Valley National Bancorp Q2 FY2025 earnings call

Deposit growth and funding transformation

• Over past 12 months, added over 105,000 new deposit accounts, core deposit growth ~8%, reliance on indirect deposits declined from 18% to 13%.
• Average cost of deposits reduced by 51 basis points in Q2 2025 compared to same period in 2024.
• Since 2017, increased commercial deposit accounts at an average annual rate of 11% per year.

Commercial loan diversification

• Since 2017, C&I portfolio grown at 19% compound annual rate, including nearly 15% growth over last 12 months.
• Geographic footprint and specialty verticals like health care and fund finance provide flexibility and scale.
• Never taken a loss on Valley originated health care C&I loans over 20-year period, and never taken a loss on a capital call loan.

Building durable, high-quality fee income

• Noninterest income grown at 12% annual rate since 2017, more than double peer pace.
• Volatile gain on residential loan sale revenue now 3% of total noninterest income, down from 20% in 2017.
• Focusing growth efforts on capital markets, treasury management and tax credit advisory offerings.

In the second quarter of 2025, Valley National Bancorp reported net income of $133 million or $0.22 per diluted share and adjusted net income of $134 million or $0.23 per share. Over the past 12 months, the company added over 105,000 new deposit accounts, contributing to approximately 8% core deposit growth, with reliance on indirect deposits declining from 18% to 13%. Since 2017, the C&I portfolio has grown at a 19% compound annual rate, including nearly 15% growth over the last 12 months. Noninterest income has grown at a 12% annual rate since 2017, with volatile gain on residential loan sale revenue representing just 3% of total noninterest income in Q2 2025, down from 20% in 2017.

Loan growth

• Expect approximately 3% loan growth for 2025, refining net interest income growth estimate to 8%-10%.

Noninterest income

• Outlook for noninterest income remains unchanged at 6%-10% growth.

Noninterest expense

• Lowering noninterest expense growth guidance to 2%-4%.

Credit

• Tightening net charge-off expectations to $100 million - $125 million for the year and refining provision estimate to approximately $150 million for full year.

Deposit competition

• New deposits competition for new to bank deposits has picked up recently.

Commercial real estate

• CRE runoff slowed but still a factor, and potential risks associated with commercial real estate loans.

Q: Travis, maybe start with you, you talked about the margin continuing to expand. Can you speak to the ability to maintain deposit pricing given competitive nature in the growth outlook? I think you had talked previously about maybe getting over time to like 3.25%. Any changes to the way you're thinking about the cadence of margins?

A: No, I don't think there is, Chris. I mean, I think we still anticipate the margin will increase as the year goes on and then into 2026 as well. I'd say that benefit or that increase is driven by a combination of asset repricing tailwinds and general stability on the deposit side. I think we've noticed that the deposit competition for new deposits -- new to bank deposits has maybe picked up recently. That said, we still have the structural opportunity with our $6.5 billion of brokered deposits to reprice those lower over time. Some of that's structural, where we have, as an example, in the third quarter, $1.2 billion of brokered that has an average cost of $510 million, so we've been replacing that into brokerage. There's still a pickup. But we think there's an opportunity to replace it more with core. This quarter, we added over $1 billion of new deposits at a blended rate of 2.77%. So that gives you a sense, I think, for some of the opportunity that we have there on the funding side.

Q: There's been a lot of activity in the broader technology and software sector in recent months, both for the industry itself as well as seemingly in banks interested in banking the space with more intensity. I was curious if you could speak to the competitive landscape there and how you're adapting Valley for this environment?

A: It's a great question, David. We had actually looked to get into the business 5 to 6 years ago from an organic perspective. And we went through a strategic initiative looking at not just what the relationship managers needed to do and what that target client was, but really the infrastructure that was required from a treasury service solution, the credit piece that comes with it. And it was really a significant build is what we had identified at that time. We were fortunate enough with the BLU's acquisition back in 2022 to be able to acquire a really experienced team, that has a lot of connectivity to the Israeli market. Right now, I think they have well over 50% of the market share, if anything, from Israel coming to the United States really goes through Valley. So a real strong connectivity there, but really an infrastructure that we can leverage. So what you're seeing now is the ability to expand that into the domestic space. So the infrastructure is already there. The incremental knowledge that's really needed to bank that space. already exist within the organization. So we're really excited about the continued focus that we're seeing and the growth in that market, and we think we'll definitely get our fair share.

Q: I wanted to start on the loan growth this quarter. Apologies if you've already covered some of this, but the C&I loan growth was particularly strong this quarter. Can you talk about what you're seeing and hearing from borrowers? How much of this growth is coming from the environment improving versus the actions you guys have taken?

A: I would love to say that it's all the actions that we've taken and the infrastructure that we've built, but I think client sentiment definitely has an impact upon that as well. I think we've done a really good job in providing the right treasury solutions that we need, providing the right credit appetite. and just the internal relationships that are required to really grow in some of the segments that we've expanded into fund banking as well as health care. That said, I think from what we see with our clients, there still seems to be real positivity in how they are individually thinking about the market. The C&I pipeline, I believe, is at 30% higher than where it was last quarter. So we're continuing to see really strong growth coming out of that segment today. I know there was a lot of noise regarding tariffs previously. I think we really bank a unique client that really is that small to midsize business that has the agility to really capitalize on what happens with tariffs and some of the uncertainties. So when we look at an environment like we're staring at today, where there's increased volatility and increased uncertainty, we think the types of clients that really look to Valley for their financing needs are the ones that are going to be the ones that are the beneficiaries of this environment.

Q: I wanted to touch on deposits first. The 8% quarter-over-quarter growth in CDs, what was the blended price on those. And then Ira, I appreciate your comments on quality deposit improvements. But I guess I'm thinking about this in the context of deposit costs being high to begin with and up quarter-over-quarter. And so I guess my question is with all the new hires and investments, you're growing C&I, which is better for deposits. I guess I just fear there'd be more opportunity to reduce deposits. Maybe you could help me out there.

A: Yes. Matt, this is Travis. I think just to start with, there is a lot of kind of noise within the deposit numbers. So the growth in CDs was a combination of 2 things. The first is we did have some promotional CDs out there that we always expect to have at least one promotion in the market at a given time. So there was about $400 million of retail CD growth in that number. Then there was within brokered deposits in total, which were up $100 million. We reduced brokered ICS one-way buy, which was a -- it falls into now money market and savings and replace that with brokered CDs. So when you look at our deposits quarter-over-quarter and see the reduction in now money market and savings, the reality is the customer balances were stable to slightly higher but we did see that runoff in ICS one-way that was replaced with brokered CDs. I think there is also some degree of mismatch between the timing of loan growth, right? This quarter's loan growth was extremely strong, particularly on the C&I side. And I think the core deposit growth was strong as well, although it couldn't keep pace with the loan growth that we saw. Through the rest of the year, we anticipate loan growth to kind of pull back to about 1% on a quarterly basis. And I think we have good deposit tailwinds to fully fund that on a core basis and then you get kind of a continuation of the repricing dynamic on the brokerage side. To reiterate what I'd said in the first response in the Q&A session, we grew -- we originated net new deposits this quarter of $1.8 billion at that 2.77% rate for customers. And again, we have $1.2 billion of brokered in the third quarter here that's going to roll off at a price of 5.10%. So I think we have a combination of tailwinds on the deposit side. They reflect both just the interest rate environment and repricing those lower and the structural benefits of continuing to grow deposits on a core basis. And we're in a unique period here coming out of the inverted curve where you do feel like the margins at a good inflection point to the upside. We have asset repricing tailwinds on both the asset and liability side, and that's pretty unique. So just some color there.

Q: This is Jon Rau on for Jared. Could you maybe just talk a little bit about the competitive environment in New Jersey and if there's been any shift in sentiment among I guess New Jersey-based customers versus New York, just given the mayor race there. Any impact on sentiment or demand?

A: I think it's a great question, right, because we have borrowers that play in both spaces. I think there is a little more of a wait and see as to where they're going to allocate some of their capital into where they want to begin to invest into. That said, I think the families that we tend to bank are really more long-term generational families. And for them, there may be going to be a buying opportunity or an investment opportunity in New York based on what happens with the mayor race. So these are families that have much more longer-term views of what New York City is. And I think we probably share in that sentiment from a long-term perspective, we are still optimistic about New York. Travis P. Lan: I would just add that this quarter, I did call out New Jersey as having a strong C&I growth. The reality is as the quarter went on the pipeline in New York grew. And right now, the New York C&I pipeline stands pretty strong heading into the third quarter. Combination of activity in the boroughs and Long Island appears to be percolating. So I don't think, we -- Mark responded to the question on the mayoral race specific to rent-regulated multifamily, but the reality is the commercial environment in New York, I think, remains pretty robust.