis point reduction in deposit costs since the fed rate cut.
Speaker Change: Our total deposit costs, including an IP.
Speaker Change: Yes, that's correct. So the actual data on the interest bearing side was was higher.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Matthew Breese with Stephens. Your line is open.
Matthew Breese: Hey, good morning.
Matthew Breese: I appreciate your.
Matthew Breese: Insights on deposit betas, just stepping back a little bit.
Matthew Breese: Defying the balance sheet.
Matthew Breese: Asset sensitive.
Matthew Breese: And then we have.
Matthew Breese: My guide for 2025 early albeit in the mid to high single digit range.
Speaker Change: Given we're in a rate cutting environment could you just discuss a little bit the NIM outlook.
Speaker Change: And how that kind of fits.
Speaker Change: <unk> fits with the with the asset sensitive balance sheet and it feels like the NIM is should expand from here, but just wanted to hear you clarify a little bit.
Speaker Change: Yes, I think Thats generally right I mean, we are structurally asset sensitive, but that assumes the lower beta in the model and again, our ability to outperform after the first cut and should that continue.
Speaker Change: Would provide additional upside regardless of that I mean, we do anticipate that the margin will continue to expand.
Speaker Change: We are as we've said in the past generally neutral to the front end of the curve more central to the more sensitive to the longer end and that fixed rate asset repricing opportunity will continue to exist as 2025, as we get into 2025 and move through the year and on that front I mean, the shape of the curve has definitely improved since we ran our preliminary numbers in September 30th.
Speaker Change: Five and 10 year points of 40 to 50 basis points higher today than they would have been at that point in time, which supports that as well.
Speaker Change: Similar to what I said on the beta side sustainability, our improvement in those longer term rates I think would definitely support us getting to the higher end of that range I laid out and Matt I just wanted to add I think one piece of it when you look at an asset sensitivity balance sheet.
Speaker Change: Looking at the rate of change as to what those assets are right. So when you think about the longer end commercial real estate that we have even though those loans are actually repricing theyre not repricing down based on where they were originally struck at so those navy asset sensitive assets that are being shown but theyre going to reprice higher based on where those.
Speaker Change: The pacing rates are today versus where they were when those loans were originated so theres not a tailwind coming on those longer commercial real estate loans and other longer dated loans as well.
Speaker Change: Got it okay.
Speaker Change: The other one I had which is on the fee income guide for the fourth quarter. It suggests kind of a flattish move from the third quarter.
Speaker Change: And the reason that stands out is usually fourth quarter is strong given the tax advisory business. So I was hoping you could talk a little bit about some of the moving parts and where you expect reductions in fee income to kind of get to the guide.
Speaker Change: I think youre going to get <unk> on the tax credit side and also on deposit service charges I think it gets a little bit offset or mitigated by some of the other income stuff that's bucket. It in a single line there can be lumpiness, there relative to recoveries or other things that move around so it's generally that and look I think longer term there is absolute <unk>.
Speaker Change: Wins behind us to grow fee income.
Speaker Change: But I think there was some positive events that benefited the third quarter and just wanted to make sure that we're appropriately conservative heading into the fourth.
Speaker Change: And keep in mind that on the fee income side as we've said before the growth for the future is really going to be driven around our treasury management offering that we've talked about before and then also with lower interest rates. We would expect that gain on sale will pick up as the resi mortgage business increases as well.
Speaker Change: Okay last one for me it just feels like you are pretty well set up for operating leverage here over the next 12 to 18 months.
Speaker Change: When do you think you can get back above a 1% ROA on a sustainable basis.
Speaker Change: Yes, I think when you normalized credit and look at where the margins go I don't think it's that long.
Speaker Change: I'll leave it there thank you.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you and our next question comes from Ben Garlinger with Citi. Your line is open.
Alright, good morning, everyone.
Speaker Change: Good morning.
Speaker Change: So.
Ben Garlinger: Page four I know these are kind of longer term targets and youre not going to give me.
Ben Garlinger: Detail are finite answer which is fine, but when you say loan to deposit ratio below 100%.
Ben Garlinger: By the end of 'twenty five.
I'm, just kind of hypothetical 26, or 27 or whatever down the road.
Ben Garlinger: Are we talking closer like 90, or 95 board what would be like.
Ben Garlinger: Optical range I get that Youre, not going to press the gas to get there, but like where would you want us to be three years from now.
Ben Garlinger: Okay.
Speaker Change: Yes look I think the low ninety's, probably it makes sense on where we think we will end up being three ish years or so from now it doesn't have to be a linear path as to how we get there either we have a lot of initiatives internally as to how we think about deposit growth.
Speaker Change: Across the organization, we've been pleased with the new account generation that we've seen here at valley and we anticipate continued strong deposit growth that will help get us to those numbers that we've identified but I think sort of where you are describing in the low nineties, probably makes sense a few years out.
Speaker Change: Got it that's helpful. And then when you think about the behavioral response from clients.
Speaker Change: It seems like across the industry.
Speaker Change: Limited loan growth.
Speaker Change: It's pretty easy to price deposits I mean, the first 100 basis points is probably the easiest one.
Speaker Change: Turning assets.
Speaker Change: When you kind of pivot people pushed back on anything have you seen mix shift or are you kind of.
Speaker Change: Frustration from our clients or is it just kind of a willingly taken.
Speaker Change: Compression.
Speaker Change: Given that we're not we don't have a huge amount of them.
Speaker Change: Demand for loans.
Speaker Change: Not really necessarily need to keep everyone's deposit.
Speaker Change: It's funny I think that the people that are more sensitive to deposits are the analysts and our internal bankers as to what they think the client reaction is going to end up being I think we were very aggressive as to how we thought about deposit repricing, but that said we've seen deposits increase even though we have been reducing balances. That's on what you would define as directed.
Speaker Change: <unk> accounts from a digital perspective, as well as sort of longer term relationships. So across the board we've seen real pricing.
Speaker Change: Ability here. So we are definitely optimistic about what the future of that looks like and once again, you know deposits balances were up even though we were aggressive in reducing rates.
Speaker Change: Gotcha. That's helpful. Thank you I'll step back.
Speaker Change: Thank you Beth.
Speaker Change: Thank you. Our next question comes from Jared Shaw with Barclays. Your line is open.
Jared Shaw: Hey, good morning.
Jared Shaw: Sure maybe <unk>.
Jared Shaw: First on the on the loan sales do you have the yield on the <unk>.
Jared Shaw: <unk> yield on that portfolio.
Speaker Change: Yeah, It was slightly above 7%.
Yeah.
Jared Shaw: Okay.
Jared Shaw: And then when I look at the.
The gain on sale.
Speaker Change: The gain loss on sale of loans, what's the difference between.
Speaker Change: The loss you called out on this portfolio and what's what's in the income statement over there with our other loans.
Speaker Change: Sold as well and then what should we expect for like sort of the pace of loan sales going forward beyond this.
Speaker Change: Yes, so so that line in the income statement also includes our traditional gain on resi mortgage sale that was about $2 million vertical which was up somewhat from the prior quarter.
Speaker Change: Okay.
Speaker Change: And then in terms of in terms of the ability to or the desire to sell.
Speaker Change: More of the CRE isn't like a <unk>.
Speaker Change: All like that.
Speaker Change: What's your appetite for additional sales.
Speaker Change: Look I think we've been pretty consistent on this front that we didn't feel like we had a gun to our head.
Speaker Change: From a CRE perspective, or any other action that we've taken this year.
Speaker Change: So we were patient and methodical and allowed it to play out and we reached a point, where I think the discount was extremely attractive for us and all it does is help accelerate kind of the strategic progress we've been discussing on the balance sheet side. So.
Speaker Change: I don't anticipate that there will be more Cree sales candidly, but we always monitor the environment for all of these opportunities and are willing to do what's best for the shareholders at that given point in time.
Speaker Change: Okay, great. Thanks, and then just finally for me on the expenses you have had.
Speaker Change: Good success.
Speaker Change: The the broader expense base has been able to come down.
Is there anything that you know when you look at technology.
Speaker Change: And equipment expense anything that serve unique there or at what point do you need to start I guess, maybe reinvesting in technology or where we could see that number start to increase.
Speaker Change: Yeah.
Speaker Change: Yes, I think we're always reinvesting in what technology in other areas to what our future looks like we went through a pretty significant core transformation about a year ago and as we mentioned at that time, sometimes it does take a while to sort of bleed through what some of those expense saves are going to look like it's not just the immediate expense say with the third party vendor, but what your internal processes look like.
Speaker Change: How you get into a range how you service a client. So there is always opportunities to reassess what that looks like I think if you go back and look at where third quarter expenses were a year ago.
Speaker Change: I think we're almost flat really on an operated basis. When you add in the fact that FDIC insurance is up $7 million. If you then layer in the fact that we have a CRT trade that we didn't have before that added a few million dollars as well and we've <unk> on an operating basis contracted $10 million in core operating expenses just in a year.
Speaker Change: And we continue to believe that we have opportunity to further improve the efficiency within this organization.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Anthony Elliot with Jpmorgan. Your line is open.
Anthony Elliot: Hi, Good morning on Slide 10, you called out specialized deposits at about $11 billion, which I think shows about $1 billion growth sequentially.
Anthony Elliot: I think most of those segments showed growth versus the prior quarter can you just talk about what's driving the recent growth specifically in the technology bucket.
Anthony Elliot: Okay.
Speaker Change: Yes technology I mean, we continue to have.
Speaker Change: Good pipeline of companies that we bank on that side and progress there can be relatively lumpy, but there had been significant growth opportunities to the capitalized on this quarter.
Speaker Change: Other commercial deposits is kind of the traditional banking that you would anticipate our online account. Despite the fact that we've cut the rate there a handful of times and now have a 425 rate out there continue to see growth in balances. So I think it's pretty diverse and broad based but as we've said we've said now for a year or so and these are the lines that are going to provide.
Speaker Change: Above average deposit growth for us as we look forward. So you have a quarter like this where you see each of those contributors continue to grow and I think that's generally in line with what we've been talking about.
Speaker Change: Thank you and then my follow up you are guiding to low single digits annualized loan growth in <unk>, but you call out the mid teens growth you saw in C&I. This quarter I guess once you get down to your CRE concentration of $3 75 and loan growth for the industry returns more broadly what do you think is a more normalized level.
Speaker Change: Loan growth for the company as a whole thank you.
Speaker Change: Okay.
Speaker Change: Hey, it's Tom I think when you look forward there'll be in that mid single digit level will continue to manage decree concentration through 2025, and we've experienced the C&I growth for really the five plus years in that low to mid double digit level and our pipelines <unk> tell us that that should.
Speaker Change: When you enter the fourth quarter and into next year, but somewhat offset by what we're going to do with our core concentration.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Steve Moss with Raymond James Your line is open.
Steve Moss: Hi, good morning.
Speaker Change: Oh.
Steve Moss: On the C&I portfolio here.
Speaker Change: Guys have experienced two good.
Steve Moss: Good quarters of growth, just curious kind of where youre seeing the drivers of growth and if there's any component that either participation driven or shared national credit.
Speaker Change: No no.
Speaker Change: Our snick portfolio is very small at less than 3% of our total and where agent on 30 plus percent of that so we're not getting that through buying participations in any way.
IRA Robbins: Just want to remind everyone. IRA said earlier, we have experienced this level of growth for five plus years in that low double digit level and that goes back to when we started bringing in teams emphasizing the Florida markets and bringing in teams of C&I lenders are Florida, and opportunistically, bringing in people in the northeast and we still do so a lot of.
IRA Robbins: This is coming from that middle market business banking local regional it's steady growth there accelerated in Florida versus what we're seeing in our northeast and then the specialties many of which we've had for years and some of that have come through acquisitions have added growth on top of that but it's that continued sales process relationship.
IRA Robbins: Shift driven middle market type business.
Speaker Change: Okay, Great and then just also noticed kind of I know you guys have been building reserves broadly, but the C&I bucket has always had a higher reserve up 26 basis points year over year to $1 70.
Speaker Change: Reserve as a percentage of loans, just curious kind of what are the drivers for that portfolio in terms of higher reserves.
Speaker Change: So within the C&I portfolio really.
Speaker Change: At the end of the day that portfolio as can be expected has a slightly higher loss given default then our <unk> portfolio, that's really the primary differentiator BT.
Speaker Change: Between the end reserve rates on that portfolio.
Speaker Change: As we migrated throughout this past year and a higher interest rate environment. There has been some stress on portfolio. So on the C&I portfolio as the creep portfolio. There was some migration, which contributes to that increase as well as criticized assets carry a higher reserve than pass rated.
Speaker Change: Okay.
Speaker Change: And to that point on criticized and classified I think I heard the comment that the increase has moderated.
Speaker Change: Just kind of curious is that kind of like CRE stabilizing here and maybe the driver in the criticize or C&I or just kind of the dynamics. There that you guys are seeing.
Speaker Change: So we absolutely believe that the interest rate environment has shown some easing and we anticipate that the migration that we've seen over the past year and criticized classified assets should definitely abate.
Speaker Change: With likelihood at some point in 2025 potentially towards towards the end of the year versus the beginning that we should see some positive migration in the portfolio.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thank you.
Thank you.
Speaker Change #100: And our next question comes from Matthew Breese with Stephens. Your line is open.
Matthew Breese: Hey, just a quick follow up we discussed on the call expectations for kind of elevated charge offs in the fourth quarter can you just give us some sense for how lumpy that could be what are we talking here.
Speaker Change #101: So as it relates to two potential charge offs, we have isolated group of loans that we've been traffic track tracking that we have our eyes on for potential losses.
Speaker Change #101: Not the evidence there is that we expect that there is a chance that that level could be elevated from from what we've seen.
Speaker Change #101: But materially.
Speaker Change #101: Not a level for the year, which is out of line with anything that we've seen at a quarter level.
Speaker Change #101: As a percent of portfolio.
Speaker Change #101: Okay.
Speaker Change #101: I guess I'll leave it there thank you.
Speaker Change #102: Thanks, Matt.
Speaker Change #103: Thank you I'm showing no further questions at this time I would now like to turn it back to IRA Robbins for closing remarks.
IRA Robbins: Okay. Thank you for taking the time to listen to our call today and the interest in valley and we're excited and looking forward to talk to you next quarter.
Speaker Change #104: This concludes today's conference call. Thank.
Speaker Change #105: Thank you for participating you may now disconnect.
Speaker Change #105: Okay.
Speaker Change #105: [music].
Speaker Change #105: Okay.
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Speaker Change #105: Hum.
Speaker Change #105: Yeah.
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Speaker Change #105: Okay.
Speaker Change #105: Yeah.
Speaker Change #105: [music].
Speaker Change #105: Yes.
Speaker Change #105: Okay.
Speaker Change #105: Yes.