Valley National Bancorp (VLY) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal strong financial metrics, optimistic guidance, and effective capital management. The company anticipates NIM growth, stable expenses, solid loan origination, and CRE charge-offs below forecasts. Despite some nonperforming loans, the reserve remains stable. Share buybacks are maintained, and geographic expansion is planned. Positive deposit growth and reduced deposit costs further strengthen the outlook. Although management was vague about ROE targets, the overall sentiment is positive, suggesting a likely stock price increase of 2% to 8%.
Key Financial Performance
Net Income (Q4 2025) $195 million or $0.33 per diluted share. Adjusted net income was $180 million or $0.31 per diluted share, up from $0.28 in Q3 2025. Reasons: Improved profitability due to disciplined balance sheet management and strategic investments.
Net Income (Full Year 2025) $598 million or $585 million on an adjusted basis. Reasons: Disciplined balance sheet management, stronger funding mix, and benefits from strategic investments in talent, technology, and operating model.
Core Deposits Growth (2025) Increased by nearly $4 billion or 9% year-over-year. Reasons: Strategic investments in talent and technology, deepened customer engagement, and increased operating account wins.
Loan Growth (Q4 2025) Total loans grew about $800 million or 7% annualized. Reasons: Accelerating commercial real estate originations, continued C&I momentum, and complementary residential and consumer growth.
Net Interest Income (Q4 2025) Increased 4% quarter-over-quarter or 10% year-over-year. Reasons: Loan growth and repricing dynamics on both sides of the balance sheet.
Noninterest Income (Q4 2025) Grew 18% sequentially. Reasons: Swap fees and unrealized gains on fintech investments, though some of this activity was episodic.
Efficiency Ratio (2025) Declined towards 50%. Reasons: Investments in talent, technology, branding, and capabilities, partially funded by organizational efficiencies.
Net Charge-Offs (2025) 24 basis points of average loans, down from 40 basis points in 2024. Reasons: Improved loan portfolio performance and normalization of credit costs.
Tangible Book Value (Q4 2025) Increased by nearly 3%. Reasons: Retained earnings and favorable OCI impact associated with the available-for-sale portfolio.
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Operating Highlights
Core systems conversion: Expanded treasury management offering, improved ability to win operating accounts, and deepen commercial relationships.
Branding, AI solutions, and service model improvements: Designed to accelerate customer acquisition and elevate client experience, contributing to future revenue growth and franchise value.
Geographic and business line diversification: Focused on expanding across the franchise and investing in high-caliber commercial talent.
Specialty healthcare vertical and southeast franchise: Drove owner-occupied CRE and C&I growth.
Core deposit growth: Increased by nearly $4 billion or 9% year-over-year, underpinning profitability improvement.
Loan growth: Strong and diverse, with medium and late-stage pipelines up over $1 billion or nearly 70% from a year ago.
Net interest income: Grew 4% quarter-over-quarter and 10% year-over-year, with margin expansion to 3.17%.
Efficiency ratio: Projected to decline towards 50% in 2026 due to investments in talent, technology, and branding.
Capital deployment strategy: Balanced organic growth with meaningful capital returns, including share repurchases and cash dividends.
Recruiting efforts: Active recruitment of experienced commercial bankers to accelerate growth in relationship-focused business model.
Small business sales efforts: Igniting efforts to support deposit ambitions and exploring new growth-oriented deposit niches.
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Risk or Challenges
Loan Growth and Repricing Dynamics: While the company anticipates loan growth and repricing benefits, there is a risk of non-linear results and potential moderation in deposit growth, which could impact the loan-to-deposit ratio and overall profitability.
Fee Income Volatility: The company experienced abnormally high commercial loan swap activity and valuation gains on fintech equity investments in Q4 2025, which are not expected to recur, posing a risk to consistent fee income growth.
Seasonal Headwinds: The company faces seasonal challenges in Q1 2026, including lower day counts, elevated payroll taxes, and seasonal balance sheet headwinds, which may temporarily impact financial performance.
Credit Cost Normalization: While credit costs are expected to normalize, there is a risk of variability in quarterly trends, which could affect the loan loss provision and overall financial stability.
Expense Growth: Ongoing investments in talent, branding, and technology may lead to low single-digit expense growth, which, if not offset by efficiencies, could pressure the efficiency ratio and profitability.
Noninterest Deposit Moderation: Late Q4 2025 activity in noninterest deposits is likely to moderate, potentially impacting deposit cost reductions and overall funding dynamics.
Capital Deployment Flexibility: While the company maintains a balanced approach to capital deployment, any misalignment in organic growth and capital returns could strain CET1 ratios and financial flexibility.
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Guidance & Outlook
Loan Growth: Mid-single-digit loan growth expected in 2026, supported by approximately 10% C&I growth, low single-digit CRE growth, and mid-single-digit consumer and residential growth.
Deposit Growth: Anticipated to outpace loan growth throughout 2026, enabling a reduction in the loan-to-deposit ratio.
Net Interest Income: Expected to grow between 11% and 13% in 2026, supported by balance sheet growth and repricing tailwinds.
Margin Expansion: Anticipated additional 15 to 20 basis points of margin expansion from Q4 2025 to Q4 2026.
Fee Income: High single-digit growth expected in 2026, despite some non-recurring gains in Q4 2025.
Credit Costs: Further normalization expected in 2026, with a loan loss provision of approximately $100 million.
Capital Deployment: Continued balanced approach with organic growth and capital returns, maintaining CET1 in the 10.5% to 11% range.
Efficiency Ratio: Projected to decline towards 50% throughout 2026 due to low single-digit expense growth and operational efficiencies.
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Shareholder Return Plan
Cash Dividends: In the fourth quarter of 2025, $109 million was returned to shareholders in the form of cash dividends and share repurchases.
Share Repurchase: Over $60 million of organically generated capital was used to repurchase over 6 million shares in 2025, with 4 million shares repurchased in the fourth quarter alone. Continued repurchase activity is anticipated going forward.
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Key Q&A
Q:Can you discuss the drivers behind the 15 to 20 basis points net interest margin (NIM) change from 4Q '25 to 4Q '26?
A:The benefits will be balanced between the loan and deposit sides. On the deposit side, customer deposit rates are being worked lower, and higher-cost brokered deposits are being replaced with lower-cost core deposits. Additionally, $600 million of FHLB advances at 4.7% will mature and be replaced at lower rates. On the loan side, $1.8 billion of fixed-rate loans maturing in 2026 at 4.7% will reprice 150 to 200 basis points higher, slowing the rate of compression as rates fall.
Q:How should we think about the NIM progression throughout the year?
A:NIM is expected to decrease slightly in Q1 from 3.17% and then grow back to mid-3.30s by Q4. Late December spikes in noninterest-bearing balances will normalize, and there will be a slight headwind from two fewer days in Q1. Growth and rate dynamics will offset some of these headwinds.
Q:Could adversely classified assets continue to fall over the course of '26?
A:Yes, if the economy remains stable, the trend of declining adversely classified assets is expected to continue into '26 and '27. The reduction is driven by payoffs and net upgrades.
Q:Will CRE concentration continue to decline in '26?
A:Yes, there will be a modest decline in the CRE concentration ratio. Loan growth guidance includes $1 billion in C&I, $1 billion in net CRE, and $0.5 billion in residential and consumer loans. CRE concentration is expected to improve throughout the year.
Q:Any update on achieving the 15% ROE goal by late '27 or early '28?
A:No updates were provided. Management feels strong about the starting point in 2026 and the tailwinds supporting the goal.
Q:How are expenses expected to trend in Q1?
A:Expenses are expected to remain stable in Q1. Elevated items from Q4 will normalize, and a $7-8 million headwind from payroll taxes will balance out.
Q:How does the prediction of 15 to 20 basis point NIM expansion change if there are no rate cuts?
A:No rate cuts would result in a slight headwind of 0.5% to 1% for NII. However, the implied forward curve assumes modest increases in the 2-, 5-, and 10-year points, which are more impactful to margins and offset the headwind.
Q:What is the outlook for stock buybacks?
A:With current capital generation, the company could maintain the Q4 pace of buybacks while staying within the CET1 target range. Guidance suggests $150-200 million worth of stock buybacks, consistent with Q4 levels. The current authorization expires in April and is expected to be renewed.
Q:Are there any specific markets for geographic expansion?
A:The company has seen success in Chicago, Los Angeles, and Philadelphia. Expansion will focus on adjacent markets and opportunistic team acquisitions.
Q:How important are loan spreads to the 3.30%+ NIM guide for 4Q '26?
A:Loan spreads are important, but modest spread compression is conservatively assumed in the NII forecast. Spreads have been fairly consistent despite competition.
Q:What is the outlook for noninterest-bearing deposits (DDA)?
A:Average DDA is expected to stay flat, with end-of-period balances potentially declining slightly. Growth reflects strong activity in generating operating accounts.
Q:What drove the growth in C&I nonperforming loans (NPLs)?
A:Growth was driven by one large in-market syndicated credit that has been in the portfolio for over 10 years. The loan was moved to nonaccrual due to a recent modification, and an adequate specific reserve has been established.
Q:Is there potential upside to loan growth guidance?
A:Yes, the 5% midpoint guidance includes $500 million of runoff in Tier 3 transactional CRE. Excluding this, growth would be above the higher end of the range. The pipeline is strong, with $1.2 billion at year-end and an additional $300 million since then.
Q:How is the reserve expected to trend over time?
A:The reserve is expected to remain stable, balancing lower criticized and classified assets with an increasing portion of C&I loans in the portfolio.
Q:What are the geographic trends in loan growth?
A:Loan growth is well-balanced across New York, New Jersey, Florida, and affiliate markets. Healthcare has a strong pipeline, and spreads are consistent across geographies.
Q:What is the outlook for time deposit costs?
A:New rates for CDs are around 3.50%, implying potential for repricing lower. Brokered deposits, which are higher-cost, will also decline as $1.2 billion matures in the coming year.
Q:What is the cost of deposits at period end?
A:The total portfolio spot deposit rate was 2.32%, core rate was 2.10%, and brokered rate was 4.20%. New deposit relationships in Q4 had a blended rate of 2.17%, down from 2.91% in Q3.
Q:What caused the increase in loans past due 30-59 days?
A:The increase was driven by three specific loans with unique situations. One is expected to be resolved through a sale, another through a modification, and the third may linger but is expected to catch up by Q2.
Q:What changed to drive CRE growth?
A:Stronger originations drove CRE growth. The origination engine was turned back on in 2025, and trends were strong in Q4. For 2026, $1.5 billion of new Tier 1 and Tier 2 CRE is expected, offset by $0.5 billion of runoff in transactional CRE.
Q:How aggressive is the company in recruiting commercial bankers?
A:The company is actively recruiting, leveraging its unique value proposition and product set. However, it is focused on managing expenses and using technology to support growth without bloating costs.
Q:What is the branding strategy?
A:The branding campaign focuses on enhancing consumer and small business growth. It complements the hiring of a new leader in the space and aims to build holistic relationships.
Q:What is the deposit growth mix for 2026?
A:The 6% total deposit growth includes 5% NIB growth, 7% savings and money market growth, and modest CD growth.
Q:What is the assumed deposit beta for 2026?
A:The company assumes a 50% total deposit beta, consistent with prior modeling.
Q:Is there a possibility of acquiring a bank in 2026?
A:M&A would be considered if it aligns with shareholder interests, financial constraints, and strategic objectives. However, the focus remains on the strong organic growth story.
Q:What is the long-term outlook for brokered deposits and borrowings?
A:Brokered deposits and FHLB advances will not go to zero but will be reduced to a lower level that supports interest rate risk management.
Q:Are there any regulatory changes impacting the client base?
A:No specific regulatory changes were highlighted. Reduced regulation is generally increasing confidence among entrepreneurial borrowers.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about updating the timeline for achieving the 15% ROE goal by late '27 or early '28. They reiterated confidence in the starting point and tailwinds but did not offer specific updates or details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CI increase
California Florida
Conference
Florida loan
Jersey California
Jianette Valley
Loan stage
Valley record
ability account
ability funding
account relationship
account win
achievement underpinning
acquisition client
acquisition team
activity expansion
activity legacy
activity specialty
addition team
adoption treasury
ambition sale
analytics intelligence
appetite balance
asset level
banker franchise
banker loan
diversification
effort
income share
investment talent
loan deposit
model
niche
owner
pipeline
position
profitability improvement
talent technology
VLY Transcript
Valley National Bancorp (VLY) Q4 2025 Earnings Call Transcript
Positive1-29
The earnings call summary and Q&A reveal strong financial metrics, optimistic guidance, and effective capital management. The company anticipates NIM growth, stable expenses, solid loan origination, and CRE charge-offs below forecasts. Despite some nonperforming loans, the reserve remains stable. Share buybacks are maintained, and geographic expansion is planned. Positive deposit growth and reduced deposit costs further strengthen the outlook. Although management was vague about ROE targets, the overall sentiment is positive, suggesting a likely stock price increase of 2% to 8%.
Valley National Bancorp (VLY) Q3 2025 Earnings Call Transcript
Unknown10-23
The earnings call presents mixed signals. While there are positive aspects like stable financial metrics, a focus on organic growth, and optimistic guidance on deposit growth, there are concerns about competitive pressures, nonaccrual loans, and a moderated loan growth outlook. The Q&A highlights management's confidence in strategic expansions and buybacks but also reveals uncertainties in the CRE market and competitive loan environment. With no new partnerships or major shifts in strategy, the sentiment remains neutral, reflecting the mixed outlook and absence of strong catalysts for significant stock price movement.
Valley National Bancorp (VLY) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call summary reflects a positive outlook with strong financial performance, including doubled tangible book value and expected loan growth. Management's Q&A responses indicate confidence in asset repricing, deposit stability, and credit outlook, despite increased competition and past dues. The optimistic guidance, particularly in C&I growth and strategic value from treasury capabilities, coupled with a potential buyback, suggests a positive sentiment. However, the lack of specific guidance for 2026 loan growth and vague language regarding strategic initiatives slightly tempers the overall positive sentiment.
Valley National Bancorp (NASDAQ:VLY) Q1 2025 Earnings Call Transcript
Unknown4-26
The earnings call presents mixed signals: a decrease in net income and EPS, alongside a slight miss in financial expectations, suggests caution. However, positive factors include increased core deposits, improved net interest margin, and a higher allowance coverage ratio. The Q&A highlights stable CRE concentration and core deposit growth, but concerns about spread compression and economic uncertainties persist. With no changes in shareholder return plans and lack of guidance changes, the overall sentiment is neutral, indicating limited stock price movement.
VLY Slides
VLY Report
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