管理層發言
Good day, and thank you for standing by. Welcome to Q2 2026 Valley National Bancorp Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the call over to Andrew Jianette. Please go ahead.
Good morning, and welcome to Valley's Second Quarter 2026 Earnings Conference Call. I am joined today by CEO Ira Robbins and CFO Travis Lan. Our quarterly earnings release and supporting documents are available at valley.com. Reconciliations of any non-GAAP measures mentioned on the call can be found in today's earnings release and presentation. Please also note Slide 2 of our earnings presentation and remember that comments made today may include forward-looking statements about Valley National Bancorp and the banking industry, and actual results may differ from those statements. For more information on these forward-looking statements and associated risk factors, please refer to our SEC filings, including Forms 8-K, 10-Q and 10-K. With that, I'll turn the call over to Ira Robbins.
Thank you, Andrew. Our second quarter results illustrate continued progress against our strategic growth priorities. We delivered strong customer deposit growth, including meaningful growth in noninterest-bearing balances. We generated diverse loan growth concentrated in C&I and owner-occupied commercial real estate. And we continue to expand fee income in both absolute dollars and as a percentage of revenue. We remain focused on strengthening our value proposition by scaling our relationship-oriented commercially focused model across our markets and business lines. While the quarter's growth was encouraging, our focus remains on the quality, durability and strategic value of the relationships that we attract. We believe continued execution against these priorities will support stronger returns over time. This execution translated into strong financial performance for the quarter. Net income was approximately $171 million or $0.29 per diluted share.
Excluding certain noncore items, adjusted net income was approximately $173 million or $0.30 per diluted share. Adjusted pre-provision net revenue increased 6% from the prior quarter and, at 1.64% of average assets, reached its highest level since the fourth quarter of 2022. Deposit growth remains central to our strategy. We believe that our diversified commercial and consumer funding channels are increasingly critical as deposit competition intensifies across the industry. By expanding our commercial banking talent and driving greater adoption of our treasury platform, we expect to continue to win relationships based on service, capability and value, not simply based on rates. These efforts directly contributed to nearly $300 million of noninterest-bearing deposit growth during the quarter. On the asset side, our focus in C&I and owner-occupied commercial real estate continues to drive strong loan growth and greater portfolio diversification.
C&I growth was broad-based during the quarter with contributions from New York, Florida, Chicago and our specialty health care and fund finance verticals. These efforts also support our noninterest-bearing deposit growth as we continue to target disciplined, well-funded commercial relationships that can contribute to our sustained profitability improvement. Fee income was another area of strength. Sequential growth was driven by high-quality, sustainable businesses, including capital markets and tax credit advisory. Within capital markets, we continue to see a strong pipeline of Valley-led syndication opportunities, while swap activity has benefited from higher commercial real estate origination volumes. These fee-based capabilities are an important part of our commercial value proposition. And based on performance to date, we remain on track to achieve our 2026 growth objectives. As we discussed a bit last quarter, technology and artificial intelligence are becoming increasingly important to our ability to further scale our franchise.
From a macro perspective, we believe that banks that can effectively adopt AI have the potential to structurally shift their efficiency ratios lower by around 500 basis points. At Valley, we intend to be an industry leader, and we are excited about the progress that we have made to date. As shown on Slide 9 of the deck, we believe that Valley has several structural advantages that support our AI strategy, including Valley Ventures, our international and technology banking business and our relationship with Bank Leumi in Israel. Valley Ventures gives us direct exposure to the start-up ecosystem and access to emerging talent and technologies. Our international and technology banking team provides deep relationships with venture capital funds and early-stage technology companies, including businesses expanding from Israel into the United States. Additionally, our relationship with Bank Leumi gives us additional visibility into leading practices in cyber, fraud and risk management.
We have a robust team of AI practitioners focused on sourcing use cases and aligning solutions from these relationships that I just mentioned. Importantly, our AI strategy is embedded in our broader operating model and is intended to support productivity, risk management, client experience and scalable growth. As we look ahead, our priorities remain consistent and clear: continue to grow core deposits, deepen commercial relationships, generate more diversified loan and fee income growth and improve operating efficiency to translate our progress into stronger returns. We expect our continued commitment to these areas to drive further shareholder value over time. With that overview, I will now turn the call over to Travis to walk through the financial results and our outlook in more detail.
Thank you, Ira. Based on our first half results and the continued momentum that we are seeing, we are maintaining our strong outlook for 2026. We now expect gross loan growth at or somewhat above the high end of our range and believe that fee income will also migrate toward the high end of our expected range. Our outlook for deposit growth and net interest income is unchanged from the upward revision announced on last quarter's call. We expect continued earnings growth and profitability improvement throughout the remainder of the year and into 2027. Turning to capital deployment, we continue to balance organic growth, capital returns and balance sheet flexibility during the quarter. We returned approximately $81 million to shareholders in the form of common dividends and the repurchase of 1.5 million shares. The quarter's reduced buyback activity was the product of our exceptional loan growth, and we will continue to toggle our buyback appetite in the context of near-term loan growth expectations.
We remain very comfortable with our regulatory capital ratios. Our ability to support substantial loan growth, repurchase shares and reduce our regulatory CRE as a percentage of risk-based capital by another 12 percentage points during the quarter demonstrates our flexibility and the value of our accelerating organic capital generation. Slide 14 illustrates the quarter's strong deposit growth. Direct customer deposits increased $1.1 billion during the quarter, including nearly $300 million of noninterest-bearing deposit growth, $200 million of interest-bearing nonmaturity deposits and $600 million of retail CDs. While core deposit growth remained extremely strong during the quarter, we did utilize $200 million of incremental brokered deposits to fund the temporary timing mismatch resulting from our high-quality loan growth. We also strategically rotated nearly $700 million of floating rate NOW balances to brokered CDs within our indirect deposit portfolio.
Total deposit costs were effectively unchanged from the first quarter and remained meaningfully lower than 2.67% a year ago. We remain focused on growing high-quality direct deposits and continuing to improve our funding profile over time. Slide 17 details the $1.6 billion increase in loans during the quarter, equating to around 13% on an annualized basis. Incremental growth continues to be focused in our C&I and owner-occupied CRE portfolios. And as Ira mentioned, we saw specific strength in the New York, Florida and Illinois markets and our health care vertical during the quarter. Regulatory CRE, which excludes owner-occupied loans, grew less than $100 million during the quarter. As a result of our strong organic capital accretion and our successful subordinated debt issuance in May 2026, our CRE concentration ratio declined to approximately 317% at June 30 from 329% at March 31. In general, our loan portfolio continues to evolve in line with our strategic priorities as we replace low-value transactional CRE with relationship-based C&I and owner-occupied CRE loans, which are contributing deposits to the bank.
Net interest income on a tax-equivalent basis increased to $488 million, up approximately $16 million from the first quarter and $55 million from the year-ago period. Net interest margin on a tax-equivalent basis expanded 3 basis points linked quarter to 3.2% and was up 19 basis points from the second quarter of 2025. The linked-quarter increase in net interest income reflected higher average loan balances and higher yields on new loan originations and investment securities. These benefits were mitigated somewhat by the cost of carrying excess subordinated debt between our issuance of $500 million in May and the redemption of our $300 million callable notes in June. We estimate that this dynamic weighed on net interest income by around $2 million during the quarter. Noninterest income increased $4.9 million to $73.7 million and contributed over 13% of our total revenue during the quarter.
The linked-quarter increase was driven primarily by a $2.6 million increase in capital markets revenue and a $1.6 million increase in wealth management and trust fees. The fee growth reflected higher transaction volumes within loan participations and syndications and tax credit advisory services. We continue to view fee income as an important part of our business model evolution. Our enhanced treasury management platform, capital markets capabilities, tax credit advisory activity and broader commercial product set are giving us more ways to deepen relationships and generate additional high-quality and sustainable noninterest income. As mentioned earlier, we now expect 2026 fee income growth to be towards the higher end of our previously announced 6% to 9% range. Reported noninterest expense was $311 million, up approximately $1 million from the first quarter. Adjusted noninterest expense increased by $5 million as lower compensation costs were offset by higher FDIC expense, third-party spend associated with our operational transformation efforts and incremental costs related to the quarter's strong growth in fee income results.
Our efficiency ratio improved to 52.1% from 53.1% in the first quarter and 55.2% a year ago, and expenses as a percent of average assets remain well below peer levels. As Ira mentioned, we remain focused on driving positive operating leverage, including through the continued use of technology and AI tools to support productivity, improve process consistency and reallocate capacity toward higher-value activities. We expect our efficiency ratio will continue to improve as we drive additional revenue growth and control operating expenses in the remainder of 2026 and beyond. Despite a modest uptick in nonaccrual and past-due loans during the quarter, we saw a significant reduction in criticized and classified assets on both a sequential quarter and year-over-year basis. As detailed on Slide 25, criticized and classified assets now stand at 7.3% of total loans versus 8.1% a quarter ago and 9% last year.
The continued improvement reflects improving underlying trends within our CRE portfolio, which has led to upgrades out of special mention and substandard classifications in addition to traditional payoff activity. Net charge-offs totaled $22 million or 17 basis points of average loans compared with $18 million or 14 basis points last quarter. The provision for credit losses for loans was $29 million compared to $21 million in the first quarter. The higher provision was due in part to the strong loan growth, particularly within the C&I category. Our allowance for credit losses for loans declined to 1.16% of total loans from 1.18% at March 31. This modest allowance coverage reduction is reflective of the criticized and classified asset reduction I just mentioned. For the remainder of 2026, we continue to expect charge-offs and provisions in line with our prior guidance. Tangible book value increased nearly 8% on an annualized basis.
Our CET1 ratio of 10.7% remains within our previously stated target range and our successful issuance of new subordinated notes net of redemptions bolstered total risk-based capital during the quarter. Our current capital levels provide appropriate flexibility to support our growth and capital return aspirations going forward. In summary, the second quarter demonstrated continued progress against the strategic priorities we have outlined: stronger core deposits, more diversified relationship-based loan growth, improving net interest income and margin, sustainable fee income growth, expense discipline and balanced capital deployment. We are pleased with the momentum in the business and remain focused on delivering continued profitability improvement through the remainder of the year. With that, I will turn the call back to the operator to begin Q&A. Thank you.
分析師問答
Just wanted to touch on fee income. It seems like a really strong quarter there, and the guide seems pretty positive. If we continue at this level, it looks like you probably exceed the guide. Is the expectation that some of the more volatile lines like capital markets likely step down from the high point in the second quarter?
Yes, Feddie. No, I think there's good consistency and continued growth opportunity. The one element you referenced within capital markets is our interest rate swap income, which is heavily tied to commercial real estate originations. As you saw, the second quarter loan growth was extremely strong and included some pull-forward from things that we may have expected to have closed in the third quarter. So I do think the swap income element was slightly elevated. Maybe that equates to $1 million or $2 million in aggregate. But other than that, I think you still see continued growth in deposit service charges. Loan syndications were strong. Tax credit advisory was strong as well and insurance picked up. So there are other elements, but I do think the interest rate swaps is the one that may have been slightly elevated during the quarter.
All right. Great. And if I could just switch gears to credit. Great to see the criticized and classifieds start to decline again. You mentioned some positive trends in CRE driving some of that. Can you provide any more detail on maybe what some of those trends are and really what you're seeing to drive some of these upgrades?
Absolutely, Feddie. In general, the feel of our CRE clients is that the market continues to be robust in most asset classes, including office, where we're starting to see positive progress in lease-up. Our portfolio upgrades and payoffs were primarily associated with some assets that were in transition and in lease-up and had been downgraded. We had strong sponsor support and had expected those properties to perform and lease up, and we are seeing that. That's contributing to payoffs and upgrades. We feel there is room in the portfolio to continue to see that positive trend in criticized assets.
Great. If I could squeeze in one more on credit. Can you just talk about the agentic AI for underwriting? Just curious if you have any example of how that works and what parts of the process you see the most opportunity to speed up underwriting without compromising on the quality of the underwriting?
Sure. To be clear, we are in an exploration and examination phase for agentic AI. We don't have agentic AI in our core analysis today. Traditional proven financial statement spreading and rent roll population within our core systems are being employed now. We are highly invested in examination to continue to expand those capabilities, although they are not yet employed in the core underwriting process.
I would add that, like most AI use cases, manual work can be automated, but that does not change the oversight, approval and governance around those AI efforts. Elements Mark referenced have already been embedded, but they are not occurring in a vacuum with no human oversight. It's shifting roles and responsibilities somewhat.
Travis, the focus for a lot of the mid-caps this quarter in the regionals has been the accelerating loan growth but a little bit of funding pressures. I'm interested in how you're thinking about that dynamic — growth versus margin — as you go into the back half of next year. And then secondarily, do you have the spot price on the deposits?
Yes. The expectation for rates has changed somewhat since we came into the year. We've talked about being effectively neutral to the front end of the curve from a rate sensitivity perspective. I think we still see that playing out. We have some differentiated opportunities because we still have $5 billion of brokered deposits. Over the last 12 months, we've generated about $4.5 billion of new core deposits and about $8 billion over the last eight quarters. So core deposit growth trend is consistent and expanding. For the remainder of this year, we have $2 billion of brokered CDs coming off at a rate of 4.1% and $1.4 billion of fixed-rate loans at 4.7%. When you think about the repricing benefits of both of those items, it gives us good confidence in the margin outlook. Deposit competition is heating up, but that is occurring more on the consumer side. A lot of our focus has been on commercial deposit growth opportunities.
This quarter, exclusive of CDs, we originated $1.3 billion of new deposits at a blended rate of 1.66%. Last quarter, excluding CDs, that number was $800 million at 1.78%. So exclusive of CD promotions, we're actually seeing our ability to generate new deposits at lower rates. All that supports our margin guidance for the rest of the year. From a spot deposit perspective, the rate was 2.29% as we exited June. That was elevated from March by 2 or 3 basis points because of the CD promos we had in the market.
Okay. Great color. Ira, I want to make sure I heard the AI discussion right. I think the comment was 500 basis points. I think that was either operating leverage or an efficiency comment. I'm more interested in how the role of AI plus the role of capital and smarter regulation is going to impact the mid-teens ROE that you've been talking about for some time.
There is tremendous opportunity on both sides of the balance sheet from AI. Regarding the composition of that 500 basis points, I view it more as an improvement to the efficiency ratio, driven roughly 65% from expenses and 35% from revenue. In terms of resource deployment, whether capital or human, that's how we think about extracting that benefit. On the expense side, we consider gearing ratios and implications across frontline and support areas. We're already seeing elimination of certain software across the organization, leading to reductions in specific expenses and improved efficiency. On the revenue side, we believe we will capture a larger share of wallet based on enhancements in data and analytics and our ability to provide critical value-add information to clients. That should be differentiating and provide additional revenue opportunities. We are deploying capital toward this. Year-to-date, we've seen about $15 million in expense savings against about $3 million to $4 million of new AI-related expenses, whether headcount or vendor spend. For us, AI is not purely exploratory; there is real ROI already coming from it, and we think it will help us get to the 10% ROTCE target. However, we are not relying solely on AI to reach the 15% ROTCE goal.
Yes. All in, we have about $15 million of saves in the expense run rate against roughly $3 million to $4 million of AI-associated expenses that are new. So there's actual ROI already in play.
Could you talk a little bit more about your loan and deposit pipelines and how you're thinking about the timing and drivers of growth over the rest of the year? The guidance implies deposits outgrowing loans by about $400 million for the full year, but through the first half, loans have been about $400 million ahead of deposits. Is there seasonality or timing we should be thinking about? And then secondly, as core deposits catch up to loans, should we expect meaningful improvement in deposit costs as you're running brokered down?
On loan growth, we are running 9% on an annualized basis, but over the last 12 months, we've been around 10% in C&I and mid-single-digit aggregate loan growth. I expect the second half of the year to look more like what we've done over the last 12 months than this quarter, which was exceptional. Hiring efforts on the commercial side created a growing pipeline into the second quarter, and we saw very strong pull-through. The pipeline is down about $1 billion from March 31 to June 30 but remains a couple hundred million dollars ahead of where it was coming into the year. Seasonally, the third quarter is typically a bit slower with summer vacations, and you often see acceleration in the fourth quarter toward year-end. When we revised loan growth guidance higher, we said at or somewhat above the high end of the 4% to 6% range, which I think remains accurate. Regarding deposits, we've been growing about $1 billion a quarter in core deposits.
There is typically a 3- to 6-month lag in realizing the deposit expectations that come with C&I loans — for example, loans originated in January had generated about 10% of expected deposits by March and 80% by June. So there's a timing mismatch this quarter because loan growth was exceptional and deposit growth strong but slightly behind; I expect that gap to close over the next two quarters. We'll continue to reduce brokered deposits; for the remainder of the year, about $2 billion of brokered CDs come off at a rate of 4.1%. On origination, this quarter we originated deposits well below those maturities, which supports our structural tailwind versus peers.
Got it. Any change to your NIM outlook for the fourth quarter?
No. We still expect exiting low to mid-3.30s, as we've talked about before. There's no change to that.
Going back to the expense conversation and some of the expected benefits from AI, any color on the potential timeline there? I know there are potential learnings from Leumi as well. Maybe talk through the expense side of the equation and when we might actually start seeing some of those benefits reduce some of the more recent expense growth?
Some of it is already in the run rate. When you look at the expense growth this quarter, $5 million sequentially, about $1 million of that is from higher FDIC expenses tied to deposit growth. We had exceptional loan growth and fee income that triggered certain incentives linked to expense. We have also used third parties to help operationalize transformation efforts, some of which include AI but not all. In the professional services line, you'll see that come down as we offboard some third parties. There will be some transition as we optimize onshore headcount; compensation costs should come down or stabilize while professional fees offset some of that. Overall, that's a positive trade for expenses and the efficiency ratio. There are many moving pieces each quarter, but I feel very good about AI efficiencies, and there's more to come. I would not read too much into the sequential change in expenses without considering those other items.
Okay, great. And on the loan growth this quarter, we saw multifamily reengaged and you called out strong growth in the health care vertical for CRE. I'm wondering about the mix of future loan growth and the spread dynamics within the CRE bucket versus what you're putting on. If that spread persists, will that meaningfully change loan yields going forward?
Within commercial real estate, the majority of growth is coming from the owner-occupied portfolio. Multifamily was higher this quarter, but construction was down; much of the multifamily growth was construction loans that went into permanent financing, so it's effectively neutral to the regulatory CRE ratio. Regarding spreads, there is spread compression in the market and monthly volatility, but overall it has been fairly stable for us. C&I loan originations have picked up and our spreads have held better there than in CRE. That C&I growth has offset some spread compression in CRE. We were conservative coming into the year expecting tighter spreads, and nothing we've seen is out of line with our expectations. CRE remains competitive.
This is Frank on for Dave. On asset repricing, loan yields were 3 basis points higher quarter-over-quarter, and you called out new originations coming in at a higher rate. Can you provide any color about how much fixed-rate asset repricing still remains going into the second half of the year and into 2027?
For the remainder of this year, we have $1.4 billion of fixed-rate loans maturing at a rate of 4.67%, which is about 150 basis points lower than where new originations are. For the first half of next year, there's approximately $1 billion maturing at about a 4.75% rate. That provides some of the tailwind we expect on the loan side.
Great. And just one last question on capital: how are you prioritizing capital between loan growth, buybacks and potential CRE concentration reduction from here?
There's been no change in our capital deployment approach. Our primary focus remains on well-funded, high-quality loan growth and, secondarily, on buybacks. This quarter we had significant loan growth and toggled back on buybacks. When loan growth lightens, we'll be more active on buybacks. CET1 sits in the middle of our guidance range and our expectations remain unchanged. Regarding CRE concentration, you've seen it come down consistently. This quarter it declined 12 percentage points; about nine of those points were due to the subordinated debt issuance, and the remaining three percentage points were due to organic capital accretion. We still grew regulatory CRE by about $100 million but were able to lower the ratio organically.
This is Mike on for Tony. I'll start on credit quality. You saw some migration in and out of the 30-to-59-day bucket and into nonaccruals. You attributed that to some CRE loans. Could you share more about that and your latest thoughts on credit quality heading into the second half of the year?
For the migration into nonaccrual, two of the three loans that moved into that category are appraised extremely strongly and are covered by value. One was a unique office portfolio where we could not come to terms on a continuation and are looking to exit; that loan has matured. We continue to receive payments on it and it is well collateralized. The other loan hovered near the 60-day bucket, went beyond 90 days and was moved into nonaccrual; they made a payment and are running closer to 60 days now and that one is also well collateralized. We're not concerned about the value and expect to continue to receive payments. About 50% of our nonaccruals continue to pay interest. We look at overall trends and see the large reduction in criticized assets as a more meaningful indication of portfolio direction, and those trends are solid.
Awesome. Then on the ACL ratio, it fell a few basis points quarter-over-quarter, but you reiterated your provision expense outlook. Do you still think you could get back up to around 120% by the end of this year?
We don't have a hard target of 120%. The allowance coverage is well within a range we are comfortable with. Year-over-year, allowance coverage is down only a couple of basis points despite a 15-percentage-point reduction in criticized and classified assets. As criticized and classified continues to decline, it implies a lower ACL, which is offset by higher allowance need from C&I loan growth. So the dynamics are playing out as expected. We expect general stability quarter to quarter, but it will move a few basis points with economic assumptions and other model inputs.
Travis, I want to go back to funding. Considering competitive dynamics for deposits now against maturing brokered CDs, what are your expectations for deposit cost increases from here? And how much of the $5 billion in brokered deposits do you think can or do you want to replace with core? I assume there's some residual that remains on an ongoing basis. What is that number?
On deposit costs, the level of competition can increase core deposit costs, but we have an offset from the brokered maturities. Our model currently assumes about 4 to 5 basis points of deposit cost expansion in the next two quarters. We also expect margin to improve by 5 to 7 basis points for each of the next two quarters, providing offsets on the earning asset side. Brokered deposits are unlikely to go to zero; they serve an important interest rate risk management purpose. Our goal is to get loans funded by nonbrokered deposits. We can reach that target, and we've shown chunky reductions over the past quarters. Core deposit growth has been consistent and differentiated for us, allowing us to reduce brokered reliance materially, but some reasonable level of brokered deposits will likely remain to support interest rate risk management and securities strategies.
Okay. And thinking about NIM longer term: we're in a period of fixed-rate asset repricing benefits. If I look back to 2023 when loan yields spiked, assuming some of that rolls off in 2028, do you see NIM leveling off as we exit 2027 into 2028?
I'll take you through the end of 2027: we expect continued NIM expansion between now and the end of 2027. I would expect tailwinds to continue beyond 2027. Importantly, given our CRE concentration entering 2023 and 2024, we weren't originating many fixed-rate CRE loans when rates were highest. Therefore, we do not have the repricing headwind of high-yield fixed-rate loans coming off. The fixed-rate loans we have coming off have relatively low yields, giving us opportunity and reducing volatility from prepayment activity that some peers have experienced.
I'd add that we've made structural changes since 2023 — investments in the treasury solution product, hiring C&I teams, deemphasizing some transactional CRE assets that had lower relationship and compensating balances. Those changes affect how we expect Valley to look in 2028 versus 2023. We believe our structural funding advantages will provide ongoing tailwinds.
Got it. Ira, maybe one more: you talked about that mid-teens ROTCE outlook. When do you think you can hit that based on what you know today?
We've given guidance toward the beginning of 2028 as the timeframe for reaching a 15% ROTCE. We still see margin tailwinds and expect positive operating leverage from expense actions. The guidance we provided earlier remains our expectation.
On expenses, can we assume professional and legal fees are trending down in the second half of 2026 and through 2027? I believe this line has been elevated because of the transformation efforts. Also, with the AI benefits and expected NIM expansion through 2027, how should we think about the efficiency ratio target? You've talked about sub-50% by the end of 2026; what about beyond 2026?
No change to our expectation that the efficiency ratio should be 50% or lower as we exit 2026. Ira noted the industry-wide potential for AI to improve efficiency ratios by roughly 500 basis points over the long term, and we see similar opportunity at Valley. If we exit 2026 at or below 50%, there is additional opportunity to drive it lower thereafter. Many of the revenue tailwinds we're seeing in 2026 continue into 2027. We expect to keep expense growth much lower than revenue growth, which will lower the efficiency ratio. Regarding professional fees, I agree those should be close to peak; we will begin offboarding third parties that helped with transformation and expect that line to decline.
Okay. And are the new core deposits coming in, including NIB, coming in around 2.5% as was quoted a quarter or two ago, or is that slightly higher? Could you give an updated number?
Yes. In the first quarter, in aggregate, we originated $1.4 billion of new core deposits at a rate of 2.55%. This quarter, we originated $2.5 billion in aggregate at a rate of 2.71%. However, this quarter's originations include about $600 million of retail CD promotions at a rate of 4%. Excluding CDs from both quarters, in the first quarter we originated $800 million at 1.78% and in the second quarter $1.3 billion at 1.66%. So excluding CDs, we originated $500 million more core deposits this quarter at a rate 12 basis points lower than in the first quarter.
I just wanted to clarify: did you mention the Fed interest rate assumptions for the NII guide? Could you confirm those, please?
At this point, we assume one hike for 2026 and another half hike for 2027, as bizarre as that may sound. We've talked about being effectively neutral to the front end of the curve and that remains our balance sheet positioning. Our floating-rate loans, about 40% of the loan portfolio, balance the amount of deposits that would float on the front end after adjusting for beta. So whether there are cuts or hikes, it doesn't materially change our NII outlook. We're more exposed to the belly of the curve, and we've seen good expansion there since the beginning of the year.
And is that on a constant-size balance sheet, or does that include an assumption about balance sheet growth if rates are higher?
We expect the dynamics to be consistent with the growth we're seeing. As we do more C&I, the share of loans that float on the front end increases, and deposit growth is occurring in similar areas. If sensitivities change materially, we can use hedges to keep sensitivity within comfortable ranges.
I meant more along the lines that higher rates can weigh on loan growth, for example.
We are far away from that. We've added a lot of talent and are in the right markets and specialty verticals to continue to grow. We do not expect reasonable expansions in longer-term rates to materially change our loan growth outlook.
I want to thank everyone for taking the time to join us this quarter. We are excited about the results and our outlook for the rest of the year and look forward to talking with you again after Q3. Thank you.
This concludes today's program. We thank you for joining. You may now disconnect.