Valley National Bancorp Aktie

Good day, and thank you for standing by. Welcome to Q2 2026 Valley National Bancorp Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Andrew Jianette. Please go ahead.

Good morning, and welcome to Valley's Second Quarter 2026 Earnings Conference Call. I am joined today by CEO, Ira Robbins; and CFO, Travis Lan. Our quarterly earnings release and supporting documents are available at valley.com. Reconciliations of any non-GAAP measures mentioned on the call can be found in today's earnings release and presentation.

Please also note Slide 2 of our earnings presentation and remember that comments made today may include forward-looking statements about Valley National Bancorp and the banking industry, and actual results may differ from those statements. For more information on these forward-looking statements and associated risk factors, please refer to our SEC filings, including Forms 8-K, 10-Q and 10-K. With that, I'll turn the call over to Ira Robbins.

Thank you, Andrew. Our second quarter results illustrate continued progress against our strategic growth priorities. We delivered strong customer deposit growth, including meaningful growth in noninterest-bearing balances. We generated diverse loan growth concentrated in C&I and owner-occupied commercial real estate. And we continue to expand fee income in both absolute dollars and as a percentage of revenue.

We remain focused on strengthening our value proposition by scaling our relationship-oriented commercially focused model across our markets and business lines. While the quarter's growth was encouraging, our focus remains on the quality, durability and strategic value of the relationships that we attract. We believe continued execution against these priorities will support stronger returns over time. This execution translated into strong financial performance for the quarter. Net income was approximately $171 million or $0.29 per diluted share. Excluding certain noncore items, adjusted net income was approximately $173 million or $0.30 per diluted share.

Adjusted pre-provision net revenue increased 6% from the prior quarter and at 1.64% of average assets reached its highest level since the fourth quarter of 2022. Deposit growth remains central to our strategy. We believe that our diversified commercial and consumer funding channels are increasingly critical as deposit competition intensifies across the industry. By expanding our commercial banking talent and driving greater adoption of our treasury platform, we expect to continue to win relationships based on service, capability and value, not simply based on rates.

These efforts directly contributed to nearly $300 million of noninterest-bearing deposit growth during the quarter. On the asset side, our focus in C&I and owner-occupied commercial real estate continues to drive strong loan growth and greater portfolio diversification. C&I growth was broad-based during the quarter with contributions from New York, Florida, Chicago and our specialty health care and fund finance verticals. These efforts also support our noninterest-bearing deposit growth as we continue to target disciplined, well-funded commercial relationships that can contribute to our sustained profitability improvement.

Fee income was another area of strength. Sequential growth was driven by high-quality, sustainable businesses, including capital markets and tax credit advisory. Within capital markets, we continue to see a strong pipeline of Valley-led syndication opportunities, while swap activity has benefited from higher commercial real estate origination volumes. These fee-based capabilities are an important part of our commercial value proposition. And based on performance to date, we remain on track to achieve our 2026 growth objectives.

As we discussed a bit last quarter, technology and artificial intelligence are becoming increasingly important to our ability to further scale our franchise. From a macro perspective, we believe that banks can effectively adopt AI have the potential to structurally shift their efficiency ratios lower by around 500 basis points. At Valley, we intend to be an industry leader, and we are excited about the progress that we have made to date. As shown on Slide 9 of the deck, we believe that Valley has several structural advantages that support our AI strategy, including Valley Ventures, our international and technology banking business and our relationship with Bank Leumi in Israel.

Valley Ventures give us direct exposure to the start-up ecosystem and access to emerging talent and technologies. Our international and technology banking team provides deep relationships with venture capital funds and early-stage technology companies, including businesses expanding from Israel into the United States. Additionally, our relationship with Bank Leumi gives us additional visibility into leading practices in cyber, fraud and risk management. We have a robust team of AI practitioners focused on sourcing use cases and aligning solutions from these relationships that I just mentioned.

Importantly, our AI strategy is embedded in our broader operating model and is intended to support productivity, risk management, client experience and scalable growth. As we look ahead, our priorities remain consistent and clear: continue to grow core deposits, deepen commercial relationships, generate more diversified loan and fee income growth and improve operating efficiency to translate our progress into stronger returns. We expect our continued commitment to these areas to drive further shareholder value over time. With that overview, I will now turn the call over to Travis to walk through the financial results and our outlook in more detail.

Thank you, Ira. Based on our first half results and the continued momentum that we are seeing, we are maintaining our strong outlook for 2026. We now expect gross loan growth at or somewhat above the high end of our range and believe that fee income will also migrate towards the high end of our expected range. Our outlook for deposit growth and net interest income is unchanged from the upwards revision announced on last quarter's call. We expect continued earnings growth and profitability improvement throughout the remainder of the year and into 2027.

Turning to capital deployment. We continue to balance organic growth, capital returns and balance sheet flexibility during the quarter. We returned approximately $81 million to shareholders in the form of common dividends and the repurchase of 1.5 million shares. The quarter's reduced buyback activity was the product of our exceptional loan growth, and we will continue to toggle our buyback appetite in the context of near-term loan growth expectations. We remain very comfortable with our regulatory capital ratios. Our ability to support substantial loan growth repurchase shares and reduce our regulatory CRE as a percentage of risk-based capital by another 12 percentage points during the quarter demonstrates our flexibility and the value of our accelerating organic capital generation.

Slide 14 illustrates the quarter's strong deposit growth. Direct customer deposits increased $1.1 billion during the quarter, including nearly $300 million of noninterest deposit growth, $200 million of interest-bearing nonmaturity deposits and $600 million of retail CDs. While core deposit growth remained extremely strong during the quarter, we did utilize $200 million of incremental brokered deposits to fund the temporary timing mismatch resulting from our high-quality loan growth. We also strategically rotated nearly $700 million of floating rate NOW balances to brokered CDs within our indirect deposit portfolio.

Total deposit costs were effectively unchanged from the first quarter and remained meaningfully lower than 2.67% a year ago. We remain focused on growing high-quality direct deposits and continuing to improve our funding profile over time. Slide 17 details the $1.6 billion increase in loans during the quarter, equating to around 13% on an annualized basis. Incremental growth continues to be focused in our C&I and owner-occupied CRE portfolios. And as Ira mentioned, we saw specific strength in the New York, Florida and Illinois markets and our health care vertical during the quarter.

Regulatory CRE, which excludes owner-occupied loans, grew less than $100 million during the quarter. As a result of our strong organic capital accretion and our successful subordinated debt issuance in May 2026, our CRE concentration ratio declined to approximately 317% at June 30 from 329% at March 31. In general, our loan portfolio continues to evolve in line with our strategic priorities as we replace low-value transactional CRE with relationship-based C&I and owner-occupied CRE loans, which are contributing deposits to the bank. Net interest income on a tax equivalent basis increased to $488 million, up approximately $16 million from the first quarter and $55 million from the year ago period.

Net interest margin on a tax equivalent basis expanded 3 basis points linked quarter to 3.2% and was up 19 basis points from the second quarter of 2025. The linked quarter increase in net interest income reflected higher average loan balances and higher yields on new loan originations and investment securities. These benefits were mitigated somewhat by the cost of carrying excess subordinated debt between our issuance of $500 million in May and the redemption of our $300 million callable notes in June.

We estimate that this dynamic weighed on net interest income by around $2 million during the quarter. Noninterest income increased $4.9 million to $73.7 million and contributed over 13% of our total revenue during the quarter. The linked quarter increase was driven primarily by a $2.6 million increase in capital markets revenue and a $1.6 million increase in wealth management and trust fees. The fee growth reflected higher transaction volumes within loan participations and syndications and tax credit advisory services. We continue to view fee income as an important part of our business model evolution.

Our enhanced treasury management platform, capital markets capabilities, tax credit advisory activity and broader commercial product set are giving us more ways to deepen relationships and generate additional high-quality and sustainable noninterest income. As mentioned earlier, we now expect 2026 fee income growth to be towards the higher end of our previously announced 6% to 9% range. Reported noninterest expense was $311 million, up approximately $1 million from the first quarter.

Adjusted noninterest expense increased by $5 million as lower compensation costs were offset by higher FDIC expense, third-party spend associated with our operational transformation efforts and incremental costs related to the quarter's strong growth in fee income results. Our efficiency ratio improved to 52.1% from 53.1% in the first quarter and 55.2% a year ago, and expenses as a percent of average assets remains well below peer levels. As Ira mentioned, we remain focused on driving positive operating leverage, including through the continued use of technology and AI tools to support productivity, improve process consistency and reallocate capacity towards higher-value activities.

We expect our efficiency ratio will continue to improve as we drive additional revenue growth and control operating expenses in the remainder of 2026 and beyond. Despite a modest uptick in nonaccrual and past due loans during the quarter, we saw a significant reduction in criticized and classified assets on both a sequential quarter and year-over-year basis. As detailed on Slide 25, criticized and classified assets now stand at 7.3% of total loans versus 8.1% a quarter ago and 9% last year.

The continued improvement reflects improving underlying trends within our CRE portfolio, which has led to upgrades out of special mention and substandard classifications in addition to traditional payoff activity. Net charge-offs totaled $22 million or 17 basis points of average loans compared with $18 million or 14 basis points last quarter. The provision for credit losses for loans was $29 million compared to $21 million in the first quarter. The higher provision was due in part to the strong loan growth, particularly within the C&I category. Our allowance for credit losses for loans declined to 1.16% of total loans from 1.18% at March 31.

This modest allowance coverage reduction is reflective of the criticized and classified asset reduction I just mentioned. For the remainder of 2026, we continue to expect charge-offs and provisions in line with our prior guidance. Tangible book value increased nearly 8% on an annualized basis. Our CET1 ratio of 10.7% remains within our previously stated target range and our successful issuance of new subordinated notes net of redemptions bolstered total risk-based capital during the quarter. Our current capital levels provide appropriate flexibility to support our growth and capital return aspirations going forward.

In summary, the second quarter demonstrated continued progress against the strategic priorities we have outlined: stronger core deposits, more diversified relationship-based loan growth, improving net interest income and margin, sustainable fee income growth, expense discipline and balanced capital deployment. We are pleased with the momentum in the business and remain focused on delivering continued profitability improvement through the remainder of the year. With that, I will turn the call back to the operator to begin Q&A. Thank you.

[Operator Instructions] Our first question today will be coming from the line of Feddie Strickland of Hovde Group.

Just wanted to touch on fee income. It seems like a really strong quarter there, and the guide seems pretty positive. If we continue at this level, it looks like you probably exceed the guide. Is the expectation that some of the more volatile lines like capital markets likely step down from the high point in the second quarter?

Yes, Feddie, this is Travis. No, I think there's good consistency and continued growth opportunity. The one element that you kind of referenced within capital markets is our interest rate swap income, which is heavily tied to commercial real estate originations. As you saw, the second quarter loan growth was extremely strong and included some pull forward from things that we may have expected to have closed in the third quarter.

So I do think the swap income element was slightly elevated. Maybe that equates to $1 million or $2 million in aggregate. But other than that, I mean, I think you still see continued growth in deposit service charges, loan syndications were strong. Tax credit advisory was strong as well and insurance picked up. So I think there are other elements, but I do think the interest rate swaps is the one that may have been slightly elevated during the quarter.

All right. Great. And if I could just switch gears to credit. Great to see the criticized and classifieds start to decline again. You mentioned some positive trends in CRE driving some of that. Can you provide any more detail on maybe what some of those trends are and really what you're seeing to drive some of these upgrades?

Absolutely, Feddie. It's Mark Saeger. So in general, right, the feel of our CRE clients is that the market continues to be robust in all asset classes for the most part, including office, we're starting to see positive progress in lease-up in office. Our portfolio upgrades and payoffs, primarily associated with some assets that were in transition and in lease-up and were downgraded. We had strong sponsor support. We had expected those properties to perform and lease up, and we are seeing that, and that's attributing to our payoffs, our upgrades. And again, we feel that there's room in portfolio to continue to see that positive trend in criticized.

Great. If I could squeeze in one more on credit. Can you just talk about the agentic AI for underwriting? Just curious if you have any example of kind of how that works? And what parts of the process you see the most opportunity to speed up maybe underwriting without compromising on the quality of the underwriting?

Sure, absolutely. And to be clear, for us, we're in exploration and examination phase. We don't have agentic in our core analysis right now, but traditional proven financial statement spreading, rent roll population within our core systems, those we are employing right now. But we're highly invested in examination to continue to expand those capabilities, although not employed.

This is Travis. I would just add, Feddie, that I think like most AI use cases, right, the manual work can be automated, but it doesn't change the oversight and approval and governance that's around those AI efforts. So elements, to Mark's point, have already been embedded, but it's not like that's occurring in a vacuum with no human oversight. It's just shifting the roles and responsibilities somewhat.

Our next question is coming from the line of Christopher McGratty of KBW.

Travis, the focus on a lot of the mid-caps this quarter in the regionals has been the accelerating loan growth, but a little bit of funding pressures. Interested in kind of where -- how you're thinking about that dynamic growth versus margin as you go into the back half of next year? And then secondarily, do you have the spot price on the deposits?

Yes. So I think that's fair. Look, the expectation for rates has changed somewhat since we came into the year. We've talked about being effectively neutral to the front end of the curve from a rate sensitivity perspective. I think we still see that playing out. So I mean, for us, I think we have some differentiated opportunities because we still have $5 billion of brokered deposits. Over the last 12 months, we've generated about $4.5 billion of new core deposits. That's $8 billion over the last 8 quarters. So we're seeing the core deposit growth trend be consistent and expanding.

We have in the next -- in the remainder of this year, we have $2 billion of brokered CDs coming off at a rate of 4.1% and $1.4 billion of fixed rate loans at 4.7%. So when you think about the repricing benefits of both of those items, it gives us good confidence in the margin outlook. I don't think there's any argument that deposit competition is heating up, but I do think that that's occurring more on the consumer side. And a lot of our focus has been on commercial deposit growth opportunities. This quarter, we originated exclusive of CDs, $1.3 billion of new deposits at a blended rate of 1.66%. Last quarter, excluding CDs, that number would have been $800 million at 1.7% -- so we had some CD promos out there that helped us generate volume.

But exclusive of that, we're actually seeing our ability to generate new deposits at lower rates. And I think all that's supportive of our margin guidance for sure through the rest of the year. From a spot deposit perspective, the rate was 2.29% as we exited June. A part of that was elevated from March by 2 or 3 basis points because of the CD promos that we had out in the market.

Okay. Great color. And Ira, I want to make sure I heard the AI discussion right. I think the comment was 500 basis points. I think that was either operating leverage or an efficiency comment. I guess I'm more interested in how the role of AI plus the role of capital smarter regulation is going to impact perhaps that mid-teens ROE that you've been talking about for some time.

Yes. Thanks for the question. I think there's tremendous opportunity on both sides of the balance sheet when we think about the AI implications to it. When we think about how much or what the composition of that 500 basis points is going to be, in my mind, it's more along the efficiency ratio, but it's really driven probably around 65% coming from expenses and around 35% coming from revenue.

And as we think about resource deployment, whether it be capital or human as to how we're thinking about extracting that actual benefit, that's probably where those allocations come from. On the expense side, we think about gearing ratios and what the implications of those are going to be across frontline and support areas. We're already seeing the elimination of certain software across the organization. So reduction in specific expenses and just an improvement in efficiency.

On the revenue side, we do believe that we're going to be able to get a larger share of wallet based on some of the enhancements we're doing with the data and the analytics and the ability to really provide some critical value-add information to our clients, and we believe that's going to be differentiating for us and give us additional revenue opportunities as well. So we're definitely looking at deploying capital associated with it. I think for the year-to-date, we've seen about $15 million, plus or minus, Travis, correct?

Yes. All in, we have $15 million of saves in the expense run rate against about $3 million or $4 million of AI associated expenses that are new, whether it's headcount or vendor spend.

So for us, it's not just in an exploratory phase. There's actually a real ROI that's already coming from it, and we think that it's going to be enhanced, and that will help us get to the 10% ROTCE that we targeted. But I think as Travis has talked about before, there's not a reliance upon the ROTCE on the AI to get to the 15% ROTCE number.

Our next question will be coming from the line of David Smith of Truist Securities.

Could you talk a little bit more about your loan and deposit pipelines and how you're thinking about the timing and drivers of growth over the rest of the year? I guess the guidance implies deposits outgrowing loans by about $400 million for the full year. But through the first half, I think it's kind of the opposite. Loans have been about $400 million ahead of deposits.

So I don't know if there's any seasonality or timing for either of those lines that we should be thinking about? And then secondly, as core deposits catch up to loans, should we expect meaningful improvement in deposit costs as you're running brokered down?

Yes. David, this is Travis. On the loan growth, I mean we're running 9% on an annualized basis. But if you look back over the last 12 months, I mean, I think it's hit kind of exactly what we've said, which is around 10% growth in C&I and mid-single-digit aggregate loan growth. So I would expect the second half of the year looks more like what we've done over the last 12 months than what we did this quarter, which was exceptional. We've been talking for the last 12 to 15 months about hiring efforts on the commercial side.

Those efforts resulted in a growing pipeline coming into the second quarter, we saw very strong pull-through. So the pipeline is down about $1 billion from March 31 to June 30, but remains a couple of hundred million dollars ahead of where it was coming into the year. I think seasonally, the third quarter is typically a little bit slower with summer vacations and things like that. And you see acceleration then in the fourth quarter and towards year-end. So when we revised the loan growth guidance higher, we said kind of at or somewhat above the high end of the 4% to 6% range. I think that's accurate.

I also think that because of the timing expectation, it's probably not a material change relative to our average loan expectations for the year. On the deposit side, I mean, we continue to see, as I said earlier, very consistent growth. I mean we've been growing about $1 billion a quarter in core deposits. One thing we've observed, obviously, is as we put on C&I loans, there is somewhat of a lag to achieve the deposit expectations that come with those loans. So we look back at just as an example, loans we originated in January, as of March, they had generated about 10% of the deposits that they had expected. We looked again in June, that was up to 80%.

So there's a 3- to 6-month lag in terms of getting all the deposit opportunity achieved. So that's why I think we highlighted something of a timing mismatch this quarter. The loan growth was exceptional. The deposit growth was exceptional. But over the next 2 quarters, I do expect that, that gap will certainly close. And we'll continue to see the brokered deposits come down. Again, the broker that we have for the remainder of the year, about $2 billion of brokered CDs coming off at a rate of 4.1%.

On a blended basis, this quarter, I kind of gave you what the new origination for deposits was well below that. And I think that's part of what drives the structural tailwind that we have and that differentiates us from a lot of peers.

Got it. Any change to your NIM outlook for the fourth quarter?

No. We still think exiting low to mid-3.30s is what we've talked about. There's no change to that.

And the next question will be coming from the line of Timur Braziler from the line of UBS.

Going back to the expense conversation and some of the expected benefits from AI. I guess any color you can provide on potential time line there? I know that there's some potential learnings from Leumi as well, Leumi as well. Maybe just talk us through kind of the expense side of the equation. when we can actually start seeing some of those benefits minimizing some of the more recent expense growth?

Yes. This is Travis. I think, again, as Ira mentioned, yes, some of it's already in. And obviously, we continue to execute on opportunities there. I wouldn't let some of the expense items this quarter kind of cloud that message. And when I say that, I mean, when you look at the expense growth this quarter, $5 million sequentially, $1 million of that is from higher FDIC expenses. We just talked about the amount of deposit growth that we've seen.

We had exceptional growth this quarter in loans and fee income. There are certain incentives that are associated with that, that get tied into your expense number. And then we've used third parties to help us operationalize some of our transformation efforts, which, in some cases, includes AI, but not in all cases. I think that in the professional service line, you'll see come down. There will be some follow-up transition, though, as we continue to optimize our onshore headcount, you'll see a transition where compensation costs should continue to come down or stabilize and you'll see some professional fees offsetting that.

Overall, that's a positive trade for our expenses and our efficiency ratio. But there's always a lot of moving pieces in every quarter, and I feel very good about the AI efficiencies that we're getting and that there's more to come. But I wouldn't take too much, again, from the sequential change in expenses. I kind of gave you some of those items that are very unrelated to the AI discussion that we're having.

Okay. Great. And then maybe looking at the loan growth this quarter, we saw multifamily get reengaged. You called out some strong growth in the health care vertical for CRE. I'm just wondering the kind of the mix of future loan growth and maybe talk through some of the spread dynamics within the CRE bucket versus what you're putting on...

Yes, for sure. Within -- Sorry, you cut out there at the end, Timur. Maybe repeat whatever you said after asking about loan spreads.

Yes. Just if that spread persists, is that going to have a meaningful change on loan yields going forward?

Yes. Got you. Within commercial real estate, again, the majority of our growth is coming from the owner-occupied portfolio. You did call out multifamily was higher this quarter, but you'll see construction was down. So a good amount of that multifamily growth was construction loans that went into perm. So it's effectively neutral to your regulatory CRE ratio. From a spread perspective, obviously, we're hearing a lot in the market about spread compression, and we see volatility on a monthly basis.

But in general, it's been fairly stable for us. Part of this, to your point, is C&I loan originations have picked up and our spreads are hanging in better there than in CRE. And so that loan origination growth in C&I has offset some spread compression in CRE. So we were conservative coming into the year, assuming that the spreads were tighter. Nothing that we've seen is candidly out of line with the expectations that we had. So we feel good about that. But yes, it remains competitive out there, particularly in CRE.

And the next question is coming from the line of David Chiaverini of Jefferies.

This is [ Frank ] on for [ Dave ]. On asset repricing, loan yields came in, I believe, 3 basis points higher quarter-over-quarter. And you guys called out the new originations coming in at a higher rate. Can you just provide any color about how much fixed asset repricing that we still have going into the second half of the year and maybe anything into 2027?

Yes, for sure. So for the remainder of this year, we have $1.4 billion of fixed rate loans that are maturing at a rate of 4.67%. So that's, call it, 150 basis points lower than where new originations are. For the first half of next year, there should be an additional -- just doing some quick math, an additional $1 billion at a rate of about 4.75% that matures. So I think that provides some of the tailwind that we're talking about on the loan side.

Great. And just last one for me on capital. How are you guys prioritizing capital between, I guess, loan growth, buybacks and potential CRE concentration bring down from here?

Yes. I don't think there's been any change in the way we think about capital deployment. We continue to see our focus primarily is on well-funded high-quality loan growth and secondarily, on the buyback. So this quarter, obviously, we had more significant loan growth, and we toggled back on the buyback. But next quarter, should loan growth lighten up a little bit, then we'd be more active on the buyback. So I think we've been pretty consistent with how we approach that.

CET1 is right in the middle of our guidance range. There's no change to those expectations. And then I forget the last part of your question.

The CRE concentration.

Yes. I mean that's -- you've seen it come down consistently. I mean this quarter, I think, is a very good example where it came down 12 percentage points, 9% -- 9 of those 12% was because of the excess sub debt, but the remaining 3% was due to organic capital accretion. I mean we still grew regulatory CRE by $100 million, and we're able to drive that ratio lower by effectively 3% on an organic basis.

And that will be coming from Anthony Elian of JPMorgan.

This is [ Mike ] on for Tony. I'll start on credit quality. You guys saw some migration in and out of the 30- to 59-day bucket in nonaccruals. You attributed that to some CRE loan. Could you, I mean, share a little bit more on that and sort of latest thoughts on how you're feeling about credit quality overall into the second half of the year?

Absolutely, Mike. This is Mark Saeger again. For the migration into nonaccrual, 2 of the 3 loans that moved into that category today are appraised extremely strongly. We're covered by value, a unique scenario, one office portfolio where we could not come to terms with a continuation and are looking to exit. So that's matured. We're continuing to receive payments on that, and it's well collateralized. The other loan has been wavering between hovering at the 60-day bucket. It did go beyond 90 days. We moved into nonaccrual.

They did make a payment and are running closer to 60 days on that one as well, very well collateralized. We're not concerned about the value and do continue to expect to get payments on that. I'd point out in our nonaccrual portfolio, we continue to have approximately 50% of our nonaccruals continuing to pay interest. So we really look at the overall trends and the large reduction in criticized as more of an indication of where the portfolio is going, and we're seeing really solid trends there.

Awesome. And then on the ACL ratio, it fell a few basis points quarter-over-quarter, but you guys reiterated the provision expense outlook. Do you still think you could be able to get back up to the 120 by the end of this year?

I don't think we have a hard and fast target of 120%. I think it's well within a range that we're very comfortable with. If you look on a year-over-year basis, it's down 2 basis points, the allowance coverage despite a 15 percentage point reduction in our criticized and classified. And so as criticized and classified continues to come down, it would imply a lower ACL.

It's then offset by the C&I loan growth that we're putting on, which is obviously carrying a higher allowance with it. So I think everything is playing out kind of as we expect. We say general stability each quarter, but we always note that it will move around a couple of basis points just given the economic assumptions in the model and other things. But I think generally, this has been pretty stable now for a long period of time.

And the next question is coming from the line of Matthew Breese of Stephens.

Travis, I want to go back to funding. Considering the competitive dynamics for deposits now and -- but kind of against the maturing brokered, what are your expectations for deposit cost increases from here? And then how much of the $5 billion in brokered do you think can or do you want to replace with core? I'm assuming there's some residual that's there on an ongoing basis. I'm curious what that number is.

Yes. On the deposit cost, I mean, we continue to -- I think the way -- the easiest way to think about it is the level of competition has the potential impact of raising core deposit costs. However, we have the offset from the brokered. So when we look at that in aggregate, I mean, our model currently has, call it, 4 or 5 basis points of deposit cost expansion in the next 2 quarters. And I say that noting that in aggregate, we think margin will be improving 5 to 7 basis points for each of the next 2 quarters as well.

So you're getting enough offsets on the earning asset side. Within brokered, I don't think it's ever going to get to 0. I mean brokered deposits serve a very important purpose from an interest rate risk management perspective. But as we've said, our goal is to get loans to nonbrokered to 100%. And I think we can certainly do that. I mean there have been periods when you look back over the last 8 or 10 quarters where it's been very chunky in terms of the brokered reduction.

So again, the core deposit growth has been very consistent. I think it's something we're very proud of. I think our ability to grow core deposits without relying solely on rate has been differentiated, and we'll continue to make good progress there. But to your point, I don't think brokered goes to 0. I think there's a reasonable level where it's helping to support our interest rate risk management strategy and securities.

Yes. Yes. Okay. And then you touched on it a little bit, but just thinking about the NIM longer term, obviously, we're in this period now where there's a lot of kind of fixed asset repricing benefits. But if I look back to like 2023 when loan yields started to spike for the industry, assuming some of that rolls off in 2028, I'm just curious, do you start to see from your model, the NIM kind of level off as we exit '27 and into 2028 because of that? I'm curious just kind of your longer-term NIM thoughts, I guess.

Yes. I mean I'll get you through to the end of 2027, which is we expect continued expansion between now and the end of '27. It's not like it teeters out at any point during the next year. And I would expect that there is continued tailwinds beyond 2027. I think the thing to keep in mind for us is given our CRE concentration entering '23 and '24, we weren't originating a lot of fixed rate CRE loans when rates were highest.

And so for that reason, we don't have kind of what I would call the repricing headwind of higher fixed rate loans coming off. The fixed rate loans that we have coming off remain pretty low yielding. And so I think, a, that gives us an opportunity; and b, helps us to kind of like others may have seen more volatility in prepayment activity. We haven't really seen that because, again, we weren't putting on a lot of CRE loans when rates were highest.

Matt, I would just add to that. I think we've made a lot of structural changes across the organization since then as well. As you think about the investments that we've made within the treasury solution product that we have, the C&I teams that we brought in, the deemphasis of some of the commercial real estate assets, which obviously have a lower relationship and compensating balance associated with it.

So I think Travis speaks to sort of what the model lays out. I think we've made a lot of progress as to how we think about what Valley is going to look like in '28 versus maybe what it looked like in '23. And the structural funding advantages, we think, will definitely have a lot of tailwind associated with that as well.

Got it. Okay. Ira, maybe while I got you, we talked about that mid-teens ROTCE outlook. When do you think you can hit that based on what you know today?

I mean I think we've given guidance towards beginning of '28, I think, is sort of where we said some of this ROTCE to 15% was going to be. I still think we see a lot of tailwind in where the margin is going. I know we talked about the deposit pressure that we're seeing from an industry perspective, but we feel pretty confident about where that is and a lot of positive operating leverage is going to come as we think about where the expenses are headed across the organization as well. So I think the guidance that we've given in my mind really hasn't changed at this point.

Next question will be coming from the line of Janet Lee of TD Cowen.

On expenses, can we assume that the professional and legal fees are trending down in the second half of '26 and through 2027? I believe this line item has been elevated because of the transformation efforts that have been ongoing for the past few years. And also, you're talking of a lot of AI benefits and the positive impact on efficiency ratio and positive operating leverage plus your expectations on NIM expansion through 2027.

How should we think about how that's impacting the efficiency ratio target? You've talked about sub-50%-ish by the end of '26. How should we think about it beyond 2026, if you could comment on it?

Yes. Maybe I'll start with the second one. There's no change to our expectation that the efficiency ratio should be 50% or lower as we exit 2026. And I think Ira made a comment that industry-wide AI longer term should give people a potential opportunity to enhance their efficiency ratios by, call it, 500 basis points, and I don't think we feel any differently at Valley's. So if you're going to exit '26 at or below 50%, I think there's an additional opportunity to continue to drive it lower.

I mean, for us, a lot of the revenue tailwinds that we're benefiting from in '26 continue into '27 as we've talked about. So our expectation is our efficiency ratio continues to drive lower I think there's a good opportunity to do that as we continue to drive net interest income and fee income growth and keep expense growth much lower than the pace of revenue. So I think that plays out. From an expense perspective, you asked about the professional fee line.

I agree with your comment. I think this will be close to the peak or the peak in professional fees as we kind of now begin to offboard some of the third parties that have been here to help us from a transformation perspective. So I agree with your comment.

Okay. And sorry if I missed, but are the new deposits that are coming into the bank on the core side, including NIB, are they coming in around 2.5%, which is, I believe, what was quoted about a quarter or 2 ago or maybe slightly higher than that? Or maybe you could give an updated number?

Yes, for sure. So I'm going to give a lot of numbers here, so I apologize, and hopefully, it plays out right in the transcript. But in the first quarter, in aggregate, we originated $1.4 billion of new core deposits at a rate of 2.55%. This quarter, we originated $2.5 billion in aggregate at a rate of 2.71%. So to your point, it's slightly higher.

However, this quarter's originations include about $600 million of retail CD promos at a rate of 4%. If you were to exclude CDs from both quarters, we originated in the first quarter $800 million at 1.78% and in the second quarter, $1.3 billion at 1.66%. So exclusive of CDs, we originated $500 million of more core deposits at a rate that was 12 basis points lower than the first quarter.

And we do have a follow-up question coming from the line of David Smith of Truist.

I just wanted to clarify, I don't know if you had mentioned the Fed interest rate assumptions for the NII guide. Could you confirm those, please? And apologies if I just missed it.

Yes, no worries. At this point, we have one hike assumed for 2026. And I think another half hike, bizarre that sounds, for 2027. We've talked about, David, being effectively neutral to the front end of the curve. And so that continues to be our balance sheet positioning. Effectively, our floating rate loans, which is about 40% of our loan portfolio, balances the amount of deposits when you adjust for beta that would also float on the front end.

So whether there's 2 cuts or 2 hikes or no hikes or cuts, it doesn't materially change our NII outlook. We're more exposed to the belly of the curve, and we've seen some good expansion there since the beginning of the year.

And remind us, is that on a constant size balance sheet? Or does that include like a presumed like slowdown in balance sheet growth if rates are a little bit higher?

Well, as we have gotten -- as we do more C&I, the amount of loans that float on the front end of the curve would increase. At the same time, that's effectively where our deposit growth is coming as well. So it's -- the statement is made with our balance sheet today. But given the growth that we're seeing, I think it would be consistent going forward. To the degree there would be any change in our sensitivities, we'll be willing to use hedges to make sure that we're keeping our sensitivity within ranges that we're highly comfortable with.

I meant more along the lines that like higher rates can weigh on like loan growth, for example.

Got you. No, I think we're far away from that. I mean we've done -- we've added a lot of talent. We're in the right markets. We're in the right specialty verticals to continue to grow. I don't think that we expect that it would materially change our loan growth outlook with some reasonable expansion in longer-term rates.

And that does conclude the Q&A session for today. I would like to go ahead and turn the call back over to Ira Robbins for closing remarks. The floor is yours.

I just want to once again thank everyone for taking the time to join us this quarter. Obviously, we're very excited about the results and what we're looking for, for the rest of the year and looking forward to talk to you again after the Q3. Thank you.

This concludes today's program. We thank you for joining. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Valley National Bancorp First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Andrew Jianette, Investor Relations. Please go ahead.

Good morning, and welcome to Valley's First Quarter 2026 Earnings Conference Call. I'm joined today by CEO, Ira Robbins; and CFO, Travis Lan. Our quarterly earnings release and supporting documents are available at valley.com. Reconciliations of any non-GAAP measures mentioned on the call can be found in today's earnings release and presentation. Please also note Slide 2 of our earnings presentation and remember that comments made today may include forward-looking statements about Valley National Bancorp and the banking industry. For more information on these forward-looking statements and associated risk factors, please refer to our SEC filings, including Forms 8-K, 10-Q and 10-K.

With that, I'll turn the call over to Ira Robbins. .

Thank you, Andrew. Valley delivered another strong quarter with net income of approximately $164 million or $0.28 per diluted share. Excluding certain noncore items, adjusted net income was $169 million or $0.29 per diluted share. Despite traditional first quarter headwinds, including elevated payroll taxes and a lower day count, adjusted pre-provision net revenue increased to $253 million during the quarter, providing a strong jumping off point for the rest of the year. .

While Travis will provide additional detail on the financial performance, I wanted to spend my time discussing strategic execution and long-term value creation. We have spent the past few years deliberately reshaping this organization. We have strengthened our balance sheet and upgraded our operating model while supporting incremental investments in talent, technologies and capabilities that we believe will be impactful over the long run. The cumulative impact of those efforts has become increasingly evident in our recent financial results. Just as importantly, these enhancements have positively impacted our daily operations and ways of working.

Strategically, our focus is consistent and clear. First, we are building a higher quality and increasingly resilient funding franchise. Our emphasis on core deposit generation is not just about short-term pricing advantages. We are focused on winning primary operating relationships, deepening engagement across our client base and creating a stable funding engine that can support our growth aspirations across cycles. The combination of scalable specialty deposit verticals, enhanced treasury management capabilities and an improving client experience has enabled us to better compete across markets and channels.

Secondly, we are pursuing diverse relationship-focused loan growth. We are intentionally allocating capital towards businesses, geographies and industry verticals where we see durable demand and strong risk-adjusted returns. This includes business banking and middle market opportunities in our high-quality markets as well as specific niches like health care, where we have a differentiated value proposition. To fund the strategic growth, we have remained disciplined about selectively exiting lower-return transactional clients that do not align with our future strategic focus. This is not about maximizing short-term growth. We are building a relationship-focused portfolio that we believe will perform consistently across economic environments.

Thirdly, we continue to focus on operating leverage and scalability. Many of the investments that we have undertaken over the last few years, including our core conversion, data infrastructure enhancement and organizational redesign were made with a long-term lens. As a result, we are increasingly able to grow deposits, loans and revenue faster than our fixed cost investments and without adding unnecessary complexity. We view this as a critical advantage for a regional bank that operates in an underserved size range, which still compete regularly with upmarket institutions.

That brings me to value positioning around artificial intelligence, which we believe represents a meaningful inflection point for the banking industry. Valley's approach to AI reflects a balance between our pragmatic relationship-led culture and the acknowledgement that these technologies can enable us to reimagine how work is done across our company. We believe these rapidly accelerating capabilities can augment the productivity of our associates, enhance decision-making, improve operational efficiency, and most importantly, position Valley to better serve our diverse client base.

Our dedication to improving the granularity, consistency and infrastructure around our data over the last few years has been a key underpinning in our ability to effectively utilize AI tools today. We invested early in AI talent and advanced analytics, and have embedded certain capability into our operating model in the wake of our core conversion. Already, AI is helping bankers prioritize opportunities and better understand client needs.

We already utilized AI to improve access to our internal knowledge base to rethink legacy back-office processes, including card service requests, certain elements of underwriting and risk monitoring to accelerate data analytics and software development. Specific use cases implemented to date include a customer-facing voice AI agent that proactively contact past due auto loan customers to motivate payment, fraud tools to verify transaction legitimacy and to prioritize suspicious activity alerts and AI enhancements to our sales process to optimize the next best product offer. These are small examples have a much broader effort to unlock our associates to spend more time doing what they do best, building relationships and delivering high-value advice. We expect the capabilities will continue to translate into higher productivity, better risk outcomes and a more consistent client experience less friction, all while preserving the human element that defines our brand.

Looking forward, our priorities remain consistent. We plan to continue to selectively invest in growth, maintain our balance sheet discipline and deploy capital thoughtfully. We are confident that the foundation we have built positions Valley to navigate uncertainty, capitalize on opportunities around us and deliver sustainable returns over time.

With that, I will turn the call over to Travis to walk through the financial results in more detail.

Thank you, Ira. I wanted to start by giving a brief update on our 2026 financial expectations. As a result of continued strong core deposit growth, solid loan demand in our markets and a favorable yield curve backdrop, we believe that annual net interest income growth will trend towards the higher end of our previously provided range. We expect more meaningful acceleration in the second half of the year with no significant change to our expectations for noninterest income, noninterest expenses or credit costs, we believe there is modest upside to our previous guidance range and existing consensus estimates. From a balance sheet perspective, we continue to believe that our CET1 ratio will remain towards the higher end of our target range.

Slide 12 illustrates the execution of our capital strategy during the quarter. We generated over 30 basis points of regulatory capital in the period. Over half of this supported well-funded organic loan growth, and we used roughly 1/3 of our capital generation to buy back stock. Relative to last quarter, slightly more capital was used for the buyback.

Slide 13 illustrates the strong momentum in our deposit gathering efforts. During the quarter, we increased direct customer deposits by over $900 million, which enabled us to pay off nearly $300 million of maturing higher-cost brokered deposits and $350 million of higher cost FHLB advances. As a result of the strong direct deposit growth, loans to nonbrokered deposits improved to 106% from 107% last quarter and 112% a year ago.

Total deposit costs declined 18 basis points during the quarter, reflecting proactive reductions in core customer deposit costs and the funding rotation I just mentioned. We remain laser-focused on improving our funding profile to further derisk our balance sheet and drive continued profitability improvement. We anticipate the total deposit growth will be towards the high end of our 5% to 7% guidance range for the year.

Turning to Slide 16. Total loans grew nearly $700 million or 5.5% annualized during the quarter. Owner-occupied CRE, particularly within our health care specialty vertical continues to contribute to our growth as regulatory CRE declined modestly. C&I loans grew nearly $150 million during the quarter, reflecting strength across existing geographies and business lines as well as contributions from newly onboarded talent. We anticipate that loan growth for the year will be between the midpoint and high end of our previous 4% to 6% range.

Slide 19 illustrates the fourth consecutive quarter of net interest income expansion, which occurred despite day count headwinds associated with the first quarter. This increase was the result of solid loan growth, core deposit generation and repricing dynamics on both sides of the balance sheet. Net interest margin was flat from the fourth quarter, which, combined with our continued repricing tailwinds positioned us well to achieve the year-end margin guidance that we laid out previously.

Despite the expected normalization of noninterest income from the fourth quarter, we posted strong first quarter results as compared to 1 year ago. On a year-over-year basis, noninterest income was up 18% driven primarily by capital markets and deposit service charge revenues. These results are in line with our expectations, and we believe set the stage for further improvement throughout the year.

Turning to Slide 22. Reported noninterest expenses increased to $310 million in the first quarter from $299 million in the fourth quarter. On an adjusted basis, however, noninterest expenses were effectively flat as seasonal payroll tax headwinds were largely mitigated by modest reductions in other compensation costs, professional and legal fees and adjusted FDIC insurance expense. As a result of our cultural focus on expense control, Valley's efficiency ratio declined to 53.1% in the first quarter from 53.5% in the fourth quarter and 55.9% a year ago. We continue to believe that positive operating leverage will accelerate throughout the year, which is expected to result in an efficiency ratio trending towards 50% by the end of 2026.

Slide 23 illustrates our asset quality and reserve trends. Nonaccrual and accruing past due loans each declined modestly during the quarter, primarily as a result of positive migration of CRE out of each bucket. Net charge-offs as a percentage of total loans declined to 14 basis points from 18 basis points last quarter and the modest uptick in provision expense reflected the quarter's strong loan growth. Allowance coverage remained generally consistent around 1.2%, and we do not anticipate material changes to this level throughout the year.

Turning to Slide 24. Tangible book value increased approximately 1% during the quarter as solid retained earnings growth was partially offset by an OCI headwind associated with our available-for-sale securities portfolio. Regulatory capital ratios declined modestly as a result of strong loan growth and our stock buyback activity. Based on our preliminary analysis, we estimate that regulatory capital ratios would increase between 80 and 100 basis points under the proposed Basel III standardized approach. Until those rules are formalized, we continue to anticipate that our CET1 ratio will remain towards the higher end of our targeted guidance range.

With that, I will turn the call back to the operator to begin Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Manan Gosalia with Morgan Stanley.

My first question is on the NII side. You're pointing to the higher end of the NII guide, strong deposit growth already, strong loan growth. Can you talk about some of the inputs around the NII outlook today versus your outlook in January, the ways in which you can drive funding costs lower even if we don't get more rate cuts?

Yes. Thanks, Manan. This is Travis. Relative to where we were coming into the year, we had assumed 2 Fed cuts as of 12/31. Obviously, those are out of the forecast. But as we've said pretty consistently, we're neutral to the front end of the curve. So the elimination of those cuts in the model is not overly impactful to our NII outlook. We are more exposed to the belly and longer end of the curve, and there's been some migration higher there, which has been incrementally helpful.

From a deposit cost perspective, even if we're unable to materially reduce core customer deposit costs in a vacuum, we still have what we view to be pretty significant tailwinds from the structural location of higher-cost wholesale funding into lower cost core. And that's what I think has given us so much confidence about the margin trajectory that you've seen play out over the last year or 2 and why we continue to have confidence through the end of the year and into 2027.

That's really helpful. And then, Ira, maybe for you, you spoke about investing in AI early and the benefits of that to drive going forward. Are there any areas where you think you need to accelerate the investment spend there? Or is a lot of the investment spend going to be self-funded from here? So if you can just help us with how to think about the expense outlook this year and next year and how we should think about operating leveraging forward?

I think it's a significant opportunity for us and really for the entire industry as to how we think about how we service clients from an operating expense perspective and then also how we enhance the revenue side of it as well. I think for us, when we think about the expense that would go to it, we've always been very mindful of what the efficiency ratio is within the organization and how we self-fund a lot of what we've done here. We've spent about $450 million on CapEx in the last 7 to 8 years versus a $50 million number in the 7- to 8-year cumulative period before while still maintaining a very efficient organization.

When I became CEO, I think we were at 3,350 employees and $20 billion in size. Today, we're 3,607 employees and $64 billion in size. So having a more efficient organization, the more we can put that obviously provides an opportunity to really enhance the AI spend as well as other opportunities within the organization. Just over the last year, we declined about 100 employees within the organization. And as we think about the reduction in some of those roles, we're definitely enhancing the opportunities and reinvesting some of that back into AI that we think is going to be a lot more productive moving forward.

Our next question comes from the line of Feddie Strickland with Hovde Group.

I was just wondering if you could talk about the competitive landscape on the retail deposit side, maybe how that's changed and whether that's really shifted its broad expectations and more cuts seem to fizzle out?

Yes. Thanks, Feddie. This is Travis. Look, it does remain competitive out there for, I'd say, consumer deposits. I mean, as rates have kind of backed up, you see it in the offered rates that are posted in branches and online. I would just say, for us, I mean, obviously, the consumer element is a component of our anticipated deposit growth but the majority does come from the commercial side, and that would include small business and business banking in that as well. There, we're competing with the relationship, the service model that we have, the treasury platform that we can provide. So obviously, it will always be an element of how you compete for deposits, but it's not the only one. And I think that's what's enabled us to differentiate ourselves from a deposit growth perspective while also driving down costs.

Great. And just on the Common Equity Tier 1 guide. You mentioned it in your opening remarks, but can you just refresh us on capital priorities and does that CET1 direction mean fewer buybacks or simply more capital generation? Or are you taking into account the Fed moves there? Just wonder if you can talk a little bit more about buybacks relative to the CET1 ratio?

Yes, thanks. We've been pretty consistent that we have this range or target range of 10.5% to 11% on CET1, but throughout 2026, we anticipate staying at the higher end of that range. I think one key element, I mean, for us, the #1 priority for capital utilization is to support high-quality, well funded loan growth. And as we've seen kind of good activity in the first quarter and the pipeline is building well, we anticipate, as we said, that loan growth will trend towards the higher end of our range. We want to be able to support that.

So we bought back 4 million shares this quarter in aggregate, it was about $52 million of capital we utilized for the buyback. I would anticipate that pulls back a little bit because as we look at the loan growth opportunities for the next couple of quarters, we want to make sure that we're preserving the capital to support that. So we anticipate remaining active to some degree, but it wouldn't surprise me if it's a little bit less than what the first quarter was on the buyback.

Our next question comes from the line of David Chiaverini with Jefferies. .

Brooks Dutton on for Dave this morning. With your CRE concentration ratio trending lower to 3.29%, what is the long-term target for this metric? And how does that influence you guys 4% to 6% loan growth for the remainder of 2026?.

Yes. I think we were very diligent within the last 2-ish years in identifying a certain runoff portfolio really was transactional for us. So they didn't really bring the deposit relationships that we were looking for. So those 2 or 3 clients continue to run off, which create capacity for a lot of our loan growth within the organization. I think when we think about absolute getting on 300% as an absolute number is a longer-term priority for us, and we think that we're trending there. But there's really very little pressure from an external perspective that we feel that we need to accelerate that. These are good quality loans, but I think maybe just getting the return hurdle that we're looking for. So for us, it really becomes how do we rotate the profitability of the clients from certain under ROI clients into higher ROI clients. And that's really what's driving how we think about the runoff of the free portfolio. .

Great. And then just on fee income, there's lower capital markets activity this quarter. Can you just talk about your run rate expectations for 2026 as we progress to the year?

Yes, thanks. We did indicate on the fourth quarter call that fee income in general was about $7 million elevated in a variety of ways. One of that was $4 million or $5 million of elevation from a soft perspective in the fourth quarter. So that normalized as expected. The $10 million in capital markets in general is a good starting point, and we anticipate that we see growth throughout the rest of the year.

Our next question comes from the line of Janet Lee with TD Cowen.

For loan growth, is the -- more growth coming from nontransactional CRE and then still pretty robust growth in C&I there. Should we expect the mix -- should we expect more of growth to also come from CRE in the future quarters versus what you expected in the prior quarter? Or how should we think about the mix of loan growth as we head into the rest of 2026?

Yes. Janet, maybe I'll start, and Gino can add some commentary in terms of what we're seeing in the pipeline. But coming into the year, we had guided to about $2.5 billion of loan growth of which $1 billion was C&I, $1 billion was CRE and $500 million was consumer and resi. Within that $1 billion of CRE, we anticipated a couple of hundred million would be regulatory CRE. So investor in multifamily. As you saw in the first quarter, right, that was a slight decline. I would anticipate maybe that we see a little bit of regulatory CRE growth throughout the year, but the majority will remain in kind of owner occupied in C&I with support from the consumer areas as well. So maybe Gino, what you're seeing across the market? .

I'll just add, we continue to invest in new talent and primarily with C&I talent, upmarket C&I business bankers as well that are focused on C&I and deposit-rich businesses. Our pipeline -- C&I pipeline is up $1 billion since the end of the year. So we expect to see continued C&I growth throughout 2026, both because of the investments we made and because our clients continue to invest. We have relatively robust economies. We're in affluent markets, whether that's Coral Gables, Tampa, Morristown, Manhattan Garden City, all of those markets remain strong and robust in our clients despite the noise out there and some of the headwinds from input costs, our clients continue to remain confident and we continue to invest and we're supporting them.

That's helpful. And your credit was very stable this quarter, but your criticized and classified loans were up a little bit, driven by C&I special mentioned loans. Could you provide some color on the trends you're seeing and do you still affect the trajectory of criticized and classified to decline from here? Or should it stabilize over the near term?

Janet, it's Saeger. The really stabilization of criticized in the first quarter is just a normal phenomenon of year-end financial collection and some migration. We do anticipate that we will still see a decline in the criticized throughout the year in noting we had a big decline in Q3 and Q4, and we still have an expectation for the year to be down. .

Our next question comes from the line of David Smith with Truist Securities.

Can you give us a sense of where new loans are coming on the books today and how spreads have trended over the quarter, given everything that's going on?

This is Travis. New loan yields declined modestly. I think it was 6.75% last quarter, it was maybe 6.55%, 6.60% this quarter. We're seeing modest spread compression in certain asset classes on the commercial real estate side. I think that led to a little bit more runoff in the regulatory prebook than maybe we had anticipated coming into the year. But spreads have remained generally stable in most of our target portfolios. It obviously remains competitive for high-quality customers that we're banking. But I do think we've reached an air pocket from a size perspective, where we're one of very few banks remaining in this size category that can offer all the products and services of a large bank with the high-touch service and quick response and credit underwriting of more community-oriented bank. I think that's playing well for us to be able to grow without necessarily seeing spreads collapse. .

And did you have the spot deposit rate for March 31?

Yes. Interest-bearing spot deposit cost was 2.95% million versus 3.02% in December, all in was 2.26% spot deposit cost versus 2.32% at December 31, so down 6 basis points from the end of December to the end of March. .

Our next question comes from the line of Anthony Elian with JPMorgan.

This is Mike Pietrini on for Tony. So I guess I'll start on NIM. I guess, how are you guys thinking about NIM trending for the rest of the year? I know you guys mentioned coming into the year that the 3.30% mark was sort of what you expected? How do you guys see that trending?

Yes. So coming into the year, we had anticipated a slight reduction in margin in the first quarter and then building up to that 3.30% level by the fourth quarter. The reality is we posted a better starting point. And so I would anticipate that there's some upside to that 3.30% fourth quarter '26 target that we've laid out. Again, I think the funding profile is better at 3.31% than we had maybe anticipated. The interest rate backdrop remains supportive of the margin expansion. And we still have the structural tailwinds that we outlined on the net interest income side of the deck, showing the fixed rate asset repricing and then the fixed rate liability repricing as well. So when you add it all up, I think we feel better about the margin guide that maybe we saw coming into the year, even though coming into the year was strong as well.

Great. And then on loan growth, now you guys sort of guiding to the mid- to high end of that range, the 4% to 6% range. I guess, what categories do you feel more encouraged on now than you did before? Or just any color on the expected growth trajectory of any of the different categories over the rest of the year? That would be great. .

Our pipeline remains very robust. It's basically double what it was a year ago. And it is primarily concentrated in C&I and health care. We've got a very terrific health care franchise with experience -- very experienced people. And that business continues to grow. We do have a reasonable amount of CRE demand that is offset by the runoff of the nonregulatory book. And so we expect -- and also its robust growth across all of our geographies, whether it is Florida, New York, New Jersey. And even in our growth markets, we're seeing good growth in Illinois and L.A., et cetera. So we expect a very robust originations here.

Our next question comes from the line of Matthew Breese with Stephens Inc.,

Maybe a quick one on expenses first, just given some of the moving pieces, severance, et cetera, look at a starting place for the second quarter on salary expenses is $150 million the right place to be, any other moving parts there?

Matt, I think that's right. And I would just say, so the first quarter payroll tax impact was about a $7 million headwind. That declined by about $4 million in the second quarter. At the same time, our merit bonuses only went into place kind of mid-March, so there is no real impact from that in the first quarter. So those 2 things effectively balance out. If you take the severance away from the compensation line, I think that's a good starting point.

The only element and this moves around quarter-to-quarter is we did see some higher insurance costs in that line in the first quarter. So the -- it's possible that we could outperform from that perspective, but I don't think that would be overly material.

Okay. And one thing I haven't heard a lot about what I've heard a lot of peers talk about is just the extent you're seeing payoffs and prepayments. First, maybe just your thoughts on that? Are you seeing that as well but be able to offset it? And then secondly, is the prepayment penalty income going into the NIM? And I would just love to get some sense for how that's trended and if it's expensive? And are we modeling too much of it right now and just wanted your thoughts there.

Yes. I don't think -- first of all, it does go through our NII, although it's not an overly material number. Prepayments this quarter declined to about $1.2 billion. They've been running at around $1.4 billion for the last couple of quarters. So we saw a slight decline in prepayment activity, but it's been fairly consistent when you look back over 5 or 8 quarters or so. So I don't think it's been a material moving piece in terms of balances for the NII. .

Okay. And can you remind us of what the accretable yield that's flowing through the margin is?

Yes, it's like $10 million this quarter, which has been consistent. It's about $4 million on the security side and $6 million on the loan side. .

Okay. And I think that was what it was last quarter 2?

Yes, this quarter -- excuse me, yes, it was $9.5 million this quarter. It was $10.9 million last quarter, so a slight decline. .

Okay. And then last one for me, just on asset quality. The big areas of concern for the industry, I would love your thoughts on NDFI, not that you have a ton of it and then office commercial real estate, just of kind of color and if you're seeing any sort of green shoots there or anything that's keeping you up at night? That's all I had.

Matt, it's Mark Saeger. NDFI has never been a big portion of our portfolio. We have about 2.6% of the portfolio in NDFI compared to 7% for our peers. That number for us also, we mentioned in the past. We had a focus on capital call facilities out of our fund finance group. Those are exceptionally well structured to entities with a strong history and a very strong institutional LP base. So we view that as safe lending. But yes, as you mentioned, it's a small part of our portfolio.

As it relates to the office portfolio, we have that breakout in our deck. We continue to be very granular in that space, diversified by geography more suburban than urban. And we definitely are seeing more rational transactions happen in the office space. If it hasn't hit bottom in all markets, it's close to bottom, and we're seeing new lease-up activity, a reduction in subleasing in the majority of our markets. So not actively growing that portfolio, but our concerns on that portfolio have definitely abated.

It's Gino too. I will only add that in the last 2 quarters has been record leasing in New York City. And so at record rents, especially your Class A properties, you can see upwards of over $200 a square foot in rent. So some of the concerns about Montani and other things that are happening. Just not materializing with corporations in their leasing strategies at least.

[Operator Instructions] Our next question comes from the line of Christopher McGratty with KBW.

Travis, going back to the capital, just to push a little bit on the buyback. I mean your ROE going in the right direction, generating more capital. Can you do both the high end of growth and and buybacks or maybe it's more of a back half of the year as you kind of talk about the near-term loan growth. I guess what's the hesitation especially with the Basel III proposal?

Yes. I don't think that there's any hesitation. I just think we have a very robust pipeline, and we want to make sure that we're well positioned to support that loan growth, Chris. So again, we bought back $50 million of stock in the first quarter, something in that $40-ish million, $40 million to $50 million range. I still think is reasonable. The average price we bought it back was below where the market is today. So that's another element that plays into it. We will remain active in the buyback. I just indicated that I think it will be a little bit lighter than the first quarter. .

Okay. That's better. And then Ira, I didn't hear M&A or strategic you mentioned at all, maybe a view there, if there was a change.

Yes. I mean from an M&A perspective, I don't think anything has really changed. I think from a historical perspective, it's been important for us to remain a shareholder friendly and to do what's in the best interest of the shareholders. And I don't think that's ever going to change here. .

And I'm currently showing no further questions at this time. I would now like to hand the conference back over to Ira Robbins for closing remarks.

I just want to thank everyone for the interest and look forward to speaking to you next quarter. Thank you. .

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Valley National Bancorp Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Andrew Jianette. Please go ahead.

Good morning, and welcome to Valley's Fourth Quarter 2025 Earnings Conference Call. I am joined today by CEO, Ira Robbins; and CFO, Travis Lan.

Our quarterly earnings release and supporting documents are available at valley.com. Reconciliations of any non-GAAP measures mentioned on the call can be found in today's earnings release. Please also note Slide 2 of our earnings presentation, and remember that comments made today, may include forward-looking statements about Valley National Bancorp and the banking industry. For more information on these forward-looking statements and associated risk factors, please refer to our SEC filings, including Forms 8-K, 10-Q and 10-K.

With that, I'll turn the call over to Ira Robbins.

Thank you, Andrew. Valley delivered record earnings in the fourth quarter of 2025 with net income of approximately $195 million or $0.33 per diluted share. Excluding certain noncore items, adjusted net income was $180 million or $0.31 per diluted share. It increased from $0.28 on both a reported and adjusted basis in the third quarter of 2025. Our adjusted return on average assets of 1.14% represents the highest level since the fourth quarter of 2022.

For the full year of 2025, we produced $598 million of net income or $585 million on an adjusted basis. This material improvement versus 2024 reflects disciplined balance sheet management, a stronger funding mix and continued benefits from strategic investments in talent, technology and our operating model. We entered 2025 with a fortified balance sheet and clear profitability targets tied to sustained funding improvement and credit cost normalization. By year-end, we had exceeded these expectations across all major metrics while further strengthening our capital and liquidity positions.

This performance underscores both the resilience of our franchise and the depth of our customer relationships. Our improved profitability has accelerated retained earnings growth and enabled us to return more capital to investors through share buybacks and regular cash dividends. Our substantial core deposit growth stands out as one of our major significant achievements of the past year and is the key underpinning of our profitability improvement in 2025. On a year-over-year basis, we grew core deposits by nearly $4 billion or 9%.

Past strategic investments in talent and technology have deepened customer engagement, increased operating account wins and driven momentum across our diverse delivery channels. We continue to recruit experienced commercial bankers who are focused on both loan and deposit opportunities in their geographies or areas of focus. While future growth is not likely to be linear, we have a high degree of confidence in our ability to further enhance our funding profile over the next 12 months. The quarter's loan growth was strong, diverse and tightly aligned with our relationship-focused strategy.

For the first time since the second quarter of 2024, total commercial real estate loans grew on a sequential basis. This growth was primarily in the owner-occupied category and was partially funded by a strategic runoff of nonrelationship commercial real estate. During the quarter, owner-occupied CRE and C&I growth was driven primarily by activity in our specialty health care vertical and Southeast franchise. Loan growth is well positioned to accelerate further in 2026.

Our medium and late-stage pipelines are exceptionally strong, up over $1 billion or nearly 70% from just a year ago, driven by a $600 million increase in C&I and $700 million increase in commercial real estate. Capacity investments in data analytics, artificial intelligence and sales effectiveness are making our bankers more productive across the franchise. These investments also ensure that newly onboard relationship bankers have the tools necessary to hit the ground running and contribute more quickly to our consolidated results. To this end, recent additions to our teams, New Jersey, California and Florida have already generated loan and deposit activity and directly support the aforementioned expansion in our pipelines.

Our recruiting efforts remain active, which we expect will continue to accelerate the growth in our relationship-focused business model. Most importantly, increased activity from both legacy and new hires is the result of our strategic focus on attracting profitable holistic banking relationships, which align with our risk appetite. Our improved balance sheet position and profitability metrics reflect the cumulative benefits of a variety of multiyear initiatives. We have focused on geographic and business line diversification across the franchise and have invested in high-caliber commercial talent to achieve our goals.

Our 2023 core systems conversion set the stage for our expanded treasury management offering, which improved our ability to win operating accounts and deepen commercial relationships. This has directly supported additional growth in both core deposits and fee income, and has been further augmented by specialty funding niches that have produced above-average deposit growth.

Our strategic priorities for 2026 remain generally consistent and focused on sustained value creation. To support our deposit ambitions, we are igniting our small business sales efforts, improving branch productivity and exploring new growth-oriented deposit niches. Additionally, there is an opportunity to further expand the customer adoption of our treasury platform. Recent investments in branding, artificial intelligence solutions and service model improvements have been designed to accelerate customer acquisition and elevate the client experience, which we believe will contribute to future revenue growth and increased franchise value. At the same time, we are always working to identify and execute on expense offsets to help fund these initiatives.

Our strong momentum in 2025 directly supports our 2026 outlook, which Travis will detail shortly. From a high level, we expect continued benefits from repricing opportunities on both the funding side of the balance sheet and in the lower yielding fixed rate segment of our loan portfolio. While Travis will describe some of the traditional seasonal headwinds that we faced in the first quarter of each year, we anticipate an additional 15 to 20 basis points of margin expansion from the fourth quarter of 2025, to the fourth quarter of 2026, all else equal. This, combined with continued fee income growth, credit stability and expense management should result in further profitability improvement in 2026.

I am extremely proud of what our team accomplished in 2025. We have built undeniable momentum with respect to customer growth, funding diversification, loan quality, talent acquisition and ultimately, financial performance. Our strategy is paying off, our teams are executing, and we remain focused on delivering additional long-term value for our associates, shareholders and clients.

With that, I will now turn the call over to Travis to discuss our financial results. After his remarks Gino Martocci, Patrick Smith, Mark Saeger, Travis and I will be available for your comments.

Thank you, Ira. Continuing the discussion on 2026 expectations, we have provided our guidance for the year on Slide 9. We expect mid-single-digit loan growth supported by roughly 10% C&I growth, low single-digit CRE growth and mid-single-digit consumer and residential growth. While results may not be linear, we anticipate deposit growth will outpace loans throughout the year, allowing us to further reduce our loan-to-deposit ratio. We expect CET1 will remain in the previously guided 10.5% to 11% range as we continue to execute our capital deployment strategy.

As a result of expected balance sheet growth and continued repricing tailwinds, we anticipate that net interest income will grow between 11% and 13% in 2026. Our forecast assumes 2 rate cuts in 2026, that we remain generally neutral to the front end of the yield curve. While fourth quarter fee income benefited from abnormally high commercial loan swap activity, and, to a lesser extent, valuation gains on fintech equity investments, which may not recur, we anticipate high single-digit growth in 2026. Ira will discuss the investments we have made and will continue to make in talent, branding, technology and capability expansion. These are incorporated into our operating expense guidance and any incremental investments would be expected to further enhance our growth potential.

Finally, we expect further credit cost improvement in 2026. We anticipate general stability in our allowance coverage ratio and further normalization in net charge-offs. These factors would combine to imply a 2026 loan loss provision of around $100 million, give or take. While quarterly trends naturally vary, I would remind you that our first quarter tends to be somewhat softer as a result of lower day count, elevated payroll taxes within operating expenses and seasonal headwinds on both sides of the balance sheet. These dynamics may be more evident in the first quarter of 2026 as we saw a late year spike in both fee income and noninterest deposits, which are likely to moderate early in the year. That said, our 2026 guidance reflects the strong momentum that we have and our expectation for further profitability improvement throughout the year.

We added Slide 10 to provide a clearer view of our capital deployment strategy, which continues to balance organic growth with meaningful capital returns. In the fourth quarter, we generated $188 million of net income to common shareholders, of which we returned $109 million of that in the form of cash dividends and share repurchases. Our earnings generated about 38 basis points of CET1 during the quarter, and we used about half of that to support organic loan growth while returning the other half to shareholders and preserving capital ratios well within our target range. At the upper end of that range, we believe we have significant flexibility and anticipate preserving this balanced approach to capital deployment going forward.

Slide 11 illustrates the continued momentum in our deposit gathering efforts. During the quarter, we increased core deposits by about $1.5 billion, enabling us to pay off almost $500 million of maturing higher-cost brokered deposits. Our core deposit growth was primarily concentrated in noninterest and transactional accounts. Noninterest deposits grew over 15% on an annualized basis, but benefited from late quarter activity, which is likely to moderate. [indiscernible] total deposit costs came down by 24 basis points sequentially, implying a 55% quarterly deposit beta.

Turning to Slide 14. Total loans grew about $800 million or 7% on an annualized basis. This was the result of accelerating commercial real estate originations, continued C&I momentum and complementary residential and consumer growth. We continue to fund relationship-based CRE growth with transactional CRE runoff. For the year, we anticipate 40% of our net loan growth will come from C&I, 40% from CRE and the remainder from consumer and residential. Our loan yield beta continues to meaningfully lag our deposit beta as the replacement of low-yielding fixed rate loans with higher-yielding originations slows the rate base compression.

Slide 17 tells our net interest income and margin expansion story as we benefit from loan growth and repricing dynamics on both sides of the balance sheet. Net interest income increased 4% quarter-over-quarter or 10% year-over-year. We also saw our margin expand to 3.17%, well beyond our fourth quarter target of about 3.1%. We continue to see the repricing dynamic playing out, supporting our expectations for an additional 15 to 20 basis points of margin expansion from the fourth quarter of 2025 to the fourth quarter of 2026. We saw exceptional 18% growth in noninterest income during the quarter, roughly 2/3 of the sequential growth was from swap fees and unrealized gains on certain fintech investments. Some of this activity was episodic and is not likely to recur.

That said, we continue to have strong momentum from a deposit service charge and wealth management perspective. Quarterly fee income in the mid- to high $60 million range is likely a reasonable starting point for 2026 with anticipated growth throughout the year. Similar to fee income, fourth quarter adjusted expenses were elevated by a few discrete and infrequent items. Roughly half of the quarterly expense growth was due to our new branding campaign and performance-based accruals tied to the execution of certain operational initiatives and milestones in 2025. Even with these items, expenses for the full year increased just 2.6%, well below our 9% revenue growth.

We continue to project low single-digit expense growth in 2026 as ongoing investments in talent, technology, branding and capabilities are partially funded by efficiencies from other parts of the organization. As a result of these efforts, we anticipate that our efficiency ratio will continue to decline towards 50% throughout the year.

Slides 21 and 22 illustrate our asset quality and reserve trends. Criticized and classified loans declined by over $350 million or 8% during the quarter, and total nonaccrual loans to total loans were effectively unchanged. Quarterly net charge-offs were 18 basis points of average loans, bringing 2025 net charge-offs down to 24 basis points of average loans versus 40 basis points in 2024. Our allowance coverage ratio declined by 2 basis points during the quarter as lower quantitative reserves more than offset higher specific and qualitative factors. We remain confident in the performance of our loan portfolio and expect further normalization of credit costs in 2026.

Turning to Slide 24. Tangible book value increased by nearly 3% during the quarter as a result of retained earnings and a favorable OCI impact associated with our available for sale portfolio. Regulatory capital ratios remain generally stable as we support our loan growth and utilize excess capital to repurchase stock. We utilized over $60 million of organically generated capital to repurchase over 6 million shares in 2025. 4 million of these shares were bought back in the fourth quarter of 2025 alone, and we anticipate continued repurchase activity going forward.

With that, I will turn the call back to the operator to begin Q&A. Thank you.

[Operator Instructions] And our first question comes from the line of David Chiaverini of Jefferies.

So I wanted to start on net interest margin. You mentioned about to 20 basis points 4Q '25 versus 4Q '26. Can you talk about some of the drivers behind that on both sides, the loan side as well as the deposit side in terms of betas.

Yes. This is Travis, David, and thanks for the question. The benefits between now and the end of 2026 will be fairly balanced between the loan and deposit side of the balance sheet. So from a deposit perspective, we continue to work customer deposit rates lower and then we have the additional benefit of replacing higher cost brokered with lower cost score. In 2026, we also have -- excuse me, $600 million of FHLB advances at about 4.7% that will come due and will be replaced lower as well. So that's another benefit that we anticipate to play out on the margin. We have $1.8 billion of fixed rate loans that are going to mature in 2026 at a rate of around 4.7%. Those are coming back on 150 to 200 basis points higher. And so while as rates fall, asset yields may fall, we slowed the rate of compression because of that fixed rate repricing dynamic.

And in terms of kind of the cadence, you mentioned a couple of times about results not being linear through the year. How should we think about the net interest margin as we kind of progress through the year?

Yes. So in the first quarter, I would anticipate the margin comes down a little bit from the $317 million that we put up this quarter and then grows from that level back to that kind of mid-330s that we talked about by the fourth quarter. The drivers of that, again, I mentioned that we had some late December spikes in noninterest bearing balances. I would expect that, that's closer to the average noninterest deposit balance for the fourth quarter at $331 million. And then we also get the headwind from day count. So each day, we accrue about $5 million of NII. So 2 fewer days in the first quarter, a slight headwind. We'll offset some of that with growth in the rate dynamics, but that's the way that we think about it.

And our next question comes from the line of Feddie Strickland of Hovde Group.

Just great to see the trim down classifies again this quarter. And as you look at workouts in progress, and you mentioned decline in credit -- is the implication that we could see an adversely classified assets continue to fall over the course.

Feddie, this is Mark Saeger. We absolutely -- if the economy stays in the situation that it is today, which we expect, we expect this trend to continue in '26 and into '27. We've seen it for the past 3 quarters now improvement, and this was a substantive decrease.

I would just add the reduction quarter-over-quarter is a combination of payoffs and net upgrades. So it's both factors that drove that improvement. We would anticipate that to continue.

Got it. And then just on the loan growth outlook, it seems like you're going to have CRE concentration continued to decline to 26% if you had higher growth rates of C&I, consumer and resi. Is that the case? Or is it maybe relatively flat as you look to deploy some capital.

I think it's a modest improvement or further decline in the CRE concentration ratio. So if you untangle kind of the loan growth guidance, it's about $1 billion of C&I, $1 billion of net CRE and $0.5 billion of resi and consumer. Now that $1 billion of CRE will be split between owner-occupied and regulatory Cree. And the way that we factor it with the capital growth that we anticipate, you'd still see Cree concentration improve throughout the year.

Our next question comes from the line of Anthony Elian of JPMorgan.

Our adjusted ROE was over 13% in 4Q, which is above your guide of 11% for '25. Ira, I know last quarter you pointed to achieving the 15% goal by late '27 or early '28. But -- any update to that time line, just given the tailwinds you have and you outlined on Slide 9 for NIM, operating leverage and provision?

I don't think we're going to update what that guide looks like. We feel really, really strong about sort of where the lift off is for us in the beginning of 2026 and a lot of tailwind for us we think we're well on our way to achieve that 50% target.

And then on expense. So I get the low single-digit guide for the full year. But Travis, how are you thinking about expense specifically for 1Q just given some of the elevated items you mentioned around payroll taxes?

I appreciate it. I mean I think, as I mentioned, the fourth quarter also included some elevated items. So as those normalize and then you typically have about a $7 million or $8 million headwind in the first quarter from payroll taxes those things probably roughly balance out. And so you'd see, I'd say, general stability in operating expenses in the first quarter due to that, whereas normally it would be kind of a straight uptick. Again, you have some offsets with some of these more onetime items that occurred in the fourth quarter.

Our next question comes from the line of Janet Lee of TD Cowen.

you guys said you're neutral to the front end of the curve. And I know there is a lot of fixed rate asset repricing benefits that are flowing through for Valley. How does your prediction around 15 to 20 basis point NIM expansion change, if we assume no rate cuts.

Yes. Janet, this is Travis. If you assume -- as I said, we are generally neutral. If you assume no rate cuts, you would actually -- you look at kind of 0.5% to 1% of headwind from NII. The reality though is the implied forward curve assumes some modest increase in the 2-, 5- and 10-year points, which are more impactful to our margins. So -- in a vacuum, no Fed cuts would be a very slight headwind. But as the rest of the curve plays out, I think we offset that. The other component to think about is we're structurally neutral to the front end of the curve, but we've outperformed our beta assumptions in the wake of Fed cuts. So that's something that's improved the beta.

Got it. And just a follow-up on buyback. It looks like $19 million debt remaining in authorization that expires in April. And with your current capital generation, it looks like you could maintain the 4Q piece of buyback while still pretty comfortably staying in that CET1 target range, perhaps even at the higher end. Could you comment around the pace of buyback? I know you're going to be opportunistic, but I just would love to hear your response.

Yes, absolutely. So if you kind of play out our guidance, CET1 on a gross basis would increase 130 to 140 basis points next year. About 50 basis points of that would be used to support loan growth, 50 basis points will be paid out in the dividend and it would leave you with 30 or 40 basis points of excess CET1 for the buyback. That would kind of back into $150 million to $200 million worth of stock, which, if you think about the pace of the fourth quarter when we used about $48 million of equity in the buyback, it's pretty consistent. So that's the way that we're thinking about to your point. Our authorization expires in April. I mean, obviously, we would plan on re-upping that as we would traditionally.

Our next question comes from the line of Manan Gosalia of Morgan Stanley.

On the strategic growth slide, you have a bullet in there that talks about contemplating geographic expansion. Any specific markets you'd highlight? And I guess, how should we think about the scale of that build-out?

I think just from a broad perspective, we've had real success as we think about growing into different geographies. whether it be through acquisition or just from an organic perspective. On the back end of our Leumi deal, we were able to enter into the Chicago and Los Angeles markets and have seen strong growth come out of those areas. We recently expanded our team in the Philadelphia area and have seen real positive momentum and traction out of that. So I think we feel very comfortable whether it be something that's contiguous to where we sit today or where there's other opportunities in strong markets. And Gino, maybe you can comment on it.

I think you've raised that well, we have had some success senior leaders that we've hired in bringing in additional producers. And we are really focused on adjacent markets, but also opportunistically on teams that we can bring in and quickly start producing.

Got it. Okay. Great. And then as we think about the 330 plus NIM guide for 4Q '26, how important are loan spreads there? We've heard from some banks that they're seeing more competition on both spread and structure. I guess the question is, what are you seeing in your markets? And what are you baking into that guide?

Thanks, Manan. This is Travis. The reality is we hear the same from our bankers on the street. When you look at the data, the spreads have been fairly consistent. Now based on the feedback, we are conservatively assuming modest spread compression in the NII forecast that we gave you. So I think we hear it on the ground as well, and we're trying to factor that in appropriately.

Our next question comes from the line of Jared Shaw of Barclays.

Maybe just on the DDA, the noninterest-bearing deposit discussion, great growth this quarter. Are you saying we should expect average DDA to stay flat, but EOP potentially to go down? Or how should we think about the seasonality that you saw this -- or the growth you saw this quarter and the seasonality in the first quarter?

Yes. I mean, first, I think there's -- it's reflective of a lot of wonderful activity in terms of our bankers' ability to generate operating accounts and utilize our treasury management platform to generate business. My commentary though was that we were at $11.9 billion of average NIV for the quarter. in the end of period was $12.2 billion. I would anticipate at the end of the first quarter were kind of at that $11.9 billion level on an end of period basis and generally flat from an perspective.

Okay. All right. And then maybe just credit overall, like you said, is stable and looks good. Any more color you can give on the growth in the C&I NPLs?

Sure, Jared. This is Mark again. C&I growth was really driven by one credit in the portfolio a larger credit that we've had within the portfolio for over 10 years in in-market syndicated credit, unique business segment, that's supported by structural payments, but over a 10-year period because of the length of that payback, combined with the recent modification of the loan, we did move that to nonaccrual and established what we feel is an adequate specific on that loan.

Our next question comes from the line of Steve Moss of Raymond James.

Maybe just going back to the loan pipeline here you highlighted, Ira, just kind of curious, good to hear the strong pipeline -- and I guess also with the kind of decline in the runoff on CRE. Just curious if you guys are thinking potential upside to your loan growth guidance here? Or maybe what are some of the offsets you see?

Maybe I'll start, Steve, this is Travis. So our 5% -- where if you took the midpoint of our loan growth guide, it would be 5%. The reality is that also includes $500 million of runoff in our Tier 3 transactional pre portfolio. So absent that, you'd be at certainly above the higher end of the range that we gave. So I think there's a lot of good dynamics in the pipeline that Gino can talk about, but I wanted to throw that out as well.

Yes, we've got a really very strong pipeline. I mean we finished 12/25 and a $1.2 billion actually higher than 12/24. And also since 12/25, we've grown the pipeline by another $300 million despite closing about $0.5 billion worth of loans so far. So we feel very good. It's geographically distributed. It's both CRE and C&I with a slight concentration in C&I. So our clients continue to be very confident and we're back in the loans.

Okay. Appreciate that color there. And then just on credit here, with the decline in criticized and classified, just kind of curious as to how you're thinking about the reserve kind of settling out over time. If we see that come down towards like a more normal level like 4%, 5% could we see a pretty meaningful reserve decline over time?

This is Travis. I think that directionally makes sense. The offset though is C&I will be an increasing portion of the portfolio. So I think that helps balance out the benefit hypothetically that you get from lower criticized and classified. So I think that's why we kind of guided to general stability in the allowance coverage ratio.

Okay. Great. Appreciate all the color.

Our next question comes from the line of Matthew Breese of Stevens.

I was hoping to get a little bit more color on loan growth this quarter and then the pipeline from a geography perspective. So how much of the C&I and core activities coming from Florida up here in the Mid-Atlantic Northeast and then from the national lines. And I'm curious if you're seeing any major notable differences in origination trends, activity or spreads across these kind of categories and geographies.

It's Gino. I'll take that. As I just mentioned, it's really well balanced across the spectrum. There is a pretty good pipeline or a strong pipeline, I should say, in health care. And we saw that last year, and we're seeing it again this quarter. But at New York, New Jersey, Florida, all are contributing. And then even as Ira mentioned, our affiliate market has already built a very strong pipeline. As far as spread trends, it's pretty consistent across the markets as well. There is a minor bit of compression and competition. But all in all, it's fairly well balanced.

Got it. Okay. And then Travis, time deposit cost CDs are still a bit elevated north of as stuff matures and rolls and maybe you can include some of the promotional activity, what is kind of the new blended rate of CDs? And is that a decent proxy for where CD costs could go over the next, call it, 6, 9, 12 months?

Yes. I think our new rates or rates that are available from a rollover perspective are in the kind of 3.50% range. which would imply some opportunity to reprice lower in the CD portfolio more broadly. The elements that really keep that average cost elevated continue to be the broker deposits. And so in the coming year, we have $1.2 billion of brokered coming off close to 4.50%. So that there's upside there.

Got it. And do you have the cost of deposits at period end or more recently, so we get a sense of trend?

Yes, for sure. So the total portfolio spot deposit rate was 2.32%, so below the 2.45% average for the quarter. Our core rate is about 2.10% and then brokered is 4.20% or so, give or take. So gives you a little bit more insight into the dynamics there and the opportunity to replace brokered with core. I'd say in the fourth quarter, we originated $1.5 billion of new deposit relationships at a blended rate of 2.17%. That was from a balance perspective, pretty consistent with the third quarter, but the third quarter origination rate was 2.91%. So we're seeing some very good tailwinds in terms of the new deposits that we're bringing to the bank at a much lower blended cost.

Understood. And then just last one. Loans past due 30 to 59 days picked up, I think, by about $56 million. Was there anything administrative about that timing related? I know end of the year can get a little bit harry or is there a sense that, that might migrate into NPLs? And that's all I had.

Yes, Matt, it was really driven -- there's 3 loans in their unique situations. We don't view this as a trend at all, but related to 3 specific loans. One, we have a contract of sale, and we expect that to be completed in this quarter. And and be done. We've recently signed a modification for another loan and anticipate interest being current. And the third, where we believe it's going to linger in delinquency 30- to 60-day bucket, but gradually catch up and potentially be current in the second quarter. So not seeing a trend really in the portfolio in any means really just a couple of specific transactions.

Our next question comes from the line of Jon Arfstrom of RBC.

Yes, just a couple of follow-ups, but maybe obvious, but you mentioned CRE growth for the first time in a long time. What changed there? Is it just less runoff on your balance sheet? Or are you actually seeing stronger growth and stronger pipelines there?

It's stronger originations, Jon. I mean as we talked about entering 2025, we were turning the CRE origination engine back on, obviously, from a very disciplined perspective both in terms of requiring deposits to come with those loans.

[Audio Gap] and think about how we can support growth within the organization without bloating on the expense side. And I really do believe we have a great team in place, and we'll be able to continue that.

Okay. Just to comment on branding, kind of what are you doing and how extensive is that?

It's been a real long-term effort for us, I think, in thinking about who our target client was, especially after what happened with SVB and making sure that we were focused on building a whole relationship internal branding within our bankers to make sure that we understood what a relationship banker should do across the organization. And we're now very, very comfortable that we have the right ability to execute with the branded campaign that we put out there. So we have -- that's how branding campaign that we're really focusing on. We think it will really enhance the ability to grow some of the consumer and small business within our geography right now. We hired Patrick Smith into the organization during this past year, really strong proven leader within that space, and we want to make sure that we have a branding campaign to complement a lot of what Patrick is able to really bring to the organization. So -- for me, it's a holistic approach. You can't have branding without the people. And I think what we're doing on the branding side, really, really complement what Patrick is able to bring to Valley.

Our next question comes from the line of Chris McGratty of KBW.

Travis, just going back to the deposit growth beyond -- I hear you in the first quarter on the average EOP NIB. But on the full year, how do you break out the 5% to 7% growth by mix? Like how much contribution from NIB versus...

Yes. Yes. So if you take the midpoint, you're at 6% total deposit growth, we conservatively model NIB growth all of the margin guide that we've talked about and the deposit growth that we're talking about, it's not overindexed on some assumption that NIB significantly outgrow total deposits. it's pretty consistent. So 5% NIB growth, about 7% savings now and money market growth and then pretty modest CD growth.

Okay. And then what's the beta you're assuming on -- I think you talked about -- I don't know the number in front of me, but the 55% in the fourth quarter, what are you assuming for '26 on the betas?

Yes. We've been consistently assuming 50% total deposit beta. For the full year of 25%, it was actually 60% in terms of the actual result, but we continue to model a 50% total deposit cost beta.

Okay. Great. And then Ira, last quarter, you were asked us kind of about strategic options and long-term planning. You've got a good organic story going, operating leverage, good balance sheet growth. Is there a scenario where you might entertain buying a bank this year? Is there a possibility?

I think M&A is an interesting dynamic as to how you think about sort of where the market looks today. For me, really, there's sort of 3 levers that you really need to think about. One, it just starts with shareholders like what are you doing for your shareholders? And are you really prioritizing your shareholders? I think the second, as you think about M&A, really stick to one of the financial constraints. We spent a lot of time and a lot of focus across the organization as we've done M&A historically and not diluting the current shareholders.

I think M&A largely is focused on the target shareholders, which I think is crazy. You have a strong shareholder base and to sit there and solely focus on the target. It doesn't make any kind of sense in my mind. I think that M&A really then has to be aligned with what the strategic objectives of the organization look like. Travis and his team did a wonderful job on Slide 8, laying out sort of what the focus is for us in 2026. So we see an opportunity to accelerate some of those things based on an M&A deal. That's something we may consider. But to your point, there's an unbelievable organic story that's really unraveling here at Valley. -- we brought in tremendous leaders across the organization, starting with Gino, Patrick and a real complement of individuals to help support them. And then we've really been able to continue to bring in people below them. So we feel really excited about the organic and there have to be something that would make a lot of sense for us to really divert any kind of attention away from that.

Our next question comes from the line of David Smith of Truist Securities.

On the funding cost side, you've obviously been able to pay down a lot of broker this year. You mentioned to be able to take some FHLB funding lower next year. Is there a minimum level of brokers and borrowings that you would still want to maintain through the long term? Or as core organic deposit growth keeps outperforming for those to go more or less to 0 over time.

Yes. David, this is Travis. Look, I think the reality is both brokered CDs and FHLB advances play a very important role in terms of interest rate risk management. and the certainty that you can get with some of those instruments. And so I don't anticipate that it would go to 0, but there is a level certainly lower than where we are today, that probably makes more sense.

And then the regulatory backdrop is changing a lot through the banking industry right now, but you can also say that about pretty much any industry. I'm wondering, given that you have some pretty niche industries and commercial clients that you bank, are there any regulatory changes to your client base that you're watching in particular interest from the risk or opportunity side.

It's Gino. I think, generally speaking, the reduced regulation is driving confidence in our entrepreneurial borrowers. And I think it's increasing their level of confidence and wanting us to invest. But no specific industry, I would say that -- we're pretty well generalist here.

I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Hello, and thank you for standing by. Welcome to Valley National Bancorp's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Andrew Giannetti. Please go ahead, sir.

Good morning, and welcome to Valley's Third Quarter 2025 Earnings Conference Call. I am joined today by CEO, Ira Robbins; and CFO, Travis Lan. Our quarterly earnings release and supporting documents are available at valley.com. Reconciliations of any non-GAAP measures mentioned on the call can be found in today's earnings release.

Please also note Slide 2 of our earnings presentation and remember that comments made today may include forward-looking statements about Valley National Bancorp and the banking industry. For more information on these forward-looking statements and associated risk factors, please refer to our SEC filings, including Forms 8-K, 10-Q and 10-K.

With that, I'll turn the call over to Ira Robbins.

Thank you, Andrew. Valley delivered strong results in the third quarter, reporting net income of approximately $163 million or $0.28 per diluted share. This is up from $133 million or $0.22 last quarter and represents our highest level of quarterly profitability since the end of 2022. This performance reflects a significant operating momentum that has been building in our organization.

This quarter's results were highlighted by robust core customer deposit growth, continued momentum in net interest income and fee income, disciplined expense control and a meaningful reduction in credit costs.

Our balance sheet remains extremely strong, and we have achieved many of our stated profitability goals ahead of schedule, including annualized return on average assets being above 1%.

Valley is well positioned in the current environment. In 2024, we enhanced our balance sheet and are now leveraging this strength to improve our profitability and franchise value. Today, I'm thrilled to formally introduce our new commercial and consumer banking leaders who we believe will help accelerate the next phase of our evolution and success.

Gino Martocci joined Valley in March as President of Commercial Banking, bringing extensive experience from M&T Bank, where he led national commercial and CRE banking efforts. Gino played a key role in M&T's growth and has already contributed his market knowledge, network and strategic insight to support our commercial franchises further development.

In September, Patrick Smith joined as President of the Consumer Bank, following leadership roles at Santander, Capital One and other large financial institutions. Patrick will oversee retail, consumer and small business sectors, drawing on a notable record of growth and execution.

Gino and Patrick are already making an incredible impact by enhancing our customer acquisition efforts, talent base and strategic operating model. Their expertise helps position Valley to further leverage our strong foundation and accelerate our strategic initiatives.

Before passing the call to Travis, let me highlight a few of the key areas of sustained momentum. First, ongoing growth in core deposits and funding transformation. Over the past 12 months, we've added nearly 110,000 new deposit accounts, which have contributed to nearly 10% core deposit growth.

Targeted investments in products, technology and talent, especially in commercial and specialty lines have driven this progress. Consequently, indirect deposits as a percent of total deposits dropped from 18% to 11%, the lowest level since the third quarter of 2022. This has been achieved alongside a 56 basis point reduction in our average cost of deposits since the third quarter of 2024. We continue to actively manage deposit pricing in the back book and expect to benefit from lower deposit costs in the fourth quarter and into 2026.

Secondly, noninterest income. Excluding volatile net gains on loans sold, noninterest income has grown at an annual rate of 15% since 2017, 3x faster than public traded peers in our size range. We spoke last quarter about our focused efforts with respect to treasury management and tax credit advisory opportunities. These initiatives collectively contribute roughly $3 million of incremental revenue during the third quarter. The success of our treasury management demonstrates our effective combination of technology and talent. The implementation of an upgraded platform following our core conversion 2 years ago, coupled with expanding our expert sales team has resulted in nearly $16 million of incremental deposit service charge revenue on an annualized basis since the third quarter of 2024.

Thirdly, the resilience of our credit performance. Consistent with our guidance, we saw a significant reduction in net charge-offs and provisions during the third quarter. We expect to sustain these levels again in the fourth quarter. At the start of 2024, Valley was notably CRE-heavy in a challenging environment. However, differentiated underwriting and credit management have limited aggregate CRE losses to just 57 basis points of average CRE loans over the last 7 quarters. Although 2024 CRE charge-off rates were beyond our internal standards, loss rates have remained far below larger banks, more pessimistic stress test forecast.

From a C&I perspective, we continue to focus our growth efforts on traditional small business and middle market opportunities in our well-known geographies and established specialty verticals. As I mentioned last quarter, we have specifically targeted the health care C&I and capital call line areas, given their compelling risk-adjusted return profiles. We've been active in both verticals for some time, and we have never taken a loss on a Valley originated health care C&I or capital call on.

I am extremely proud of our organization's achievements over the past few years, and I'm highly optimistic about our future prospects. The bank continues to demonstrate exceptional momentum with respect to customer growth, talent acquisition and profitability. We have set ambitious goals for ourselves and are confident that continued execution of our strategic initiatives will deliver substantial value to our associates, shareholders and clients.

With that, I will turn the call over to Travis to discuss this quarter's financial highlights. As Travis concludes his remarks, Gino, Patrick, Travis, Mark Saeger and I will be available for your questions.

Thank you, Ira. Slide 9 illustrates our continued core customer deposit growth momentum. We gathered about $1 billion of core deposits during the quarter, which enabled us to pay off approximately $700 million of maturing brokered deposits. Brokered deposits now comprise 11% of our total deposit base, representing the lowest level since the third quarter of 2022. Roughly 80% of the quarter's core deposit growth came from commercial clients, reflecting our proactive business development efforts and the continued success of our treasury management sales efforts.

The relative stability of average deposit costs during the quarter masked a 7 basis point reduction in spot deposit costs from June 30 to September 30, which positions us well heading into the fourth quarter.

Turning to Slide 12. Gross loans decreased modestly on a spot basis due to targeted runoff in transactional CRE and the C&I commodity subsegment, which was acquired from Bank Leumi USA in 2022. Commodities payoffs accelerated during the third quarter, leaving a modest $100 million of C&I loans left in this business line at September 30.

CRE loans made to more holistic banking clients increased during the quarter, supported by the conversion of construction projects to permanent financing. Other C&I activity slowed from the second quarter's exceptional pace of growth. Average loans increased 0.5% during the quarter. The pipeline is rebuilt, and we anticipate solid origination activity as the fourth quarter progresses.

New origination yields were stable during the quarter at around 6.8%. Average loan yields improved 7 basis points on a linked quarter basis due to the fixed rate asset repricing dynamic that we have previously discussed. As a result, our cumulative loan beta stands at 21% for the current cycle.

Slide 15 illustrates the second consecutive quarter of 3% net interest income growth. NIM improved for the sixth consecutive quarter aided by asset repricing and sequential growth in average noninterest deposits. While excess cash held during the quarter weighed on our margin by an estimated 3 basis points, we are on track to achieve our above 3.1% NIM target for the fourth quarter of 2025. We expect that net interest income will grow another 3% sequentially in the fourth quarter. The current interest rate backdrop, combined with anticipated fixed rate asset repricing remains supportive of further NIM expansion in 2026.

Noninterest income continued its strong momentum this quarter. Deposit service charges saw continued growth as we expanded the penetration of our commercial client base with our robust treasury management platform. Wealth management was also strong, lifted partially by our tax credit advisory business. We anticipate that fourth quarter fee income will be generally stable within the range of the last 2 quarters.

Turning to Slide 18. Adjusted noninterest expenses declined modestly, driven by lower compensation, occupancy and FDIC assessments. These improvements were partially offset by higher third-party spend. Professional fees are expected to remain at this modestly elevated level, but total expenses should remain flat or only marginally higher in the fourth quarter as compared to the third quarter.

Our efficiency ratio continues to improve, and we anticipate further progress as we generate additional positive operating leverage in the fourth quarter of 2025 and into 2026.

Slide 19 illustrates our asset quality and reserve trends. Nonaccrual loans increased during the quarter, primarily due to the migration of a $35 million construction loan. It was in the 30- to 59-day past due bucket at June 30. We anticipate resolution of this credit with no incremental impact, but from a timing perspective, it necessitated migration to nonaccrual. On a combined basis, total past dues and nonaccrual loans as a percentage of total loans declined 9 basis points from June 30 to September 30.

Net charge-offs and loan loss provisions saw meaningful declines during the quarter, consistent with our prior guidance. We foresee general stability in 4Q, implying improved 2025 guidance relative to the range of our prior expectations.

Slide 20 emphasizes our cumulative commercial real estate charge-off experience since early 2024, affirming the effectiveness of Valley's distinctive underwriting and credit management practices. Despite the relative challenges of 2024, cumulative losses remained far below the adverse forecast of DFAST eligible banks.

Turning to Slide 21. Tangible book value increased as a result of retained earnings and a favorable OCI impact associated with our available-for-sale portfolio. Regulatory capital ratios continue to increase, and we utilized around $12 million of capital to repurchase 1.3 million common shares during the quarter. We remain extremely well capitalized relative to our risk profile and have ample flexibility to support our strategic objectives and sustain the strong momentum that we are experiencing.

With that, I will turn the call back to the operator to begin Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of David Smith with Truist Securities.

Could you speak to the competitive backdrop, just given the decline in C&I loans and some of that was commodities driven and the increase in deposit costs for the quarter on average? I think I understood there was a decline on the spot deposit rate, but just help us unpack what's happening on a competitive basis driving some of those trends and what you -- how you're expecting them to revert in the fourth quarter and the coming year?

Yes. Thanks, David. This is Travis. Maybe I'll start on the deposit cost side, and Ira and Gino can chat a little bit about the competitive environment from a loan perspective. So to your point, spot balance or spot deposit cost declined from 630 to 930 by 6 basis points. I'll tell you, quarter-to-date, we're down another 7 basis points from a spot perspective. So when you factor all that together, I think the beta relative to the 25 basis point cut in late September. It's consistent with what we've modeled.

I would just say quarter-to-date, since 9/30, we paid off another $500 million plus of additional brokerage at a rate of $450 million. The environment for new deposit relationships remains competitive. We originated $1.4 billion of new deposits this quarter at 2.9%. That compares to $1.8 billion in the second quarter at 2.8%. So the competitive environment for new relationships is still there. I would just say we have continued opportunity on repricing the back book, wich were effective with during the quarter. So I think as we enter the fourth quarter, I mean, deposit costs will come down. And I think there's more opportunity as we head into 2026.

Thanks, Travis. This is Gino Martocci. As it relates to the competitive landscape, we continue to see very strong demand both in C&I and CRE. There is ample liquidity in the marketplace. Banks are -- and nonbanks are fighting pretty hard for loans. And we have some -- seen some decline in spreads. But our pipeline remains very strong, and we continue to add loans and then add clients.

Okay. And then just on capital, stock is barely 1x tangible right now, and you've got 11% CET1 and TC almost 9%. Just with loan growth expectations, about 1% for the next quarter, how are you thinking about the buyback opportunity against conserving capital for longer-term organic growth ambitions?

Yes. I think over the last couple of quarters, we've talked about a near-term CET1 target of around 11%. And the reality is, given our risk profile, we'd be very comfortable in a range below that, call it, 10.50% to 11%. Historically, we've thought about the buyback in the context of repurchasing shares that we issue for incentive purposes. But to your point, I mean, based on the progress that we've made, the outlook that we have and the incredible confidence that we have in investing in ourselves, I do think that the buyback will be an increasing source of capital deployment going forward.

Our next question comes from the line of Feddie Strickland with Hovde Group.

Just wanted to ask on the geography of CRE and C&I. I think you've got a majority of C&I outside the Northeast at this point. As you look at your pipeline today, do you expect to continue to have more business coming from outside the Northeast and inside the legacy Northeast footprint?

So our originations for the quarter and actually for the last year really reflected 1/3, 1/3, 1/3 in the Southeast, 1/3 of the Northeast in certain of our specialty businesses. So as it relates to CRE, Florida franchise remains very strong, and we expect to see slightly more originations down there, but it's pretty evenly split amongst the geographies.

Maybe I'll just add to that, Feddie. I think as you know, we've spent a lot of time investing into the Florida footprint. We went into Florida, I think, back in 2014 with the acquisition of First United Bank, we then acquired a couple of other banks in that footprint. I think in the aggregate, it's about $4 billion to $5 billion of commercial assets that we acquired.

Today, we sit with commercial assets that are well north of $15 billion. Right from a loan perspective, it's one of our largest geographies. That's $10 billion of organic growth in just a 10-year window, I think represents really the foundation and footprint that we have in that Florida area. An unbelievable set of lenders and unbelievable set of bankers there and obviously very strong markets. And we continue to really make sure that we're focusing on letting that be a more sizable piece of what our franchise is.

So as we think about the growth projections that we've outlined. Obviously, as Gino said, we're seeing strong contributions coming from the specialty and coming from the Northeast as well. But we feel really strong and confident in the growth numbers are largely a function of what we're seeing in the Florida footprint as well.

I appreciate that. And just one more for me. I just want to ask on the fee side. How should we think about the capital markets business and the insurance businesses in particular over the next quarter or so? It seems like capital markets has held up pretty well. Insurance will have some seasonality. Just within the guide, obviously, how should we think about those businesses?

Yes, I would anticipate general stability for the fourth quarter, general stability in both areas. I think heading into 2026, there is definitely momentum on the capital market side. So just as a reminder, for us, Capital Markets is 3 businesses. It's our syndications business, our FX desk and our swaps desk. The swap activity tends to be more tied to commercial real estate originations, which have picked up over the last couple of quarters and helped support revenue there. FX has been a long-term growth trend for us as we continue to expand our commercial client base and the folks that utilize that offering. So I think there's good tailwinds definitely on the capital market side.

Our next question comes from the line of Anthony Elian with JPMorgan.

Can you provide more color on the increase in nonaccrual loans? I know you called out the construction loan that migrated to nonaccrual but no further impacts, but I would love to hear more on the commercial real estate loans that migrated?

Certainly, yes. Again, this is Mark Saeger, Anthony. The increase primarily driven by the $135 million loan, while it's in construction bucket, I'd note that it's really a land loan. So really strong value there. The borrowers in the midst of a refinance to take us out. We don't anticipate any issues with that at all on a go forward.

The other primary migration into nonaccrual is based off of updated appraisals. What I would note is that 50% of our nonaccrual portfolio is current on payment. So there's just some appraisal valuation and consistent with our to go there, but that is a much higher percentage of paying nonaccruals than we've seen in the portfolio in quite some time.

Our overall view of the real estate market is we're starting to see definitely positive activity even within the office market and the real estate portfolio. I'd point to the improvement in our criticized assets for the quarter after a stable second quarter, and that improvement really came from approximately 2/3 of payoffs in refinance at par and about 1/3 upgrade. So we're definitely seeing positive movement in the real estate market.

And then my follow-up, on your commercial real estate concentration fairly well below the 350% level now at 337%. Looking ahead, how low do you think you can take that level? And at some point, would you expect to actually grow CRE balances?

Thanks. This is Travis. So look, I think we are targeting growth in CRE. I think we're looking at low single-digit growth for 2026 and beyond, but as a result of capital growth, that ratio would continue to decline. I mean for us, the next kind of guidepost is 300%. I think you're probably there at the end of '26, early '27 and then continuing to grind lower over time. And again, that's just our own focus on ensuring that we're diversifying the balance sheet. And candidly, when you look at our peer group and the set of peers that are above us from a size perspective, I mean, we do remain somewhat of an outlier.

So it's something that we've been focused on. We've made a ton of progress on. But at this point, we expect the CRE balances will stabilize and begin to grow and then allow that capital to build to drive the next leg down in the ratio.

Our next question comes from the line of Manan Gosalia with Morgan Stanley.

A question for Gino. Where do you see the biggest white space for Valley what areas are you most focused on? And which subsegments or geographies do you think you need to invest most in? I recognize that you're focused on health care C&I and capital call, but maybe if you can talk about opportunities outside of that? And maybe same question for Patrick, although that might be an unfair question. I know you've only been there for a month now.

Yes. Thanks for the question. As Ira mentioned, the Florida franchise is an incredible differentiator from my perspective. It's had sustained momentum and growth for many years now, and that growth continues. It's now $15 billion franchise. It's largely organic. And there's considerable opportunities ahead for that. In addition to that, I think Valley has an opportunity to go upmarket in C&I. And in fact, we're adding some upmarket C&I lenders more in that $150 million to $500 million revenue space than Valley traditionally played in. We're actually onboarding 5 senior bankers who are building out their teams currently.

In addition, I really see a tremendous opportunity for Valley and Business Banking. But currently, we didn't sell it into that book as much in the deposits as we could have. And we have a real opportunity to do that. And I think we can gain significant deposits from that book. And as part of that effort, we're going to build out a professional [indiscernible] to expand our professional services book to focus on law firms, accounting firms, medical and dental practices and the deposit profile of those companies is extremely good.

So we think that going upmarket C&I is a real differentiator for us as well because there's a real void left by the larger institutions and regional banks that are consolidating away. Valley's attention to their relationship, their responsiveness is frankly superior to the super regional banks and was rewarded by our customers.

So as I mentioned, we're bringing on seasoned bankers. They're going to build out teams. We're doing it in every geography. We're adding business bankers as well. And we went through the efficiency exercise in order to create that capacity. So there's a number of opportunities, I think, for Valley to grow in 2026 and beyond.

This is Patrick. First of all, let me say that I am incredibly enthusiastic about what I've seen so far in my first few weeks at Valley. And to your question, I'd add a few points. One is small business. I've been conducting an evaluation of our small business segment, and I'm excited about the opportunity we have to really grow in this segment. We've been underpenetrated and small business. And we have a real opportunity to grow organically in that segment across our footprint. So we've been adding experienced small business bankers and enhancing our product set to go after that opportunity. So I think it's a wonderful opportunity for us. We've already added 8 bakers in principally in Florida and New Jersey to take advantage of the opportunity.

The other one I'd say quickly is that we have -- we have an opportunity to organically grow deposits from a retail perspective in our branches. Our branches have been positioned historically in support of our commercial business. as we pivot more toward a focus on or add a focus on retail, there's a real opportunity for us to grow our small business -- I'm sorry, retail franchise through our branches. And so we have a really good branch network across our footprint. That's an incredible opportunity.

And then finally, I'd echo what Gino said, which is we are acquiring really strong talent across the retail bank, and I expect us to continue to do that, and that's going to be a core driver as it is in commercial of our retail franchise growth.

That's great. I really appreciate the thorough response here. Maybe a follow-up for Ira and Travis. So you're beating your expense guide. You're clearly investing and there's clearly some more white space to invest in. How should we think about the expenses as we go into 2026 how much of these investments are already in the run rate versus how much do you think you need to accelerate that spend? And I guess I'm asking from the point of view of as NIM expands further from here, should we expect that you can drop most of those benefits to the bottom line? Or are there areas where you'd want to invest as we go into next year?

Yes, thanks. From an expense perspective, I mean, we undertook over the last couple of months an efficiency exercise where we tried to unlock savings in some of the back office and corporate service areas that could be reinvested in the front office that Gino and Patrick have talked about. So this is all baked into the near-term expense guide that we provided for the fourth quarter. And I'd just tell you as we begin to kind of pencil out 2026, I mean, I don't think there's any reason to move ourselves off of a low single-digit expense growth rate for that year as well. So our goal is to invest in revenue-generating talent that's going to enhance franchise value and ensure that we're dropping the majority of that revenue growth to the bottom line.

Maybe I'll just talk about sort of in my mind where we sit from sort of positive operating leverage. And I'll maybe take a step backwards and go where we were before the regional banking challenges that we had in 2023. But if you go back to June of '23 in that period of time, we had 3,957 associates across our entire footprint. Today, we're 3,624, so a contraction of 333 associates, about 8.5% over that period of time.

Just once again, taking a step back, in 2022 at the end, we had a return on tangible common of 17.20%, right? So obviously, a lot of focus on continuing to grow the organization and delivering returns for our shareholders that we think are appropriate, and we definitely believe that we'll get back to. Obviously, we had to sort of recalibrate how we thought about investing into the organization in 2023 based on some of the external challenges that happened with SVB and Signature, et cetera. And then obviously, our refocus on commercial real estate based on what happened with NYCB and a few others at that point in time.

So we feel really strongly that we've made the cuts necessary to really open up the ability for us to reinvest back into revenue in this organization. And as Gino alluded to, as Patrick alluded to, you're going to see continued hiring within the organization and really a growth trajectory that's going to get us back to return on tangible common numbers that we think we've delivered before and more in line with where the higher performing peers are. So we don't believe we're going to need to really add on a lot of incremental expenses that we've created space for that. And we are really, really confident in the positive operating leverage that we're going to be able to generate here.

Our next question comes from the line of Chris McGratty with KBW.

Travis, going back to your comment about the CRE book troughing and growing low single digit. How do you think about the impact at low rates, lower rates will influence that, I guess, that statement?

Yes. Look, I think we assume, obviously, in our loan growth guide, some amount of payoffs consistent with our loan growth -- or excuse me, with our rate forecast. So it's in there and look to the degree that rates are significantly lower than we anticipate payoffs would accelerate. There's no doubt, and then we'd end up kind of on the lower end of our guidance range for loan growth. But what I would say is when you look at -- we took 2024 off effectively from a CRE origination perspective, which is a period of time in which I think the highest yield in CRE loans were put on. So I don't really think that we have maybe the headwind that others do in terms of potential impact of lower rates on payoff activity.

I mean we still have a fixed rate loan portfolio that's yielding in the mid-4s to 5%. And so you got to pull rates down pretty significantly before you'd see a significant acceleration of payoff activity. So I'm not saying it's not a factor, but I just think we're a little bit more insulated than maybe other lenders would have been.

I would add that lower rates will also drive some transaction volume. Our pipeline is $3.3 billion today in total C&I and CRE. That's up from $2.1 billion in 2024. And it's much more -- so it's more of a 50-50 CRE, C&I where it was more like 60-40 up until this quarter. So we're seeing good momentum in C&I and CRE and the payoffs are here, but -- and the liquidity in the marketplace, but we're effectively building our pipeline.

That's helpful. And I guess my follow-up, Ira, is more of a strategic question. seems very clear that buying back your stock at book value is the right move. Is there a scenario where you deviate and consider inorganic at these levels?

Look, I think let me just start with, there really is no change to how we think about M&A across the organization. for us, I would say, being shareholder-friendly and focusing on shareholder is the primary focus of how we think about anything when it comes to capital allocation across the organization. Obviously, as you know, we've done a handful of M&A acquisitions over a period of time. And there's always been a focus on what that tangible book value dilution would look like and what the return to the shareholder is going to be as we think about sort of capital deployment as we continue to move forward. I think as Travis has alluded to, we're sitting at a pretty significant discount to where our peers are we feel really confident in the trajectory of where the earnings profile is. And when you're sitting at 1% on tangible book, it seems like a pretty good use of capital to me.

I would just add, Chris, just from an M&A perspective, I mean we -- as you can hear in Gino's voice and Patrick's voice, like we have an incredible organic opportunity set ahead of us. And so our primary focus is supporting the growth that we'll generate organically. I would say more M&A in the system is good for us, right? It creates additional disruption that we can capitalize on. And through the investments that we're making in the talent, we're working to position ourselves to capitalize on that.

Our next question comes from the line of Dave Rochester with Cantel.

You mentioned NIM expansion in 2026. That makes a lot of sense. And without trying to nail you down to a range right now, how are you thinking about what a more normalized NIM level could look like, just given the forward curve and then everything you guys are doing on the renimixofd CRE and the other work on the funding side?

Yes. Look, I think, I mean, for legacy Valley, which would have been CRE-heavy and over reliance on wholesale funding, that normalized NIM probably would have been $2.90 to $3.10. I think if you look back over time, that's where you would see them fall most of the time. Look, I think structurally, the balance sheet has already improved materially with the increase in C&I and the enhancement of the core funding base. And I would say now a more normalized margin for value is probably be closer to $3.20 to $3.40. I think, as I said in my prepared remarks, I have high confidence we'll be at $3.10 or above in the fourth quarter. And I think you can pencil out another 20 basis points of expansion from the fourth quarter of '25 to the fourth quarter of '26, which gets you kind of within that more normalized range.

And I think there's additional upside as we further enhance the funding base because none of what I just described includes any growth in the composition of noninterest deposits. And I think we have a real opportunity there. So look, I think we got a lot of tailwinds heading into 2026, and we look forward to executing on.

Great. And on the effort to go upmarket, where are you in the innings of that hiring in that effort hiring underwriters as well along with the senior bankers? And then when are you expecting to be really hitting the ground running on that effort when we start to see the boost in growth from that?

So we've had a lot of traction in hiring both senior people and underwriters thus far. We wanted to get them in here so that we can hit the [indiscernible] running in January, really, and really all through 2026. I think you're going to see some real momentum in more upmarket C&I and in business banking, frankly, for next year. And we are -- which inning, I think we're probably owing in the second or third inning at this point, but momentum has been strong. And people have a willingness to come to Valley. It's got a good perception in the marketplace and we're just excited about the opportunity.

And it seems like that boost to growth could be pretty substantial, right? I mean how are you guys quantifying that?

Maybe just before we get into it, I think, look, there's obviously headwinds in different quarters as you look at this quarter, the unused line or usage changed. There was the commodity headwind that we had. So we've had strong contribution as you think about sort of what the C&I growth has looked like for an extended period of time. We do believe, obviously, as you think about sort of the new hires that are coming into the organization on the commercial side, but there'll be a lot of strength there.

And maybe just reiterate real quickly what Patrick said also. I mean SMB has been a solid performing vertical for us. But we're really leveraging that up as you think about the people that are coming in. And these are known people to Patrick, known to the market that we've been in. So it's really across the board as to how we think about what loan growth is going to look like.

Obviously, as we talked earlier, there's potential headwinds when it comes to interest rates and CRE runoff and everything like that. But as Gino said, we're sitting with a $3.3 billion pipeline today. That's like $1.2 billion more than where we were about a year ago. I mean that's unbelievable. So we think the tailwinds there for loan growth in addition to the fact that Gino's still hiring and Patrick's still hiring.

Yes. We're pending out mid-single-digit loan growth expectation for 2026. So call it at a range of 4% to 6%. I think the more hirings that you get done, you get to the upper end of that for sure. And I think if you zoom out and think about where Valley has been, we've been a high single-digit, low double-digit loan grower in our history. Now a lot of that's been driven by high single-digit CRE growth. And to the point we've made before, we expect CRE growth will pick up, but we're not going to return to that level. And so think about low single-digit CRE growth, low double-digit C&I growth, contributions from consumer, I think that's how you begin to get to that 4% to 6%.

The other thing I would add on the hires is these are not transactional lenders and we're talking about holistic bankers that are bringing deposits as well. We haven't talked yet on the call about the significant deposit growth that we saw this quarter, but core customer deposits were up $1 billion. It's a significant annualized pace. It's due to a variety of factors. It's very broad-based. But part of it was this is the first year we've incentivized our bankers more on deposit growth than loan growth. And so I think that's paid off significantly.

Our next question comes from the line of David Smith with Truist Securities.

Just thinking a little bit longer term now. You did 11.6% adjusted drops in the third quarter. Guiding to operating leverage with cost of credit improving this coming quarter, and it sounds like pretty decent operating leverage next year as well. The cost of credit can stay controlled like you think. Can you just give us the latest on how you're thinking about profitability improvement over the next year or 2 in the context of your 15% goal?

Yes. So there's no change to our 15% ROCE target. I think we're pretty confident we can effectively achieve it by late '27, early '28. As you think about where we're starting in rough numbers, we have a 350 basis point gap to close in that period of time. 75% of that's going to come from net income expansion based on all things we're talking about mid-single-digit loan growth, margin expanding into the high 330s, continuation of high single-digit fee income growth and low single-digit operating expense growth and to your point, normalized credit costs.

Under those assumptions, you get pretty close to the 15%. The delta is going to be with that backdrop, you're going to build excess capital dramatically. I think that leads into the buyback conversation we've already had today. So I think those are the factors that we think about. But again, we think that we have high confidence in the target on that time line. And I do think there's also some flexibility in the levers that we'll get there because ultimately, the environment isn't going to play out the way that we model it to, but we have flexibility to ensure that we achieve that.

Our next question comes from the line of Matthew Breese with Stephens.

Travis, I want to go back to a comment you had made. I just want to clarify, I thought you had said maybe kind of normalized loan growth in the 4% to 6% range. Is that accurate, did I hear that right? Is that a good bogey for 2026?

Yes.

And then alongside that, maybe just help us out with the deposit growth alongside that and the outlook. And is there a potential we might see a further lowering of the loan-to-deposit ratio in '26?

Yes. I think that's part of our plan, Matt. So we would anticipate that deposit growth will exceed loan growth loan-to-deposit ratio today is 96.4%. I mean, over time, we'd love to get that to 90%. There's no time line on that expectation. But I think each year, we'd make progress. it doesn't mean it's a straight line down. I mean you may have quarters where it bumps around a little bit, but we've made a lot of progress and have a lot of momentum.

The other thing that we think about from a funding perspective is loans to nonbrokered deposits today is 108% and that should be closer to 100% for sure. So we would need to obviously grow core deposits in excess of loans to continue to make progress there. But again, based on some of the efforts that we've undertaken, I would just add, I talked about the incentive plans with our bankers incentivizing deposit growth. The treasury management capabilities that we have has been another key driver there. So that's been significant as well.

Got it. All right. And then my last one, Italy feels a bit out of tune given all the positive and optimism on the organic front, but it feels like the M&A deal window is open, and I heard your comments loud and clear Ira on focusing on organic, but I did want to get your sense on our thoughts on all strategic alternatives, including maybe a potential sale because the big bank M&A window appears open as well. I haven't seen that in a while, and I just would love your thinking there, what would type -- will drive that type of outcome?

I'd I just go back to the 1 committed shareholder first, right? And I think that's how we need to think about anything that happens in this organization.

Our next question comes from the line of Jared Shaw with Barclays.

This is Jon Rau on for Jared. Maybe looking at the CRE side of things, it sounds like there's a pretty good capacity for these borrowers to refinance away from Valley and I suppose on the banking system. Is there any some set of CRE borrower that's having a little more difficulty in finding that alternative capital source? And then particularly, if there's any insight on how that would look for like rent-regulated multifamily? Know I suppose they're small there, but for you, but just any color would be helpful.

So Jon, Mark Saeger again. As I mentioned, we're actually seeing really positive trends in the office space with stabilization there, really some rational transactions. So I think you hit the nail on head. The only other segment that continues to be a little stagnant is that rent stabilized in New York. But as you mentioned, it's a very small part of our overall portfolio. We have just around $600 million that has more than 50% rent stabilized, very small portion of our overall portfolio, not a growth portfolio for us.

We weren't competitive in that market because we offer a lower loan amount traditionally and requires stronger in place debt service coverage or lower level and why that portfolio continues to perform for us. But it's still an area that we're watching on a go forward.

Okay. Perfect. That's helpful. And then just looking at expenses, it sounds like professional fees are still expected to remain elevated in the fourth quarter. Does that continue into 2026 and is what's driven the increase in the last 2 quarters?

Yes. I would expect it remains at the current level for the fourth quarter and into 2026, at least for the first half of the year. As part of the efficiency exercise, we've utilized consultants to help us enhance our operating model and organizational design. So those are temporary dollars that we have to spend. But again, we've offset it with the savings that we've generated in the compensation line and elsewhere.

Okay. Great. And then just last one for me, that land loan that the borrowers refying away from you. There's -- just wanted to confirm there's no loss expected on that thought process.

We have more than adequate value there, no loss anticipated.

Our next question comes from the line of Jon Arfstrom with RBC Capital Markets.

Mark, maybe for you, what do you think the time line is for nonaccrual balances to start declining? I know you feel comfortable, but just curious on your thoughts on that topic.

So I would point, right, it's hard to talk about a time line on resolution of some of these items other than the one that I just mentioned, which we do think has a short-term resolution. But a point kind of to the strength that we're seeing in the CRE market, the reduction in criticized, I think that will also translate in some resolution on especially that 50% of our nonaccruals that are continuing to pay current. So I don't anticipate a material inflow on a go-forward basis, but it may take some time to see some of those CRE-loans finance out.

Yes. Okay. That's helpful. I appreciate that. Just kind of bigger picture, it looks like it's a good quarter. I'm just curious if you guys feel like this is a new floor for EPS for the company. And I'm especially curious, I guess, if you feel like this is a more normalized provision as we look forward.

Yes. I think that's absolutely true. So I mean, just the progress that we've made, I mean, part of the overhang coming out of the liquidity crisis is on the funding side. I think we've done a lot of work over the last 2 years to rectify that, which has enhanced our net interest income, obviously. We still have a significant fixed rate asset repricing tailwind behind us. As we head into 2026, we have $1.7 billion of loans that are coming off from a fixed perspective at a rate of around 4.75 that creates significant opportunity and supports the margin expansion that we've talked about.

From a credit perspective, I mean, I think we all anticipate here that you need to see normalized charge-off rates in '26. So call that around 15 basis points, give or take and a generally stable reserve. So when you factor that all together, I think you are seeing -- this provision level is effectively sustainable from my perspective within a given range.

Our next question comes from the line of Janet Lee with TD Cowen.

On deposits, when I look at specialized deposit growth over the past quarter, that's about $700 million. It looks like a lot of that is going into replacing indirect deposits. You mentioned deposit growth should be picking up at a -- should be growing at a faster pace than loan and with the incentivized structure change. I guess that's going to help. If I look at the pace of deposit growth from the specialized deposits, I guess, more specifically on other commercial and small business, could -- is this the area where you expect a lot of your deposit growth to come from? Could it continue to grow at the $2 billion pace per year that you reported over the past year?

Thanks, Janet. This is Travis. I think that it is an area of focus for sure. This quarter, we had $100 million of specialty deposit growth within the bucket you're describing came from health care clients. I mean there's still momentum there. We had $200 million between HOA cannabis and our national deposits group. So those are kind of specialty niches that we bank. That was $300 million of growth this quarter. But broad-based across the franchise, whether it's in the branch network, which is a combination of consumer and commercial deposits as well as the other commercial bucket that you're talking about. I mean there was significant growth in all of our markets.

New Jersey was up $200 million commercial. New York up $150 million commercial. These are deposits, floored up $150 million commercial. So there's significant tailwind and momentum across the franchise. So I think specialty deposits should grow at an above average rate, but it's not the only source of growth that we have.

Got it. And you made your point clear about that 4% to 6% loan growth over the intermediate term in 2026. So in terms of over the near term that had 3Q headwinds from commodities, C&I payoffs, can I consider that as temporary? And there's -- or is there any parts of bank gloomy or within value that you might want to run off?

No. I think that's temporary. It was a dynamic unique to this quarter. I think if you zoom out over the last 6 months, that gives you a better sense for some of the pace of growth. I think total loans are up 2.5% annualized in that time line, but that includes some additional headwinds from CRE runoff. So look, I think from a given quarter, loan growth may move around a little bit based on the timing of closings. But I think you'd see more significant momentum if you zoom out a little bit.

Our next question comes from the line of Steve Moss with Raymond James.

Maybe just circling back to the loan pipeline here with the $3.3 billion pipeline, just curious what's the coupon on those new originations?

This is Travis. So this quarter, new origination yields were 6.8%, which was consistent with last quarter. I'd say the pipeline yield is similar or slightly lower because benchmark rates are lower. We saw some spread tightening earlier this year. So that's fairly consistent, maybe a little bit more now, but that's kind of where we sit.

Okay. And then on the expansion moving upstream into larger loans, just kind of curious how do we think about pricing for those types of loans will be relatively tighter? And are you thinking about them being syndicated? Just kind of curious. Any color you can give there.

Valley has always been done loans of this size. They just haven't had the focus on it. And we're just going to -- we're going to more intently focused on it and bringing in talent that's done this before. The pricing tends to be a little thinner and we're building out our syndication. We continue to build out our syndications platform. We will want to originate these loans and sell them.

The pricing, as you know, it tends to be 1.75% to 2.25%, more or less. And we wouldn't play much below that amount. So -- and then the relationships tend to be fulsome, deposits, fees, opportunities for capital markets, et cetera. So we see it as a driver of profitability going forward.

Okay. Great. I appreciate that color there. And then just on the criticized and classified, I think I heard that they went down. Just kind of curious if you could quantify the level of decline and also wondering if substandards declined this quarter.

So yes, we had a $100 million reduction in criticized in total for the period. Again, I mentioned that was through not just upgrades, but payoffs in financing out, which is positive. I'll have to get back on the -- specifically on that substandard component.

Ladies and gentlemen, I'm showing no further questions in the queue. And that concludes today's conference call. Thank you for your participation. You may now disconnect.