Prepared remarks
Good day, and thank you for standing by. Welcome to the Valley National Bancorp First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Gianetti, Investor Relations. Please go ahead.
Good morning, and welcome to Valley National Bancorp's First Quarter 2026 Earnings Conference Call. I am joined today by CEO Ira D. Robbins and CFO Travis P. 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 two 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 will turn the call over to Ira D. Robbins.
Thank you, Andrew. Valley National Bancorp 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 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, 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 but still competes regularly with upmarket institutions. That brings me to Valley National Bancorp’s positioning around artificial intelligence, which we believe represents a meaningful inflection point for the banking industry. Valley National Bancorp’s approach to AI reflects a balance between our pragmatic relationship-led culture and the acknowledgment that these technologies can enable us to reimagine how work gets done across our company. We believe these rapidly accelerating capabilities can augment productivity of our associates, enhance decision-making, improve operational efficiency, and most importantly, position Valley National Bancorp 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 capabilities into our operating model in the wake of our core conversion. Already, AI is helping our bankers prioritize opportunities and better understand client needs. We have 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, and to accelerate data analytics and software development. Specific use cases implemented to date include a customer-facing voice AI agent that proactively contacts 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 of 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 these capabilities will continue to translate into higher productivity, better risk outcomes, and a more consistent client experience with 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 National Bancorp to navigate uncertainty, capitalize on opportunities around us, and deliver sustainable returns over time. With that, I will turn the call over to Travis P. Lan to walk through the financial results in more detail.
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 a third 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 non-brokered 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 de-risk our balance sheet and drive continued profitability improvement. We anticipate that 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, positions 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 one 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 National Bancorp’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 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%. 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.
Questions and answers
Thank you. For your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Manan Gosalia with Morgan Stanley. Your line is now open.
Hi, good morning. My first question is on the NII side. You are 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, and the ways in which you can drive funding costs lower even if we do not get more rate cuts? And then, Ira, you spoke about investing in AI early and the benefits that that should drive going forward. Are there any areas where you think you need to accelerate the spend there, or is a lot of the investment spend going to be self-funded from here? 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 the operating leverage going forward?
Yeah. Thanks, Manan. This is Travis. Relative to where we were coming into the year, we had assumed two Fed cuts as of 12/31. Obviously, those are out of the forecast. But as we have said pretty consistently, we are 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 has been some migration higher there, which has been incrementally helpful. From a deposit cost perspective, even if we are 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 rotation of higher-cost wholesale funding into lower-cost core. And that is what I think has given us so much confidence about the margin trajectory you have seen play out over the last year or two, and why we continue to have confidence through the end of year and into 2027.
Thank you. I think it is 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 also how we enhance the revenue side of it as well. For us, when we think about the expense that would go into it, we have always been very mindful of what the efficiency ratio is within the organization and how we self-fund a lot of what we have done here. We have spent about $450 million on CapEx in the last seven to eight years versus about $50 million in the seven- to eight-year cumulative period before, while still maintaining a very efficient organization. When I became CEO, I believe we were 3,350 employees and $20 billion in size. Today, we are 3,607 employees and $64 billion in size. So having a more efficient organization, the more we can press that, provides an opportunity to really enhance the AI spend as well as other opportunities within the organization. Over the last year, we reduced about 100 employees within the organization, and as we think about the reduction in some of those roles, we are enhancing opportunities and reinvesting some of that back into AI that we think is going to be a lot more productive moving forward.
Great. Appreciate the color. Thank you.
Thank you. Our next question comes from the line of Freddie Strickland with Hovde Group. Your line is now open.
Hey, good morning. I was just wondering if you could talk about competitive landscape on the retail deposit side, maybe how that has changed and whether that has really shifted as broad expectations and more cuts seem to fizzle out?
Yes. Thanks, Freddie. It does remain competitive for consumer deposits. Offered rates have backed up, and you can see it in the rates posted in branches and online. For us, the consumer element is a component of our anticipated deposit growth, but the majority comes from the commercial side, including small business and business banking. There, we are competing with the relationship, the service model that we have, and the treasury platform that we can provide. Rate will always be an element of how you compete for deposits, but it is not the only one. That has enabled us to differentiate ourselves from a deposit growth perspective while also driving down costs.
Great. Thanks, Travis. 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 generation? Or are you taking into account the Fed moves there? Just wondering if you can talk a little bit more about buybacks relative to the CET1 ratio.
Yes. We have been consistent that our target range for CET1 is 10.5% to 11%. Throughout 2026, we anticipate staying at the higher end of that range. The number one priority for capital utilization is to support high-quality, well-funded loan growth. We saw good activity in the first quarter and the pipeline is building, and as we anticipate loan growth trending towards the higher end of our range, we want to be able to support that. We bought back 4 million shares this quarter, about $52 million of capital used for the buyback. I would anticipate that pulls back a little because of loan growth opportunities over the next couple of quarters; we want to preserve capital to support that. So we anticipate remaining active to some degree, but it would not surprise me if it is a bit less than the first quarter on the buyback.
Alright. Great. Thanks for taking my questions.
Thank you. Our next question comes from the line of David Chiaverini with Jefferies. Your line is now open.
Hey, guys. Brooks Dutton on for Dave this morning. With your CRE concentration ratio trending lower, 329%, what is the long-term target for this metric? How does that influence your 4% to 6% loan growth guide for the remainder of 2026? And then just on fee income, there is lower capital markets activity this quarter. Can you talk about your run-rate expectations for 2026 as we progress through the year?
We were very diligent within the last two years in identifying a runoff portfolio that was transactional for us and did not bring the deposit relationships we were looking for. Those tier three clients continue to run off, which creates capacity for other loan growth. Getting under 300% as an absolute number is a longer-term priority for us, and we think we are trending there. There is very little pressure from an external perspective to accelerate that. These are good quality loans, but they may not hit our return hurdle. For us, it becomes how we rotate the profitability of clients from under-ROI clients into higher-ROI clients, and that is driving how we think about the runoff of the CRE portfolio.
We indicated on the fourth quarter call that fee income was about $7 million elevated in a variety of ways. One of those was $4 million to $5 million of elevation from a swap perspective in the fourth quarter. So that normalized as expected. The $10 million in Capital Markets in general is a good starting point, and I would anticipate growth throughout the rest of the year.
Thank you. Our next question comes from the line of Janet Lee with TD Cowen. Your line is now open.
Good morning. For loan growth, is more growth coming from nontransactional CRE and still robust growth in C&I? Should we expect more of the growth to come from CRE in future quarters versus what you expected in the prior quarter? How should we think about the mix of loan growth as we head into the rest of 2026?
Janet, I will start, and Gino can add commentary on the pipeline. Coming into the year, we had guided to about $2.5 billion of loan growth: $1 billion C&I, $1 billion CRE, and $500 million consumer and residential. Within that $1 billion of CRE, we anticipated a couple hundred million would be regulatory CRE—investor and multifamily. As you saw in the first quarter, that was a slight decline. I would anticipate maybe seeing a bit of regulatory CRE growth throughout the year, but the majority will remain owner-occupied and C&I, with support from consumer areas as well.
I will add we continue to invest in new talent primarily for C&I. Upmarket C&I and business bankers are focused on C&I and deposit-rich businesses. Our C&I pipeline is up $1 billion since the end of the year, so we expect continued C&I growth throughout 2026.
Both because of the investments we made and because our clients continue to invest, we see robust economies. We are in affluent markets—Coral Gables, Tampa, Morristown, Manhattan, Garden City. Those markets remain strong and robust, and our clients remain confident and continue to invest. We are supporting that activity.
That is helpful. Your credit was very stable this quarter, but criticized and classified loans were up a little, driven by C&I special mention loans. Could you provide some color on the trend you are seeing? Do you still expect the trajectory of criticized and classified to decline from here, or should it stabilize over the near term?
The stabilization of criticized in the first quarter is a normal phenomenon of year-end financial collection and some migration. We do anticipate that criticized will continue to decline throughout the year; we had the big declines in Q3 and Q4. We still expect the number for the year to be down.
Got it. Thank you.
Our next question comes from the line of David Smith with Truist Securities. Your line is now open.
Hey. Good morning.
Morning, David.
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 is going on? And did you have the spot deposit rate for March 31?
New loan yields declined modestly: last quarter new loan yield was about 6.75%, and this quarter it was around 6.55% to 6.60%. We are seeing modest spread compression in certain CRE asset classes, which led to a bit more runoff in the regulatory CRE book than we had anticipated. Spreads have remained generally stable in most of our target portfolios. It remains competitive for high-quality customers, but we offer a combination of products and services with high-touch service that is playing well for us. Interest-bearing spot deposit cost was 2.95% versus 3.02% at December 31. All-in spot deposit cost was 2.26% versus 2.32% at December 31. So down six basis points from December to March.
Got it. Thanks very much.
Our next question comes from the line of Anthony Elian with JPMorgan. Your line is now open.
Good morning. This is Mike Petrini on for Tony. I will start on NIM. How are you thinking about NIM trending for the rest of the year? You mentioned coming into the year that the $330 million mark was what you expected. How do you see that trending? And on loan growth, now that you are sort of at the mid to high end of that 4% to 6% range, which categories do you feel more encouraged on now than you did before? Any color on the expected growth trajectory of the different categories over the rest of the year would be great.
Coming into the year, we had anticipated a slight decline in margin in the first quarter and then building up to that $330 million level by the fourth quarter. The reality is we posted a better starting point, so I would anticipate some upside to that $330 million fourth quarter 2026 target. The funding profile is better than we had anticipated, the interest rate backdrop remains supportive of margin expansion, and we saw the structural tailwinds from fixed-rate asset and liability repricing. Adding it all up, we feel better about the margin guidance than perhaps we did coming into the year.
Our pipeline remains very robust—basically double what it was a year ago. It is primarily concentrated in C&I and health care. We have a strong health care franchise with experienced people, and that business continues to grow. We have a reasonable amount of CRE demand that is offset by runoff of the nonregulatory book. We are seeing robust growth across our geographies: Florida, New York, New Jersey, and growth markets like Illinois and Los Angeles. We expect a very robust origination year.
Our next question comes from the line of Matthew M. Breese with Stephens Inc. Your line is now open.
Hey. Good morning. Maybe just a quick one on expenses first. Given some of the moving pieces, severance, etc., what is a good starting place for second quarter salary expenses? Is $150 million the right place to be? Any other moving parts there? And one thing I have not heard a lot about but peers have discussed is payoffs and prepayments. Are you seeing similar trends and are you able to offset it? Secondly, is there prepayment penalty income going into the NII? How has that trended and are we modeling too much of it right now?
Morning, Matt.
Matt, I think that is a reasonable starting point. The first quarter payroll tax impact was about a $7 million headwind and that declines by about $4 million in the second quarter. Our merit bonuses went into place mid-March, so there was no real impact from that in the first quarter; those two things effectively balance out. If you take severance away from the compensation line, that is a good starting point. One element that moves quarter to quarter is insurance costs in that line; we did see higher insurance costs in the first quarter, so it is possible we could outperform there, though I don't think materially. Prepayments this quarter declined to about $1.2 billion; they have been running around $1.4 billion for the last couple of quarters, so we saw a slight decline in prepayment activity. It has been fairly consistent over several quarters, so I don't think it has been a material moving piece for balances or NII.
Okay. Could you remind us of what the accretable yield that is flowing through the margin is? And what it was last quarter? And then last, on asset quality: thoughts on NDFI and office commercial real estate—any green shoots or concerns?
It is about $10 million this quarter, which has been consistent—about $4 million on the security side and $6 million on the loan side. This quarter was $9.5 million versus $10.9 million last quarter, so a slight decline.
NDFI has never been a large portion of our portfolio. We have about 2.6% of the portfolio in NDFI, compared to roughly 7% for peers. We have focused on capital call facilities out of our fund finance group; those are well structured to entities with a strong history and a very strong LP base, and we view that as safe lending. On the office portfolio, we provide a breakout in our deck. We continue to be granular in that space, diversified by geography and more suburban than urban. We are seeing more rational transactions in the office space. If it has not hit bottom in all markets, it is close to bottom, and we are seeing new lease-up activity and a reduction in subleasing in the majority of our markets. We are not actively growing that portfolio, but our concerns there have abated.
In the last two quarters, there has been record leasing in New York City, and record rents—especially in Class A properties. You can see rents upwards of over $200 per square foot. Some concerns about loan demand and other issues are not materializing with corporations in their leasing strategies, at least so far.
Thank you.
Thank you. Our next question comes from the line of Christopher Edward McGratty with KBW. Your line is now open.
Oh, great. Good morning. Travis, going back to the capital, just to push a little bit on the buyback: your ROE is improving and you're generating more capital. Can you not do both—support high-end growth and buybacks—or is it more of a back-half year's approach? What is the hesitation, especially with the Basel III proposal?
I don't think there is hesitation. We have a robust pipeline and want to be well positioned to support loan growth, Chris. We bought back about $50 million in the first quarter. Something in the $40 million to $50 million range still feels reasonable. The average price we bought back was below today's market, which factors in our approach. We will remain active in buybacks but I indicated it will likely be a bit lighter than the first quarter.
Okay. That is better color. Thank you. And Ira, I did not hear M&A or strategic mention at all. Any updated view there?
From an M&A perspective, nothing has really changed. Historically, it has been important for us to remain shareholder friendly and do what is in the best interest of shareholders, and I don't see that changing.
Thank you.
I am currently showing no further questions at this time. I would now like to hand the conference back over to Ira D. Robbins for closing remarks.
I just want to thank everyone for their 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.