Valley National Bancorp Q3 FY2025 earnings call

• Valley reported net income of approximately $163 million or $0.28 per diluted share, up from previous quarter, marking the highest quarterly profitability since end-2022.
• Key highlights include robust core customer deposit growth, momentum in net interest and fee income, disciplined expense control, and reduced credit costs.
• Introduced new commercial and consumer banking leaders: Gino Martocci as President of Commercial Banking and Patrick Smith as President of Consumer Banking.
• Ongoing core deposit growth, with nearly 110,000 new deposit accounts added over 12 months, reducing indirect deposits as a percent of total deposits. Noninterest income has grown at 15% annualized since 2017, 3x faster than peers. Credit performance remained resilient with reduced net charge-offs and provisions.

Valley National Bancorp reported strong third-quarter results. Core customer deposits grew by approximately $1 billion during the quarter, with about 80% of the growth coming from commercial clients. Brokered deposits now make up 11% of the total deposit base, the lowest since Q3 2022. Gross loans decreased slightly due to targeted runoff in transactional CRE and a C&I subsegment, but average loans increased 0.5%. Net interest income grew 3% for the second consecutive quarter, with NIM improving for the sixth quarter. Noninterest income continued its strong momentum, with deposit service charges and wealth management contributing. Adjusted noninterest expenses declined modestly but were partially offset by higher third-party spend. Asset quality improved with lower past dues and nonaccrual loans, and net charge-offs and provisions saw meaningful declines.

• Expect NIM above 3.1% in Q4 2025, with net interest income expected to grow another 3% sequentially in Q4.
• Fee income is anticipated to be generally stable in Q4.
• Efficiency ratio to improve with positive operating leverage in Q4 2025 and into 2026.
• Target low single-digit growth in CRE and mid-single-digit loan growth in 2026.
• Aim for 15% adjusted return on tangible common equity (ROTCE) by late 2027/early 2028.

• Competitive pressure in the deposit market, potentially affecting deposit costs.
• Impact of lower interest rates on CRE loan payoffs and loan growth.
• Uncertainties in nonaccrual loan resolution timing.
• Regulatory and market risks associated with forward-looking statements.

Q: Could you speak to the competitive backdrop, just given the decline in C&I loans?

A: Travis Lan discussed deposit cost decline and competitive environment for new deposits, noting continued opportunity on repricing back book. Gino Martocci mentioned strong demand in C&I and CRE with ample liquidity in the marketplace.

Q: Speak to the geography of CRE and C&I. Do you expect to continue to have more business coming from outside the Northeast than inside the legacy Northeast footprint?

A: Gino Martocci said originations are evenly split 1/3 in Southeast, 1/3 in Northeast, 1/3 in specialty businesses. Ira Robbins emphasized strong growth in Florida franchise.

Q: On capital, stock is barely 1x tangible right now, and you've got 11% CET1 and TCE almost 9%. How are you thinking about the buyback opportunity against conserving capital for longer-term organic growth ambitions?

A: Travis Lan said near-term CET1 target is around 11%, and buyback will be an increasing source of capital deployment going forward.

Q: Could you provide more color on the increase in nonaccrual loans?

A: Mark Saeger said increase primarily driven by one $35 million land loan in refinance, with 50% of nonaccrual portfolio current on payment, and positive movement in real estate market seen in criticized assets decline.