Valley National Earnings Call Signals Confident 2026 Path

Valley National ((VLY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Valley National Signals Confident 2026 Outlook on Record Earnings and Strong Deposit Growth

Valley National’s latest earnings call carried a clearly upbeat tone, with management highlighting record profitability, robust core deposit growth, widening margins, and improving credit metrics. While executives acknowledged some near-term headwinds and one-off revenue items in the fourth quarter, they framed these as manageable against a backdrop of rising returns, stronger funding, and disciplined capital management. Overall, the message was that the bank is transitioning from stabilization to growth, with 2026 set up as a year of further margin and earnings expansion.

Record Profitability and Strong Yearly Earnings

Valley National closed 2025 with record results, underscoring the bank’s operating momentum. Fourth-quarter 2025 reported net income came in at about $195 million, or $0.33 per diluted share, with adjusted net income of $180 million, or $0.31, up from $0.28 a year earlier. For the full year, the bank delivered $598 million of net income, or $585 million on an adjusted basis, marking a substantial improvement over 2024. Management emphasized that the uplift reflects both revenue growth and improved efficiency, rather than one-off cost cuts, suggesting a more durable earnings base going into 2026.

Improved Profitability Metrics and Margin Expansion

Profitability ratios moved decisively higher, with adjusted return on average assets reaching 1.14%, the highest since 2022 and a level that puts Valley more firmly in line with top-performing regional peers. Net interest margin climbed to 3.17% in the fourth quarter, exceeding the bank’s 3.10% target, as funding costs eased and asset yields improved. Net interest income rose 4% quarter-over-quarter and 10% year-over-year. Management signaled more to come, guiding to an additional 15–20 basis points of margin expansion between the fourth quarter of 2025 and the fourth quarter of 2026, along with 11–13% net interest income growth next year. This margin trajectory is central to the bank’s earnings growth narrative and assumes it can defend spreads despite intense competition for loans.

Core Deposit Growth and Funding Improvement

A key driver of Valley National’s stronger margin story is the steady improvement in its funding mix. Core deposits increased by nearly $4 billion year-over-year, roughly 9%, and grew by about $1.5 billion in the fourth quarter alone. This allowed the bank to retire almost $500 million of maturing, higher-cost brokered deposits. Noninterest-bearing deposits were a standout, growing at an annualized rate of more than 15% in the quarter, helping push total deposit costs down by 24 basis points sequentially. Management underscored that deposit growth is now outpacing lending, which is expected to drive a lower loan-to-deposit ratio and further reduce reliance on more expensive wholesale funding.

Loan Growth and a Robust Pipeline

Valley National is pairing stronger funding with measured loan growth, particularly in commercial segments. Total loans grew around $800 million in the fourth quarter, roughly 7% on an annualized basis. Importantly, the bank’s immediate and late-stage loan pipelines expanded by more than $1 billion year-over-year, nearly 70% higher, driven by a roughly $600 million increase in commercial and industrial (C&I) loans and about $700 million in commercial real estate (CRE) opportunities. For 2026, management is targeting mid-single-digit loan growth overall, anchored by about 10% growth in C&I and more modest expansion in other categories. The tone on loan demand was constructive, but management also acknowledged that execution will depend on disciplined pricing amid competitive markets.

Improving Credit Metrics

Asset quality trends are moving in the right direction, easing investor concerns around credit normalization. Net charge-offs were just 18 basis points of average loans in the fourth quarter, and full-year 2025 charge-offs fell to 24 basis points, down from 40 basis points in 2024. Criticized and classified loans dropped by more than $350 million in the quarter, an 8% improvement, reflecting remediation efforts and better portfolio performance. Management reiterated its expectation that credit costs will “normalize” rather than spike in 2026, with the current allowance viewed as adequate given the risk profile. This improving credit picture supports the bank’s confidence in sustaining higher returns on equity.

Revenue Diversification and Fee Income Momentum

Beyond balance-sheet income, Valley National is gradually deepening its fee-based revenue streams. Noninterest income grew about 18% sequentially in the fourth quarter, buoyed by strong contributions from deposit service charges and wealth management activities. Management said it expects fee income to post high single-digit growth in 2026, supported by these recurring sources. While the bank highlighted 4Q as a particularly strong period, executives were explicit that the underlying trend is one of diversification, with more of total revenue coming from non-spread businesses that can help cushion earnings if rates move unfavorably.

Disciplined Expense Management and Capital Deployment

Cost discipline remains a central pillar of Valley National’s strategy. Operating expenses rose just 2.6% for 2025, well below the 9% revenue growth rate, driving positive operating leverage. Management is guiding to low single-digit expense growth in 2026, while targeting an efficiency ratio that moves toward roughly 50%, a level associated with best-in-class regional banks. The bank’s capital position also improved, with tangible book value per share rising nearly 3% in the quarter. Shareholder returns were robust: Valley repurchased 6 million shares in 2025, spending more than $60 million, and returned $109 million of its $188 million fourth-quarter earnings through dividends and buybacks combined. Management framed this as a balanced approach that supports growth while steadily returning capital to shareholders.

One-Off Fee Items Temper Near-Term Revenue Visibility

Despite the strong fee performance, Valley National was transparent about the role of unusual items in the fourth quarter. Fee income benefited significantly from abnormally high commercial loan swap activity and unrealized valuation gains on fintech equity investments. Management cautioned that these contributions are unlikely to repeat at the same magnitude, suggesting that fee growth could moderate in the near term from the elevated fourth-quarter base. Investors are being steered to focus on the mid‑to‑high $60 million quarterly fee baseline and the more sustainable drivers such as deposit services and wealth management.

Seasonal and Short-Term Headwinds for Early 2026

Management flagged a few operational and seasonal factors likely to weigh on the first quarter of 2026. These include a lower day count, elevated payroll-related taxes at the start of the year, and a pullback in the late-quarter surges in noninterest deposits and fee activity seen in the fourth quarter. The bank also expects its net interest margin to dip from the fourth quarter’s 3.17% level in the first quarter before resuming its upward trajectory later in 2026. While these headwinds are short-term, they may create a temporary step down in reported profitability before the full-year earnings growth story reasserts itself.

Idiosyncratic Asset Quality Items Remain Manageable

The credit story is not entirely smooth, but management characterized the latest asset-quality bumps as idiosyncratic rather than systemic. A single larger C&I relationship moved to nonaccrual status, and three loans accounted for the increase in 30–59 day past-due balances, totaling around $56 million. The allowance for credit losses ticked down modestly, by about 2 basis points, as reductions in model-driven (quantitative) reserves offset higher specific and qualitative reserves related to these few credits. Management reiterated that it is not seeing broad-based deterioration and continues to expect credit costs to remain well-controlled.

Ongoing Transition Away from Brokered and Wholesale Funding

While funding metrics are improving, Valley National is still in the midst of rebalancing its liability structure. The bank continues to carry meaningful levels of brokered deposits and Federal Home Loan Bank (FHLB) advances, with roughly $1.2 billion of brokered deposits and $600 million of FHLB borrowings scheduled to mature in 2026. Management’s plan is to further replace these higher-cost sources with core deposits as growth continues, but acknowledged that this transition is not yet complete. The pace at which the bank can execute this shift—without compromising pricing or customer relationships—will be an important driver of realized margin expansion relative to guidance.

Competitive Pressure on Loan Spreads

Competition in lending remains intense, and Valley National is not immune to spread compression. Executives noted modest pressure on loan pricing across several portfolios, reflecting aggressive terms from peers. Their 2026 outlook already assumes some spread compression, which has been baked into forecasts for net interest income and margin. Even so, management flagged execution risk if competitive dynamics worsen, particularly in C&I and CRE, where the bank is seeking much of its growth. Investors will want to watch whether Valley can maintain its underwriting standards while defending spreads and meeting loan growth targets.

Interest-Rate Sensitivity and Macro Dependencies

The bank’s guidance remains sensitive to the path of interest rates and the shape of the yield curve. Management’s base case assumes two Federal Reserve rate cuts in 2026 and a deposit beta of around 50% in aggregate, slightly lower than the implied 55% in the most recent quarter. They indicated that an environment with no rate cuts could pose a modest headwind to net interest income, while margin outcomes will also depend heavily on movements in longer-term rates. In essence, Valley National’s earnings power is positioned to improve, but the degree of upside will be influenced by how closely the rate environment tracks management’s planning assumptions.

Forward-Looking Guidance: Growth, Efficiency, and Capital Returns

Management’s 2026 guidance painted a picture of steady, profitable growth supported by stronger funding and controlled risk. The bank is targeting mid‑single-digit loan growth overall, with roughly 10% growth in C&I, low single-digit growth in CRE, and mid‑single-digit expansion across consumer and residential portfolios. Deposits are expected to grow faster than loans, driving a lower loan‑to‑deposit ratio and continued improvement in funding costs. Net interest income is projected to increase 11–13%, with net interest margin expanding about 15–20 basis points from the fourth-quarter 2025 level, dipping modestly in the first quarter before rising into the mid‑3.30% range by late 2026. Fee income is guided to high single-digit growth, off a baseline in the mid‑to‑high $60 million per quarter, while operating expenses are expected to rise only in the low single digits as the efficiency ratio moves toward 50%. On credit, the bank is modeling loan loss provisions of roughly $100 million, with allowance coverage broadly stable as net charge-offs normalize from 2025’s 24-basis-point level. Capital generation is projected at about 130–140 basis points of common equity tier 1 (CET1) in 2026, with roughly 50 basis points allocated to loan growth, 50 basis points to dividends, and 30–40 basis points to share buybacks, leaving room for an estimated $150–$200 million of repurchases while maintaining CET1 between 10.5% and 11.0%.

In sum, Valley National’s earnings call portrayed a bank that is gaining momentum on nearly every front: profitability, funding mix, credit quality, and capital returns. Management balanced its optimism with candid discussion of seasonal softness, one-off fee items, and lingering reliance on brokered and wholesale funding, but maintained that these issues are manageable in the context of a stronger core franchise. For investors, the story heading into 2026 is one of continued margin and earnings expansion, underpinned by disciplined growth and expense control, with the main variables now being the competitive lending landscape and the path of interest rates.