Valley National Bancorp Stock

Good day, and thank you for standing by. Welcome to the Valley National Bancorp Third 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. Please go ahead.

Good morning, and welcome to Valley's Third Quarter 2026 Earnings Conference Call. I am joined today by CEO, Ira Robbins; and CFO, Travis Lan. Reconciliations of any non-GAAP measures mentioned on the call can be found in today's earnings release and presentation at valley.com. Please note Slide 2 of our earnings presentation and remember that comments made today may include forward-looking statements about Valley National Bancorp, the banking industry and our pending acquisitions of Providence Financial Corporation and Bluevine, Inc. 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. In a few minutes, Travis will review our exceptional third quarter financial results. Before that, I want to use Slide 6 to add context to those results and explain why our strategy, including the pending acquisitions of Providence and Bluevine will position Valley to create meaningful shareholder value.

The foundation of our journey began in 2017 when Valley was a $24 billion Northeast focused Inc. Through technology modernization, consistent organic growth, and targeted strategic acquisitions, we transformed Valley into a geographically diverse $57 billion regional bank by the end of '22. While investing over $300 million in CapEx during this period, we meaningfully improved efficiency and generated above-average returns relative to similar sized peers.

While we were proud of these profitability results, our CRE concentration loan-to-deposit ratio and capital and reserve levels made Valley an industry outlier. These metrics were appropriate for our risk profile but created an external perception that Valley could be more exposed to challenges when the industry landscape shifted rapidly in 2023.

Against this backdrop, the second chapter of our journey required us to recalibrate our balance sheet to close the valuation gap created by these outlier metrics. To address these perceived concerns, we acted swiftly and decisively to strengthen capital, reduce CRE concentration and improved funding. Our allowance coverage ratio improved during this time as well. These balance sheet derisking efforts set the stage for the current performance driven third chapter of our journey.

As of September 30, 2026, our CRE concentration ratio has declined by more than 160 percentage points from its peak in the fourth quarter of '23. CET1 has grown to 10.7% of risk-weighted assets. Our loan-to-deposit ratio has improved to 96% and most profitability metrics have returned to 2022 levels.

Since 2017, we have built a larger, stronger and more profitable bank and opportunities remain to continue this momentum. Over the next few years, we are targeting a 90% loan-to-deposit ratio. CRE concentration, well below 300%, an efficiency ratio in the mid-40% range and returns on tangible common equity in the high teens.

We believe this quarter's strong results supplemented by our pending acquisitions will position us well to achieve these aspirations as we continue to focus on returning to our position as a top performing regional bank. As we progress towards these goals, funding optimization remains our top priority and will likely be the most significant driver of further profitability improvement and valuation expansion.

As detailed on Slide 14, we have grown deposits from $18 billion in 2017 to $55 billion today. Despite strong loan growth and significant market disruption, we have reduced our reliance on wholesale funding over this time. The combined acquisitions of Providence and Bluevine are expected to add over $3.5 billion of low-cost CRE deposits to Valley. This should further improve our funding profile, expand our margin, enhance the value of our franchise. Our strategic focus on small business and business banking will likely be central to our funding strategy. More than 36 million small businesses operate in the United States and account for nearly half of private sector employment. These entities generate the granular operating deposits that we value most. Those that tend to value relationships and user experiences above absolute rate.

Capturing these valuable operating deposits requires a combination which few providers can offer. Large banks often lack the personal attention that small businesses value. Community banks may lack the product breadth and technology, and fintechs typically cannot match the balance sheet strength and stability of a regulated bank. With its pending acquisitions, Valley will bring these advantages together, delivering sophisticated deposit, treasury, lending and well dilutions through deep client relationships and experienced advisory services. Our pending acquisitions also tackle this a small business opportunity from complementary angles.

Providence provides an established physical network in Chicago land, a mark with over 1 million active small businesses. Bluevine is expected to add national digital reach with approximately 185,000 active small business customers and over $2 billion of low-cost core deposit relationships. Bluevine should expand our small business client base by nearly 20 times while creating meaningful cross-sell potential for the roughly 40% of its clients that already operate within Valley's footprint.

AI is another structural area lever that should drive further profitability improvement for Valley. Banks which deploy AI effectively can create capacity for growth while structurally lowering efficiency ratios. We were early to identify the AI opportunity and quickly dedicated significant resources to build the foundation that is critical to recognize the meaningful benefits we expect.

Our approach is disciplined. We focus on measurable value, centralized governance and human oversight. Building on our investments in data and core infrastructure, we are already deploying AI in several areas, including customer care, fraud and AML reviews, auto loan collections and most recently, agent credit underwriting and loan servicing.

Bluevine is expected to accelerate these efforts, enhancing our AI engineering and develop our talent base. There are [indiscernible] cases for AI efficiency in the banking space and expanding our capacity to solve these use cases will continue to repay our performance in the next chapter of our journey.

Over the past 8 years, we have accomplished a lot. We have modernized our foundation, build a tech-forward culture, strengthen our balance sheet and improved our funding base. We have rebuilt our profitability and are looking forward from a position of strength. Our next chapter will focus on further optimizing our funding base, capturing profitable small business and middle market growth, and using technology to drive sustained operating leverage. I'm proud of our team and the foundation we have built to deliver substantial value for our shareholders, clients and associates.

With that, I will turn the call over to Travis.

Thank you, Ira. This quarter's strong results position us to finish 2026 at the high end of the guidance ranges provided at the start of the year. Compared with last quarter's guidance update, the primary change for modeling purposes is the effective tax rate, which is now expected to be approximately 20% for the full year, reflecting our opportunistic purchase of additional tax credits during the quarter.

Turning to capital deployment on Slide 11. Our improving profitability supports strong loan growth, meaningful capital returns and the value-enhancing acquisitions we recently announced. During the quarter, we returned approximately $96 million to shareholders through common dividends and the repurchase of 2.5 million shares. Our regulatory capital ratios remain comfortably within our target range, providing flexibility to pursue opportunistic share repurchases while funding the strong loan growth we expect over the next several quarters.

Slide 12 details the $1.1 billion increase in direct core customer deposits during the quarter, led by commercial nonmaturity accounts, particularly in our technology vertical and Metro New York footprint. Broker deposits were unchanged as excess core deposit growth funded the repayment of approximately $400 million of maturing short-term debt during the quarter.

Within broker deposits, we replaced roughly $350 million of interest-bearing non-maturity balances with term brokered CDs. Noninterest deposits declined by about $100 million due to late runoff in the quarter. However, average noninterest deposits increased nearly $300 million from the second quarter and spot balances have rebuilt in October.

Total deposit costs increased 5 basis points to 2.33% but remain well below 2.69% from a year ago. We are working to limit deposit cost increases following the recent Fed hike and continue to believe that replacing wholesale funding with core deposits offers relative net interest margin upside versus peers. This position will be augmented by the acquisitions of Providence and Bluevine targeted for early 2027.

Slide 15 highlights solid loan growth during the quarter, concentrated in our strategic focused portfolios of C&I and owner-occupied CRE. Growth was again led by our health care vertical and broader strength across our geographic footprint. As a result of organic regulatory capital accretion and stable regulatory CRE balances, our CRE concentration ratio declined to 312% from 317% at June 30, 2026. On a stand-alone basis, we expect to drive this ratio lower but acknowledge that a temporary uptick will likely result from expected capital deployment for our pending acquisitions in early 2027.

As Ira mentioned, we remain focused on bringing this ratio below 300% over the next few years. Slide 18 illustrates the consistent growth in our net interest income and net interest margin. The quarter-over-quarter expansion in both metrics was largely the result of higher average loan balances and expanding yields. Average new loan origination yields increased 8 basis points during the quarter, while the average cost of newly originated deposit relationships decreased by 9 basis points, primarily as a result of lower CD originations relative to the second quarter.

Our balance sheet and business model remain well positioned benefit from the existing yield curve backdrop despite consistent competition on both sides of the balance sheet. We're pleased with quarter's net interest margin progress and expect further expansion in fourth quarter of 2026 and beyond.

As shown on Slide 19, adjusted noninterest income increased nearly $2 million during the quarter despite a $3 million sequential decline in capital markets revenue. Growth in our tax credit advisory business and an approximately $2 million benefit from fintech equity valuations were the primary offsets.

Deposit service charges increased for the 12th consecutive quarter, reflecting continued expansion of treasury management services across our commercial customer base. We expect tax credit advisory revenue and fintech valuation benefits to normalize in the fourth quarter while capital markets activity should rebound. We are proud of the substantial growth in core recurring fee income over the past several years although we acknowledge that strong net interest income growth at the same time has reduced the overall impact on our revenue mix.

Adjusted noninterest expenses declined $5 million from the second quarter, primarily due to lower professional fees, FDIC assessment costs and technology expenses. Our efficiency ratio declined below 50%, 1 quarter ahead of schedule and reached its lowest level since the third quarter of 2021. This multiyear improvement reflects disciplined expense management and operational efficiencies, including from technology and AI adoption.

As Ira noted, we endeavor to further utilize AI deployment to help offset traditional expense growth while improving productivity and supporting revenue generation over time. We expect the efficiency ratio to continue declining towards our mid-40% target for the next few years. Criticized and classified loans declined 2% during the quarter and 12% year-over-year to represent 7.1% of loans compared with 7.3% last quarter and 8.8% a year ago. We also saw a reduction in accruing past due loans, driven primarily by lower early-stage CRE delinquencies.

Nonaccrual loans increased to 0.96% of total loans, primarily due to migration of a single well-secured construction loan. Net charge-offs increased 28 basis points of average loans from 17 basis points in the second quarter of 2026, primarily due to a single C&I loan charge-off. Year-to-date net charge-offs of 20 basis points sit at the high end of our guidance range, which is a reasonable expectation for the full year. Our $31 million provision resulted in a modest decline in the allowance coverage ratio to 1.13% from 1.6% at June 30, 2026. The decline reflects in part the continued improvement in criticized and classified loans as a percent of total loans and sustained borrower financial performance.

Despite the OCI headwind associated with our available-for-sale securities portfolio and share repurchase activity, tangible book value increased modestly during the quarter despite the OCI headwind associated with our available-for-sale securities portfolio and incremental share repurchase activity. Regulatory capital ratios were generally unchanged as strong profitability supported the quarter's loan growth and share repurchase activity.

We remain comfortable with our capital positioning in the context of our loan growth expectations and the impact of our pending acquisitions.

To summarize, the third quarter displayed continued progress on the strategic priorities that we have continuously discussed. We've improved the funding base through strong core customer deposit growth and diversified our loan portfolio with continued growth in relationship-based C&I and owner-occupied CRE. We've increased our fee income and controlled our expenses, which has led to a sub-50% efficiency ratio, we have also actively and effectively managed our capital deployment. We continue to focus on improving our profitability and anticipate a strong end to 2026.

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 Freddie Strickland with Hovde Group.

Just I wanted to start off on credit, if we could. Just can you provide any more details just on the construction line? I know it's not a big piece and you're not really expecting anything in terms of losses. But just curious, what gives you comfort that what the workout time line might look like?

Absolutely. Hey, Freddie, this is Mark Saager. That loan is actually a land loan. They haven't begun construction on that. It falls within our construction bucket that will obviously -- what brings us comfort is, over the last year, we've had substantive paydowns of of that facility in order to grant extensions. It is current on interest but it has matured, and we hadn't reached agreements on the way forward. We have current valuation, which shows substantial value in the land, a number of interested parties -- interested in the land. So we're confident that we exit of this loan without issue.

Got it. Appreciate that. And just more broadly, I mean, can we see criticized and classified continue to drop even with higher rates? Or is that going to get a little bit more challenging just as that service coverage gets a little tighter?

We still feel that, that trend that we've experienced over the last 5 quarters, we're going to continue to see improvement in criticized classified. Beginning at the end of 2023, we started a process to forward look on any rate resets or maturities, 12 months ahead.

Historically, we've had great success for the limited population that would be stressed due to rate increase of either resizing those loans, having those refinanced by more aggressive lenders or through sales of property. And over the past 2 years, the number of modified loans that we've had to do as an organization has been very small.

And just 1 last question for me. Just wanted to ask whether there's any added thoughts on maybe when the deposits and fees start to flow over after Bluevine closes and they wind down their current relationships. .

Yes, Feddie, this is Travis. There's no change. I mean we've guided to kind of April 1 is a good assumption for when we'll be able to onboard the deposits after an expected January 1st close. So that's kind of the time line we're thinking. Between close and the deposit transition, we still benefit from the chargeback that Bluevine gets from their current partner bank. So it's not that the economics will be 0, but it will be effectively breakeven until we get the deposits and to put them back to work.

So I think the April 1 is still a good date to pencil in, we're certainly working to accelerate that as fast as we can.

Our next question comes from the line of Ben Gerlinger with Citi. .

I know it's a little bit harder with interest rates kind of moving around all over the place. But when you think about just the growth between either now or potentially going into next year? And I know you don't want to give next year's guide, but do you think there's some fits and starts in terms of like sometimes pipelines like they build and they follow through, even though rates move up. So like how do you think about the like rounding the corner, rounding the calendar year in terms of growth, specifically CRE and/or C&I.

Yes, Ben, this is Travis. So maybe I'll kind of give you what our expectations are or maybe I'll start with the pipeline and then kind of talk about how we're contemplating as it relates to our growth outlook.

So the pipeline right now has increased back towards the $5 billion mark that we were at as of March 31. So Obviously, March 31, led to a significant loan growth quarter in the second quarter, which aided into the pipeline. We saw solid growth here in the third quarter, but the pipeline rebuilt at the same time.

So the pipeline remains very strong. I would say as we think about modeling growth, we're more likely to contemplate a 2027 guide that's similar to where we were coming into the year for loan growth. So we've started with a 4% to 6% loan growth guide, likely to be what we contemplate for next year. I do think rates will eat into new origination activity to some degree. At the same time, it will likely slow the pay down on the back book.

So I think those 2 things may not balance out perfectly, but I think there's offsets there. So I am being fairly conservative with our loan growth expectations as it feeds into our net interest income guide, but still very strong activity in our business lines and across our geographies. And the other thing on the pipeline is it continues to tilt heavily towards C&I and owner-occupied CRE.

Got it. And then when we think about expenses and again, not looking for '27 guide, but like when you think of just broadly speaking, you guys have run a pretty tight expenses to average earning assets. And it seems like as your assets gets bigger, that ratio continues to improve because via efficiency, but with the deal pending and then you're going to have a little bit of noise on the integration. Do you think some of that reinvested? Or should we see kind of a relatively short-term high watermark that actually comes down kind of going into next year, to expose against core hirings for lenders?

I think our approach has always been we're willing to invest in opportunities to enhance the franchise, drive future revenue growth and franchise value. But every time we put a dollar out the door, we're looking for as much offset as we can in the background. I think we've been able to execute that consistently over the last couple of years, and that's again driven our efficiency ratio below 50%. And I'll say Providence also has an efficiency ratio on a stand-alone basis, below 50%, obviously, very small relative to the total, but we're already starting there with something that's consistent with the efficiency we have before any potential cost saves.

On Bluevine, we've talked about the synergies that we expect to occur over a couple of years. But again, none of this changes the fact that we will invest in our organic opportunities and then work to find offsets through process improvement, the utilization of AI and technology. And I think we've proven our ability to do that.

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

This is Mike on for Tony. On NII, you guys expect the -- it still looks like the high end of the 11% to 13% range, which would imply a little bit of a ramp in 4Q. Is that the right way to think about it? And I guess, what are some of the drivers to get there?

Yes, that's correct. I mean so we've talked about being fairly neutral to the front end of the curve and more exposed to the belly and longer ends. Obviously, there's been significant move higher in those points, which has supported our -- I think, partially supported our results this quarter, but also our outlook for the fourth quarter and beyond.

So our exit margin for the month of September was 3.33%. We guided to 5 to 7 basis points of expansion for the third quarter. We obviously exceeded that we'll guide to another kind of 5 basis points, call it, 5 to 7 basis points of expansion here in the fourth quarter. And it's a result of the interest rate backdrop and our ability to continue to reprice our asset yields higher, while preserving as best we can in the funding cost.

Great. And on [ROATC], you remain on track to achieve that goal and are likely to exceed the 15% target by the end -- any thoughts on reaching that target earlier in the year given it came in at 14.2% this quarter?

Yes. I mean we're always working towards it. I think this quarter was great because it showed -- you gave a little bit more credibility to the 15% guidance that we put out there. I think we can pull that towards the middle of the year, and I think we can exceed it by the end of next year. I think that's kind of implicit in the comment that we made.

And by the way, that's for Valley on a stand-alone basis and does not contemplate the impact of the potential transactions that we've talked about longer term, the transactions could add, call it, 200 basis points to our terminal and return on tangible common equity. By the end of next year, it's probably half of that just because of the timing of how these things feed in. But I do think there should be clear credibility to the guidance that we've laid out and our opportunity to outperform.

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

How should we be thinking about the reserve ratio dynamics going forward? As on the 1 hand, you continue to have generally improving credit metrics, but you're also still growing C&I a lot faster than CRE. So is there kind of a leveling out in that decline in the ACL ratio? Or how would you be thinking about that going forward?

I think we've said the largest driver of the ACL outlook will be the trajectory of criticized and classified loans. And obviously, over the last year, we've seen a significant reduction in criticized and classified as a percent of total, and that's what supported the reduction you've seen in the ACL. The reality is the gross reduction in the ACL reflecting criticized and classified would be more if it weren't offset by the C&I growth that you call out. So going forward, we continue to guide to something that looks fairly stable on the ACL as we anticipate continued criticized and classified improvement and then balancing that with continued focus on C&I growth, which to your point, carries a higher allowance.

And then the full year guide seems to imply a tax rate of around 21% in the fourth quarter, which is still a little bit lower than we've been used to. Should we also be expecting a corresponding higher tax credit amortization expense than the $15 million or $16 million quarterly you're running at prior to 3Q?

Yes. Just for the fourth quarter, I would anticipate our tax credit amortization remains in line with the third quarter, which call it $20 million. And then the tax rate, to your point, should be, call it, 20% to 21%. The 1 thing I just want to call out is the 15% tax rate this quarter can't be viewed in a vacuum. It's related to the $4 million quarter-over-quarter increase in tax credit amortization. So if you want to use last quarter's tax rate, you would need to similarly reduce the GAAP expense for the tax credit amortization.

And I think that the combination of those 2 factors or the interplay there is kind of being missed. So it's not just like you would take our pretax income this quarter. and apply a different tax rate like those 2 things, the increased tax credit amortization, the lower tax rate, they occur in conjunction with 1 another.

Yes, for sure. It seems like a net benefit was obviously positive this quarter between those 2.

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

[indiscernible] on for David Chiaverini here. I just want to talk about the 90% loan-to-deposit ratio. And if loan growth stays at 4% to 6% next year, which you guys thank you for providing that. I just want to talk about where you guys expect deposits to go on an organic basis.

And if you guys could touch on the $5.3 billion of brokered deposits and where do you guys expect that to trend?

Yes. So when we have the guidance page in the deck, I mean, obviously, that shows where our 2026 guidance was coming into the year, I think loan and deposit growth, again, our starting point for 2027 as we work to refine our forecast for '27 that we'll announce official guidance 3 months from now. But that would be a good starting point. So we're targeting core deposit growth in excess of loans for sure.

But again, that does not contemplate the impact of the acquisitions, which should add $3.5 billion of core deposits against about $1 billion of loans. So just the organic progress that we make and then the impact of the acquisitions in '27, you should bring loans to deposits by the end of next year into the low 90s already.

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

Travis, maybe or Ira, maybe you could update us on where Bluevine deposits, total deposits and the cost of those deposits sit today? And just curious, by the time the deal is closed, how much do you anticipate those balances where do you expect those to be?

Yes. So the update as of 9/30 is they're $2.3 billion, so up $200 million during the quarter. No change to the rate there, in the number of active clients has gone up by 10,000. So that's the 3Q update on Bluevine. And I think that continued kind of $200 million a quarter pace is what we would anticipate.

So by the time you bring the deposits over, call it, April 1, you're closer to the $2.7 billion, $2.8 billion of deposits.

Okay. And then once you bring it all over, what is the offset you pay down brokered or add securities? I'm curious which way you're leaning there? And then with that and Providence, what is the NIM outlook once you put this all together. I don't know if there's a bogey by year-end '27 that you kind of roughly point us to?

Yes. So as it relates to the immediate opportunity on the inflow of the deposits, I mean, we have about $1.5 billion of brokered deposits that are set to mature in the first quarter of 2027. There may be a slight timing mismatch there between getting the actual deposits from BlueVine in, but we will hold that kind of short to make sure that we can benefit as quickly as possible. The other -- we also have about $400 million of FHLB maturities in the first quarter of '27So our primary focus would be optimizing the funding side of the equation. And then anything excess, we'll look to potentially invest in the securities portfolio.

But again, I think there's plenty of opportunity on the brokerage side where we can optimize that in pretty short order post deposit transition. In terms of the margin, for we've been kind of looking at it fourth quarter to fourth quarter. So the fourth quarter of '25 was 3.17. -- when you shake everything out, it will be up, call it, more than 15 basis points through the fourth quarter I expect a similar stand-alone Valley margin improvement by the end of 2027.

And then I think the acquisition, as we kind of think about the timing, should add another, call it, 15 basis points to that math. So I think you're certainly above 3.50 by the fourth quarter of '27, all else equal, and approaching probably 360 or something like that, again, with what we're seeing today with the yield curve.

Got it. Okay. Very helpful. And then just last 1 for me. One thing I'm struggling with a little bit model-wise is the outlook for buybacks. You both kind of commented you want that CRE concentration to go meaningfully below 300%, but it feels a little bit difficult if we sustain 2.5 million shares a quarter.

Could you give us some idea of what that buyback might look like over the next handful of quarters?

Yes. I mean we certainly retain the flexibility to buy back stock. We've been consistent, though, Matt, in saying that our #1 priority is supporting well-funded, high-quality organic loan growth opportunities that may occur in the quarter that we're sitting in or what our outlook is and again, with the pipeline strong, I think that's where our #1 priority is we have put incremental cattle to work in the 2 deals that we've announced. But the underlying earnings power of the franchise is driving significant improvement in returns, which is giving us more flexibility around capital allocation. So we remain flexible there. It's fully discretionary. The 1 thing I would just call out is that I think because of the better earnings power as we model it, our ROATC outlook that we talked about on a stand-alone basis is not dependent on share repurchases in any way. So it's a flexible tool that we have, and we'll monitor it and manage it -- we manage it on a daily basis.

And I think, Matt, just adding 1 sort of element to that is there is no pressure to get under 300 by a certain time. it's an important number for us as to where we think about sort of where the valuation of the organization sits. There's no pressure to get there by tomorrow or next quarter or anything else like that. But we do believe over a longer time, it's going to continue to trend down and well below that 30%.

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

This is [indiscernible] on for Jared. Going back to Bluevine, it seems like really good accretion to the margin from that. Do you see any risk to the I guess, rate activity or deposit those customers as they transition to Valley or just over time?

I think it's 1 of the driving factors as to why we wanted to really do something with Bluevine is that those clients are really less rate sensitive than what we've seen of any other client segment. When you look at why clients choose BlueVine, largely has nothing to do with the rate. It's the ease of use of the platform, the ability to look at it from a deposit perspective on their mobile app. Those are the choices from a relationship perspective. As we think about what that opportunity is in blending it in with Valley.

We have strong relationship advisers from a human element in our organization, a very strong branch network across a lot of geographies. So we think that we'll be able to maintain very low betas in that book and we continue to accelerate what that deposit growth is to some point, even greater than what Bluevine been able to do organically on their own. SP1

Okay. Great. That's very helpful. And then I guess thinking about AI being more embedded in the processes of the company, is that due to like the long-term expense growth rate? And could that also benefit things like lending growth and fee income?

I think AI has an opportunity, I talked about last quarter, really to impact much more than just on the expense side. I think we sort of internally think the AI opportunity probably 65% on the expenses and 35% on the revenue as we think about the additional opportunities from a cross-sell perspective and how we think about valuations on some of those relationships. So we feel really positive about the opportunity for AI.

As we've mentioned, it's something that we've been focused on for a very long period of time. making sure the foundation, the data that we have here, what that looks like, the quality of the data. and how we can really begin to. So AI at value isn't just something that we're conceptually talking about. It's something we've already embedded into the financial results of the company. And we think it's going to be an enabler for us to continue to grow the organization with a much stronger positive operating leverage.

Okay. Great. And then if I could just sneak one more in. Is there any seasonality in deposits we should keep in mind for the [indiscernible]

Not on a point-to-point basis as the quarter goes on. We see -- typically see fourth quarter inflows in the municipal deposit side that ease a little bit into -- into year-end. But point to point, there's no significant seasonality you should think about.

[Operator Instructions] Our next question comes from the line of Ryan Kenny with Morgan Stanley.

Wondering if you could elaborate on some of the progress that you guys have been making on the treasury management side. And any color or numbers around what percent of commercial borrowers today have a treasury management relationship with the bank and how that's evolved over time?

Yes. This is Travis. So Ryan, we converted the core some of the bank actually 3 years ago almost to the day, we got a more modern and mature treasury management platform. The first call it, year after that conversion, we were focused on penetration of the product, which was fairly nascent from our customer base.

As we sit today, that penetration is built up towards 60% of our C&I customers use the treasury management platform. So that's supported growth that you've seen over the last couple of years. The other element, though, that supported that growth has been we've repriced the product higher a couple of times towards market rates where we kind of sit today for the pricing of the treasury management platform. I'd say there's not likely to be another reprice higher going forward, but still a certain opportunity to penetrate the continued customer base and any new customers that come to us on the C&I side. So still certainly expect growth in the deposit service line. but not to that same pace given the repricing benefits that we had over the last couple of years.

All right. That's helpful. 60% seems pretty high. So -- just wondering, as you grow C&I loans, any way to think about for every dollar of C&I loan growth, how much do you expect to capture on the core deposit side. And has that capture rate also evolved over time? Or is it more challenging because of higher rates?

We're not seeing any immediate change in terms of the C&I loan-to-deposit ratio for our customers. There's a cut of differences in the rate environment there, the deposit backdrop, they relative to the last rate hiking cycle. And I think that we're positioned to kind of continue to preserve C&I deposits that we have. So we're focused on it. There does tend to be for a new C&I loan, call it, a 3- to 6-month lag in terms of getting up to the deposit levels that we model. But I think we've seen that constant pull-through, which has helped the exceptional core deposit growth we've seen over the last couple of years. .

Our next question comes from the line of Chris O'Connell with ABW.

This is Chris on for Chris on for Chris McGratty. Just wanted to focus in on the fixed asset repricing coming up over the next year or so. And after the recent rate moves, see what the replacement yields are now coming on at on both the CRE side and then on the securities book?

Yes. Thanks, Chris. It's Travis. Long time no talk. So we put that NII page in the deck that shows where runoff rates are. Reorigination rates are coming in 150 to 200 basis points higher than where the runoff is on the fixed rate loan portfolio.

On the securities portfolio, this quarter, as an example, we saw rates running off in the mid-4s and new purchases that are occurring in the mid-5s.

So it's about 100 basis points pickup on the security side and again, call it, 150 to 200 basis points on the loan side.

6 Great. And then given the Providence deal and some of your targeted expansion into new markets over the past few years, can you guys talk about your biggest opportunities in the expansion markets going forward? Maybe both in the context of loan deposit growth.

I think as we talked about Chicago, we had a very strong franchise there as we thought about the middle market C&I. And the Providence franchise is really more about the SMB and consumer opportunity within that book. They had a very strong deposit ratio and we really anticipate continued deposit growth in that market that obviously is what we're doing on the loan side. So that will help with the loan-to-deposit ratio in that area. .

As we go into each individual, some of these growth markets, there's always a very strong deposit element of how we think about it. So they're relationship focused. Everyone comes with a treasury a banker associated with each of those individual markets as well. So definitely not just an asset play for us, but a full relationship that has very strong deposit goals as well.

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

Just want to thank everyone for your attention and time today and really look forward to meeting with you next quarter. Thank you.

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

Good day, and welcome to Valley's conference call to discuss the acquisition of Bluevine. [Operator Instructions] Please note, this call may be recorded. I would now like to turn the call over to Andrew Jianette. Please go ahead.

Good morning, and welcome to Valley's conference call to discuss our agreement to acquire Bluevine, Inc. The press release and investor presentation accompanying this announcement are available on our website at www.valley.com. Joining me today are Ira Robbins, Valley's Chairman and CEO; Travis Lan, Valley's Chief Financial Officer; and Eyal Lifshitz, Bluevine's Co-Founder and CEO.

Before we begin, please note that today's remarks may contain forward-looking statements, and actual results could 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, and good morning, everyone. I'm excited to join you today to discuss our announced acquisition of Bluevine, a leading nationwide digital banking platform purpose-built for small businesses. As Andrew mentioned, I'm pleased to have Eyal, Bluevine's Co-Founder and CEO, here with us today. This acquisition builds on the significant progress we have made over the past several years. In 2024, we materially derisked the balance sheet and drove a meaningful profitability inflection in '25. 2026 has built on that momentum as we further optimize our funding base.

Bluevine accelerates this progress by adding a mature and growing low-cost core deposit franchise that improves our funding mix and reduces our reliance on higher cost wholesale funding. As a result of our organic progress and the strategic acquisitions of Providence and Bluevine, we are establishing 2028 loan to nonbroker deposit ratios and loan-to-deposit targets of 100% and 90%, respectively. Achieving these targets should further improve profitability and enhance shareholder value.

Beyond the funding benefits, this transaction advances our other strategic priorities we have outlined over the past several years and positions us to compete more effectively in a rapidly evolving banking landscape. Bluevine adds valuable technology and AI capabilities and significantly accelerates our path to relevancy in small business banking.

Combining Valley's relationship focus, broad product suite and balance sheet capacity with Bluevine's industry-leading digital acquisition platform and user experience gives us an immediate right to win in this large fragmented segment. We see significant growth potential in small business banking, and Bluevine improves our position to capitalize on that opportunity. In a higher for longer interest rate environment, we believe that Bluevine's granular low-cost core deposit base becomes even more valuable and provides Valley with a durable funding advantage that will support the replacement of higher cost wholesale fundings over time.

Slide 3 of our investor presentation focuses on the tangible near-term benefits of the acquisition. As of June 30, 2026, Bluevine had approximately $2.1 billion of low-cost core deposits on its platform, originated from its nearly 175,000 active small business clients. These deposits are currently held at a third-party partner bank, but will be expected to transition to Valley in the first half of 2027.

The attractive rate on this rapidly growing deposit portfolio reflects the value of Bluevine's purpose-built digital offering and leading customer experience for small businesses. Valley's legacy small business franchise is comprised of approximately $1.9 billion of deposits across roughly 9,000 relationships. Bluevine will increase our small business client base by nearly 20x and should meaningfully accelerate our pace of future customer acquisition in this segment.

Combining Valley's balance sheet capacity, branch presence and broader product suite with Bluevine's national digital reach and scalable customer acquisition will enable us to more holistically serve small business customers over time. Bluevine will also contribute deep engineering, data and AI capabilities to Valley. Bringing more of that expertise in-house will give us greater control over our client experiences, improve our speed to market, reduce our reliance on third-party providers and create new opportunities to improve efficiency as we scale.

Bluevine has invested nearly $200 million to build its technology platform and customer acquisition engine. When combined with the economic value of its existing deposit base and the significant opportunity for future growth, we believe these capabilities more than justify the transaction consideration. The combination of strategic value and financial merit is central to how we evaluated this opportunity.

We have consistently said that we would consider acquisitions that accelerate our strategic priorities while meeting our disciplined financial standards. Travis will discuss the financial impact shortly, but we believe this transaction satisfies both tests. Providence and Bluevine have addressed our near-term strategic priorities, and we do not anticipate pursuing additional acquisitions for the foreseeable future.

Our capital, our resources and our management attention will be explicitly directed towards integration, value realization and executing on our substantial organic growth opportunities. Over the past decade, Bluevine has developed a purpose-built digital banking platform for small businesses, which combines banking, payments, lending and financial management tools with the proprietary technology and risk infrastructure.

Bluevine's platform has earned broad national recognition as a leading digital banking solution for small businesses. As illustrated on Slide 4, these efforts have resulted in a scaled and highly engaged national customer base. As of June 30, 2026, approximately 175,000 active small business platform users have generated $2.1 billion of deposits. Customer accounts and deposit balances continue to grow rapidly.

Slide 5 illustrates the rapidly changing banking landscape. Fintechs increasingly want the balance sheet access, stability and credibility that comes with a regulated banking infrastructure, while banks increasingly need proven digital acquisition channels, proprietary technology and modern customer experiences.

Rather than waiting for chartered fintechs to compete with us for small business relationships, we are proactively combining Valley's banking foundation with Bluevine's digital growth engine. That is the strategic logic of this transaction, and it is why we expect to be a much stronger and a more relevant small business competitor following this acquisition.

Slide 6 highlights Bluevine's nationwide digital reach against the backdrop of Valley's existing branch network. While Bluevine acquires small business clients across the country without a physical branch presence, roughly 40% of those customers already exist in Valley's footprint. This gives us a clear opportunity to deepen those relationships through cross-sell of our treasury management, wealth, insurance, capital markets and relationship-led lending solutions.

The opportunity also extends well beyond our physical footprint. Bluevine gives us a scalable way to grow deposits, deepen digital engagement and selectively expand products over time for customers outside of our physical footprint. Together, we can serve small businesses through both traditional and digital means in a way that better matches how clients want to be served today.

As you can see on Slide 7, and as I mentioned earlier, we also view this as a transformational step for Valley's technology strategy. The majority of Bluevine's code is AI generated today and approximately 80% of inbound client inquiries are resolved by AI. The team has built its own credit model, its own fraud, its own AML model, all supported by a single data layer that connects core banking and payment systems.

Owning these capabilities will give us greater control over our client experiences, more speed in bringing solutions to market and importantly, less reliance upon third-party software providers. Over time, by combining these capabilities with Valley's own emerging AI efforts, all of this should help to accelerate positive operating leverage and accelerate our progress towards a meaningfully lower efficiency ratio.

Finally, I want to comment on Bluevine's people. Through our diligence, we spent meaningful time with the Bluevine team and came away with a strong appreciation for their culture, talent and execution mindset. We are delighted to welcome them to Valley and are excited to apply their technology, data and AI capabilities across a broader set of opportunities. I'm thrilled that Eyal will join Valley as Head of Small Business Banking and that Nir, Bluevine's other Co-Founder and CTO, will remain with the combined company. We expect to retain a significant amount of the commercial and engineering talent that has made Bluevine so special and successful today. With that, I'll turn the call over to Travis now to walk through the deposit franchise, the financial terms and our integration priorities.

Thank you, Ira. As shown on Slide 8, Bluevine has built a scaled, digitally gathered deposit franchise that is highly additive to Valley's own funding strategy. As of June 30, 2026, the platform had generated approximately $2.1 billion of active small business deposits, more than double the balance at the year-end 2023. These are granular core deposits gathered nationally without a branch network and supported by a product ecosystem that keeps small business customers engaged across checking, payments, bill pay, lending and other financial management tools.

This value proposition has resulted in high customer satisfaction and an attractive relative cost of deposits, which we expect to be fairly stable even in a higher for longer rate environment. On a combined basis, Providence and Bluevine will give Valley a larger, more diversified and scalable low-cost core funding base. This mature digital SMB focus will become Valley's newest specialty deposit vertical, bringing aggregate deposits in these business lines to approximately $15 billion on a pro forma basis.

Bluevine's portfolio is granular with an average balance of roughly $12,000 per active customer and approximately 86% customer retention after 1 year. Our specialty verticals have driven differentiated core deposit growth results in recent years. Based on current momentum and Bluevine's digital acquisition model, we expect platform deposits to more than double over the next 3 years.

Importantly, that growth is expected to come without an overreliance on rate, reinforcing both the quality of the customer relationships and the efficiency of Bluevine's model as we reduce brokered deposits post transition. With respect to the deposit transition, Bluevine's existing partner banking program will be terminated at the close of this transaction.

According to the contractual terms of their existing partner agreement, we expect to transition Bluevine generated deposits to our balance sheet within 3 to 6 months of closing. Once these deposits are repatriated, we intend to use them to replace higher cost brokered funding, which will improve our loans to non-brokered deposit ratio and overall cost of funds.

Slide 9 illustrates the combined funding benefits of Providence and Bluevine. In aggregate, we are acquiring nearly $3.5 billion of low-cost core deposits. On a pro forma basis, our loans to nonbrokered deposits and loans to total deposits would decline to 103% and 93% from 107% and 97% at June 30, 2026. We are also establishing 2028 targets of 100% for loans to non-brokered deposits and 90% for loans to deposits.

These transactions accelerate the next phase of the structural funding improvement we have been working towards over the last several years. Bluevine also brings a proven lending engine with a single application, 10-minute decisioning and an average FICO score of 729 on short duration small business loans. As of June 30, 2026, Bluevine held a fairly modest $130 million of these loans on its balance sheet.

While the addressable market is substantial, our focus will remain disciplined, using lending to deepen relationships that support deposit growth and align with Valley's relationship-led approach across business segments. Turning to the transaction terms, Valley will acquire Bluevine for $340 million with a consideration mix of 75% cash and 25% stock.

As Ira mentioned, this aggregate purchase price should be viewed in the context of the nearly $200 million that Bluevine has already invested to develop its industry-leading platform and customer acquisition engine. The strategic value associated with this technology, combined with the economic value of the low-cost core deposits was highly compelling for us. The transaction does not require traditional bank regulatory or shareholder approval and is expected to close early in the first quarter of 2027.

As a reminder, we anticipate a 3- to 6-month post-close lag before we can fully transition Bluevine deposits to our balance sheet. During that interim period, we expect a de minimis net earnings impact from the acquisition. As the deposits transition to Valley, we expect the resulting reduction in brokered deposits to provide an immediate funding benefit and support the earnings accretion we will discuss shortly.

Our model includes $50 million of run rate pretax cost savings with 50% phased-in for 2027 and 100% thereafter. Modeled synergies primarily relate to shared services, duplicative technology, small business support and marketing spend. Net interest income upside from deposit migration will be partially mitigated by foregone Durbin income as Bluevine transitions from a sub-$10 billion partner bank to Valley. Importantly, our assumptions do not include potential upside from the cross-sell, lending or treasury management opportunities that we have identified.

On this basis, we expect the transaction to be approximately 8% accretive to 2028 earnings per share with approximately 5% tangible book value dilution at close and an earn-back period of approximately 3 years. With fully phased cost savings, Valley's pro forma return on average tangible common equity should benefit by between 150 and 200 basis points, accelerating our progress past the 15% target that we have identified for the fourth quarter of 2027.

Our CET1 ratio is expected to remain above 10.3% at close, inclusive of the pending Providence acquisition or approximately 11% as adjusted for the Basel III endgame proposal. We believe this acquisition is a compelling use of capital relative to a buyback as it offers an attractive earn-back period with complementary funding and qualitative improvements.

Slide 12 summarizes our near-term integration priorities. Our #1 post-close priority is transitioning Bluevine-generated deposits from the existing partner bank to Valley. As our teams execute that transition, we will focus on maintaining an uninterrupted customer experience, sustaining Bluevine's deposit growth momentum and capturing identified synergies without distracting from those priorities.

Over the intermediate term, we will focus on strategic opportunities across small business growth, product penetration, risk operations and technology modernization. The combination of Valley's relationship-led model and Bluevine's digital platform should help us deepen customer relationships, reduce friction across the operating model and further improve our efficiency.

In short, our integration plan is focused on realizing the funding benefit first, protecting the customer experience throughout the transition and then using the combined platform to drive broader strategic value. With that, I'll turn the call back to Ira.

Thanks, Travis. To summarize, this acquisition strengthens Valley today and positions us better for the future. It improves our funding profile, add the scale of national digital small business platform, expands our technology and AI capabilities and does so within disciplined financial parameters.

By combining Valley's Charter, balance sheet, risk discipline, relationship model and broad product capabilities with Bluevine's digital platform, we believe we are creating a stronger and more relevant small business bank. Most importantly, the combination makes Valley more relevant in a banking landscape where clients increasingly expect the strength of a regulated bank with the convenience, speed and personalization of a modern digital platform. We are thrilled about what Valley and Bluevine can build together for small businesses across the entire country. With that, we are happy to now take your questions.

[Operator Instructions] Our first question comes from Feddie Strickland with Hovde Group.

Just wanted to start off and ask, how should we think about Bluevine combined with the Providence acquisition? Is this something that you're thinking about in concert? Or are these 2 discrete thought processes? Just wondering if I can get your thinking on kind of how this all came together.

Thank you for the question. I think we're really trying to address the core funding challenge that we see today at Valley and sort of exacerbating as we think about the banking environment as it continues to move forward. We spent a lot of time over the last few years addressing a handful of outliers when it came to the balance sheet. If you look at sort of where the capital levels were the loan loss coverage we had as well as where the CRE ratios were.

So I think the one real significant issue that was an outlier for us was where that loan-to-deposit ratio and what the core funding looked like and then what the cost of that core funding is. So both of them were really addressed with that in mind, and we think it really positions us well to achieve those 90% numbers that Travis outlined in his prepared remarks and really drive a very different funding profile here at Valley.

And should we expect any changes in the capital allocation strategy now with Bluevine or put another way to repurchase I think you addressed that a little bit in your opening remarks. Just a clarification there, if you could.

Yes. No, there's no change to our future capital deployment strategy. As we were thinking about this potential transaction, obviously, this is a use of capital today. However, with the pending Basel III endgame, we did think it was worthwhile to get ahead of that and put capital to work in a way that, as Ira mentioned, enhances the funding profile and trades some capital for earnings.

Our model assumes that the buyback continues in line with consensus estimates for '27 and '28. However, if you were to strip the buybacks out, there's no change to the -- there's no material change to the economic outputs and you would just accrete capital faster. Obviously, we remain focused on our return on tangible common equity targets. This transaction is highly additive to those targets. And so as we've discussed, I think, pretty consistently, we need to manage the denominator in the return on tangible common equity as well. And so this does not take us out of the buyback game going forward.

Got it. And just one last one for me real quick, if I could. Can you talk a little bit more about the overall AI strategy and kind of how Bluevine fit into that? And maybe how much that factored into your decision to acquire Bluevine?

I mean, we definitely do not model any of it into any of the economics that we put forth. I think there's really 2 interesting things from a synergistic perspective here. I've been in banking a very long time. A lot of people talk about revenue synergies when they look at deals. Most of the time, they definitely do not incorporate them into them. And likewise, we have in here, that's the cross-sell that would come out of something like this.

For us, there's really a lot of operational synergies here as well, and we do not model those, but we do believe the AI is a significant opportunity for us as we think about some of those operational synergies. Just to give you a couple of quick examples, 80% of the clients that reach out to their customer care center at Bluevine are resolved by AI agents. To put that into perspective, that's around 2% at Valley.

When Bluevine does its enhanced due diligence on some of their AML and KYC clients, they do at a cost of about $20. It cost us about $500. And that's a direct reflection of their ability to leverage AI. So we think there's going to be significant operational synergies that come into Valley. And a lot of it's based on the AI work that Bluevine and Eyal and his team have actually done there. We think we're really positioned ourselves as an industry leader here just on our own. And this is going to only amplify our ability to really recognize a lot of the improved economics that are going to come from AI within the entire industry. So we're really, really excited about that. But once again, I'll just remind you, we do not include any of those synergies in any of the economics that we're putting forth today.

Our next question comes from David Chiaverini with Jefferies.

So it's clear that there's more to the Bluevine business than the deposit rate being offered. Nonetheless, so you mentioned that the deposit rate should be stable in a higher for longer environment. To put a finer point on it, what type of deposit beta should we expect on this business in a rate hiking cycle?

David, this is Travis. So we modeled this very conservatively, and we effectively locked in a spread on the deposits of between 250 and 300 basis points. However, their achieved betas historically have been in the 20% to 30% range, depending up cycle or down cycle. And so we do think there's additional upside there. As we say in our prepared remarks, I mean rate is not what they lead with, obviously, given the technology platform that they've delivered and how they acquire customers. And so we would anticipate in a higher for longer environment that there's actually incremental value to Valley.

Great. And you also mentioned about deposit growth should double over the next 3 years. Should we expect that growth to be linear over the next 3 years? I'm thinking about how to think about the 8% accretion in 2028.

Yes. I think you can assume between $200 million and $300 million of deposit growth per quarter, and I think that's the number that would kind of accelerate. So where we stand out of the gate to be kind of towards the lower end there. And as we ramp up with Bluevine integration, I think you would see that kind of migrate higher. So from an end-of-period perspective, we have penciled in over $3 billion at transition, so call that early April, if you want to pick the midpoint of our comment there, a little bit less than $4 billion of balances by the end of '27 and around $5 billion by the end of '28.

Our next question comes from Chris McGratty with KBW.

Travis, just to come back to the comment before about the buyback, you're comfortable with where Street buybacks are. Would that imply you're also basing the 8% off of the consensus '28, which is about $1.75, which would put you a pro forma about $1.90. Is that what you're assuming?

Okay. Perfect. And then on the ROE, maybe you could expand. I think you had previously said 15% by the end of '27. And so I guess, are you -- I want to make sure I get those numbers right. So that would be penciling in kind of 16.5% or 17% for '28. Is that right?

Yes, that's right. So I mean our stand-alone fourth quarter '27 return on tangible common equity target was 15%. We said Providence would add about 30 basis points to that. And we think that Bluevine adds all in when it's fully baked, 150 to 200 basis points on top of that. By the fourth quarter '27, we won't have all the cost saves out. It's probably towards or below the lower end. But you should be -- that 15% target we gave you should be 16% plus at this point and then growing into the high teens thereafter.

Our next question comes from Timur Braziler with UBS.

For Bluevine, is the expectation that entity remains largely independent in terms of loan production, deposit generation? Or is that going to be more broadly integrated into the Valley model?

I think from a client acquisition perspective, the focus is to let them continue to really do what they do. As I mentioned earlier, there's a lot of operational synergies that we believe Valley can really recognize. Eyal is coming here. He's going to run the entire small business portfolio for Valley. So that's just not the online digital piece, but that's also the traditional bankers that we have. So while we anticipate them definitely keeping the name running as an independent entity, we believe there's going to be massive synergies as to how we think about the ability to really scale even Valley's own business. And we believe that Eyal is going to be able to amplify the growth that they have within their portfolio.

Okay. And then maybe could you talk about the asset side of the equation here in terms of the type of production that they do and the appetite to put more of that on the Valley balance sheet?

Yes, Timur, it's Travis. So they have about $130 million of on-balance sheet loans today. However, they have a variety of forward flow agreements, and they sell a lot of their production for a gain. We assume that, that remains fairly constant. So the growth in on-balance sheet loans is fairly modest. We do anticipate -- we'll continue to sell some of the production into the forward flow agreements that are in place today. So that will support fee income. The loans -- the risk-adjusted returns on the loans have been very strong historically, but this is certainly a deposit play, not on-balance sheet loan play.

Okay. And then just last for me on Slide 9, where you call out the loans to core deposits, '28 target of 100% pro forma for the 2 deals there at 103%. Is the expectation that you get to that 100% organically? If so, maybe give us a stair step there? Or does that involve potentially more down the line?

It does not include more M&A. So we've kept ourselves busy with the 2 deals we've announced in the last 1.5 months. So it does factor in, obviously, the close and integration of those deals and then additional progress thereafter, but it does not factor in additional M&A. And as Ira said in his prepared remarks, we're out of the M&A game for the foreseeable future. These are 2 highly strategic and financially compelling deals that we have, and we focused on integration, execution and organic growth.

Our next question comes from Dave Rochester with Cantor.

Congrats on the deal.

Thank you.

So I was just curious on the 175,000 new customers, you mentioned that you're not looking to grow the, I guess, the loan portfolio based on the production that they have today. And I guess I'm just wondering why could that not be at least at some point, additive to your loan growth going forward? You mentioned that they were -- the risk-adjusted returns were there, but it sounds like you're planning on selling more of that product going forward.

Historically -- so Bluevine actually started with a focus on the lending side and over the last couple of years has transitioned to the deposit focus that you see today that's resulted in the very attractive deposit originations that they posted. While the loans are attractive from a risk-adjusted return perspective, I mean, obviously, we have our credit appetite that will continue to drive the majority of the loans that we would on balance sheet across the franchise. So as we've talked about historically, loan growth is not a problem for Valley. It's funding that loan growth. And so while the loans that will come from Bluevine is modest in size and will be -- we're willing to continue, it will not become an outsized part of the portfolio in aggregate.

And then you mentioned a couple of times now that as rates go up, deposit costs are expected to remain stable in this arm. Is it the granularity of the deposits that helps that out -- the low granularity or the small size of the deposits? Or is it something else you mentioned the extra value add from the platform? If you can just go into that a little bit more detail, that would be great.

I think maybe just take Bluevine out of it for a specific second here. This is a segment that we've been focused on for a long period of time now. We believe that it's a fragmented segment. We believe that our clients are less price sensitive here and more experience sensitive. And the Bluevine model has really proven that out when you look at what they're paying.

The clients really want a different type of user experience. They want an ability to have a cash flow management platform that really provides an ease of use for them. So this is a segment that we believe is really attractive. It inures to a lower price sensitivity, which has a lower beta associated with it, and we think that's going to continue. So it's a segment that we've been targeting, and this really accelerates the ability to get into that based on user preference of how these clients behave is really the main driver as to why we think this is going to be a lower beta product as we continue to go into a higher interest rate environment.

I think just specifically to Bluevine, I mean the user experience here is, I think, why customers choose to partner with them. There was a good article ironically in the American Banker last week that talked about the utilization of AI in banking and with Bluevine specifically as one of the companies that is differentiating themselves from traditional banks in terms of their ability to grow customers. And again, that customer growth is primarily based on the user experience technology platform that they've been able to build that add value to the clients that, "bank with them."

Great. Very nice. Maybe just one last one. If you guys can just provide some additional background on the deal? How did this come together? Why was now the time for Bluevine to sell? And then why was Valley the right partner for this?

Yes. I think there's a lot of different things that we think about. From a strategic perspective, once again, this is a segment that we've been targeting. There's a lot of different reasons as to why Bluevine really looked to sell. Eyal here, maybe you want to speak to a little bit as to sort of what was in your thought process as to you were going down the journey, but this was a company, a founder that we had known for a very long period of time as well.

This is Eyal. You're seeing a lot of fintechs becoming banks right now. It makes a lot of sense, both the economics, the regulatory certainty, just the ability to control your destiny, the infrastructure and so on. And so there's different paths to get there, de novo, acquire a bank, and get acquired by a bank. And so for us, when we looked at the options in front of us, this felt like for us, the best option to accelerate our vision of building our small business franchise. And ultimately, it is a combination of complementary capabilities here, but also a strong cultural fit.

Our next question comes from Anthony Elian with JPMorgan.

This is Mike Pietrini on for Tony. I guess to start, just to confirm, there should be no impact from either Bluevine or Providence for that matter, I guess, to Valley's organic growth profile sort of going forward, right?

That's correct.

Okay. Great. And then this question has sort of been asked in a couple of different ways, but I guess I'll put it like this. You're not assuming any incremental benefit from either cross-sell for some of these Bluevine customers, obviously being nonborrowing any cross-sell to loans or other products in Valley, and you're not assuming anything incremental from AI either. Would you say -- I know there's a reason you're not assuming anything, but would you say there's maybe some potential upside to the 8% EPS accretion if you were to assume any incremental benefit from either of those two things?

Yes. I think we modeled this fairly conservatively based on kind of the base case here. Bluevine has a subset of their customers already that are small business under their definition, but would migrate towards the business banking end of our product offering, meaning they're a little bit larger. And things like treasury management offerings to that subset of customers specifically is like the kind of the low-hanging early fruit that we can target, but none of that's factored in. So we've specified internally where we think the opportunities lie for us to outperform the guidance that we've given. But again, none of that is factored into the modeling that we've provided.

Our next question comes from Ryan Kenny with Morgan Stanley.

Can you walk through a little bit more detail what Bluevine's customer acquisition strategy is? You mentioned that they don't lead with rates. So wondering what do they lead with? And as we enter an agentic AI world, how do you view the durability of that strategy?

I would say that they are well positioned for an AI world. And again, that reference back to the American Banker article I mentioned. I think their targeted marketing is in a level of expertise that is new to us and certainly helps them kind of drive the funnel. But maybe Eyal, if you have other thoughts on kind of what differentiates you from a customer acquisition perspective.

Sure. First of all, I think we focus a lot on onboarding customers. It is really, really simple and easy to open an account. It takes literally 5 minutes, and we make it very easy to learn the product experience itself and really kind of understand what your the value that we bring in a way that you can kind of test it out. In addition, the second part, and this includes AI is kind of a broader consideration, we pack into the account a whole lot of software. So think about a small business that needs a lot of software to run their business, bill pay, invoicing, accounting, all of that. We just pack more and more software as part of the platform. So as a small business instead of needing to rely on multiple sort of SaaS or online services, you're able to integrate it all at once and everything magically works together.

And so that's a big part of it. AI is coming into that as part of the overall customer experience. We're creating more and more customer and the ability for customers to leverage agentic experiences, and that's starting soon with the ability to query your data through external terminals. And so that's something that's not typically found at traditional banks.

Got it. And then just as a follow-up on the customer side, so 175,000 active small and medium business customers, can you just give a little bit more color on what the customer base looks like? Is there any specific industry or geography? I know it's national, but any areas of concentration we should be aware of?

No, it's highly granular by industry and geography. 40% of their customers overlap with our existing footprint. But when you think about the markets that we operate in and the density of, call it, Metro New York and Florida and things like California and Chicago, that covers 40% of their client base. The remaining 60% is spread across the country in markets that we're not in today, but may be attractive, things like Texas, Georgia, other parts of the Southeast that we don't exist in physically. So from a geographic perspective, very broad-based. But again, 40% in our existing footprint. From an industry perspective, there are no notable concentrations. Business services is, I think, the largest industry concentration with around 20% of their depositors. But obviously, that's a title that captures a hell of a lot of different kinds of companies.

Our next question comes from Jared Shaw with Barclays.

I guess just what's the risk of retention as you repatriate these deposits that are outside the bank? Are they all under the Bluevine servicing right now, and so it should be fairly seamless for them? Or what's sort of the risk that people don't come back in when you bring them back to Valley?

Yes. So there are multiple paths that we've considered in terms of our plan for integration and transition. We're focusing on minimizing customer disruption. So Bluevine will leave their core in place in terms of the core that supports the deposits and then point those deposits to the partner bank. We will effectively repoint the deposits from the partner bank to Valley in order to not add disruption from a customer perspective. From a retention perspective, we've effectively cut the deposit growth expectations in half relative to what kind of the initial expectations were for Bluevine on a stand-alone basis.

We think that covers not only a conservative approach on gross growth in the deposit base, but also captures potential runoff of any clients that retention would be an issue. So I think we've been fairly conservative on that front as well.

Okay. And then on the lending side, on the $130 million that you're bringing over, what's the credit profile of those loans? And is that something that we should expect you to keep consistent? Or could those be run off?

Yes. The average FICO on their loans is around 720. So it's fairly high quality. The loss rates, as you'd imagine, for small business are somewhat higher than what we're used to, but the portfolio is very small. And the loss rates have improved actually in the last couple of years. So they have, I think, average annual losses are running kind of low to mid-single digits. They have an 11% allowance against it today. We'll add to that allowance at acquisition, and that's kind of the approach that we'll preserve going forward.

Okay. And then just final question, if I can ask, what's the total expense base and fee base annualized at Bluevine?

Where they stand today, call it, around $200 million of annual expenses as of the second quarter of '26 and about $120 million of annual fee income. So that's what -- where they kind of run today.

Our next question comes from Manuel Navas with Piper Sandler & Co.

Could you speak a little bit more about the Bluevine user experience and how it can improve your own product offering? And what can be brought over from your offering to their side? It seems like you're siloing this in the deposit categories. And I just would want there to be some places where you can learn from either side.

Maybe I'll just start with our user experience. It's definitely not 5 minutes of an account at Valley. There's not a platform that provides some of the capabilities that Eyal was speaking to. It's really relationship and people dependent, which is great. The clients that we serve really appreciate that. That said, the ability to really integrate in what Bluevine does and provide a holistic type of experience is something that we think on an integrated basis is going to be extremely valuable to us and lead to accelerated growth within our own traditional client.

There's a lot of things that we can't do today because we work with a partner bank and we don't control our destiny and our infrastructure. And there's shortcomings with the fact that, again, the way this model works. And so for example, we can't do Zelle today, which is requested by a lot of customers. We can't do cash deposit. We want to do FedNow. We want to do our -- there's a lot of things that we want to do and deliver more value to our customers. And some of that is right now being prevented. And so I think the ability to be part of Valley and the ability to control our destiny and control some of the underlying infrastructure will deliver a lot of value to customers.

Just wondering how quickly can some of those capabilities be added once the deposits come over?

That's all part of the work. Again, as we said, our #1 integration priority is getting the deposits onto the Valley system. And then I think we'll look for the early wins that are easier to integrate in the second half of 2027 post deposit transition. So maybe there's more to come on that front.

Okay. The 86% customer retention, can you talk about the parts of that, that are positive? And what's the reason for the 14% that leave in a year?

The model itself, the way it works is, again, we make it extremely easy to open an account, and it's free for our standard tier. And so you do have just customers that are kicking the tires. That's kind of number one. Number two, you have small businesses that a lot of them are -- they're hopeful entrepreneurs. They start their business. And many times, it is just -- it's a failed sort. And so a lot of this is because we've been growing quite fast. And the fact that small businesses, many of them don't succeed in their first year, this is a big part of that sort of dynamic that you're seeing. On an overall basis, our ability to retain deposits is very, very high. And the deposits actually, when you look at active customers, they double over time. So in terms of the overall active behavior, that retention is extremely high. You just have a little bit of noise in the beginning.

And then just shifting gears. How long is this foreseeable future M&A pause? Is it for the integration of these 2 platforms? Any kind of added color on the length of time?

Well, it was 4 or 5 years between announcing the Bank Leumi acquisition and Providence. Obviously, a lot of focus internally in those years. The integration and execution on the low-hanging fruit opportunities, a lot of which have been mentioned on this call here, our #1 priority as well as our organic loan growth, obviously. So look, we're sitting here in September of 2026. It's going to take us, call it, until the middle of 2027 to get fully transitioned and integrated with both opportunities. And then thereafter, we want to be focusing on the organic side. So I think it's -- as Ira said, nothing anytime soon.

Maybe I'll just add to that. Look, as I mentioned earlier, there are a massive amount of operational and revenue synergies here. So for us to be able to allocate the appropriate resources, time, commitment from a management perspective as well as the capital needed to do that is definitely a significant priority for us. So even though integration may look like it will happen in early '27, the focus here is where we see the outsized opportunity really comes from those synergies. So that's really going to be the focus for us even after the integration period.

Our next question comes from Nicholas Holowko with Raymond James.

Most of them have been answered at this point, but maybe just one more on the customer acquisition strategy at Bluevine. Looking back at their historical growth, can you just touch on how much of that has been deposit-led as opposed to loan lending led? And as you think about those customer relationships, how many of those you consider to be primary relationships as opposed to people who are just trying out the platform or think using it as an additional source of placing their deposits?

Over the years, acquisition has been primarily through deposits. We are still acquiring lending -- net lending customers directly, but the magnitude is like 10x more checking account customers. We've been opening up 10,000 to 20,000 accounts per month in the last couple of months. So certainly very rapid growth. The second question was around -- remind me again?

Just the primacy of deposit accounts.

The primacy, yes, sorry. The primacy as opposed to consumers where you don't have like direct deposits, and it's very clear it's the primary account or not, we have different ways to assess whether it's a primary account, is their merchant account connected? Are they using us for their bill pay? Are they using their debit cards? Are they using us for merchant processing? And so right now, our assessment is around 70%. So it's quite high, and we've been seeing this growing over time.

Thank you. This concludes the question-and-answer session. Thank you for your participation. You may now disconnect. Good day.

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.