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Date
Thursday, Oct. 23, 2025 at 11 a.m. ET
Call participants
Chairman, President, and Chief Executive Officer — Ira Robbins
Chief Financial Officer — Travis Lan
President of Commercial Banking — Gino Martucci
President of Consumer Banking — Patrick Smith
Chief Risk Officer — Mark Sager
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Risks
Nonaccrual loans increased in Q3 2025, primarily due to the migration of a $35 million construction loan and updated appraisals, with management noting that further resolution may take time.
Professional fees are expected to remain at a modestly elevated level into at least the first half of 2026 due to continued reliance on consultants following the recent efficiency exercise.
Rent-stabilized New York multifamily loans continue to experience stagnant market conditions, though exposure remains limited to approximately $600 million of the total portfolio.
Takeaways
Net income -- $163 million, or $0.28 per diluted share, in Q3 2025, up from $133 million, or $0.22 per share, in the prior quarter, marking the highest quarterly profitability since 2022.
Core deposits increased approximately 10% over the past 12 months, and indirect deposits declined from 18% to 11% of total deposits over the past 12 months.
Deposit cost -- Average cost declined by 56 basis points since 2024.
Brokered deposits -- Declined to 11% of total deposits, the lowest since 2022, in Q3 2025 following the repayment of approximately $700 million in maturing brokered balances in Q3 2025.
Loan trends -- Gross loans decreased modestly in Q3 2025 due to targeted runoff in transactional CRE and commodities C&I, offset by CRE increases through conversion to permanent financing; average loans increased 0.5% in Q3 2025.
Loan origination yield -- Remained stable at around 6.8% in Q3 2025; average loan yields increased 7 basis points quarter over quarter in Q3 2025, producing a cumulative loan beta of 21% for the current interest rate cycle.
Net interest income -- Increased 3% sequentially for the second consecutive quarter in Q3 2025; net interest margin rose for the sixth consecutive quarter in Q3 2025, and management expects it to exceed 3.1% for 2025.
Noninterest income -- Excluding volatile loan sale gains, maintained a 15% annual growth rate since 2017; treasury management and tax credit advisory contributed approximately $3 million in incremental revenue in Q3 2025.
Adjusted noninterest expenses -- Declined modestly in Q3 2025 due to lower compensation, occupancy, and FDIC assessments (adjusted, non-GAAP), partially offset by higher third-party spending; expense levels are expected to remain flat to slightly higher in Q4 2025.
Efficiency ratio -- Improved in Q3 2025, with additional positive operating leverage projected for next year and 2026.
Asset quality -- Nonaccrual loans increased, largely due to a $35 million construction loan and appraisal changes in Q3 2025; total past dues plus nonaccruals as a percentage of loans declined 9 basis points sequentially in Q3 2025.
Net charge-offs and loan loss provision -- Both decreased meaningfully in Q3 2025; management anticipates continued stability in credit cost for the immediate future.
Commercial real estate (CRE) concentration -- Now at 337% of risk-based capital and continuing to decline as capital increases (as discussed during the Q3 2025 earnings call); targeted growth is expected to be in the low single digits for 2026 and beyond.
Tangible book value -- Increased through retained earnings and positive OCI movement in the AFS portfolio in Q3 2025; $12 million was used to repurchase 1.3 million shares in Q3 2025.
Expense growth outlook -- Management indicated planned low-single-digit growth in expenses for 2026 and emphasized reinvestment of efficiency savings into front-line talent and revenue generation.
Summary
Valley National Bancorp (VLY +4.25%) reported a substantial increase in quarterly profitability in Q3 2025, driven by strong core deposit growth, stable loan origination yields, and moderating credit costs. Management highlighted sequential improvements in net interest income and net interest margin in Q3 2025, reinforcing guidance for continued expansion. The company announced investments in commercial and consumer banking leadership, with immediate impacts on customer acquisition and organizational momentum.
Valley proactively reduced brokered deposits, strengthened its funding mix, and signaled additional upside from ongoing repricing of both loan and deposit books. The balance sheet showed continued capital strength, with tangible book value boosted by share repurchases and favorable OCI movements. Management reiterated a strategic focus on organic growth, efficiency, and granular diversification across geographies and business lines.
Management expressed confidence in achieving a 15% ROTCE target by late 2027 to early 2028, attributing progress to net income expansion, stable credit costs, and disciplined expense management.
The loan-to-deposit ratio stands at 96.4% in Q3 2025, with leadership targeting a gradual reduction to a 90% loan-to-deposit ratio over time as deposit growth outpaces loan growth.
Gino Martucci described strategic talent additions in upmarket C&I and business banking, noting Valley is "only in the second or third inning" of the hiring ramp, with revenue impact expected from 2026 onward.
Mark Sager reported that approximately 50% of nonaccrual loans are still current on payments, suggesting these assets may pose limited near-term loss risk but may take time to resolve.
Travis Lan stated, "we had $100 million of specialty deposit growth within the bucket you're describing, from healthcare clients." This figure refers to deposit growth in Q3 2025, underscoring the focused development of niche deposit verticals.
The company confirmed that professional fees will remain temporarily higher through at least the first half of 2026 due to ongoing consulting engagements related to operating model improvements.
Leadership affirmed organic opportunities take precedence over M&A at current valuation levels, but the company remains receptive to shareholder-driven capital deployment options if market conditions change.
Industry glossary
Brokered deposits: Deposits obtained through third-party brokers rather than directly from core customers; can be less stable and more expensive funding sources.
Indirect deposits: Deposits sourced from intermediaries, not directly acquired from Valley's own customer franchise.
DFAST: Dodd-Frank Act Stress Test; regulatory stress-testing framework for banks above specified asset thresholds.
OCI: Other comprehensive income; includes unrealized gains and losses on available-for-sale securities not reflected in net income.
AFS portfolio: Available-for-sale securities portfolio, which is marked-to-market for OCI reporting.
CRE: Commercial real estate; loans and leases secured by income-producing real property.
C&I: Commercial and industrial; business loans excluding real estate, such as working capital lines and equipment financing.
ROTCE: Return on tangible common equity; a profitability metric focusing on shareholder equity less intangible assets.
Syndication: Process where a loan or group of loans is originated by one lender and sold in portions to other lenders.
FDIC assessment: Mandatory insurance premiums paid to the Federal Deposit Insurance Corporation to support depositor insurance coverage.
Full Conference Call Transcript
Ira Robbins: Thank you, Andrew. Valley National Bancorp 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 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 the 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. Gina Martucci 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. Gina played a key role in M&T's growth and has already contributed his market knowledge, network, and strategic insight to support our commercial franchise's further development.
In September, Pratchett 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 twelve 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 2022. This has been achieved alongside a 56 basis point reduction in our average cost of deposits since 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, three times faster than publicly 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 contributed roughly $3 million of incremental revenue during the third quarter. The success of our treasury management demonstrates an effective combination of technology and talent. The implementation of an upgraded platform following our core conversion two 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 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 seven quarters. Although 2024 CRE charge-off rates were beyond our internal standards, loss rates have remained far below larger banks' more pessimistic stress test forecasts.
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 healthcare 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 healthcare C&I or Capital Call loan. 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. After Travis concludes his remarks, Gino, Patrick, Travis, Mark Sager, and I will be available for your questions.
Travis Lan: Thank you, Ira. Slide nine 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 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 seven 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 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 a half percent 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 seven basis points on a linked quarter basis due to fixed rate asset repricing dynamics 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 an estimated three basis points, we are on track to achieve our above 3.1% NIM target for 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 two 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 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 that was in the thirty to fifty-nine 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 nine 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 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, 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: Please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Smith with Truist Securities. Your line is open.
David Smith: Thank you. Could you speak to the competitive backdrop just given the decline in C&I loans and those tests 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 are expecting them to revert in the fourth quarter and the coming year?
Travis Lan: Yes. Thanks, David. This is Travis. Maybe I'll start on the 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 costs declined from $6.30 to $9.30 by six basis points. I'll tell you, quarter to date, we're down another seven 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, so since 09/30, we paid off another $500 million plus of additional brokered at a rate of $4.50.
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 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 we were effective with during the quarter. So I think as we enter the fourth quarter, deposit costs will come down. And I think there's more opportunity as we head into 2026.
Gino Martucci: Thanks, Travis. This is Gino Martucci. 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 and nonbanks are fighting pretty hard for loans, and we have seen some decline in spreads. But our pipeline remains very strong, and we continue to add loans and add clients.
David Smith: Okay. Thanks. And then just on capital, stock is barely one times tangible right and you've got 11% CET1 and TCE almost 9%. Know, just with loan growth expectations about 1% for the next quarter. How are thinking about the buyback opportunity against conserving capital for longer-term organic growth ambitions?
Travis Lan: Thanks. Yes. I think, like 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 ten fifty to 11%. Historically, we've thought about the buyback in the context of repurchasing shares that we issue for incentive purposes. 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.
David Smith: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Fadi Strickland with Hovde Group. Your line is open.
Fadi Strickland: Hey, good morning, everybody. Just wanted to ask on the geography of CRE and C&I. Think you've got a majority of C&I outside the Northeast at this point. And as you look at your pipeline today, do you expect to continue to have more business coming from outside the Northeast than inside the legacy Northeast footprint?
Gino Martucci: So our originations for the quarter and actually for the last year really reflected a third, a third, and a third in the Southeast, a third in the Northeast, and third in 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.
Ira Robbins: Maybe I'll just add to that, Freddie. I think as you know, we've spent a lot of 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 other banks in that footprint. I think in the aggregate, it's about $4 to $5 billion of commercial assets that we acquired. Today, we sit with commercial assets that are well north of $15 billion. Right? So from a loan perspective, it's one of our largest geographies. That's $10 billion of organic growth in just a ten-year window. I think represents really the foundation and footprint that we have in that Florida area.
An unbelievable set of lenders, an unbelievable set of bankers there. Obviously, very strong markets. We continue to move 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 Gina said, we're seeing strong contributions coming from the specialty and the coming from the Northeast as well. But we feel really strong and confident in the growth numbers largely a function of what we're seeing in the Florida footprint as well.
Fadi Strickland: Thanks, Ira. Appreciate that. It just one more for me. Just wanna ask on the fee side. Should we think about the capital markets business in the insurance businesses? Particular over the next quarter or so? It seems like capital markets has held up pretty well. Insurance maybe had some seasonality. Just within the guide, obviously, how should we think about those businesses?
Travis Lan: 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 markets side. So just as a reminder, for us, capital markets is three 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 client commercial client base and the folks that utilize that offering. So I think there's good tailwinds, you know, definitely on the capital market side.
Fadi Strickland: Alright. That's it for me. Thanks for taking my questions.
Operator: Thank you. Our next question comes from the line of Anthony Elion with JPMorgan. Your line is open.
Anthony Elion: Hi, everyone. Could you provide more color on the increase in nonaccrual loans? I know you called out the construction loan migrated to nonaccrual, but no further impacts, but I would love to hear more on the commercial real estate loans that migrated.
Mark Sager: Oh, certainly. Yeah. Again, this is Mark Sager, Anthony. The increase primarily driven by the $135 million loan while it's in the construction bucket, I'd note that it's really a land loan. So, really strong value there. The borrower is in the midst of a refinance to take us out. We don't see 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 consistent with our plan 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 point to the improvement in our criticized assets for the quarter after a stable second quarter. And that improvement really came from approximately two-thirds of payoffs in refinance at par. About one-third upgrade. So we're definitely seeing positive movement in the real estate market.
Anthony Elion: Thank you, Mark. And then my follow-up, on your commercial real estate concentration, fairly well below the 350% level now 337%. Looking ahead, how low do you think you can take that level? And at some point, would you expect to actually grow balances? Thank you.
Travis Lan: 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 '26, early twenty-seven. 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, you know, we expect the CRE balances will stabilize and begin to grow. And then allow that capital build to, you know, drive the next leg down in the ratio.
Anthony Elion: Thank you.
Operator: Our next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is open.
Manan Gosalia: Hi. Good morning, all. Question for Gino. Where do you see the biggest white space for Valley? You know, what areas are you most focused on, and, you know, which subsegments geographies do you think you need to invest most in? You know, I recognize that you're focused on healthcare, 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.
Gino Martucci: Yes. So 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 a $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. It's more in that $155,100,000,000 dollar revenue space than Valley traditionally played in. We're actually onboarding five senior bankers who are building out their teams. Currently. In addition, I really see a tremendous opportunity for Valley in business banking.
But into the currently, we didn't sell it into that book as much in the process 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 gonna build out professional burnout 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 the relationship, their responsiveness, is frankly superior to the supraregional legs. And is rewarded by our customers. So as I mentioned, we're bringing on seasoned bankers. They're gonna 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. There is a number of opportunities, I think, for Valley to grow in 2026 and beyond.
Patrick Smith: Thank you. 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 offer up a few points. One is small business. When I've been conducting an end-to-end evaluation of our small business segment, and I'm excited about the opportunity that we have to really grow in segment. We've been underpenetrated in 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 eight bankers, principally in Florida and New Jersey to take advantage of the opportunity. The other one I'd say quickly is that 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 gonna be a core driver, as it is in commercial, of our retail franchise growth.
Manan Gosalia: 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. Are clearly investing in there's clearly some more white space to invest in. How should we think about the expenses as we go into 2026? You know, how much of these investments are already in our in the run rate versus how much do you think you'll need to accelerate that spend?
And I guess I'm asking from the point of view of, you know, 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 wanna invest as we go into next year?
Travis Lan: Yeah. 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, you know, the near-term expense guide that we provided for the fourth quarter. I just tell you as we begin to kinda 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, you know, our goal is to, you know, 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.
Ira Robbins: Maybe I'll just talk about sort of, in my mind, where we sit from sort of positive operating vibration. And I'm gonna take a step backwards and go, you know, where we were before the regional banking challenges that we had in 2023. But if you go back to June '23 in that period of time, we had 3,950 associates across our entire footprint. Today, we're 3,624, so a contraction of 303 associates, about eight and a half percent 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 17.2%. 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 the external challenges that happened with SVB and Signature, etcetera. And then, obviously, a 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 to reinvest back into revenue in this organization.
And as Gino alluded to, as Patrick alluded to, you're gonna see continued hiring within the organization. And really, a growth trajectory that's gonna 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 gonna 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 gonna be able to generate.
Manan Gosalia: Great. Thank you.
Operator: Our next question comes from the line of Chris McGratty with KBW. Your line is open.
Chris McGratty: Okay. Good morning. 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.
Travis Lan: Yes. Look, I think we assume, obviously, in our loan growth guide, some amount of payoffs consistent with our loan growth for or excuse me, with our rate forecast. So it's in there. And, look, to the degree that, you know, 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 you know, we took 2024 off. Effectively from a career 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 other others do. In terms of potential impact of lower rates on payoff activity. Mean, we still have a fixed rate loan portfolio that's yielding in the mid-fours to 5%. So you gotta 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.
Gino Martucci: I would add that lower rates could will also drive some transaction volume. And 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 it's more of a, like, fifty-fifty CRE, C&I it was more like sixty-forty. Up until this quarter. So we're seeing good momentum in C&I and CRE. And the payoffs are here, but the liquidity in the marketplace, but we're effectively building our pipeline.
Chris McGratty: That's helpful. Thank you. And I guess my follow-up Ira is more of a strategic question. Seems very clear that you know, buying back your stock at book value is the right move. Is there a scenario where you deviate and consider inorganic? At these levels?
Ira Robbins: Look. I think, let me just start with, like, you know, there really is no change in 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 outlet. 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 alluded to, we're sitting at a pretty significant discount to where our peers are. We feel really confident in the of where the earnings profile is. And when you're sitting at 1% on tangible book, seems like a pretty good use of capital to me.
Travis Lan: I would just add, Chris, 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, you know, 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, you know, we're working to position ourselves to capitalize on that.
Chris McGratty: Alright. Great. Thank you.
Operator: Our next question comes from the line of Dave Rochester with Cantor.
Dave Rochester: Morning. 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 to given the forward curve and then everything you guys are doing on the remix of CRE and the other work on the funding side.
Travis Lan: Yeah. Look. I think I mean, for legacy Valley, which would have been CRE heavy and an overreliance on wholesale funding, that normalized NIM probably would have been $290,000,000 to $310,000,000. 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's already improved materially. With the increase in C&I and the enhancement of the core funding base. And I would say, you know, now a more normalized margin for value should probably be closer to three twenty to three forty.
I think, you know, as I said in my prepared remarks, you know, I have high confidence we'll be at three ten or above in the fourth quarter. I think you can pencil out another 20 basis points of expansion from the fourth quarter to '25 to the '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, you know, we look forward to executing on them.
Dave Rochester: Great. And on the effort to go upmarket, where are you in the innings of that hiring, in that effort? Are you 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 will you start to see the boost in growth from that?
Gino Martucci: 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 rail and running in January really and really all through 2026. Think you're gonna see some real momentum in more upmarket C&I and in business banking, frankly, for next year. And we are which inning? I'd say we're probably only 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.
Dave Rochester: It seems like that boost to growth could be pretty substantial. Right? I mean, how are you guys quantifying that?
Ira Robbins: May maybe just before we get into that, I think, look, there's obviously headwinds in different quarters. You look at this quarter, 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, as you think about sort of the new hires that are coming into the organization on the commercial side, that there'll be a lot of strength there. And maybe I'll 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 Gina 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 Gina is still hiring and Patrick is still hiring.
Travis Lan: Yeah. We're penciling out, you know, mid-single-digit loan growth expectation for 2026, so call it a range of 4% to 6%. I think the more hirings that you get done, you'd get to the upper end of that for sure. And I think if you zoom out and think about where Valley's 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, you know, we expect CRE growth will pick up. But we're not gonna return to that level.
And so, you know, 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 four 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. You know, we haven't talked yet on the call about the significant deposit growth that we saw this quarter, but core customer deposits were up a billion dollars. You know, 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.
Dave Rochester: Alright. Thanks for all the color. Appreciate it.
Operator: Thank you. Our next question comes from the line of David Smith with Truist Securities. You have a follow-up.
David Smith: Hey. Thanks for calling me back. Just thinking a little bit longer term now. You did 11.6% adjusted ROTCE 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. Cost of credit can stay controlled like you're saying. Can you just give us the latest on how you're thinking about profitability improvement over the next year or two in the context of your 15% goal?
Travis Lan: Yeah. So there's no change to our 15% ROTCE target. I think we're confident we can effectively achieve it by late twenty-seven, early twenty-eight. If you think about where we're starting today in numbers, we have a three fifty 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 talking about, mid-single-digit loan growth, margin expanding into the high three thirties, continuation of high single-digit fee income growth and low single-digit operating expense growth. And to your point, normalized credit costs. I mean, under those assumptions, you get pretty close to the 15%. The delta is gonna be with that backdrop.
You're gonna 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 timeline. 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, you know, we have flexibility to ensure that we achieve that.
David Smith: Alright. Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Matthew Breese with Stephens. Your line is open.
Matthew Breese: Hey, Travis. I wanna go back to a comment you made. I just wanna clarify. I thought you had said, you know, maybe kinda normalized loan growth in the four to 6% range. Is that accurate? Did I hear that right? Is that a good bogey for 2026?
Travis Lan: Yes.
Matthew Breese: And then alongside that, you know, maybe just help us out with the deposit growth alongside that and the outlook and you know, is there potential we might see a further lowering of the loan to deposit ratio in '26?
Travis Lan: Yes. I think that's part of our plan, Matt. We would anticipate that deposit growth will exceed loan growth. Loan to deposit ratio today is 96.4%. Mean over time, we'd love to get that to 90. There's no timeline 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. You know, the other thing that we think about from a funding perspective is loans to nonbrokered deposits today is one zero eight and, you know, that should be closer to a 100% for sure.
So you know, 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, man, 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.
Matthew Breese: Got it. Alright. And then my last one, and, you know, admittedly feels a bit out of tune given you know, all the, you know, positive and optimism on the front. But, you know, it feels like the M&A deal window is open and heard your comments loud and clear, Ira. On, you know, focusing on organic. But I did wanna get your sense on, you know, or thoughts on all strategic alternatives, including you know, maybe a potential sale because the big bank M&A window appears open as well. Haven't seen that in a while, and just would love your thinking there. What would type you know, would drive that type of outcome?
Ira Robbins: I just go back to the one comment. It's shareholder first. Right? And I think that's how we need to think about anything that happens in this organization.
Matthew Breese: Appreciate it. Thank you.
Operator: Thank you. Next question comes from the line of Jared Shaw with Barclays. Your line is open.
Jonathan Rau: Hi. This is Jonathan Rau on for Jared. Is maybe a looking at the CRE side of things that sounds like there's a pretty good capacity for these borrowers to refinance away from Valley and, I guess, the banking system. Is there any subset of CRE borrower that's having a little more difficulty in finding that alternative capital source? Then particularly if there any insight on how that would look for, like, a rent-regulated multifamily. I know it's both are small there, but for you, but just any color would be helpful.
Mark Sager: So, John, Mark Sager again. As I mentioned, we're actually seeing really positive trends in the office space with stabilization there. And really some rational transactions. So I think you hit the nail on the 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 offered, you know, a lower loan amount traditionally and required stronger in-place debt service coverage to our 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.
Jonathan Rau: Okay. Perfect. That's helpful. And then just looking at expenses, 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 the last two quarters?
Travis Lan: Yeah. 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 us enhance our operating model and organizational design. So those are temporary dollars that we have to spend, but again, know, we've offset it with the savings that we've generated in the compensation line and elsewhere.
Jonathan Rau: Okay. Great. And then, just last one for me. The that land loan that the borrowers refined away from you, there's just wanted to confirm there's no loss expected on that through that process?
Mark Sager: No. We have more than adequate value there. No loss anticipated.
Jonathan Rau: Okay. Great. Thanks. That's all for me.
Operator: Thank you. Our next question comes from the line of Jon Arfstrom with RBC Capital Markets.
Jon Arfstrom: Thanks. Good morning. Mark, maybe for you, what do you think the timeline is for nonaccrual balances to start declining? I know you feel comfortable, but just curious on your thoughts on that topic.
Mark Sager: So I would point at right, it's hard to talk about a timeline on resolution of some of these items other than the one that I just mentioned, which we do think had the short-term resolution. But I 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 material inflow on a go forward basis, but it may take some time. To see some of those CRE loans finance out.
Jon Arfstrom: Yeah. Okay. That's helpful. I appreciate that. Just kinda 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.
Travis Lan: Yeah. I think that's absolutely true. So mean, just the progress that we've made, I mean, part of the overhang coming out of the liquidity crisis is the funding side. I think we've done a lot of work over the last years to rectify that, which has enhanced our net interest income, obviously. We still have a significant fixed rate repricing tailwind behind us. We head into 2026, we have $1 billion of loans that are coming off from a fixed perspective at a rate of around four seventy-five. That creates significant opportunity and supports the margin expansion that we've talked about.
From a credit perspective, I mean, 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, in a generally stable reserve. So when you factor that all together, I think, you know, you are seeing a this provision level is effectively sustainable from my perspective. Within a given range.
Jon Arfstrom: Yep. Okay. Very helpful. Thanks, guys.
Operator: Thank you. Our next question comes from the line of Janet Lee with TD Cowen. Your line is open.
Janet Lee: Hello. On deposits, when I look at specialized deposit growth, over the past quarter, that's about $700 million. 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 incentivize structure change, guess that's going to help. If I look at the pace of deposit growth from the deposits, I guess, 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 over the past year?
Travis Lan: Thanks, Janet. This is Travis. I think, like, 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, from healthcare clients. I mean, there's still momentum there. We had $200 million between HOA, cannabis, international deposits group, so those are kind of specialty niches that we bank. That was $100 million of growth this quarter. We look 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.
You know, New Jersey was up $100 million commercial. New York, up a $150 million commercial. These are deposits. Florida, $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.
Janet Lee: Got it. And you made your point clear about that 46% loan growth. Over the intermediate term in 2026. So in terms of over the near term, that head that 3Q headwinds from commodities C&I payoffs, can I consider that as temporary and there's or is there any parts of Vencleumia or within Valley that you might wanna run off?
Travis Lan: No. I know that's temporary. It was a dynamic unique to this quarter. I think if you zoom out over the last six 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 timeline, but that includes some, you know, additional headwinds from CRE runoff. So like, I think, you know, from a given quarter, you know, loans 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.
Janet Lee: Thank you.
Operator: Thank you. Our next question comes from the line of Steve Moss with Raymond James.
Steve Moss: Maybe just circling back to the loan pipeline here. With a $3.3 billion pipeline, just curious, what's the coupon on those new originations?
Travis Lan: This is Travis. So this quarter, origination yields were 6.8%, which was consistent with last quarter. I'd say the pipeline yield is similar, although slightly lower because benchmark rates are lower. We saw some spread tightening earlier this year. I'd say that's fairly consistent maybe a little bit more now, but that's kinda where we sit.
Steve Moss: 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, you know, thinking about them being syndicated? Just kinda curious. Any color you can give there.
Gino Martucci: You know, that Valley's always been done loans in this size. They just haven't had the focus on it. And we're just gonna more intently focus on it and bring 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 wanna originate these loans and sell some of them. The pricing, as you know, it tends to be $1.75 to two and a quarter. More or less. We wouldn't play much below that amount. So and then the relationships tend to be fulsome targets these opportunities for capital markets, etcetera.
So we see it as a driver of profitability going forward.
Steve Moss: Okay. Great. I appreciate that color there. And then just, on the criticized and classified, I think I heard that they went down. Just kinda curious if you could quantify the level of decline and also wondering if substandards declined this quarter.
Mark Sager: We had a hundred 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 specifically on that substandard component.
Steve Moss: Okay. Great. Appreciate all the color here. I'll step back. Thank you.
Operator: Thank you. 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.