Item 7.
Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
The purpose of this analysis is to provide the reader with information relevant to understanding and assessing Valley’s results of operations and financial condition for each of the past two years. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under Item 8 of this Report, and statistical data presented in this document. For comparison of our results of operations for the years ended December 31, 2024 and 2023, please refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025.
Cautionary Statement Concerning Forward-Looking Statements
This Report, both in MD&A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about our business, new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as “intend,” “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” “may,” “estimate,” “outlook,” “project” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. Factors, in addition to risk factors listed under Item 1A. of this Report, that may differ materially from those contemplated in these forward-looking statements include, but are not limited to:
• the impact of market interest rates and monetary and fiscal policies of the U.S. federal government and its agencies in connection with prolonged inflationary pressures, which could have a material adverse effect on our clients, our business, our employees, and our ability to provide services to our customers;
2025 Form 10-K
• the impact of unfavorable macroeconomic conditions or downturns, including instability or volatility in financial markets resulting from the impact of tariffs/import fees and other trade policies and practices, any retaliatory actions, related market uncertainty, or other factors; U.S. government debt default or rating downgrade; unanticipated loan delinquencies; loss of collateral; decreased service revenues; increased business disruptions or failures; reductions in employment; and other potential negative effects on our business, employees or clients caused by factors outside of our control, such as new legislation and policy changes under the current U.S. presidential administration, any shutdown of the U.S federal government, geopolitical instabilities or events, natural and other , including weather events and other climate-related risks, health emergencies, acts of terrorism, or other external events;
• the impact of any potential instability within the U.S. financial sector or future bank failures, including the possibility of a run on deposits by a coordinated deposit base, and the impact of any actual or perceived concerns regarding the soundness, or creditworthiness, of other financial institutions, including any resulting disruption within the financial markets, increased expenses, including FDIC insurance assessments, or adverse impact on our stock price, deposits or our ability to borrow or raise capital;
• the impact of negative public opinion regarding Valley or banks in general that damages our reputation and adversely impacts business and revenues;
• changes in the statutes, regulations, policies, enforcement priorities, or composition of the federal bank regulatory agencies;
• the loss of or decrease in lower-cost funding sources within our deposit base;
• investigations, damage verdicts, settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent, trademark or other intellectual property infringement, misappropriation or other violation, employment-related claims, and other matters;
• a prolonged downturn and contraction in the economy, as well as any decline in commercial real estate values collateralizing a significant portion of our loan portfolio;
• higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations, and case law;
• the inability to grow customer deposits to keep pace with the level of loan growth;
• a material change in our allowance for credit losses due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
• the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
• changes in our business, strategy, market conditions or other factors that may negatively impact the estimated fair value of our goodwill and other intangible assets and result in future impairment charges;
• greater than expected technology-related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
• increased competitive challenges and competitive pressure on pricing of our products and services;
• our ability to stay current with rapid technological changes and evolving legal and regulatory requirements in the financial services industry, including developments relating to the use of artificial intelligence, blockchain, digital currencies, stablecoins, and related regulatory developments, as well as our ability to effectively assess and monitor the effects of, and risks associated with, the implementation and use of such technology;
• cyberattacks, ransomware attacks, computer viruses, malware or other cybersecurity incidents that may breach the security of our or our third-party service providers’ websites or other systems or networks to obtain unauthorized access to personal, confidential, proprietary or sensitive information, destroy data, disable or degrade service, or sabotage our systems or networks, and the increasing sophistication of such attacks and use of targeted tactics against the financial services industry;
• any disruption of our systems and network, or those of our third-party service providers, resulting from events that are wholly or partially beyond our control, including, for example, electrical, telecommunications, or other major service outages, or actions by employees, which may give rise to financial loss or liability;
• results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank, the Consumer Financial Protection Bureau and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
• application of heightened regulatory standards for certain large insured national banks, and the expenses we will incur to develop policies, programs, and systems that comply with the enhanced standards applicable to us;
2025 Form 10-K
• our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements, or a decision to increase capital by retaining more earnings;
• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather and other climate-related risks, pandemics or other public health crises, acts of terrorism or other external events;
• our ability to successfully execute our business plan and strategic initiatives; and
• unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, risk mitigation strategies, changes in regulatory lending guidance or other factors.
We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations, except as required by law. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Critical Accounting Estimates
Our accounting and reporting policies conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Actual results could differ materially from those estimates.
Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. Our significant accounting policies are presented in Note 1 to the consolidated financial statements. We identified our policies for the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies with the Audit Committee of the Board.
The judgments and estimates used by management in applying the critical accounting policies discussed below may be affected by significant changes in the economic environment, which may result in changes to future financial results. Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in material changes in the allowance for credit losses in future periods, and the inability to collect on outstanding loans could result in increased loan losses.
Allowance for Credit Losses . Determining the allowance for credit losses for loans has historically been identified as a critical accounting estimate. We estimate and recognize an allowance for lifetime expected credit losses for loans, unfunded credit commitments and HTM debt securities measured at amortized cost. See Notes 1 , 3 and 4 to the consolidated financial statements for further discussion of our accounting policies and methodologies for establishing the allowance for credit losses.
The accounting estimate of the allowance for credit losses is a “critical accounting estimate” for the following reasons:
• Changes in the provision for credit losses can materially affect our financial results;
• Estimates relating to the allowance for credit losses require us to project future borrower performance, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default;
• The allowance for credit losses is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in GDP, unemployment, housing prices, interest rates, inflation, and energy prices; and
• Judgment is required to determine whether the models used to generate the allowance for credit losses produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses.
Additionally, management’s determination of the amount of the ACL is a critical accounting estimate because it requires significant reliance on the credit risk we ascribe to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on individually evaluated loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Changes in such estimates could significantly impact our allowance and provision for credit losses. Accordingly, our actual credit loss experience may not be in line with our expectations.
2025 Form 10-K
Changes in Our Allowance for Credit Losses for Loans
Valley considers it difficult to quantify the impact of changes in the economic forecast on its allowance for credit losses for loans. However, management believes the following discussion may enable investors to better understand the variables that drive the allowance for credit losses for loans, which totaled $596.1 million and $573.3 million at December 31, 2025 and 2024, respectivel y.
As discussed further in the “Allowance for Credit Losses” section in this MD&A, we incorporated a multi-scenario economic forecast for estimating lifetime expected credit losses at December 31, 2025 and 2024. The qualitative economic component of our reserves at December 31, 2025 increased by $17.6 million to approximately 10 percent of total allowance for credit losses for loans at December 31, 2025 as compared to 8 percent at December 31, 2024 partly due to moderate deterioration in some forecasted economic indicators, including lower GDP growth and higher unemployment, and a lower level of previously expected losses transitioning as realized losses (i.e., charge-offs) through our ACL model in 2025. Other qualitative non-economic reserves, largely based upon management judgments about certain inherent factors in the loan portfolios not reflected in our quantitative reserves, also increased $12.2 million and represented 6 percent of total allowance for credit losses for loans at December 31, 2025 as compared to 4 percent at December 31, 2024. The increase was mostly due to higher reserves related to an increase in qualitative factor scaling adjustments to account for the difference in incurred and expected lifetime expected at December 31, 2025. The total increase in these significant judgmental qualitative factors during 2025 were partially offset by a in the quantitative portion of our allowance based upon a transition matrix model which calculates an expected life of loan percentage for each loan pool by generating probability of and given metrics.
The allowance for credit losses for loans also included specific reserves totaling $82.0 million and $75.9 million, respectively, at December 31, 2025 and 2024. These reserves are largely based upon management's valuation of collateral, and, less often, the expected cash flows for collateral dependent loans.
Goodwill and Other Intangible Assets. We have significant goodwill and other intangible assets related to our acquisitions totaling $1.9 billion and $100.9 million at December 31, 2025, respectively. We record all acquired assets, including goodwill and other intangible assets, and assumed liabilities in purchase acquisitions at fair value as of the acquisition date, and expense all acquisition related costs as incurred as required by ASC Topic 805, “Business Combinations.” The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities. Goodwill is subject to annual tests for impairment or more often, if events or circumstances indicate it may be impaired. Our determination of whether or not goodwill is impaired requires us to make significant judgments and to use significant estimates and assumptions regarding estimated future cash flows. If we change our strategy or if market conditions shift, our judgments may change, which may result in adjustments to the recorded goodwill balance. Other intangible assets are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount. Such evaluation of other intangible assets is based on undiscounted cash flow projections.
An impairment loss is recognized if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill recorded. We perform our annual goodwill impairment test in the second quarter of each year, or more often if events or circumstances warrant. In addition to the annual impairment test, we assessed the immediate and long-term impact of significant market and bank regulatory changes, if applicable, on the macroeconomic variables and economic forecasts and how those might impact the fair value of our reporting units each quarter end. After consideration of these variables and evaluating relevant events, changes in circumstances, operating results, and other potential triggering factors, management concluded that no event or change had occurred that would make it more likely than not that the fair values of our three reporting units, Wealth Management, Consumer Banking, and Commercial Banking, were below their respective carrying amounts. Therefore, we concluded there were no triggering events that would require additional goodwill impairment test of the reporting units during 2025.
Fair value is determined using certain discounted cash flow and market multiple methods. Estimated cash flows may extend far into the future and, by their nature, are difficult to determine over an extended timeframe. Factors that may materially affect the estimates include, among others, macroeconomic conditions such as a deterioration in general economic conditions and economic forecasts, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and technology, and changes in discount rates, growth rate, terminal values, and specific industry or market sector conditions. Additionally, we perform a market capitalization reconciliation to support the appropriateness of our reporting unit fair values and impairment test results. In performing this reconciliation, we compare the sum of fair value of the reporting units to our market capitalization, adjusted for the present value of estimated synergies which a market participant acquirer could reasonably expect to realize from a hypothetical acquisition of Valley.
2025 Form 10-K
To assist in assessing the impact of potential goodwill or other intangible assets impairment charges at December 31, 2025, the impact of a five percent impairment charge on these intangible assets would result in a reduction in pre-tax income of approximately $98.5 million. See Note 7 to the consolidated financial statements for additional information regarding goodwill and other intangible assets.
Income Taxes. We are subject to the income tax laws of the U.S., its states and municipalities. The income tax laws of the jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws to our business activities, as well as the timing of when certain items may affect taxable income.
Our interpretations may be subject to review during examination by taxing authorities and disputes may arise over the respective tax positions. We attempt to resolve these disputes during the tax examination and audit process and ultimately through the court systems when applicable. We monitor relevant tax authorities and revise our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities on a quarterly basis. Revisions of our estimate of accrued income taxes also may result from our own income tax planning and from the resolution of income tax controversies. Such revisions in our estimates may be material to our operating results for any given quarter.
The provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. We perform regular reviews to ascertain the realizability of our deferred tax assets. These reviews include management’s estimates and assumptions regarding future taxable income, which also incorporate various tax planning strategies. In connection with these reviews, if we determine that a portion of the deferred tax asset is not realizable, a valuation allowance is established. Management determined it is more likely than not that Valley will realize its net deferred tax assets, except for immaterial valuation allowances, as of December 31, 2025 and 2024.
We also maintain, when necessary, a reserve related to certain tax positions that management believes contain an element of uncertainty. An uncertain tax position is measured based on the largest amount of benefit that management believes is more likely than not to be realized. Our income tax expense reflected a decrease of $46.4 million in 2024 and an increase of $3.0 million in 2023 to our tax provision related to reserve for uncertain tax liability positions and/or accrued interest related to such positions during the years ended December 31, 2024 and 2023, respectively. We had no reserve for uncertain tax liability positions at both December 31, 2025 and 2024.
See Notes 1 and 12 to the consolidated financial statements and the “Executive Summary” and “Income Taxes” sections in this MD&A for an additional discussion on the accounting for income taxes.
New Authoritative Accounting Guidance. See Note 1 of the consolidated financial statements for a description of recent accounting pronouncements including the dates of adoption and the anticipated effect on our results of operations and financial condition.
Executive Summary
Company Overview. At December 31, 2025, Valley had consolidated total assets of $64.1 billion, total net loans of $49.6 billion, total deposits of $52.2 billion and total shareholders’ equity of $7.8 billion. Our commercial bank operations include branch office locations in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, California, Alabama and Illinois. Of our current 230 branch network, 55 percent, 18 percent, and 18 percent of the branches are located in New Jersey, New York, and Florida, respectively, with the remaining 9 percent of the branches in Alabama, California and Illinois combined.
Financial Condition. During 2025, we continued to strengthen our balance sheet to best perform in the current economic environment, while also prudently managing and reducing the overall risk of our loan portfolio. The following items, including key balance sheet initiatives, are highlights at December 31, 2025 .
• Commercial Real Estate Loan Concentration: Total commercial real estate loans (including construction loans) totaled $29.2 billion, or 58.3 percent of total loans at December 31, 2025 as compared to $29.6 billion, or 60.7 percent of total loans at December 31, 2024. While commercial real estate lending remains a key pillar of the success of our relationship banking model and our lending expertise, we continue to proactively diversify our loan portfolio by reducing new originations of certain types of transactional commercial real estate lending, such as non-owner occupied and multifamily loans to single-product borrowers. We remain focused on growing our commercial and industrial, owner occupied commercial real estate, and consumer loan portfolios. At December 31, 2025, our CRE loan concentration ratio declined
2025 Form 10-K
to 333 percent as compared to 362 percent and 474 percent at December 31, 2024 and 2023, respectively. Based on our current loan growth targets for 2026, we expect a continued, but more gradual reduction of the CRE loan concentration ratio over the next 12 months. See further details of our loan activities under the “Loan Portfolio” section below.
• Allowance for Credit Losses: The ACL for loans totaled $596.1 million and $573.3 million at December 31, 2025 and 2024, respectively, representing 1.19 percent and 1.17 percent of total loans at each respective date. The increase reflects, among other factors, commercial and industrial loan growth of 10.4 percent in 2025, increases in both the economic forecast and non-economic qualitative reserve components of the ACL for loans and moderately higher specific reserves associated with collateral dependent loans, partially offset by a decline in quantitative reserves as compared to December 31, 2024. Given our current projections for loan growth and credit trends within our loan portfolio, we anticipate the ACL will range between 1.15 and 1.20 percent of total loans through December 31, 2026. However, we can provide no assurance that our actual future ACL for loans required under our CECL methodology will not exceed this current projection due to the uncertain nature of our assumptions. See the “Allowance for Credit Losses" section for additional information.
• Credit Quality: Net loan charge-offs decreased $84.7 million to $116.9 million in 2025 as compared to $201.6 million in 2024. Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $42.1 million to $141.3 million, or 0.28 percent of total loans, at December 31, 2025 as compared to $99.2 million, or 0.20 percent of total loans, at December 31, 2024. The increase was mainly due to two larger well-secured commercial real estate loans within the 30 to 59 days past due delinquency category at December 31, 2025. Non-accrual loans increased $74.4 million to $433.9 million at December 31, 2025 as compared to December 31, 2024 largely due to an increase in non-accrual commercial real estate loans. Non-performing assets (NPAs) as a percentage of total loans and NPAs increased to 0.87 percent at December 31, 2025 as compared to 0.76 percent at December 31, 2024. See the “Non-Performing Assets” section for additional information.
• Liquid Assets: Our liquid assets totaled $6.1 billion at December 31, 2025 , representing 10.3 percent of interest earning assets as compared with $5.5 billion, or 9.6 percent of interest earning assets at December 31, 2024. We continue to maintain significant access to readily available, diverse funding sources to fulfill both short-term and long-term funding needs . See the “Bank Liquidity” section for additional information.
• Deposits: Total deposits increased $2.1 billion to $52.2 billion at December 31, 2025 as compared to $50.1 billion at December 31, 2024. Meaningful growth in non-maturity interest bearing and non-interest bearing direct customer deposits throughout 2025 allowed us to reduce our reliance on high-cost indirect customer deposits. Total indirect customer deposits (including both brokered money market and time deposits) declined $1.7 billion to $5.4 billion at December 31, 2025 as compared with December 31, 2024. See the “Deposits and Other Borrowings” section for more details.
• Investment Securities: Total investment securities increased $808.0 million to $7.8 billion, or 12.1 percent of total assets, at December 31, 2025 as compared to December 31, 2024 mainly due to targeted purchases of residential mortgage backed securities and, to a lesser extent, corporate debt securities that were classified as AFS during the year ended December 31, 2025. See the “Investment Securities Portfolio” section for more details.
• Regulatory Capital and Shareholders' Equity: Total shareholders' equity increased $372.6 million to $7.8 billion at December 31, 2025 as compared to December 31, 2024. Valley's total risk-based capital, common equity Tier 1 capital, Tier 1 capital and Tier 1 leverage capital ratios were 13.77 percent, 10.99 percent, 11.69 percent, and 9.63 percent, respectively, at December 31, 2025 as compared to 13.87 percent, 10.82 percent, 11.55 percent and 9.16 percent, respectively, at December 31, 2024. During the year ended December 31, 2025, we repurchased a total of 6.1 million shares of our common stock at an average price of $10.41 under our current stock repurchase plan. Currently, we expect that Valley's common equity Tier 1 capital will range between 10.50 and 11.00 percent through December 31, 2026. See the "Capital Adequacy" section below for more information.
Annual Results . Net income for the year ended December 31, 2025 was $598.0 million, or $1.01 per diluted common share as compared to $380.3 million, or $0.69 per diluted common share for 2024. The $217.7 million increase in net income as compared to 2024 was mainly due to the following changes:
• a $134.9 million increase in net interest income mostly driven by lower interest rates on most interest bearing deposit products, a decrease in high-cost indirect customer deposits and additional interest income from investment security purchases, partially offset by lower yields on adjustable-rate loans and a decline in average loans mainly driven by our efforts to reduce our CRE loan concentration ratio during 2025 and 2024;
2025 Form 10-K
• a $169.1 million decrease in our provision for credit losses was mainly due to the impact of lower net loan charge-offs in 2025 and lower quantitative reserves in certain loan categories; and
• a $37.6 million increase in non-interest income largely due to higher volumes of transactional fees within capital markets income and increased treasury management service fees generated from commercial deposits within service charges on deposit accounts.
Which were partially offset by:
• a $87.6 million increase in income tax expense driven by higher pre-tax income; and
• a $36.3 million increase in non-interest expense mainly driven by additional tax credit investments and targeted acquisitions of key talent within our commercial and consumer banking teams that contributed to higher amortization of tax credit investments and salary and employee benefits expense, respectively, during 2025, partially offset by a reduction in our FDIC assessment and technology related expenses.
See the “Net Interest Income,” “Non-Interest Income,” “Non-Interest Expense,” and “Income Taxes” sections in this MD&A for more details on the items above and other non-core items impacting our 2025 annual results.
Operating Environment. Real GDP increased by 2.2 percent in 2025 as compared to 2.4 percent in 2024. The increase in real GDP in 2025 primarily reflected increases in consumer spending and investment. In the fourth quarter 2025, real GDP slowed to an annualized increase of 1.4 percent as compared to 4.4 percent in the third quarter 2025 largely due to the negative impact of the federal government shutdown in October and November 2025. I nflation decreased slightly with the change in the consumer price index on a year over year basis declining from 2.9 percent at December 31, 2024 to 2.7 percent at December 31, 2025.
Beginning in mid‑September 2024, the Federal Reserve initiated a gradual easing cycle, lowering the target range for the federal funds rate over several FOMC meetings during 2024 and 2025. The target range declined from 5.25 to 5.50 percent to the current target of 3.50 to 3.75 percent in December 2025. At its January 2026 meeting, the FOMC maintained the existing target range, citing persistently elevated inflation levels, signs of stabilization in labor market conditions, and continued uncertainty in the broader economic outlook. As a result, the FOMC did not signal the timing of their next possible rate cut. However, most market economists currently project the federal funds rate to end 2026 within a target range of approximately 3.00 to 3.25 percent range.
The 10-year U.S. Treasury note yield decreased to 4.18 at December 31, 2025 from 4.58 percent one year ago, and the 2-year U.S. Treasury note yield decreased 78 basis points to 3.47 percent at December 31, 2025 as compared to December 31, 2024.
After yield curve inversion of more than two years, the normalization of interest rates (i.e., a positively sloped yield curve) during 2025 and into 2026 should be a catalyst for a stronger operating environment for banks. Expectations of moderating inflation and continued resilience in key sectors of the U.S. economy have also contributed to our positive outlook for 2026. However, heightened geopolitical risks, fiscal policy uncertainty, and evolving monetary policy considerations, including those recently noted by the Federal Reserve, continue to create uncertainty regarding the future direction of the economy. Should economic conditions deteriorate, causing business activity, spending and investment to decline, these and other factors may adversely impact our financial results, as highlighted in the remaining MD&A discussion below.
Deposits and Other Borrowings. We define cumulative deposit beta as the change in our cost of total deposits relative to the change in the average Fed Funds (upper bound) rate. We differentiate between the cumulative deposit beta during the rate increase cycle, which began in the first quarter 2022 and ended in the second quarter 2024, and the cumulative deposit beta during the rate decrease cycle which started in the third quarter 2024. Our cumulative deposit beta in the interest rate increase cycle (between December 31, 2021 and June 30, 2024) was approximately 58 percent. The Federal Reserve started an interest rate decrease cycle during the third quarter 2024. Our cumulative deposit beta in this current interest rate decrease cycle (between June 30, 2024 and December 31, 2025) was 49 percent. Our cumulative deposit beta for the fourth quarter 2025 was 55 percent. During the fourth quarter 2025, the Federal Reserve cut its target federal funds rate twice, each time by 25 basis points. The beta in the fourth quarter 2025 was mainly driven by a full quarter’s impact of the Federal Reserve's rate cut in September 2025 and our ability to broadly reduce costs of interest bearing deposit products coupled with the changes in deposit balances discussed further below. See the "Net Interest Income" section for additional details on the changes in our cost of deposits during the fourth quarter 2025.
2025 Form 10-K
Total average deposits increased by $626.3 million to $50.4 billion for the year ended December 31, 2025 as compared to 2024. Average savings, NOW and money market deposit balances increased $1.8 billion largely due to additional deposits generated from both commercial customer and governmental deposit accounts. Average non-interest bearing deposits increased $298.0 million to $11.5 billion for the year ended December 31, 2025 as compared to 2024 and the increase was mainly the result of our relationship-driven commercial banking efforts, and, to a much lesser extent, higher retail customer balances in 2025. These increases were partially offset by a $1.5 billion decrease in average time deposits balances due to our repayment of high-cost maturing indirect customer CDs during 2025. Average non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 23 percent, 53 percent and 24 percent of total deposits at December 31, 2025 , respectively, as compared to 22 percent, 51 percent and 27 percent of total deposits at December 31, 2024 , respectively.
Actual ending balances for deposits increased $2.1 billion to $52.2 billion at December 31, 2025 as compared to 2024 due to a $2.3 billion increase in savings, NOW and money market deposits and a $726.8 million increase in non-interest bearing deposits, partially offset by a $918.4 million decrease in time deposits. The increase in savings, NOW and money market deposits was largely due to deposit inflows from commercial customer and government deposit accounts and, to a lesser extent, increases in national specialized deposit accounts. The increase in non-interest bearing deposits was generated from the aforementioned holistic commercial relationship banking strategy of the Bank, as well as improved deposit inflows from our retail customers. The decrease in time deposits was mostly due to maturity and repayment of indirect customer CDs, partially offset by net positive inflows from new direct customer CD offerings during 2025. As a result, total indirect customer deposits (consisting of brokered CDs and money market deposits) decreased $1.7 billion to $5.4 billion at December 31, 2025 as compared to $7.1 billion at December 31, 2024. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 23 percent, 55 percent and 22 percent of total deposits as of December 31, 2025, respectively, as compared to 23 percent, 52 percent and 25 percent as of December 31, 2024, respectively.
The following table summarizes CDs included in time deposits in excess of the FDIC insurance limit by maturity at December 31, 2025:
(in thousands)
Less than three months
Three to six months
Six to twelve months
More than twelve months
Total
Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $14.6 billion, or 28 percent of total deposits, at December 31, 2025 as compared to $12.6 billion, or 25 percent of total deposits, at December 31, 2024.
We currently expect to grow our total deposits by 5 to 7 percent during 2026 across our retail, commercial and other specialized deposit niches. While we maintained a diversified commercial and consumer deposit base at December 31, 2025, deposit gathering initiatives and our current deposit base could be unexpectedly challenged due to increased market competition, changes in customer behavior, including attractive non-deposit investment alternatives, and other factors. As a result, we cannot guarantee that we will be able to increase or maintain deposit levels at or near those reported at December 31, 2025. Management continuously monitors liquidity and all available funding sources including non-deposit borrowings discussed below. See the “Liquidity and Cash Requirements” section of this MD&A for additional information.
2025 Form 10-K
The following table presents average short-term and long-term borrowings for the years ended December 31, 2025 and 2024:
(in thousands)
Average short-term borrowings:
FHLB advances
Securities sold under repurchase agreements
Federal funds purchased
Total
Average long-term borrowings:
FHLB advances
Subordinated debt
Junior subordinated debentures issued to capital trusts
Total
Average short-term borrowings decreased $274.2 million at December 31, 2025 as compared to 2024 mostly due to a reduction in the amount of short-term FHLB advances utilized for excess overnight liquidity and funding needs during 2025 that was driven, in part, by the growth in average deposits. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) moderately decreased $107.5 million at December 31, 2025 as compared to 2024 . The decline was mostly due to a decrease in average subordinated debt balances driven by our full redemption of $215.0 million of subordinated notes in June 2025.
Actual ending balances for short-term borrowings increased $18.8 million to $91.5 million at December 31, 2025 as compared to 2024 mainly due to a moderate increase in securities sold under repurchase agreements. Long-term borrowings decreased $265.6 million to $2.9 billion at December 31, 2025 as compared to $3.2 billion at December 31, 2024 primarily due to the aforementioned subordinated notes redeemed in June 2025 and the net decrease from repayments and purchases of certain FHLB advances. See the “Net Interest Incom e” section below and Note 9 to the consolidated financial state ments for additional details on our borrowed funds.
Non-GAAP Financial Measures. The table below presents selected performance indicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated. Valley believes that the non-GAAP financial measures provide useful supplemental information to both management and investors in understanding Valley's underlying operational performance, business, and performance trends, and may facilitate comparisons of our current and prior performance with the performance of others in the financial services industry. Management utilizes these measures for internal planning, forecasting, and analysis purposes. Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management. These non-GAAP financial measures should not be considered in isolation, as a substitute for or superior to financial measures calculated in accordance with GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
2025 Form 10-K
The following table presents our annualized performance ratios for the three years ended December 31, 2025, 2024 and 2023:
Selected Performance Indicators
($ in thousands, except for %)
GAAP measures:
Net income, as reported
Return on average assets
Return on average shareholders’ equity
Non-GAAP measures:
Net income, as adjusted
Return on average assets, as adjusted
Return on average shareholders’ equity, as adjusted
Return on average tangible common shareholders’ equity (ROATCE)
ROATCE, as adjusted
Efficiency ratio, as adjusted
As of December 31,
Common Equity Per Share Data:
Book value per common share (GAAP)
Tangible book value per common share (non-GAAP)
Non-GAAP Reconciliations to GAAP Financial Measures
Adjusted net income for the three years ended December 31, 2025, 2024 and 2023 is computed as follows:
(in thousands)
Net income, as reported (GAAP)
Non-GAAP adjustments:
Add: Restructuring charge (1)
Add: Loss on extinguishment of debt
Add: Provision for credit losses for available for sale securities (2)
Add: Merger related expenses (3)
Add: Litigation reserve (4)
Add: Net losses on the sale of commercial real estate loans (5)
Less: FDIC Special assessment (6)
Less: (Gains) losses on available for sale and held to maturity debt securities, net (7)
Less: Gain on sale of commercial premium finance lending division (8)
Less: Net gains on sales of office buildings (8)
Less: Litigation settlements (9)
Less: Income tax benefit (10)
Total non-GAAP adjustments to net income
Income tax adjustments related to non-GAAP adjustments (11)
Net income, as adjusted (non-GAAP)
2025 Form 10-K
(1) Represents severance expense related to workforce reductions within salary and employee benefits expense.
(2) Included in provision for credit losses for available for sale and held to maturity securities (tax disallowed).
(3) Primarily represents data processing termination costs within technology, furniture and equipment expense.
(4) Represents the change in legal reserves and settlement charges included in professional and legal fees.
(5) Represents actual and mark to market losses on bulk performing commercial real estate loan sales included in gains (losses) on sales of
loans, net.
(6) Represents the (decrease) increase in estimated special assessment losses included in the FDIC insurance assessment expense.
(7) Included in gains on securities transactions, net.
(8) Included in (losses) gains on sale of assets, net.
(9) Represents recoveries from legal settlements included in other income.
(10) Represent tax benefits from discrete tax events included in income tax expense.
(11) Calculated using the appropriate blended statutory tax rate for the applicable period.
In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the overall level of capital markets fees, wealth management and trust fees, and net gains on sales of loans. These amounts can vary widely from period to period due to, among other factors, commercial loan customer demand for certain interest rate swap products, brokerage and tax credit investment advisory activities and the amount and timing of residential mortgage loans originated for sale. See the “Non-Interest Income” section below for more details.
Adjusted annualized return on average assets for the three years ended December 31, 2025, 2024 and 2023 is computed by dividing adjusted net income by average assets, as follows:
($ in thousands)
Net income, as adjusted (non-GAAP)
Average assets (GAAP)
Annualized return on average assets, as adjusted (non-GAAP)
Adjusted annualized return on average shareholders' equity for the three years ended December 31, 2025, 2024 and 2023 is computed by dividing adjusted net income by average shareholders' equity, as follows:
($ in thousands)
Net income, as adjusted (non-GAAP)
Average shareholders' equity (GAAP)
Annualized return on average shareholders' equity, as adjusted (non-GAAP)
2025 Form 10-K
ROATCE and adjusted ROATCE for the three years ended December 31, 2025, 2024 and 2023 are computed by dividing net income and adjusted net income, respectively, by average tangible common shareholders’ equity calculated, as follows:
($ in thousands)
Net income available to common shareholders, as reported (GAAP)
Add: Amortization of other intangible assets (net of tax), other than loan servicing rights
Net income available to common shareholders excluding intangible amortization (GAAP)
Average shareholders’ equity (GAAP)
Less: Average preferred shareholders equity
Less: Average goodwill and other intangible assets
Less: Average intangible assets (net of deferred tax liability), other than loan servicing rights
Average tangible common shareholders' equity (non-GAAP)
ROATCE (non-GAAP)
Net income available to common shareholders, as adjusted (non-GAAP)
Add: Amortization of other intangible assets (net of tax), other than loan servicing rights
Net income available to common shareholders excluding intangible amortization (non-GAAP)
Average tangible common shareholders' equity (non-GAAP)
ROATCE, as adjusted (non-GAAP)
The efficiency ratio for the years ended December 31, 2025, 2024 and 2023 is computed as follows:
($ in thousands)
Total non-interest expense, as reported (GAAP)
Less: Loss on extinguishment of debt
Less: FDIC Special assessment (1)
Less: Restructuring charge (2)
Less: Merger related expenses (3)
Less: Litigation reserve (4)
Less: Amortization of tax credit investments
Total non-interest expense, as adjusted (non-GAAP)
Net interest income, as reported (GAAP)
Total non-interest income, as reported (GAAP)
Add: Net losses on the sale of commercial real estate loans (5)
Less: Net gains on sales of office buildings (6)
Less: Gain on sale of commercial premium finance lending division (6)
Less: (Gains) losses on available for sale and held to maturity debt securities transactions, net (7)
Less: Litigation settlements (8)
Gross operating income, as adjusted (non-GAAP)
Efficiency ratio (non-GAAP)
(1) Included in the FDIC insurance expense.
(2) Represents severance expense related to workforce reductions within salary and employee benefits expense.
(3) Primarily represents data processing termination costs within technology, furniture and equipment expense for 2023.
(4) Included in professional and legal fees.
(5) Included in gains (losses) on sales of loans, net.
2025 Form 10-K
(6) Included in (losses) gains on sales of assets, net.
(7) Included in gains on securities transactions, net.
(8) Represents recoveries from legal settlements included in other income.
Tangible book value per common share is computed by dividing shareholders’ equity less preferred stock, goodwill and other intangible assets by common shares outstanding for the two years ended December 31, 2025 and 2024, as follows:
($ in thousands, except for share data)
Common shares outstanding
Shareholders’ equity (GAAP)
Less: Preferred stock
Less: Goodwill and other intangible assets
Tangible common shareholders’ equity (non-GAAP)
Tangible book value per common share (non-GAAP)
Book value per common share (GAAP)
Net Interest Income
Net interest income consists of interest income and dividends earned on interest earning assets less interest expense on interest bearing liabilities and represents the main source of income for Valley. The net interest margin on a fully tax equivalent basis is calculated by dividing tax equivalent net interest income by average interest earning assets and is a key measurement used in the banking industry to measure income from interest earning assets.
Annual Period 2025. N et interest income on a tax equivalent basis increased by $134.7 million to $1.8 billion for 2025 as compared to 2024. Interest expense decreased by $259.9 million to $1.5 billion for 2025 as compared to 2024 mainly due to (i) our ability to lower rates on most interest bearing deposit products during the market interest rate decrease cycle since the second quarter 2024 and (ii) non-interest bearing deposit growth that has partially contributed to the repayment of higher-cost indirect customer deposits during the second half of 2025. Interest income on a tax equivalent basis decreased $125.2 million to $3.2 billion for 2025 as compared to 2024 largely due to downward repricing of adjustable rate loans, partially offset by additional interest income from the purchases of higher yielding taxable investment securities during 2025.
Average interest earning assets totaling $58.0 billion for the year ended December 31, 2025 increased $645.0 million, or 1.1 percent, as compared to 2024. The increase was mainly due to a $1.7 billion increase in average taxable investments mostly resulting from purchases of residential mortgage-backed securities classified as available for sale during year ended December 31, 2025. The increase in taxable investments was partially offset by a $884.3 million decrease in average loan balances mostly caused by our strategic efforts to reduce the level of transactional commercial real estate loans in our portfolio, including our bulk loan portfolio sales of such loans totaling $920.3 million in the fourth quarter 2024. Average interest bearing cash balances also declined by $128.2 million as compared to 2024 as we reduced the level of excess overnight cash balances.
Average interest bearing liabilities decreased $53.4 million to $42.1 billion for the year ended December 31, 2025 as compared to 2024. This decrease mainly reflects a decline in short-term average FHLB advances and our redemption of certain subordinated notes during the second quarter 2025, which were mostly offset by the increase in average interest bearing deposits. Average interest bearing deposits increased $328.3 million as compared to 2024 mainly driven by strong growth in non-maturity interest bearing and non-interest bearing deposit balances, partially offset by repayments of indirect customer time deposits in 2025. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.
Net interest margin on a tax equivalent basis was 3.05 percent for the year ended December 31, 2025 and increased 20 basis points as compared to 2024. Th e increase as compared to 2024 was mostly driven by a 61 basis point decline in the cost of average interest-bearing deposits, partially offset by the lower yield on average interest earning assets. The overall cost of average interest bearing liabilities decreased 61 basis points to 3.49 percent for the year ended December 31, 2025 as compared to 2024 mainly due to the decrease in higher cost time deposits, lower interest rates on most deposit products and, to a much lesser extent, the decline in short-term borrowings. The yield on average interest earning assets decreased by 28 basis points to 5.59 percent or 2025 as compared to 5.87 percent in 2024 largely due to the downward repricing of our adjustable rate loans, as well as the lower yield on overnight interest bearing cash balances, partially offset by the purchases of higher yielding investment securities during 2025.
Fourth Quarter 2025. Net interest income on a tax equivalent basis of $466.1 million for the fourth quarter 2025 increased $18.7 million and $41.9 million as compared to the third quarter 2025 and fourth quarter 2024, respectively, largely resulting from a decline in the cost of deposits and additional interest income from growth in average loans and taxable
2025 Form 10-K
investments. Total interest expense decreased $29.8 million to $350.9 million for the fourth quarter 2025 as compared to the third quarter 2025. The decrease was the result of (i) strong non-interest bearing deposit growth, (ii) lower interest rates offered on most interest bearing deposit products and (iii) the repayment of maturing higher-cost indirect customer time deposits during the second half of 2025. Interest income on a tax equivalent basis also decreased $11.1 million to $817.0 million for the fourth quarter 2025 as compared to the third quarter 2025. The decrease mostly resulted from downward repricing of adjustable rate loans, partially offset by the aforementioned additional interest income from both new loans and taxable investments in the fourth quarter 2025.
Net interest margin on a tax equivalent basis of 3.17 percent for the fourth quarter 2025 increased 12 basis points and 25 basis points from 3.05 percent and 2.92 percent, respectively, for the third quarter 2025 and fourth quarter 2024. The increase as compared to the third quarter 2025 was mostly due to a 24 basis point decrease in our cost of total average deposits to 2.45 percent for the fourth quarter 2025, partially offset by the negative impact of the lower yield on average interest earning assets. Our cos t of total average deposits was 2.45 percent for the fourth quarter 2025 as compared to 2.69 percent and 2.94 percent for the third quarter 2025 and fourth quarter 2024 , respectively. The overall cost of average interest bearing liabilities decreased by 27 basis points to 3.30 percent for the fourth quarter 2025 as compared to the linked third quarter 2025. The yield on average interest earning assets decreased by 9 basis points to 5.56 percent on a linked quarter basis largely due to downward repricing of our adjustable rate loans and the lower yield on overnight interest bearing cash balances, partially offset by higher yields on new loans and investment securities during the fourth quarter 2025.
Based upon our current projections, we anticipate net interest income growth of approximately 11 to 13 percent for the full year of 2026 as compared to 2025. Net interest margin is expected to reach 3.30 percent by the end of 2026 as we continue to benefit from loan growth and repricing. While we are optimistic about the projected net interest income for 2026, our forecasts include several uncertain assumptions, including projected loan growth and our ability to decrease funding costs over the next 12 months. Therefore, we cannot provide any assurances that our future net interest income or margin will meet our current estimates or remain near the levels reported for the fourth quarter 2025.
2025 Form 10-K
The following table reflects the components of net interest income for each of the three years ended December 31, 2025, 2024 and 2023:
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
($ in thousands)
Assets
Interest earning assets:
Loans (1)(2)
Taxable investments (3)
Tax-exempt investments (1)(3)
Interest bearing deposits with banks
Total interest earning assets
Allowance for loan losses
Cash and due from banks
Other assets
Unrealized losses on securities available for sale, net
Total assets
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Savings, NOW and money market deposits
Time deposits
Total interest bearing deposits
Short-term borrowings
Long-term borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income/interest rate spread (5)
Tax equivalent adjustment
Net interest income, as reported
Net interest margin (6)
Tax equivalent effect
Net interest margin on a fully tax equivalent basis (6)
(1) Interest income is presented on a tax equivalent basis using a 21 percent federal tax rate.
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) The yield for securities that are classified as AFS is based on the average historical amortized cost.
(4) Includes junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of condition.
(5) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(6) Net interest income as a percentage of total average interest earning assets.
2025 Form 10-K
The following table demonstrates the relative impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by Valley on such assets and liabilities. Variances resulting from a combination of changes in volume and rates are allocated to the categories in proportion to the absolute dollar amounts of the change in each category.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
2025 Compared to 2024
2024 Compared to 2023
Change
Due to
Volume
Change
Due to
Rate
Total
Change
Change
Due to
Volume
Change
Due to
Rate
Total
Change
(in thousands)
Interest income:
Loans*
Taxable investments
Tax-exempt investments*
Federal funds sold and other interest bearing deposits
Total increase (decrease) in interest income
Interest expense:
Savings, NOW and money market deposits
Time deposits
Short-term borrowings
Long-term borrowings and junior subordinated debentures
Total (decrease) increase in interest expense
Increase (decrease) in net interest income
* Interest income is presented on a tax equivalent basis using a 21 percent federal tax rate.
Non-Interest Income
Non-interest income represented 12.9 percent and 12.1 percent of total net interest income plus non-interest income for 2025 and 2024, respectively. For the year ended December 31, 2025, non-interest income increased $37.6 million as compared to the year ended December 31, 2024. See further details below.
The following table presents the components of non-interest income for the years ended December 31, 2025, 2024, and 2023:
(in thousands)
Wealth management and trust fees
Insurance commissions
Capital markets
Service charges on deposit accounts
Gains on securities transactions, net
Fees from loan servicing
Gains (losses) on sales of loans, net
(Losses) gains on sales of assets, net
Bank owned life insurance
Other
Total non-interest income
Capital markets income increased $14.8 million for the year ended December 31, 2025 as compared to 2024. The increase was mainly due to fee income growth from higher volumes of (i) interest rate swap transactions related to commercial lending activities and (ii) loan syndication transactions. Swap fee income totaled $21.1 million and $13.3 million for the years ended
2025 Form 10-K
December 31, 2025 and 2024, respectively. Loan syndication and participation fees totaled $8.2 million for the year ended December 31, 2025 as compared to $3.7 million for 2024.
S ervice charges on deposit accounts increased $13.0 million for the year ended December 31, 2025 as compared to 2024 mainly due to additional treasury management service related fees generated from commercial deposit accounts.
Net gains on sales of loans were $6.9 million for the year ended December 31, 2025 as compared to net losses of $5.8 million for 2024. Net gains for the year ended December 31, 2025 were driven, in part, by gains on sales of residential mortgage loans, partially offset by a $1.3 million loss on the sale of one non-performing commercial real estate loan classified as held for sale during the third quarter 2025. Net losses for the year ended December 31, 2024 were largely attributable to $13.7 million of realized losses resulting from the sale of performing commercial real estate loans in the fourth quarter 2024, partially offset by net gains on sales of residential mortgage loans originated for sale. Overall, our ability to generate net gains on residential mortgage loan sales continues to be constrained by several factors, including elevated mortgage interest rates, reduced customer demand for conforming loan products, and our strategic decision not to originate certain residential mortgage loans for sale. This decision can be influenced by multiple considerations, such as our current objective to reduce commercial real estate loan concentration and further diversify the loan portfolio. See further discussions of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.
Net gains on sales of assets decreased $3.7 million for the year ended December 31, 2025 as compared to 2024. Net gains on sales of assets for the year ended December 31, 2024, were mainly attributable to a $3.6 million net gain realized on the sale of our commercial premium finance lending business.
Bank owned life insurance income increased $3.1 million for the year ended December 31, 2025 as compared to 2024 driven by higher returns on the underlying investment securities during most of the 2025.
Other non-interest income decreased $4.6 million for the year ended December 31, 2025 as compared to 2024. The decline largely reflects $7.3 million in litigation settlement income recorded in the third quarter of 2024, partially offset by increases in card fee income during the year ended December 31, 2025 as compared to 2024.
During 2025, we continued to offer a robust suite of fee income product and services for our growing customer base, including treasury management services for commercial banking clients which have helped us generate additional fee income and attract new customers. During 2026, we plan to further leverage the investments that we have made in our treasury solutions, foreign exchange and syndication platforms, and continue to focus on growing revenues from service charges on deposits accounts, interest rate swap transactions and our broker dealer subsidiary.
Non-Interest Expense
Non-interest expense increased $36.3 million to $1.1 billion for the year ended December 31, 2025 as compared to 2024 due, in large part, to amortization expense related to additional tax credit investments and higher salary and employee benefits expenses resulting from strategic investments in our commercial and consumer banking teams and enhancements to our business operating model in 2025. See further details below.
The following table presents the components of non-interest expense for the years ended December 31, 2025, 2024 and 2023:
(in thousands)
Salary and employee benefits expense
Net occupancy expense
Technology, furniture and equipment expense
FDIC insurance assessment
Amortization of other intangible assets
Professional and legal fees
Loss on extinguishment of debt
Amortization of tax credit investments
Other
Total non-interest expense
2025 Form 10-K
Salary and employee benefits expense increased $20.9 million for the year ended December 31, 2025 as compared to 2024. The increase primarily reflects higher salary expense driven by rising salary costs due to inflation and our investment in new key talent in 2025. Severance expense related to workforce reductions totaled $5.3 million and $2.0 million for the years ended December 31, 2025 and 2024, respectively.
Technology, furniture and equipment expense decreased $11.2 million for the year ended December 31, 2025 as compared to 2024 primarily due to incremental decreases in data processing, depreciation and telecommunications expenses in 2025.
FDIC insurance assessment expense decreased $22.4 million for the year ended December 31, 2025 as compared to 2024. The decrease was largely driven by an $18.2 million decrease in th e total estimated expen se related to the FDIC special assessment applied to us to recover losses in the Deposit Insurance Fund from protecting uninsured depositors following two of the bank failures in 2023, and, amongst other factors, a decrease in our normal FDIC assessment resulting from improved levels of regulatory capital throughout 2025 as compared to 2024.
Amortization of other intangibles decreased $4.6 million for the year ended December 31, 2025 as compared to 2024 mainly due to lower amortization expense of core deposits and other intangible assets. See Note 7 to the consolidated financial statements for additional information.
Professional and legal fees increased $16.4 million for the year ended December 31, 2025 as compared to 2024 primarily due to higher consulting fees related to enhancements to our business operating model and other transformation efforts in 2025. During the fourth quarter 2025, our professional and legal fees totaled $26.8 million. We expect this higher level of professional and legal fees to continue into most of 2026.
Amortization of tax credit investments increased $22.8 million for the year ended December 31, 2025 as compared to 2024 mainly due to large purchases of tax-advantaged investments during 2025. See Note 13 for more details regarding our tax credit investments.
Other non-interest expense increased $13.2 million for the year ended December 31, 2025 as compared to 2024. The increase was due, in part, to a $6.0 million increase in OREO related losses on fair valuation write-down of two commercial real estate properties and several other incremental expenses within the category, including those related to Valley's new brand campaign and other general operating expenses.
Income Taxes
Income tax expense was $145.9 million for the year ended December 31, 2025, reflecting an effective tax rate of 19.6 percent, as compared to $58.2 million for the year ended December 31, 2024, reflecting an effective tax rate of 13.3 percent. The increase in income tax expense during 2025 was largely driven by (i) higher pre-tax income and (ii) a $46.4 million tax benefit realized in 2024 on the total reduction in our uncertain tax liability positions and related accrued interest due to statute of limitation expirations. In addition, income tax expense for 2025 reflected an $11.4 million tax refund benefit realized due to the closure of a federal audit during the fourth quarter 2025 and additional investments in tax credits as compared to 2024.
On July 4, 2025, the OBBBA was signed into law. The OBBBA extends or reinstates certain provisions of the 2017 Tax Cuts and Jobs Act, includes tax relief measures, modifies certain energy tax credits and sets various limits on tax deductions, among other key provisions. The enactment of the OBBBA did not have a material impact on our consolidated financial statements for the year ended December 31, 2025. Certain provisions of the OBBBA that are effective starting in 2026 are also not expected to have a material impact on our consolidated financial statements.
GAAP requires that any change in judgment or change in measurement of a tax position taken in a prior annual period be recognized as a discrete event in the quarter in which it occurs, rather than being recognized as a change in effective tax rate for the current year. Our adherence to these tax guidelines may result in volatile effective income tax rates in future quarterly and annual periods. Factors that could impact management’s judgment include changes in income, tax laws and regulations, and tax planning strategies. Based on the current information available, we anticipate that our effective tax rate will be in the range of 23 to 24 percent for 2026.
See additional information regarding our income taxes under our “— Critical Accounting Estimates” section above, as well as Note 1 2 to the consolidated financial statements.
2025 Form 10-K
Operating Segments
Valley manages its business operations under operating segments consisting of Consumer Banking and Commercial Banking. Activities not assigned to the operating segments are included in Treasury and Corporate Other.
The CEO of Valley is the CODM who assesses performance of each operating segment to better understand their cost, opportunity value and impact to Valley's consolidated earnings. Each operating segment is reviewed routinely for its asset growth, contribution to our income before income taxes, return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations, and reporting structures to identify its reportable segment s.
The accounting for each operating segment and Treasury and Corporate Other includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under GAAP. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to those of any other financial institution. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. See Note 2 0 to the consolidated financial statements for additional information.
The following tables present the financial data for Valley's operating segments, and Treasury and Corporate Other for the years ended December 31, 2025 and 2024:
Consumer
Banking
Commercial
Banking
Treasury and Corporate Other
Total
($ in thousands)
Average interest earning assets
Interest income
Interest expense
Net interest income
(Credit) provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Non-interest expense
Salary and employee benefits expense
Net occupancy expense
Technology, furniture, and equipment expense
FDIC insurance assessment
Professional and legal fees
Other segment items *
Total non-interest expense
Income (loss) before income taxes
Return on average interest earning assets (pre-tax)
Net interest margin
2025 Form 10-K
Consumer
Banking
Commercial
Banking
Treasury and Corporate Other
Total
($ in thousands)
Average interest earning assets
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Non-interest expense
Salary and employee benefits expense
Net occupancy expense
Technology, furniture, and equipment expense
FDIC insurance assessment
Professional and legal fees
Other segment items *
Total non-interest expense
Income (loss) before income taxes
Return on average interest earning assets (pre-tax)
Net interest margin
Other segment items include amortization of intangible assets, amortization of tax credit investments and other general operating expenses.
Consumer Banking Segment. The Consumer Banking segment represented 19.8 percent of the total loan portfolio at December 31, 2025 , and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans). The duration of the residential mortgage loan portfolio (which represented 11.6 percent of our total loan portfolio at December 31, 2025) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans portfolio (representing 4.4 percent of total loans at December 31, 2025) is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer Banking also includes the Wealth Management and Insurance Services Division, comprised of asset management advisory, brokerage, trust, personal and title insurance, tax credit advisory services, and our international and domestic private banking businesses.
Consumer Banking’s average interest earning assets increased $760.2 million to $10.7 billion for the year ended December 31, 2025 as compared to 2024. The increase was mostly due to solid growth in both our automobile and residential mortgage loan portfolios over the last 12-month period and, to a lesser extent, moderate increases in average home equity loan and secured personal lines of credit balances for 2025.
Income before income taxes generated by the Consumer Banking segment increased $87.2 million to $134.9 million for the year ended December 31, 2025 as compared to $47.8 million for the year ended December 31, 2024. The increase was mostly driven by an increase in net interest income combined with a lower provision for credit losses, partially offset by higher non-interest expense as compared to 2024. Net interest income increased $73.4 million as compared to 2024 mainly due to additional interest income from the aforementioned growth in average loans coupled with lower funding costs. The provision for loan losses decreased $25.2 million from $24.6 million for 2024 partly due to the continued strong performance of the loan portfolio, specifically residential mortgage loans, and its positive impact on the quantitative reserves component of our ACL model, amongst other factors. See further details in the “Allowance for Credit Losses” section of this MD&A. Non-interest income increased $4.0 million as compared to 2024 mainly due to higher service charges on deposit accounts and card fee income. Non-interest expense increased $15.4 million to $258.0 million for the year ended December 31, 2025 as compared to
2025 Form 10-K
2024 largely driven by increases in salaries and employee benefits expense and professional and legal fees. See more details in the "Non-Interest Expense" section of this MD&A.
Net interest margin on the Consumer Banking portfolio increased 56 basis points to 2.37 percent for the year ended December 31, 2025 as compared to 2024 mainly due to a 49 basis point decrease in the costs associated with our funding sources combined with a 7 basis point increase in the yield on average loans. The decrease in our funding costs was mainly caused by gradually lower interest rates on most of our deposit products during 2025, as well as the maturity and repayment of higher cost time deposits. The 7 basis point increase in loan yield was largely due to higher yielding new loan originations and the repayment of lower yielding loans in 2025. See more details in the “Net Interest Income” section of this MD&A.
Commercial Banking Segment. The Commercial Banking segment is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, Commercial Banking is Valley’s operating segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $11.0 billion and represented 21.9 percent of the total loan portfolio at December 31, 2025. Commercial real estate and construction loans totaled $29.2 billion and represented 58.3 percent of the total loan portfolio at December 31, 2025.
Average interest earning assets in Commercial Banking segment decreased $1.6 billion to $38.5 billion for the year ended December 31, 2025 as compared to 2024. This decrease mostly reflects the bulk sales of certain performing commercial real estate loans during the fourth quarter 2024, as well as repayment activity related to continued strategic runoff of non-relationship/transactional loans largely within the commercial real estate loan category, partially offset by organic loan growth within the commercial and industrial loan portfolio during the year ended December 31, 2025.
For the year ended December 31, 2025, income before income taxes for Commercial Banking increased $152.0 million to $627.3 million as compared to 2024. The increase was primarily attributable to a $144.5 million decrease in the provision for loan losses largely due to a decline in net loan charge-offs during 2025 and a reduction in quantitative reserves for certain commercial loan categories at December 31, 2025 as compared to December 31, 2024. Non-interest income increased $23.5 million in 2025 as compared to 2024 mostly due to both higher interest rate swap fee income and continued growth in treasury management service fees on commercial deposit accounts during 2025. Net interest income decreased $8.2 million in 2025 as compared to 2024 mainly due to downward repricing of adjustable rate loans and lower average loan balances in this segment, partially offset by our lower cost of funding sources. See details in the “Allowance for Credit Losses for Loans” and "Non-Interest Income" sections of this MD&A.
The net interest margin for this segment increased 14 basis points to 3.59 percent for the year ended December 31, 2025 as compared to 2024, due to a 49 basis point decrease in the cost of our funding sources, partially offset by a 35 basis point decrease in the yield on average loans.
Treasury and Corporate Other. Treasury and Corporate Other largely consists of the Treasury managed HTM debt securities and AFS debt securities portfolios mainly utilized for the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to operating segments. Other non-interest income items and general expenses are allocated from Treasury and Corporate Other to each operating segment utilizing a methodology that involves an allocation of operating and funding costs based on each segment's respective mix of average interest earning assets outstanding for the period, number of deposits, or direct allocations to the segments based on the nature of income and expense.
U nallocated items included in Treasury and Corporate Other consist of net gains and losses on AFS and HTM securities transactions, amortization of tax credit investments, as well as other non-core items, including corporate restructuring charges, the FDIC special assessment, loss on extinguishment of debt, and income from litigation settlements.
Treasury and Corporate Other's average interest earning assets increased $1.5 billion to $8.8 billion for the year ended December 31, 2025 as compared to 2024 primarily due to additional purchases of residential mortgage-backed securities classified as AFS during 2025. The increase in average investment securities was partially offset by a $128.2 million decline in average interest bearing cash held overnight for the year ended December 31, 2025.
The net loss before taxes for this segment totaled $18.4 million for the year ended December 31, 2025 as compared to $84.5 million for 2024. The decrease in pre-tax l oss was primarily driven by an increase in net interest income. Net interest income increased $69.8 million to $132.7 million for the year ended December 31, 2025 compared to 2024 largely due to the additional interest income generated from higher average taxable investment securities. Non-interest income increased $10.2
2025 Form 10-K
million for the year ended December 31, 2025 as compared to 2024, which was mostly due to the net effect of discrete infrequent items in 2024, including aggregate net realized losses of $13.7 million on the sales of performing commercial real estate loans and $7.3 million in litigation settlement income. Non-interest expense increased $13.1 million to $172.6 million for the year ended December 31, 2025 as compared to 2024 largely due to (i) a $22.8 million increase in the amortization of tax credit investments and (ii) increases in salaries and employee benefits expense and legal and professional fees, partially offset by (iii) a decrease of $18.2 million in the FDIC insurance special assessment allocated to Treasury and Other. See more details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.
Treasury and Corporate Other's net interest margin increased 65 basis points to 1.51 percent for the year ended December 31, 2025 as compared to the same period in 2024 due to a 49 basis point decrease in cost of our funding source combined with a 16 basis point increase in the yield on average investments. The increase in yield on average investments as compared to 2024 w as largely due to the higher yielding investments purchased during 2025.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Our success is largely dependent upon our ability to manage interest rate risk. Interest rate risk can be defined as the exposure of our interest rate sensitive assets and liabilities to the movement in interest rates. Our Asset/Liability Management Committee is responsible for managing such risks and establishing policies that monitor and coordinate our sources and uses of funds. Asset/Liability management is a continuous process due to the constant change in interest rate risk factors. In assessing the appropriate interest rate risk levels for us, management weighs the potential benefit of each risk management activity within the desired parameters of liquidity, capital levels and management’s tolerance for exposure to income fluctuations. Many of the actions undertaken by management utilize fair value analysis and attempt to achieve consistent accounting and economic benefits for financial assets and their related funding sources. We have predominantly focused on managing our interest rate risk by attempting to match the inherent risk and cash flows of financial assets and liabilities. Specifically, management employs multiple risk management activities, such as optimizing the level of new residential mortgage originations retained in our mortgage portfolio through increasing or decreasing loan sales in the secondary market, product pricing levels, the desired maturity levels for new originations, the composition levels of both our interest earning assets and interest bearing liabilities, as well as several other risk management activities.
We use a simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios over a 12-month period. The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets and liabilities. The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates, non-maturity deposit betas, and the prepayment assumptions of certain assets and liabilities as of December 31, 2025. The model assumes immediate changes in interest rates without any proactive change in the composition or size of the balance sheet, or other future actions that management might undertake to mitigate this risk. In the model, the forecasted shape of the yield curve remains static as of December 31, 2025. The impact of interest rate derivatives, such as interest rate swaps, is also included in the model.
Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of December 31, 2025. Although the size of Valley’s balance sheet is forecasted to remain static as of December 31, 2025, in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the fourth quarter 2025. The model utilizes an immediate parallel shift in market interest rates at December 31, 2025.
The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the table below, due to the frequency and timing of changes in interest rates and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage these cash flows in conjunction with our liability mix, duration, and interest rates to optimize the net interest income, while structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits, which may result in downward pressure on our net interest margin in future periods. Other factors, including, but not limited to, the slope of the yield curve and projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.
Convexity is a measure of how the duration of a financial instrument changes as market interest rates change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative impact on our net interest income in varying interest rate environments. As a result, the increase or decrease
2025 Form 10-K
in forecast net interest income may not have a linear relationship to the results reflected in the table below. Management cannot provide any assurance about the actual effect of changes in interest rates on our net interest income.
The following table reflects management’s expectations of the change in our net interest income over the next 12- month period considering the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact than shown in the table below.
Estimated Change in
Future Net Interest Income
Changes in Interest Rates
Dollar
Change
Percentage
Change
(in basis points)
($ in thousands)
As noted in the table above, a 100 basis point immediate decrease in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to decrease net interest income over the next 12-month period by 1.46 percent. Management b elieves the interest rate sensitivity of our balance sheet remains within an expected tolerance range at December 31, 2025 . However, the level of net interest income sensitivity may increase or decrease in the future as a result of several factors, including potential changes in our balance sheet strategies, the slope of the yield curve and projected cash flows.
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 31, 2025. The expected cash flows are categorized based on each financial instrument’s anticipated maturity or interest rate reset date in each of the future periods presented.
INTEREST RATE SENSITIVITY ANALYSIS
Thereafter
Total
Balance
($ in thousands)
Interest sensitive assets:
Available for sale debt securities
Held to maturity debt securities
Loans and loans held for sale
Interest bearing deposits with banks
Total interest sensitive assets
Interest sensitive liabilities:
Deposits:
Savings, NOW and money market
Time
Short-term borrowings
Long-term borrowings
Junior subordinated debentures
Total interest sensitive liabilities
Interest sensitivity gap
Ratio of interest sensitive assets to interest sensitive liabilities
The above table provides an approximation of the projected re-pricing of the applicable assets and liabilities at December 31, 2025 based on the contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The prepayment experience reflected herein is based on historical experience combined with market consensus expectations derived from independent external sources. The actual repayments of these instruments could vary substantially if future prepayments differ from historical experience or current market expectations. While all non-maturity deposit liabilities
2025 Form 10-K
are reflected in the year 2026 column in the table above, management controls the re-pricing of the vast majority of the interest-bearing instruments within these liabilities.
The total gap re-pricing within one year as of December 31, 2025 was a negative $21.4 billion, representing a ratio of interest sensitive assets to interest sensitive liabilities of 0.43:1. The total gap re-pricing position, as reported in the table above, reflects the projected interest rate sensitivity of our principal cash flows based on market conditions as of December 31, 2025. As the market level of interest rates and associated prepayment speeds move, the total gap re-pricing position will change accordingly, but not likely in a linear relationship. Management does not view our one-year gap position as of December 31, 2025 as presenting an unusually high risk potential, although no assurances can be given that we are not at risk from interest rate increases or decreases or liquidity and cash requirements (discussed in the section below).
Liquidity and Cash Requirements
Bank Liquidity. Liquidity measures Valley's ability to satisfy its current and future cash flow needs. Our objective is to have liquidity available to fulfill loan demands, repay deposits and other liabilities, and execute balance sheet strategies in all market conditions while adhering to internal controls and income targets. Valley's liquidity program is managed by the Treasury Department and routinely monitored by the Asset and Liability Management Committee and Board Risk Committee. Among other actions, the Treasury Department actively monitors Valley's current liquidity profile, sources and stability of funding, availability of assets for pledging or sale, opportunities to gather additional funds, and anticipated future funding needs, including the level of unfunded commitments.
The Bank adheres to certain internal liquidity measures including ratios of loans to deposits below 105 percent and wholesale funding to total funding below 22.5 percent. Management maintains flexibility to temporarily exceed these internal limits in certain operating environments but also strives to outperform these limits when possible. The Bank was in compliance with the foregoing policies at December 31, 2025 as summarized in the table below.
The following table presents Valley's loans to deposits and wholesale funding to total funding ratios at December 31, 2025 and 2024:
Loans to deposits
Wholesale funding to total funding
The following table summarizes maturities of contractual obligations of the Bank at December 31, 2025:
One Year
or Less
One to
Three Years
Three to
Five Years
Over Five
Years
Total
(in thousands)
Time deposits
Short-term borrowings
Long-term borrowings
Junior subordinated debentures issued to capital trusts
Lease obligations
Other purchase obligations
Total
In the ordinary course of operations, the Bank enters into various financial obligations, including contractual obligations that may require future cash payments. As a financial services provider, we routinely enter into commitments to extend credit, including loan commitments, standby and commercial letters of credit. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Bank. We enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on the Bank's commitments to fund the loans, as well as on its portfolio of mortgage loans held for sale. Commitments to extend credit and standby letters of credit are subject to change since many of these commitments are expected to expire unused or only partially used based upon our historical experience; as such, the total amounts of these commitments do not necessarily reflect future cas h requirements. At December 31, 2025, our off-balance sheet commitments totaled $13.8 billion, inclusive of commitments of $6.1 billion with a remaining term of 12 months or less. See Note 14 to the consolidated financial statements for further details.
2025 Form 10-K
Management believes the Bank has the ability to generate and obtain adequate amounts of cash to meet its short-term and long-term obligations as they come due by utilizing various cash resources described below.
On the asset side of the balance sheet, the Bank has numerous sources of liquid funds in the form of cash and due from banks, interest bearing deposits with banks (including the Federal Reserve Bank of New York) and other sources. The following table summarizes Valley's sources of liquid assets at December 31, 2025 and 2024 :
(in thousands)
Cash and due from banks
Interest bearing deposits with banks
Held to maturity debt securities (1)
Available for sale debt securities (2)
Loans held for sale
Total liquid assets
(1) Represents securities that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid) within the held to maturity debt security portfolio.
(2) Includes a pproximately $1.3 billion and $1.8 billion of various investment securities that were pledged to counterparties to support our earning asset funding strategies at December 31, 2025 and 2024, respectively.
Total liquid assets represented 10.3 percent and 9.6 percent of interest earning assets at December 31, 2025 and 2024, respectively. The level of cash liquidity on the balance sheet at December 31, 2025 (as shown in the table above) decreased from December 31, 2024, but was slightly elevated as compared to normalized levels on an average basis for the year ended December 31, 2025 due to normal fluctuations in expected period end funding activities .
Other sources of funds on the asset side are derived from scheduled loan payments of principal and interest, as well as prepayments received. At December 31, 2025 , estimated cash inflows from total loans are projecte d to be approximately $13.5 billion over the next 12-month period. As a contingency plan for any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio or alleviated from the temporary curtailment of lending activities. We anticipate the receipt of approximately $1.1 billion in principal payments from securities in the total investment portfolio at December 31, 2025 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs, including commercial and consumer deposits, fully FDIC-insured indirect customer deposits, collateralized municipal deposits, and short-term and long-term borrowings. Our core deposit base, which generally excludes all fully insured indirect customer deposits, as well as retail certificates of deposit over $250 thousand, represents the largest of these source s. Average core deposits totaled approximately $42.4 billion and $39.1 billion for the years ended December 31, 2025 and 2024, respectively, representing 73.1 percent and 68.3 percent of average interest earning assets for the respective periods. The level of interest bearing deposits is affected by interest rates offered, which is often influenced by our need for funds, rates prevailing in the capital markets, competition, and the need to manage interest rate risk sensitivity.
In addition to customer deposits, the Bank has access to readily available borrowing sources to supplement its current and projected funding needs. The following table presents short-term borrowings outstanding at December 31, 2025 and 2024:
(in thousands)
Securities sold under agreements to repurchase
2025 Form 10-K
The following table summarizes the Bank's estimated unused available non-deposit borrowing capacities at December 31, 2025 and 2024:
(in thousands)
FHLB borrowing capacity*
Unused FRB discount window*
Unused federal funds lines available from commercial banks
Unencumbered investment securities
Total
* Used and unused FHLB and FRB borrowings are collateralized by certain pledged securities, including but not limited to U.S. government and agency mortgage-backed securities and blanket qualifying first lien on certain real estate and residential mortgage secured loans.
Corporation Liquidity. Valley’s recurring cash requirements primarily consist of dividends to preferred and common shareholders and interest expense on subordinated notes and junior subordinated debentures issued to capital trusts. As part of our ongoing asset/liability management strategies, Valley could also use cash to repurchase shares of its outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures and subordinated notes (similar to the redemption of $215 million of subordinated notes in June 2025). Valley's cash needs are routinely satisfied by dividends collected from the Bank. Projected cash flows from the Bank are expected to be adequate to pay preferred and common dividends, if declared, and interest expense payable to subordinated note holders and capital trusts, given the current capital levels and current profitable operations of the Bank. In addition to dividends received from the Bank, Valley can satisfy its cash requirements by utilizing its own cash and potential new funds borrowed from outside sources or capital issuances. Valley also has the right to defer interest payments on the junior subordinated debentures, and therefore distributions on its trust preferred securities for consecutive quarterly periods of up to five years, but not beyond the stated maturity dates, and subject to other conditions.
Investment Securities Portfolio
As of December 31, 2025, our investment securities portfolio consisted of equity and debt securities, with the debt securities classified as either AFS or HTM. The AFS and HTM debt securities portfolios, which comprise the majority of the securities we own, include U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, single-issuer trust preferred securities principally issued by bank holding companies and high quality corporate bonds. Among other securities, our AFS debt securities include securities such as bank issued and other corporate bonds, as well as municipal special revenue bonds, which may pose a higher risk of future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future performance of the security issuers. The equity securities consist of two publicly traded mutual funds, CRA investments and several other equity investments that we have made in companies that develop new financial technologies and in partnerships that invest in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. We had no trading securities at December 31, 2025 and 2024.
The primary purpose of our AFS and HTM investment portfolios is to provide a source of earnings and liquidity, as well as serve as a tool for managing interest rate risk. The decision to purchase or sell securities is based upon the current assessment of long and short-term economic and financial conditions, including the interest rate environment and other statement of financial condition components. See additional information under “Interest Rate Sensitivity,” “Liquidity and Cash Requirements” and “Capital Adequacy” sections elsewhere in this MD&A.
We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments primarily made into the AFS and HTM debt securities portfolios.
2025 Form 10-K
Investment securities at December 31, 2025 and 2024 were as follows:
(in thousands)
Equity securities
Available for sale debt securities
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities
Corporate and other debt securities
Total available for sale debt securities
Total investment securities (fair value)
Held to maturity debt securities
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities
Trust preferred securities
Corporate and other debt securities
Total investment securities held to maturity (amortized cost)
Allowance for credit losses
Total investment securities held to maturity, net of allowance for credit losses
Total investment securities
During the year ended 2025, we purchased approximately $1.5 billion of residential mortgage backed securities mainly issued by Ginnie Mae within the AFS portfolio. The purchases were largely to utilize a portion of our excess cash liquidity partly from both loan repayments and higher average deposit balances during 2025, as well as our normal reinvestments of continued prepayments and repayments within both the available for sale and held to maturity portfolios. Approximately 53.2 percent, 30.3 percent, and 16.5 percent of our total residential mortgage-backed securities portfolio were issued and guaranteed by Ginnie Mae, Fannie Mae, and Freddie Mac, respectively, at December 31, 2025.
2025 Form 10-K
The following table presents the weighted-average yields, calculated on a yield-to-maturity basis, on the remaining contractual maturities (unadjusted for expected prepayments) of HTM debt securities at December 31, 2025:
0-1 year
1-5 years
5-10 years
Over 10 years
Total
Held to maturity debt securities
U.S. government agency securities
Obligations of states and political subdivisions: (1)
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities (2)
Trust preferred securities
Corporate and other debt securities
Total
(1) Average yields on obligations of states and political subdivisions are generally tax-exempt and calculated on a tax-equivalent basis using a statutory federal income tax rate of 21 percent.
(2) Residential mortgage-backed securities yields are shown using stated contractual maturity dates.
The residential mortgage-backed securities portfolio is a significant source of our liquidity through the monthly cash flow of principal and interest. Mortgage-backed securities, like all securities, are sensitive to changes in the interest rate environment, increasing and decreasing in value as interest rates fall and rise. As interest rates fall, the potential increase in prepayments can reduce the yield on the mortgage-backed securities portfolio and reinvestment of the proceeds will be at lower yields. Conversely, rising interest rates may reduce cash flows from prepayments and extend anticipated duration of these assets. We monitor the changes in interest rates, cash flows and duration, in accordance with our investment policies. Management seeks out investment securities with an attractive spread over our cost of funds.
Allowance for Credit Losses and Impairment Analysis
Available for sale debt securities. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes.
We have evaluated all AFS debt securities that are in an unrealized loss position as of December 31, 2025 and December 31, 2024 and determined that the declines in fair value are mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors. There was no impairment recognized within the AFS debt securities portfolio during the years ended December 31, 2025 and 2024.
We do not intend to sell any of the AFS debt securities in an unrealized loss position prior to recovery of our amortized cost basis, and we believe it is more likely than not that Valley will not be required to sell any of these securities prior to recovery of our amortized cost basis. None of the AFS debt securities were past due as of December 31, 2025 and there was no allowance for credit losses for AFS debt securities at December 31, 2025 and 2024 .
Held to maturity debt securities. Valley estimates the expected credit losses on HTM debt securities that have loss expectations using a discounted cash flow model developed by a third party. Valley has a zero-loss expectation for certain securities within the HTM portfolio, including U.S. Treasury securities, U.S. agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds. To measure the expected credit losses on HTM debt securities that have loss expectations, we utilize a third-party discounted cash flow model. The assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and severity of loss in the event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level. HTM debt securities were carried net of an allowance for credit totaling $734 thousand and $647 thousand at December 31, 2025 and 2024, respectively. There were no net charge-offs of HTM debt securities during the years ended December 31, 2025, 2024 and 2023.
2025 Form 10-K
Investment grades . The investment grades in the table below reflect the most current independent analysis performed by third parties of each security as of the date presented and not necessarily the investment grades at the date of our purchase of the securities. For many securities, the rating agencies may not have performed an independent analysis of the tranches owned by us, but rather an analysis of the entire investment pool. For this and other reasons, we believe the assigned investment grades may not accurately reflect the actual credit quality of each security and should not be viewed in isolation as a measure of the quality of our investment portfolio.
The following table presents available for sale and held to maturity debt investment securities by investment grades at December 31, 2025.
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(in thousands)
Available for sale investment grades:*
AAA/AA/A Rated
BBB Rated
Non-investment grade
Not rated
Total
Held to maturity investment grades:*
AAA/AA/A Rated
BBB Rated
Not rated
Total
* Rated using external rating agencies. Ratings categories include entire range. For example, “A Rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the higher of the rating levels.
The unrealized losses in the AAA/AA/A rated categories of both the AFS and HTM debt securities portfolios (in the above table) were largely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continue to be driven by the higher level of market interest rates. The investment securities AFS and HTM debt securities included $127.3 million and $181.2 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $4.4 million and $10.1 million, respectively, at December 31, 2025. The unrealized losses within non-rated AFS debt securities mostly related to several large corporate bonds negatively impacted by higher interest rates during 2025, and not changes in underlying credit. The unrealized losses within non-rated HTM debt securities mainly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.1 million with $5.4 million gross unrealized losses and several corporate debt securities that were negatively impacted by rising interest rates, and not changes in their underlying credit.
See Note 3 to the consolidated financial statements for additional information regarding our investment securities portfolio.
2025 Form 10-K
Loan Portfolio
The following table reflects the composition of the loan portfolio at December 31, 2025 and 2024:
($ in thousands)
Commercial and industrial
Commercial real estate:
Non-owner occupied
Multifamily (1)
Owner occupied
Total
Construction
Total commercial real estate
Residential mortgage
Consumer:
Home equity
Automobile
Other consumer
Total consumer loans
Total loans (2)
As a percentage of total loans:
Commercial and industrial
Commercial real estate:
Non-owner occupied
Multifamily
Owner occupied
Construction
Total commercial real estate
Residential mortgage
Consumer loans
Total
Includes loans collateralized by properties that are greater than 50 percent rent regulated totaling approximately $601 million and $553 million at December 31, 2025 and 2024, respectively.
Includes net unearned discount and deferred loan fees of $17.4 million and $45.3 million at December 31, 2025 and 2024, respectively.
Total loans increased by $1.3 billion, or 2.7 percent to $50.1 billion at December 31, 2025 from December 31, 2024 mostly due $1.0 billion increase in commercial and industrial loans. Loans held for sale are presented separately from total loans on the consolidated statements of financial condition totaled $26.2 million and $25.7 million at December 31, 2025 and 2024, respectively. See No te 2 for additional information regarding loans held for sale.
Commercial and industrial loans . Commercial and industrial loans increased $1.0 billion to $11.0 billion at December 31, 2025 from December 31, 2024 largely due to our continued strategic focus on organic growth within this category. During 2025, new loan volumes continued to be from a diverse range of relationship-focused small to midsize clients in our primary markets combined with growth from certain specialty nationwide business lines. Consistent with this focus, we have specifically targeted a portion of our growth in healthcare lending and capital‑call facilities within the fund finance sector, which we believe offer favorable risk‑adjusted returns and align with our disciplined credit standards.
Commercial real estate loans. Commercial real estate loans (excluding construction loans) increased $242.5 million to $26.8 billion at December 31, 2025 from December 31, 2024 primarily due to focused growth in owner occupied loans and, to a lesser extent, an increase in multifamily loans, partially offset by a decrease in non-owner occupied loans. Owner occupied loans increased $743.3 million, or 12.6 percent as compared to December 31, 2024 mostly due to new loan origination volumes due to our focused lending efforts for this loan category and the migration of certain completed construction loan projects to
2025 Form 10-K
permanent financing in 2025. Multifamily loans also increased $272.5 million from December 31, 2024 mainly due to permanent financing of completed construction projects and select new loan volumes. Non-owner occupied decreased $773.2 million from December 31, 2024 largely driven by the continued targeted runoff of transactional loans that has outpaced our selective loan originations in this category. The CRE loan concentration ratio declined to 333 percent at December 31, 2025 from 362 percent and 474 percent at December 31, 2024 and 2023, respectively. Based on our current expectations for the mix of future loan growth and loan repayment activity over the next two year period, we believe that our CRE loan concentration ratio may gradually decline towards 300 percent by December 31, 2027. Overall, commercial real estate loans are well-diversified mainly across our footprint areas in New York (including Manhattan), Florida, and New Jersey with a combined weighted average loan to value ratio of 59 percent and debt service coverage ratio of 1.68 at December 31, 2025. Our loans collateralized by office buildings had a combined weighted average loan to value rate of 63 percent and debt service coverage ratio of 1.91 at December 31, 2025 .
Construction loan s. Construction loans decreased $643.5 million to $2.5 billion at December 31, 2025 from December 31, 2024 due to loans that moved to permanent financing primarily within the multifamily and owner occupied commercial real estate loan categories or were repaid during 2025.
Residential mortgage loans . Residential mortgage loans totaled $5.8 billion at December 31, 2025 and increased $193.7 million from December 31, 2024 as new loan originations for investment steadily outpaced repayment activity throughout 2025. During 2025, we retained approximately 77 percent of the total residential mortgages originations in our held for investment loan portfolio as compared to 67 percent in 2024. New and refinanced residential mortgage loan originations totaled $768.2 million for the year ended December 31, 2025 as compared to $611.7 million in 2024. In addition, we purchased $44.8 million of 1-4 family residential mortgage loans from an unrelated third party lenders to support our CRA objectives during 2025. While the volume of residential mortgage loan applications increased during 2025, they have remained relatively low compared to our historical activity due to the high level of mortgage interest rates and other factors negatively impacting the housing markets.
Consumer loans. Consumer loans increased $514.2 million to $4.1 billion at December 31, 2025 from December 31, 2024 due to growth across all consumer loan categories, but largely led by automobile loans. Automobile loans increased $283.5 million, or 14.9 percent to $2.2 billion at December 31, 2025 from December 31, 2024 mainly due to (i) efforts to expand our indirect auto dealer network within our market areas, (ii) continued strong high-quality consumer demand that was particularly elevated during the first half of 2025 due to fears of rising auto prices due to tariffs, partially offset by (iii) higher levels of prepayment activity within the portfolio during the second half of 2025. Other consumer loans increased $147.4 million to $1.2 billion at December 31, 2025 as compared to 2024 primarily due to increased originations and usage of collateralized personal lines of credit. Home equity loans increased $83.2 million to $687.7 million at December 31, 2025 from $604.4 million at December 31, 2024 largely driven by increased pre-existing lines of credit usage and an uptick in new originations during 2025.
Looking forward to 2026, we continue to proactively diversify our loan portfolio through relationship-focused lending within the commercial loan portfolios and reducing certain types of non-relationship/transactional commercial real estate lending, such as non-owner occupied and multifamily loans, through normal contractual run-off and being highly selective on new loan originations. We currently anticipate that our commercial and industrial loan portfolio will organically grow by 10 percent during 2026 as a result of recent investments in our commercial banking teams and the ability to further leverage our existing products and services, including treasury management solutions and capital markets products. Overall, we expect total loan growth to be within a range of the 4 to 6 percent for 2026. However, there can be no assurance that we will achieve such growth levels given the potential for unforeseen changes in the market and other conditions detailed in our risk factors set forth under Item 1A. Risk Factors of this Report.
The following table presents the contractual maturity distribution of loans by category at December 31, 2025:
1 Year or Less
1 to 5 Years
5 to 15 Years
Over 15 Years
Total
(in thousands)
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Consumer
Total loans
2025 Form 10-K
We may renew loans at maturity when requested by a customer. In such instances, we generally conduct a review which includes an analysis of the borrower’s financial condition and, if applicable, a review of the adequacy of collateral via a new appraisal from an independent, bank approved, certified or licensed property appraiser or readily available market resources. A rollover of the loan at maturity may require a principal reduction or other modified terms.
The following table presents the contractual maturities after one year for fixed and adjustable rate loans within each loan category at December 31, 2025:
Loans Maturing After One Year
Fixed Rate
Adjustable Rate
Total
(in thousands)
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Consumer
Total loans
Non-performing Assets
NPAs include non-accrual loans, OREO, and other repossessed assets (which consist of automobiles and taxi medallions) at December 31, 2025. Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to payment of principal or interest and/or the full and timely collection of principal and interest becomes uncertain. Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO and other repossessed assets are reported at lower of cost or fair value, less estimated cost to sell.
Our NPAs increased $66.4 million, or 17.8 percent, to $439.8 million at December 31, 2025 as compared to December 31, 2024. The increase was primarily driven by higher non-accrual commercial real estate and residential mortgage loan balances, partially offset by a decline in non-performing construction loans. NPAs represented 0.87 percent and 0.76 percent of total loans at December 31, 2025 and 2024, respectively, (as shown in the table below). Management believes that, despite the year‑over‑year increase in NPAs, total NPAs at December 31, 2025 remain within credit quality expectations for the loan portfolio and continue to reflect Valley's consistent application of underwriting standards to both originated loans and loans purchased from third parties.
Our lending strategy is based on underwriting standards designed to maintain high credit quality, and we remain optimistic regarding the overall future performance of our loan portfolio. During the year ended December 31, 2025, the majority of our borrowers continued to demonstrate resilience despite the impact of elevated borrowing costs, inflation, labor costs and other factors. We continue to proactively monitor our commercial loans for potential negative trends and borrower weakness due to the current operating environment, including the potential negative impact of current and future tariff/import fee actions, and internally risk rate them accordingly. Based on our most recent portfolio review, we believe that we have relatively modest direct exposure to customer businesses most influenced by changing tariff/import fee policies. However, management cannot provide assurance that the NPAs will not increase from the levels reported at December 31, 2025 due to the aforementioned or other factors potentially impacting our lending customers.
2025 Form 10-K
The following table sets forth by loan category, accruing past due and NPAs on the dates indicated in conjunction with our asset quality ratios at December 31, 2025 and 2024:
($ in thousands)
Accruing past due loans
30 to 59 days past due:
Commercial and industrial
Commercial real estate
Residential mortgage
Total consumer
Total 30 to 59 days past due
60 to 89 days past due:
Commercial and industrial
Commercial real estate
Residential mortgage
Total consumer
Total 60 to 89 days past due
90 or more days past due:
Commercial and industrial
Commercial real estate
Residential mortgage
Total consumer
Total 90 or more days past due
Total accruing past due loans
Non-accrual loans:
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total consumer
Total non-accrual loans
Other real estate owned (OREO)
Other repossessed assets
Total non-performing assets (NPAs)
Total non-accrual loans as a % of loans
Total NPAs as a % of loans and NPAs
Total accruing past due and non-accrual loans as a % of loans
Allowance for loan losses as a % of non-accrual loans
Loans past due 30 to 59 days increased $62.9 million to $120.0 million at December 31, 2025 as compared to December 31, 2024 due to a few larger loans in the commercial real estate loan category. Commercial real estate loans within this delinquency category included three well-secured loans with a combined total balance of $59.5 million at December 31, 2025 in various states of collection, including one borrower's expected, but pending sale of the collateral and repayment of the loan.
Loans past due 60 to 89 days decreased $19.4 million to $16.7 million at December 31, 2025 as compared to December 31, 2024 due to mostly due to the subsequent renewal of an $18.6 million matured performing commercial real estate loan reported in this delinquency category at December 31, 2024 and a $4.5 million commercial real estate loan that was reclassified to the non-accrual category during the first quarter 2025.
2025 Form 10-K
Loans 90 days or more past due and still accruing decreased $1.3 million to $4.6 million at December 31, 2025 as compared to December 31, 2024 primarily driven by a decline in commercial and industrial loan delinquencies within this category. All the loans past due 90 days or more and still accruing are considered to be well secured and in the process of collection.
Non-accrual loans increased $74.4 million to $433.9 million at December 31, 2025 as compared to December 31, 2024 largely driven by increases in both non-performing commercial real estate and residential mortgage loan categories, partially offset by a decline in non-performing construction loans. N on-accrual commercial real estate loans increased $79.0 million at December 31, 2025 as compared to December 31, 2024 mostly due to five loan relationships totaling $47.8 million and one $9.2 million loan relationship classified as held for sale included in this category at December 31, 2025. Non-accrual construction loans decreased $15.5 million to $9.1 million at December 31, 2025 compared to December 31, 2024 mainly due to the full repayment of a $10.8 million loan relationship and the sale of a non-performing loan relationship classified as held for sale during the fourth quarter 2025.
Non-performing taxi medallion loans included in non-accrual commercial and industrial loans totaled $47.1 million at December 31, 2025 and had related reserves of $24.5 million, or 52.1 percent of such loans, within the allowance for loan losses as compared to $49.5 million of loans with related reserves of $25.8 million at December 31, 2024. During 2025, we continued to closely monitor the performance of our taxi medallion loans (primarily collateralized by New York City medallions). Due to the challenging operating environment for ride‑for‑hire services and uncertain borrower performance, all of the taxi medallion loans remain on non-accrual status at December 31, 2025. Potential further declines in the market valuation of taxi medallions as well as current operating environment mainly within New York City may negatively impact the performance of this portfolio.
OREO, consisting of five commercial properties, totaled $4.5 million at December 31, 2025 as compared to $12.2 million, primarily consisting of two commercial properties, at December 31, 2024. The decrease from December 31, 2024 was mostly due to the sale of one OREO property, which resulted in a $2.9 million loss, and a fair valuation write‑down of $3.4 million recorded on one other OREO property in 2025. Residential loans in the process of foreclosure totaled $3.4 million and $4.6 million at December 31, 2025 and 2024, respectively. See Notes 1 and 2 to the consolidated financial statements for additional information regarding OREO.
Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at December 31, 2025, are well secured and largely collectible, based in part on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable. Any estimated shortfall in the net realizable value for collateral dependent loans is charged-off when a loan is 90 or 120 days past due or sooner, if it is probable that a loan may not be fully collectible. If interest on non-accrual loans had been accrued in accordance with the original contractual terms, such interest income would have amounted to approximately $42.6 million, $32.5 million and $28.8 million for the years ended December 31, 2025, 2024 and 2023, respectively; none of these amounts were included in interest income during these periods.
Asset Concentration and Risk Elements
Valley lendin g is mostly concentrated within our primary markets located in northern and central New Jersey, New York City , Long Island, Westchester County, New York and Florida, and, to a lesser extent, California, Illinois, Alabama and attractive adjacent markets, such as Pennsylvania . Consistent with our business strategy , we also extend commercial loans to new customers in select states outside our traditional geographic footprint. In addition, automobile loans are originated across several contiguous states beyond our primary markets. T o mitigate our geographic risks, we make efforts to maintain a diversified portfolio as to type of borrower and loan to guard against a potential downward turn in any one economic sector. Due to the level of our underwriting standards applied to all loans, management believes the out of market loans generally present no more risk than those made within the market. However, each loan or group of loans made outside of our primary markets poses different geographic risk profiles that are unique to their respective regions.
For our commercial loan portfolio, comprised of commercial and industrial loans, commercial real estate loans, and construction loans, a dedicated credit department is responsible for risk assessment and periodically evaluating overall creditworthiness of a borrower. Additionally, we make efforts to limit concentrations of credit to minimize the potential impact of adverse conditions in any single economic sector. We believe that our loan portfolio is diversified across borrower types and loan categories; however, loans secured by commercial or residential real estate represented approximately 71 percent of total loans at December 31, 2025. Most of the loans collateralized by real estate are in New Jersey, New York and Florida, which exposes the portfolio to heightened geographic risk in the event of significant broad-based deterioration in economic conditions within these regions. See Item 1A. Risk Factors—“Risks Related to the Operating Environment.”
2025 Form 10-K
Additionally, our commercial real estate portfolio includes credit risk exposures to loans collateralized by office buildings and multifamily properties in Manhattan and other markets. At December 31, 2025, total commercial real estate loans collateralized by office buildings were approxima tely $3.0 billion (including approximately $196.4 million located in Manhattan) of the total $26.8 billion portfolio. The majority of the office space loans are multi-tenant and dispersed geographically in Florida, Alabama, New Jersey and New York. Multifamily loans within the portfolio totaled $8.6 billion at December 31, 2025, and included $601 million of loans exposures to greater than 50 percent rent regulated buildings located mainly in Manhattan. We continue to closely monitor these loan types for elevated risks or weaknesses, and internally risk rate and reserve for them in our allowance for loan losses accordingly.
Consumer loans consist of residential mortgage loans, home equity loans, automobile loans, and other consumer loans. Residential mortgage loans are secured by 1‑4 family properties, mostly located in New Jersey, New York, and Florida. While we also originate residential mortgage loans outside these primary markets, it has generally been limited to lending that supports existing customer relationships, as well as targeted purchases of certain loans guaranteed by third parties. Our mortgage loan originations include both jumbo (i.e., loans with balances above conventional conforming loan limits) and conventional loans based on underwriting standards that generally comply with Fannie Mae and/or Freddie Mac requirements. The average loan-to-value ratio and average FICO ® score (independent objective criteria measuring the creditworthiness of a borrower) of all residential mortgage originations in 2025 were 72.0 percent and 762, respectively. Home equity and automobile loans are secured loans and are made based on an evaluation of the collateral and the borrower’s creditworthiness.
Management realizes that some degree of risk must be expected in the normal course of lending activities. Allowances are maintained to absorb such lifetime expected credit losses inherent in the portfolio. See the “Loan Portfolio Risk Elements and Credit Risk Management” section in Note 4 to the consolidated financial statements for additional information.
Allowance for Credit Losses
The ACL for loans includes the allowance for loan losses and the reserve for unfunded credit commitments. Under CECL, our methodology to establish the allowance for loan losses has two basic components: (i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (ii) an individually evaluated reserve component for loans that do not share risk characteristics, consisting of collateral dependent loans. Valley also maintains a separate allowance for unfunded credit commitments mainly consisting of undisbursed non-cancellable lines of credit, new loan commitments and commercial standby letters of credit.
Valley estimates the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. In estimating the component of the allowance on a collective basis, we use a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by using probability of default and loss given default metrics. The probability of default and loss given default metrics are adjusted using a scaling factor to incorporate a full economic cycle.
The expected life of loan loss percentages are determined by analyzing the migration of loans within the commercial and industrial loan categories from performing to loss by credit quality rating or delinquency categories using historical life-of-loan data for each loan portfolio pool, and by assessing the severity of loss based on the aggregate net lifetime losses incurred. The expected credit losses based on loss history are adjusted for qualitative factors. Among other things, these adjustments include and account for differences in: (i) the impact of the reasonable and supportable economic forecast, relative probability weightings and economic variables under each scenario and reversion period, (ii) other weighted asset specific risks to the extent that they do not exist in the historical loss information, and (iii) net expected recoveries of charged-off loan balances. These adjustments are based on qualitative factors not reflected in the transition matrix but are likely to impact the measurement of estimated credit losses. The expected lifetime rate is the life of loan percentage from the transition matrix model plus the impact of the adjustments for qualitative factors. The expected credit are the product of multiplying the model’s expected lifetime rate by the exposure at at period end on an undiscounted basis.
Valley utilizes a two-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience on a straight-line basis for the remaining life of the loan. The forecast consists of multi-scenario economic forecasts to estimate future credit losses and are governed by a cross-functional committee. The committee meets each quarter to determine which economic scenarios developed by Moody's will be incorporated into the model, as well as the relative probability weightings of the selected scenarios, based upon all readily available information. The model projects economic variables under each scenario based on detailed statistical analyses. We have identified and selected key variables that most closely correlated to our historical credit performance, which include GDP, unemployment and the Case-Shiller Home Price Index.
2025 Form 10-K
Valley maintained the majority of its probability weighting used in the economic forecast to the Moody’s Baseline scenario with less emphasis on the S-3 downside scenario and a smaller percentage weighting on the S-1 upside scenario. The probability weightings were unchanged from December 31, 2024. At December 31, 2025, the standalone Moody's Baseline scenario, reflected a slightly less optimistic outlook as compared to December 31, 2024 for several metrics, including a few highlighted below.
At December 31, 2025, the Moody's Baseline forecast included the following specific assumptions:
• GDP will slowly increase to 2.1 percent throughout 2026 before trending down to 1.9 percent in late 2027 ;
• An u nemployme nt rate of 4.8 percent by the second half of 2026 and remaining within a range of 4.4 to 4.8 percent through the end of the forecast period in the fourth quarter 2027;
• The target federal funds rate range of 3.5 to 3.75 percent at December 31, 2025 is assumed to remain unchanged until early 2026; and then fall to an upper target rate below 3.00 percent by the end of 2027; and
• The inflation rate was 2.7 percent in December 2025 and is expected to remain above 2.0 percent through 2027.
The allowance for credit losses for loans methodology and accounting policy are fully described in Note 1 to the consolidated financial statements.
The following table summarizes the relationship among loans, loans charged-off, loan recoveries, the provision for credit losses and the allowance for credit losses for the years ended December 31, 2025, 2024 and 2023:
Allowance for credit losses for loans
($ in thousands)
Beginning balance
Impact of the adoption of ASU No. 2022-02
Beginning balance, adjusted
Loans charged-off:
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total loan charge-offs
Charged-off loans recovered:
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total loans recovered
Total net loan charge-offs
Provision for credit losses for loans
Ending balance
Components of allowance for credit losses for loans:
Allowance for loan losses
Allowance for unfunded credit commitments
Allowance for credit losses for loans
Components of provision for credit losses for loans:
Provision for credit losses for loans
(Credit) provision for unfunded credit commitments
Total provision for credit losses for loans
Allowance for credit losses for loans as a % of total loans
2025 Form 10-K
The following table presents the relationship among net loans charged-off and recoveries, and average loan balances outstanding for the years ended December 31, 2025, 2024 and 2023:
($ in thousands)
Net loan (charge-offs) recoveries
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total consumer
Total
Average loans outstanding
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total consumer
Total
Net loan charge-offs (recoveries) to average loans outstanding
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total consumer
Total net loan charge-offs to total average loans outstanding
Net loan charge-offs decreased $84.7 million to $116.9 million in 2025 as compared to $201.6 million in 2024 primarily due to lower gross loan charge-offs within commercial loan categories.
Gross commercial and industrial loan charge-offs totaling $62.3 million for the year ended December 31, 2025 included (i) full charge-offs of $18.6 million related to two non-performing loan relationships which had $17.7 million of prior reserves within the allowance for loan losses, (ii) partial charge-offs of $28.9 million related to four loan relationships with combined prior specific reserves of $9.5 million, and (iii) several smaller partial loan charge-offs. Gross commercial real estate loan charge-offs totaling $54.7 million for the year ended December 31, 2025 and included (i) partial charge-offs of $22.2 million related to three non-performing loan relationships, as well as (ii) partial charge-offs of $3.6 million related to one non-performing loan relationship transferred to loans held for sale during the fourth quarter 2025.
Total net loan charge-offs to total average loans outstanding (as presented in the above table) for the year ended December 31, 2025 decreased to 0.24 percent in 2025 from 0.40 percent in 2024 and remained within management’s expectations for credit quality. While we currently estimate that the level of total net loan charge-offs to average loans outstanding could decrease to approximately 0.15 to 0.20 percent in 2026, we can make no assurances that future net loan charge-offs will not be at or above the levels reported at December 31, 2025.
2025 Form 10-K
The following table summarizes the allocation of the allowance for credit losses to specific loan portfolio categories at December 31, 2025 and 2024:
Allowance
Allocation
Percent of Loan Category to Total Loans
Allowance
Allocation
Percent of Loan Category to Total Loans
($ in thousands)
Loan Category:
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate
Residential mortgage
Total consumer
Total allowance for loan losses
Allowance for unfunded credit commitments
Total allowance for credit losses for loans
The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments (including letters of credit), as a percentage of total loans was 1.19 percent at December 31, 2025 and 1.17 percent at December 31, 2024. The allowance for credit losses for loans increased $22.8 million at December 31, 2025 as compared to December 31, 2024.
The provision for credit losses for loans totaled $139.7 million and $309.4 million for the year ended December 31, 2025 and 2024, respectively. The decrease in the 2025 provision was mainly due to: (i) a significant decrease in net loan charge-offs, including charge-offs associated with the revaluation of collateral dependent commercial loans as compared to 2024 and (ii) stabilization and a moderate decrease in criticized and classified loans which reduced the impact of year over year changes in quantitative reserves for the commercial loan categories, partially offset by (iii) increases in the economic and non-economic qualitative reserve components of the allowance for credit losses and (iv) moderately higher specific reserves associated with collateral dependent loans.
See Note 4 to the consolidated financial statements for additional information regarding our allowance for credit losses for loans.
Loan Repurchase Contingencies
We engage in the origination of residential mortgages for sale into the secondary market. Our sales of residential mortgage loans originated for sale totaled approximately $182.2 million , $203.8 million and $202.5 million for 2025, 2024 and 2023, respectively. The level of loan sales is impacted by several factors, including consumer demand and preferences for certain mortgage products and our management of the interest rate risk and the mix of the interest earning assets on our balance sheet.
In connection with our loan sales, including both residential mortgage loans originated for sale and less frequent transfers and sales from our loans held for investment portfolio, we make representations and warranties, which, if breached, may require us to repurchase such loans, substitute other loans or indemnify the purchasers of such loans for actual losses incurred due to such loans. However, the performance of our loans sold has been historically strong due to our strict underwriting standards and procedures. Over the past several years, we have experienced a nominal amount of repurchase requests, only a few of which have actually resulted in repurchases by Valley (there were no loan repurchases in 2025 and 2024 ). None of the prior loan repurchases resulted in material loss. Accordingly, no reserves pertaining to loans sold were established on our consolidated financial statements at December 31, 2025 and 2024. See Item 1A. Risk Factors —“We may incur future losses in connection with repurchases and indemnification payments related to mortgages that we have sold into the secondary market” for additional information.
2025 Form 10-K
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At December 31, 2025 and 2024, shareholders’ equity totaled approximately $7.8 billion and $7.4 billion, or 12.2 percent and 11.9 percent of total assets, respectively.
During 2025, total shareholders’ equity increased by $372.6 million, primarily due to the following:
• net income of $598.0 million,
• other comprehensive income of $81.0 million,
• a $35.2 million increase attributable to the effect of share issuances under our stock incentive plan.
partially offset by
• cash dividends declared on common and preferred stock totaling a combined $278.4 million and
• a total of $63.2 million used to repurchase shares of our common stock held in treasury stock.
Valley and the Bank are subject to the regulatory capital requirements administered by the Federal Reserve and the OCC. Quantitative measures established by regulation to ensure capital adequacy require Valley and the Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.
The following table presents the capital guidelines and actual ratios applicable to Valley as of December 31, 2025 and 2024:
Actual Ratio
Minimum Ratio
Minimum Ratio plus Capital Conservation Buffer
Total Risk-based Capital
Common Equity Tier 1 Capital
Tier 1 Risk-based Capital
Tier 1 Leverage Capital
As of December 31, 2025 and 2024, Valley and the Bank exceeded all capital adequacy requirements. See Note 16 to the consolidated financial statements for Valley’s and the Bank’s regulatory capital positions and capital ratios.
Valley's total risk-based capital ratio decreased to 13.77 percent at December 31, 2025 as compared to 13.87 percent at December 31, 2024 which reflects, but is not limited to, the early redemption of our $115 million of 5.25 percent fixed-to-floating subordinated notes in June 2025, which were previously eligible for full regulatory capital treatment. See Note 9 to the consolidated financial statements for more details.
Typically, our primary source of capital growth is the retention of earnings. Our rate of earnings retention is calculated by dividing undistributed earnings per common share by earnings (or net income available to common shareholders) per common share. Our retention ratio was 56.4 percent and 36.2 percent for the years ended December 31, 2025 and 2024, respectively. The increase in the 2025 retention ratio was largely driven by higher net income available to common shareholders compared with 2024.
Cash dividends declared amounted to $0.44 per common share for both years ended December 31, 2025 and 2024. The Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value, each time it makes a cash dividend decision. The Federal Reserve has cautioned all bank holding companies about distributing dividends which may reduce the level of capital or not allow capital to grow considering the increased capital levels required under the Basel III rules. Prior to the date of this filing, Valley has received no objection or adverse guidance from the Federal Reserve or the OCC regarding the current level of its quarterly common stock dividend. However, the Federal Reserve has reiterated its long-standing guidance in recent years that banking organizations should consult them before declaring dividends in excess of earnings for the corresponding quarter. See Item 1A. Risk Factors of this Report for additional information.
We may from time to time offer and sell in one or more offerings, individually or in any combination, our common stock, preferred stock and other non-equity securities in order to pursue growth opportunities that may become available in the future and comply with any changes in the regulatory environment that call for increased capital requirements. Valley’s ability, and any decision to issue and sell securities, is subject to market conditions and Valley’s capital needs at such time. Additional
2025 Form 10-K
equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both. Such offerings may be necessary in the future due to several reasons beyond management’s control, including numerous external factors that could negatively impact the strength of the U.S. economy or our ability to maintain or increase the level of our net income. See Note 17 to the consolidated financial statements for additional information on Valley’s common and preferred stock, including the most recent issuances in 2024.
