Valley National Bancorp 2026 Q3 Earnings Call

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 bank. 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 2022. 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 improve funding. Our allowance coverage ratio improved during this time as well. These balance sheet de-risking efforts set the stage for the current performance driven third chapter of our journey. As of September 30th, 2026, our CRE concentration ratio has declined by more than 160 percentage points from its peak in the fourth quarter of 2023.

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 core deposits to Valley. This should further improve our funding profile, expand our margin, and 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 wealth solutions through deep client relationships and experience advisory services. Our pending acquisitions also attack the small business opportunity from complementary angles. Providence provides an established physical network in Chicagoland, a market 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, agentic credit underwriting and loan servicing.

Bluevine is expected to accelerate these efforts by enhancing our AI engineer and developer talent base. There are innumerable cases for AI efficiency in the banking space. Expanding our capacity to solve these use cases will continue to propel our performance in the next chapter of our journey. Over the past eight years, we have accomplished a lot. We have modernized our foundation, built a tech-forward culture, strengthened 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 am 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 non-maturity accounts, particularly in our technology vertical and metro N.Y. footprint. Brokered deposits were unchanged as excess core deposit growth funded the repayment of approximately $400 million of maturing short-term debt during the quarter. Within brokered deposits, we replaced roughly $350 million of interest-bearing non-maturity balances with term brokered CDs. Non-interest deposits declined by about $100 million due to late runoff in the quarter. However, average non-interest deposits increased nearly $300 million from the second quarter, and spot balances have rebuilt in October. Total deposit costs increased five 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 focus portfolios of C&I and owner-occupied CRE. Growth was again led by our healthcare 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 30th, 2026. On a standalone 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 to benefit from the existing yield curve backdrop despite consistent competition on both sides of the balance sheet. We are pleased with the quarter's net interest margin progress and expect further expansion in the fourth quarter of 2026 and beyond.