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    VLY
    Earnings call· Jun 2026(Q2 FY26)

    VALLEY NATIONAL BANCORP VLY

    Jul 23, 2026 Source

    Executive summary

    Valley National Bancorp Q2 FY26 — Strong Deposit and Diversified Loan Growth, NIM Expansion, and AI-Driven Efficiency

    Valley National Bancorp delivered a strong Q2 FY26, marked by robust direct customer deposit growth, particularly in noninterest-bearing balances, and diversified loan expansion in C&I and owner-occupied CRE. The company also saw significant fee income growth and improved efficiency, with its adjusted pre-provision net revenue reaching its highest level since Q4 2022. Management remains focused on leveraging technology and AI to further enhance efficiency and drive sustainable profitability, while balancing strong loan demand with capital returns.

    Highlights

    7

    • Net income was approximately $171 million or $0.29 per diluted share, with adjusted net income at $173 million or $0.30 per diluted share.

    • Adjusted pre-provision net revenue increased 6% from the prior quarter and reached 1.64% of average assets.

    • Direct customer deposits increased $1.1 billion, including nearly $300 million of noninterest-bearing deposit growth.

    • Loans increased $1.6 billion during the quarter, equating to around 13% on an annualized basis, focused on C&I and owner-occupied CRE.

    • Noninterest income increased $4.9 million to $73.7 million, contributing over 13% of total revenue.

    • Efficiency ratio improved to 52.1% from 53.1% in the first quarter and 55.2% a year ago.

    • Criticized and classified assets declined to 7.3% of total loans from 8.1% a quarter ago.

    Concerns

    4

    • Reduced share buyback activity (1.5 million shares repurchased) due to exceptional loan growth.

    • Utilized $200 million of incremental brokered deposits to fund a temporary timing mismatch from high-quality loan growth.

    • Net charge-offs totaled $22 million or 17 basis points of average loans, up from $18 million or 14 basis points last quarter.

    • Provision for credit losses for loans was $29 million, compared to $21 million in the first quarter, due to strong loan growth.

    Guidance & targets

    11
    CategoryTargetConfidence
    Gross loan growth
    at or somewhat above the high end of our range
    high materiality
    High
    Fee income growth
    towards the high end of our expected range
    medium materiality
    High
    Deposit growth and Net Interest Income outlook
    unchanged from the upwards revision announced on last quarter's call
    high materiality
    High
    Efficiency ratio
    50% or lower
    high materiality
    High
    Net Interest Margin (NIM) outlook
    exiting low to mid-3.30s
    high materiality
    High
    Charge-offs and provisions
    in line with our prior guidance
    medium materiality
    Medium
    Return on Tangible Common Equity (ROTCE)
    15%
    high materiality
    Medium
    Deposit cost expansion
    4 or 5 basis points
    medium materiality
    Medium
    Net Interest Margin (NIM) improvement
    5 to 7 basis points
    high materiality
    Medium
    Fed rate hike assumption
    one hike
    medium materiality
    Medium
    Fed rate hike assumption
    another half hike
    medium materiality
    Medium

    Operational metrics

    24
    Adjusted net income
    $173 million
    Q2 FY26

    Excluding certain noncore items.

    Adjusted pre-provision net revenue
    1.64%increased 6% from the prior quarter
    Q2 FY26

    Reached its highest level since the fourth quarter of 2022.

    Total deposit costs
    unchangedfrom the first quarter
    Q2 FY26

    Remained meaningfully lower than 2.67% a year ago.

    New core deposits originated (excluding CDs)
    $1.3 billionup from $800 million in Q1 FY26
    Q2 FY26

    Generated at a lower rate than the prior quarter, excluding CD promos.

    New core deposits originated (including CDs)
    $2.5 billionup from $1.4 billion in Q1 FY26
    Q2 FY26

    Includes approximately $600 million of retail CD promos at a 4% rate.

    AI expense saves
    $15 million
    YTD FY26

    Expense savings from AI initiatives.

    AI associated expenses
    $3-4 million
    YTD FY26

    New expenses related to AI, including headcount and vendor spend.

    Regulatory CRE concentration ratio
    317%declined to 317% from 329% at March 31
    June 30

    Excludes owner-occupied loans. Declined 12 percentage points during the quarter.

    Regulatory CRE growth
    <$100 million
    Q2 FY26

    Despite overall loan growth, regulatory CRE grew less than $100 million.

    Subordinated debt issuance
    $500 million
    May 2026

    New issuance in May 2026.

    Callable notes redemption
    $300 million
    June 2026

    Redemption of callable notes in June 2026.

    NII impact from subordinated debt timing
    -$2 million
    Q2 FY26

    Estimated impact from carrying excess subordinated debt between issuance and redemption.

    Noninterest income as percentage of total revenue
    >13%
    Q2 FY26

    Contributed over 13% of total revenue during the quarter.

    Adjusted noninterest expense
    up $5 millionfrom the first quarter
    Q2 FY26

    Increased due to various factors, including FDIC expense and transformation efforts.

    Expenses as percentage of average assets
    well below peer levels
    Q2 FY26

    Maintained a competitive position relative to peers.

    Nonaccrual loans paying interest
    50%
    Q2 FY26

    Approximately 50% of nonaccruals continue to pay interest.

    Tangible book value growth
    nearly 8%on an annualized basis
    Q2 FY26

    Increased on an annualized basis.

    Fixed rate loans maturing
    $1.4 billion
    H2 FY26

    Maturing fixed rate loans providing repricing benefits.

    Fixed rate loans maturing
    $1 billion
    H1 FY27

    Additional fixed rate loans maturing in the first half of next year.

    Brokered CDs maturing
    $2 billion
    H2 FY26

    Maturing brokered CDs providing funding cost benefits.

    Total brokered deposits
    $5 billion
    Q2 FY26

    Total amount of brokered deposits on the balance sheet.

    Loans to non-brokered deposits
    100%
    Future

    Company's goal for this ratio.

    Loan pipeline
    down $1 billionfrom March 31
    Q2 FY26

    Pipeline remains ahead of where it was at the beginning of the year despite sequential decline.

    Deposit lag for C&I loans
    3-6 months
    Q2 FY26

    Timing for C&I loans to generate expected deposits.

    Industry KPIs

    13
    MetricValueDetails
    Loans$1.6 billion increaseUSD
    Deposits$1.1 billionUSD
    Rotce ROE15%%
    Cet1 ratio10.7%%
    Capital returns$81 millionUSD
    Fee income lines$73.7 millionUSD
    Allowance reserves1.16%%
    Net interest income$488 millionUSD
    Net interest margin3.2%%
    Net charge offs npls$22 millionUSD
    Total operating expenses$311 millionUSD
    Provision for credit losses$29 millionUSD
    Efficiency ratio operating leverage52.1%%

    Risks & headwinds

    4
    Intensifying deposit competition

    industry-wide

    Mitigation: Expanding commercial banking talent and driving greater adoption of treasury platform to win relationships based on service, capability, and value, not just rates.

    Temporary timing mismatch in funding loan growthQ2 FY26

    $200 million of incremental brokered deposits utilized

    Mitigation: Expectation that the gap between loan and deposit growth will close over the next two quarters as deposits from C&I loans materialize and brokered deposits are reduced.

    Modest uptick in nonaccrual and past due loansQ2 FY26

    30- to 59-day bucket and nonaccruals saw some migration

    Mitigation: Two of three nonaccrual loans are well-collateralized and covered by value; overall trends show large reduction in criticized assets, indicating portfolio improvement.

    Spread compression in CRE

    remains competitive out there, particularly in CRE

    Mitigation: Offset by C&I loan originations picking up, where spreads are holding better.

    What to watch in Q3 FY26

    5

    Loan growth pace

    H2 FY26
    Current$1.6B increase (13% annualized) in Q2 FY26
    TargetNormalization to ~10% annualized

    Why it matters

    Management expects H2 loan growth to normalize after an exceptional Q2, impacting capital allocation and funding needs.

    I would expect the second half of the year looks more like what we've done over the last 12 months than what we did this quarter, which was exceptional.

    Q&A highlights

    8

    Given the strong fee income quarter, especially in capital markets, and positive guidance, is there an expectation for some volatile lines like capital markets to step down, potentially exceeding the guide?

    Travis Lan clarified that swap income was slightly elevated by $1-2 million due to strong CRE originations, but other fee income components like deposit service charges, loan syndications, tax credit advisory, and insurance showed consistent growth, indicating continued positive momentum.

    “I do think the interest rate swaps is the one that may have been slightly elevated during the quarter.”

    asked by Feddie Strickland · answered by Travis Lan

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Priorities & Performance

    Valley National Bancorp demonstrated continued progress in Q2 FY26, focusing on strengthening its relationship-oriented commercial model. This led to strong financial performance, with adjusted net income of $173 million and adjusted pre-provision net revenue increasing 6% sequentially to 1.64% of average assets, its highest since Q4 2022. The company emphasizes quality, durability, and strategic value in its customer relationships to support stronger long-term returns.

    02

    Deposit & Loan Growth Dynamics

    The quarter saw significant direct customer deposit growth of $1.1 billion, including $300 million in noninterest-bearing deposits, driven by expanded commercial banking talent and treasury platform adoption. Loan growth of $1.6 billion (13% annualized) was concentrated in C&I and owner-occupied commercial real estate, with strength in New York, Florida, Illinois, and specialty healthcare. This diversification strategy aims to replace lower-value transactional CRE with relationship-based loans that contribute deposits.

    03

    Fee Income Expansion

    Fee income increased $4.9 million to $73.7 million, now contributing over 13% of total revenue. Growth was driven by capital markets (syndication, swap activity) and tax credit advisory, reflecting high-quality, sustainable businesses. Management views these fee-based capabilities as crucial for deepening commercial relationships and expects to achieve its 2026 growth objectives.

    04

    AI & Technology Strategy

    Valley is actively adopting AI, aiming for a structural shift of around 500 basis points lower in its efficiency ratio, with benefits split 65% from expenses and 35% from revenue. The strategy leverages Valley Ventures, international/technology banking, and its relationship with Bank Leumi for talent, technology access, and best practices in cyber, fraud, and risk management. Initial ROI is already seen, with $15 million in expense saves against $3-4 million in AI-associated costs.

    05

    Credit Quality & Capital

    Criticized and classified assets improved significantly, declining to 7.3% of total loans from 8.1% last quarter, driven by positive trends and upgrades in the CRE portfolio. While net charge-offs and provisions increased due to strong C&I loan growth, the allowance for credit losses remained stable at 1.16%. The CET1 ratio of 10.7% is within target, and capital deployment balances loan growth with share repurchases, with the CRE concentration ratio declining to 317%.

    AI-generated summary of the company’s earnings call. Not investment advice.