Valley’s Financial Performance: Navigating Challenges and Positioning for the Future

Valley, a leading regional bank, has released its 2024 financial report, providing insights into the company’s performance and strategic initiatives. Despite facing various headwinds, Valley has demonstrated resilience and a commitment to strengthening its position in the market.

Financial Highlights

• Net income for 2024 was $380.3 million, or $0.69 per diluted common share, compared to $498.5 million, or $0.95 per diluted common share, in 2023. The decrease was primarily due to a $258.6 million increase in the provision for credit losses and a $36.8 million decrease in net interest income.
• Total assets grew to $62.5 billion, up from $61.1 billion in 2023, driven by organic growth and the acquisition of Bank Leumi USA in 2022.
• Total deposits increased to $50.1 billion, up from $49.2 billion in 2023, with a focus on growing direct commercial customer deposits and reducing higher-cost indirect customer deposits.
• The bank’s total risk-based capital ratio improved to 13.87% at the end of 2024, up from 11.76% in 2023, reflecting the company’s efforts to strengthen its capital position.

Navigating Challenges Valley faced several challenges during 2024, including the impact of negative public opinion regarding the banking industry, changes in regulations, and the ongoing economic environment.

Allowance for Credit Losses Determining the allowance for credit losses is a critical accounting estimate for Valley. The company’s allowance for credit losses for loans increased to $573.3 million, or 1.17% of total loans, at the end of 2024, up from $465.6 million, or 0.93% of total loans, in 2023. This increase was driven by higher quantitative reserves across most commercial loan categories due to loan growth and higher net charge-offs.

Goodwill and Other Intangible Assets Valley has significant goodwill and other intangible assets related to its acquisitions, totaling $1.9 billion and $128.7 million, respectively, at the end of 2024. The company regularly evaluates these assets for potential impairment, and a 5% impairment charge would result in a $99.9 million reduction in pre-tax income.

Income Taxes Valley’s income tax expense decreased to $58.2 million in 2024, reflecting an effective tax rate of 13.3%, down from 26.5% in 2023. This was primarily due to a $46.4 million tax benefit related to the reduction in uncertain tax liability positions.

Operational Highlights Despite the challenges, Valley made progress on several operational fronts:

Commercial Real Estate Loan Concentration Valley has been proactively reducing its commercial real estate (CRE) loan concentration, which declined to 362% of total risk-based capital at the end of 2024, down from 474% in 2023. This was achieved through bulk sales of CRE and construction loans, preferred and common stock issuances, and slower loan growth in certain CRE categories.

Regulatory Capital and Shareholders’ Equity Valley’s total shareholders’ equity increased to $7.4 billion at the end of 2024, up from $6.7 billion in 2023, primarily due to net proceeds from common and preferred stock issuances and retained earnings. The bank’s regulatory capital ratios also improved, with the common equity Tier 1 capital ratio reaching 10.82% at the end of 2024, up from 9.29% in 2023.

Deposit and Funding Strategies Valley continued to focus on growing its core deposit base, which represented 68.3% of average interest-earning assets in 2024, up from 66.6% in 2023. The bank also reduced its reliance on higher-cost indirect customer deposits, which declined to $7.1 billion at the end of 2024, down from $9.1 billion at the end of the third quarter 2024.

Investment Securities Portfolio Valley’s investment securities portfolio grew to $7.0 billion at the end of 2024, up from $5.1 billion in 2023, primarily due to the purchase of residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac.

Credit Quality Non-performing assets as a percentage of total loans increased to 0.76% at the end of 2024, up from 0.58% in 2023, and net loan charge-offs to average loans increased to 0.40% in the fourth quarter of 2024, up from 0.13% in the fourth quarter of 2023. However, the credit quality of Valley’s Florida loan portfolio remained resilient in the aftermath of Hurricanes Helene and Milton.

Outlook and Strategic Initiatives Looking ahead, Valley is focused on several strategic initiatives to position the bank for long-term success:

Reducing Commercial Real Estate Concentration Valley has set a goal to reduce its CRE loan concentration ratio to below 350% by the end of 2025, primarily through lower originations of certain types of CRE loans and continued portfolio diversification.

Enhancing Fee Income Streams The bank plans to further leverage its investments in treasury solutions, foreign exchange, and syndication platforms to generate additional fee income and attract new customers.

Maintaining Regulatory Capital Strength Valley expects its common equity Tier 1 capital ratio to gradually increase to approximately 11% by the end of 2025 through projected growth in retained earnings and continued management of the bank’s regulatory risk-weighted asset profile.

Navigating Interest Rate Environment Valley’s net interest income is expected to grow by approximately 9-12% in 2025 compared to 2024, driven by an anticipated incremental decrease in funding costs and stability in the yield from the fixed-rate loan portfolio. However, the bank acknowledges the uncertainty in its forecasts and the potential impact of future interest rate movements.

In conclusion, Valley’s 2024 financial report demonstrates the bank’s ability to navigate challenging conditions while positioning itself for long-term success. Through strategic initiatives, capital strengthening, and a focus on diversifying its loan portfolio and revenue streams, Valley is working to enhance its resilience and create value for its shareholders.