Good day, and welcome to Valley's conference call to discuss the acquisition of Bluevine. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question, you will need to press star one one on your touchtone telephone. Please note this call may be recorded. I would now like to turn the call over to Andrew Jianette. Please go ahead.
Good morning, and welcome to Valley's conference call to discuss our agreement to acquire Bluevine Inc. The press release and investor presentation accompanying this announcement are available on our website at www.valley.com. Joining me today are Ira Robbins, Valley's Chairman and CEO, Travis Lan, Valley's Chief Financial Officer, and Eyal Lifshitz, Bluevine's Co-founder and CEO. Before we begin, please note that today's remarks may contain forward-looking statements and actual results could differ from those statements. For more information on these forward-looking statements and associated risk factors, please refer to our SEC filings including Forms 8K, 10Q and 10K. With that, I will turn the call over to Ira Robbins.
Thank you, Andrew, and good morning, everyone. I am excited to join you today to discuss our announced acquisition of Bluevine, a leading nationwide digital banking platform, purpose-built for small businesses. As Andrew mentioned, I am pleased to have Eyal, Bluevine's Co-founder and CEO here with us today. This acquisition builds on the significant progress we have made over the past several years. In 2024, we materially de-risked the balance sheet and drove a meaningful profitability inflection in 2025. 2026 has built on that momentum as we further optimize our funding base. Bluevine accelerates this progress by adding a mature and growing low-cost core deposit franchise that improves our funding mix and reduces our reliance on higher cost wholesale funding.
As a result of our organic progress and the strategic acquisitions of Providence and Bluevine, we are establishing 2028 loan to non-broker deposit ratios and loan-to-deposit targets of 100% and 90% respectively. Achieving these targets should further improve profitability and enhance shareholder value. Beyond the funding benefits, this transaction advances our other strategic priorities we have outlined over the past several years and positions us to compete more effectively in a rapidly evolving banking landscape. Bluevine adds valuable technology and AI capabilities and significantly accelerates our path to relevancy in small business banking. Combining Valley's relationship focus, broad product suite, and balance sheet capacity with Bluevine's industry-leading digital acquisition platform and user experience gives us an immediate right to win in this large fragmented segment. We see significant growth potential in small business banking, and Bluevine improves our position to capitalize on that opportunity.
In a higher for longer interest rate environment, we believe that Bluevine's granular, low-cost core deposit base becomes even more valuable and provides Valley with a durable funding advantage that will support the replacement of higher cost wholesale fundings over time. Slide three of our investor presentation focuses on the tangible near-term benefits of the acquisition. As of June 30th, 2026, Bluevine had approximately $2.1 billion of low-cost core deposits on its platform, originated from its nearly 175,000 active small business clients. These deposits are currently held at a third-party partner bank, but will be expected to transition to Valley in the first half of 2027. The attractive rate on this rapidly growing deposit portfolio reflects the value of Bluevine's purpose-built digital offering and leading customer experience for small businesses. Valley's legacy small business franchise is comprised of approximately $1.9 billion of deposits across roughly 9,000 relationships.
Bluevine will increase our small business client base by nearly 20 times and should meaningfully accelerate our pace of future customer acquisition in this segment. Combining Valley's balance sheet capacity, branch presence, and broader product suite with Bluevine's national digital reach and scalable customer acquisition will enable us to more holistically serve small business customers over time. Bluevine will also contribute deep engineering, data and AI capabilities to Valley. Bringing more of that expertise in-house will give us greater control over our client experiences, improve our speed to market, reduce our reliance on third-party providers, and create new opportunities to improve efficiency as we scale. Bluevine has invested nearly $200 million to build its technology platform and customer acquisition engine. When combined with the economic value of its existing deposit base and the significant opportunity for future growth, we believe these capabilities more than justify the transaction consideration.
The combination of strategic value and financial merit is central to how we evaluated this opportunity. We have consistently said that we will consider acquisitions that accelerate our strategic priorities while meeting our disciplined financial standards. Travis will discuss the financial impact shortly, but we believe this transaction satisfies both tests. Providence and Bluevine have addressed our near-term strategic priorities, and we do not anticipate pursuing additional acquisitions for the foreseeable future. Our capital, our resources, and our management attention will be explicitly directed towards integration, value realization, and executing on our substantial organic growth opportunities. Over the past decade, Bluevine has developed a purpose-built digital banking platform for small businesses, which combines banking, payments, lending, and financial management tools with the proprietary technology and risk infrastructure. Bluevine's platform has earned broad national recognition as a leading digital banking solution for small businesses.
As illustrated on slide four, these efforts have resulted in a scaled and highly engaged national customer base. As of June 30th, 2026, approximately 175,000 active small business platform users have generated $2.1 billion of deposits. Customer accounts and deposit balances continue to grow rapidly. Slide five illustrates the rapidly changing banking landscape. Fintechs increasingly want the balance sheet access, stability, and credibility that comes with a regulated banking infrastructure. While banks increasingly need proven digital acquisition channels, proprietary technology, and modern customer experiences. Rather than waiting for chartered fintechs to compete with us for small business relationships, we are proactively combining Valley's banking foundation with Bluevine's digital growth engine. That is the strategic logic of this transaction, and it is why we expect to be a much stronger and a more relevant small business competitor following this acquisition.
Slide six highlights Bluevine's nationwide digital reach against the backdrop of Valley's existing branch network. While Bluevine acquires small business clients across the country without a physical branch presence, roughly 40% of those customers already exist in Valley's footprint. This gives us a clear opportunity to deepen those relationships through cross-sell of our treasury management, wealth, insurance, capital markets, and relationship-led lending solutions. The opportunity also extends well beyond our physical footprint. Bluevine gives us a scalable way to grow deposits, deepen digital engagement, and selectively expand products over time for customers outside of our physical footprint. Together, we can serve small businesses through both traditional and digital means in a way that better matches how clients want to be served today. As you can see on slide seven, and as I mentioned earlier, we also view this as a transformational step for Valley's technology strategy.
The majority of Bluevine's code is AI-generated today, and approximately 80% of inbound client inquiries are resolved by AI. The team has built its own credit model, its own fraud, its own AML model, all supported by a single data layer that connects core banking and payment systems. Owning these capabilities will give us greater control over our client experiences, more speed in bringing solutions to market, and importantly, less reliance upon third parties software providers. Over time, by combining these capabilities with Valley's own emerging AI efforts, all of this should help to accelerate positive operating leverage and accelerate our progress towards a meaningfully lower efficiency ratio. Finally, I want to comment on Bluevine's people. Through our diligence, we spent meaningful time with the Bluevine team and came away with a strong appreciation for their culture, talent, and execution mindset.
We are delighted to welcome them to Valley and are excited to apply their technology, data, and AI capabilities across a broader set of opportunities. I am thrilled that Eyal will join Valley as head of small business banking, and that Nir, Bluevine's other co-founder and CTO, will remain with the combined company. We expect to retain a significant amount of the commercial and engineering talent that has made Bluevine so special and successful today. With that, I will turn the call over to Travis now to walk through the deposit franchise, the financial terms, and our integration priorities.
Thank you, Ira. As shown on slide eight, Bluevine has built a scaled, digitally gathered deposit franchise that is highly additive to Valley's own funding strategy. As of June 30th, 2026, the platform had generated approximately $2.1 billion of active small business deposits, more than double the balance at the year-end 2023. These are granular core deposits gathered nationally without a branch network and supported by a product ecosystem that keeps small business customers engaged across checking, payments, bill pay, lending, and other financial management tools. This value proposition has resulted in high customer satisfaction and an attractive relative cost of deposits, which we expect to be fairly stable even in a higher for longer rate environment. On a combined basis, Providence and Bluevine will give Valley a larger, more diversified, and scalable low-cost core funding base.
This mature digital SMB focus will become Valley's newest specialty deposit vertical, bringing aggregate deposits in these business lines to approximately $15 billion on a pro forma basis. Bluevine's portfolio is granular, with an average balance of roughly $12,000 per active customer and approximately 86% customer retention after one year. Our specialty verticals have driven differentiated core deposit growth results in recent years. Based on current momentum and Bluevine's digital acquisition model, we expect platform deposits to more than double over the next three years. Importantly, that growth is expected to come without an over-reliance on rate, reinforcing both the quality of the customer relationships and the efficiency of Bluevine's model as we reduce brokered deposits post-transition. With respect to the deposit transition, Bluevine's existing partner banking program will be terminated at the close of this transaction.
According to the contractual terms of their existing partner agreement, we expect to transition Bluevine-generated deposits to our balance sheet within three to six months of closing. Once these deposits are repatriated, we intend to use them to replace higher-cost brokered funding, which will improve our loans to non-brokered deposit ratio and overall cost of funds. Slide nine illustrates the combined funding benefits of Providence and Bluevine. In aggregate, we are acquiring nearly $3.5 billion of low-cost core deposits. On a pro forma basis, our loans to non-brokered deposits and loans to total deposits would decline to 103% and 93% from 107% and 97% at June 30th, 2026. We are also establishing 2028 targets of 100% for loans to non-brokered deposits and 90% for loans to deposits. These transactions accelerate the next phase of the structural funding improvement we have been working towards over the last several years.
Bluevine also brings a proven lending engine with a single application, ten-minute decisioning, and an average FICO score of 729 on short-duration small business loans. As of June 30th, 2026, Bluevine held a fairly modest $130 million of these loans on its balance sheet. While the addressable market is substantial, our focus will remain disciplined, using lending to deepen relationships that support deposit growth and align with Valley's relationship-led approach across business segments. Turning to the transaction terms, Valley will acquire Bluevine for $340 million with a consideration mix of 75% cash and 25% stock. As Ira mentioned, this aggregate purchase price should be viewed in the context of the nearly $200 million that Bluevine has already invested to develop its industry-leading platform and customer acquisition engine. The strategic value associated with this technology, combined with the economic value of the low-cost core deposits, was highly compelling for us.
The transaction does not require traditional bank regulatory or shareholder approval and is expected to close early in the first quarter of 2027. As a reminder, we anticipate a three to six-month post-close lag before we can fully transition Bluevine deposits to our balance sheet. During that interim period, we expect a de minimis net earnings impact from the acquisition. As the deposits transition to Valley, we expect the resulting reduction in brokered deposits to provide an immediate funding benefit and support the earnings accretion we will discuss shortly. Our model includes $50 million of run rate pre-tax cost savings, with 50% phased in for 2027 and 100% thereafter. Modeled synergies primarily relate to shared services, duplicative technology, small business support, and marketing spend. Net interest income upside from deposit migration will be partially mitigated by foregone Durbin income as Bluevine transitions from a sub-$10 billion partner bank to Valley.
Importantly, our assumptions do not include potential upside from the cross-sell, lending, or treasury management opportunities that we have identified. On this basis, we expect the transaction to be approximately 8% accretive to 2028 earnings per share, with approximately 5% tangible book value dilution at close and an earn back period of approximately three years. With fully phased cost savings, Valley's pro forma return on average tangible common equity should benefit by between 150 basis points and 200 basis points, accelerating our progress past the 15% target that we have identified for the fourth quarter of 2027. Our CET1 ratio is expected to remain above 10.3% at close, inclusive of the pending Providence acquisition, or approximately 11% as adjusted for the Basel III endgame proposal.
We believe this acquisition is a compelling use of capital relative to a buyback, as it offers an attractive earn back period with complementary funding and qualitative improvements. Slide 12 summarizes our near-term integration priorities. Our number one post-close priority is transitioning Bluevine-generated deposits from the existing partner bank to Valley. As our teams execute that transition, we will focus on maintaining an uninterrupted customer experience, sustaining Bluevine's deposit growth momentum, and capturing identified synergies without distracting from those priorities. Over the intermediate term, we will focus on strategic opportunities across small business growth, product penetration, risk operations, and technology modernization. The combination of Valley's relationship-led model and Bluevine's digital platform should help us deepen customer relationships, reduce friction across the operating model, and further improve our efficiency.
In short, our integration plan is focused on realizing the funding benefit first, protecting the customer experience throughout the transition, and then using the combined platform to drive broader strategic value. With that, I'll turn the call back to Ira.
Thanks, Travis. To summarize, this acquisition strengthens Valley today and positions us better for the future. It improves our funding profile, adds a scaled national digital small business platform Expands our technology and capabilities, and does so within disciplined financial parameters. By combining Valley's charter, balance sheet, risk discipline, relationship model, and broad product capabilities with Bluevine's digital platform, we believe we are creating a stronger and more relevant small business bank. Most importantly, the combination makes Valley more relevant in a banking landscape where clients increasingly expect the strength of a regulated bank with the convenience, speed, and personalization of a modern digital platform. We are thrilled about what Valley and Bluevine can build together for small businesses across the entire country. With that, we will be happy to now take your questions.
Thank you. As a reminder, to ask a question, please press star one one. If your question has been answered and you'd like to remove yourself from the queue, press star one one again. Our first question comes from Feddie Strickland with Hovde Group. Your line is open.
Hey, good morning. Just wanted to start off and ask, how should we think about Bluevine combined with the Providence acquisition? Is this something that you were thinking about in concert, or are these two discrete thought processes? Just wondering if I can get your thinking and kind of how this all came together.
Morning, and thank you for the question. I think we're really trying to address the core funding challenge that we see today at Valley and sort of exasperating as we think about the banking environment as it continues to move forward. We spent a lot of time over the last few years addressing a handful of outliers when it came to the balance sheet, if you look at sort of where the capital levels were, the loan loss coverage we had, as well as where the CRE ratios were. I think that the one real significant issue that was an outlier for us was where that loan-to-deposit ratio or what the core funding looked like, and then what the cost of that core funding is. Both of them were really addressed with that in mind.
We think it really positions us well to achieve those 90% numbers that Travis outlined in his prepared remarks and really drive a very different funding profile here at Valley.
Got it. Thanks for that. Should we expect any changes in the capital allocation strategy now with Bluevine, or put another way, does repurchase step down from there? I think you addressed that a little bit in your opening remarks. Just clarification there, if you could.
Yeah, no, there's no change to our future capital deployment strategy. As we were thinking about this potential transaction, obviously, this is a use of capital today. However, with the pending Basel III endgame, we did think it was worthwhile to get ahead of that and put capital to work in a way that, as Ira mentioned, enhances the funding profile and trades some capital for earnings. Our model assumes that the buyback continues in line with consensus estimates for 2027 and 2028. However, if you were to strip the buybacks out, there's no material change to the economic outputs, and you would just decree capital faster. Obviously, we remain focused on our return on tangible common equity targets. This transaction is highly additive to those targets.
As we've discussed, I think pretty consistently, we need to manage the denominator and the return on tangible common equity as well. This does not take us out of the buyback game going forward.
Got it. Just one last one from me real quick, if I could. Can you talk a little bit more about the overall AI strategy, how Bluevine fit into that, and maybe how much that factored into your decision to acquire Bluevine?
I mean, we definitely did not model any of it into any of the economics that we put forth. I think there's really two interesting things from a synergistic perspective here. I've been in banking a very long time. A lot of people talk about revenue synergies when they look at deals. Most of the time, they definitely do not incorporate them into them, and likewise, we haven't here. That's the cross-sell that would come out of something like this. For us, there's really a lot of operational synergies here as well, and we did not model those, but we do believe the AI is a significant opportunity for us as we think about some of those operational synergies. Just to give you a couple quick examples, 80% of the clients that reach out to their customer care center at Bluevine are resolved by AI agents.
To put that into perspective, that's around 2% at Valley. When Bluevine does its enhanced due diligence on some of their AML and KYC clients, they do it at a cost of about $20. It costs us about $500. That's a direct reflection of their ability to leverage AI. So, we think there's going to be significant operational synergies that come into Valley, and a lot of it's based on the AI work that Bluevine and Eyal and his team have actually done there. We think we're really positioned ourselves as an industry leader here just on our own, and this is going to only amplify our ability to really recognize a lot of the improved economics that are going to come from AI within the entire industry.
So we're really, really excited about that. But once again, I'll just remind you, we do not include any of those synergies in any of the economics that we're putting forth today.
All right, great. Thanks, Travis and Ira. I'll step back.
Thank you.
Thank you. Our next question comes from David Chiaverini with Jefferies. Your line is open.
Hi. Thanks for taking the questions. It's clear that there's more to the Bluevine business than the deposit rate being offered. Nonetheless, you mentioned that the deposit rate should be stable in a higher for longer environment. To put a finer point on it, what type of deposit beta should we expect on this business in a rate hiking cycle?
David, this is Travis. We modeled this very conservatively, and we effectively locked in a spread on the deposits of between 250 basis points and 300 basis points. However, their achieved betas historically have been in the 20%-30% range depending up cycle or down cycle. We do think there's additional upside there. As we say in our prepared remarks, rate is not what they lead with, obviously, given the technology platform that they've delivered and how they acquire customers. We would anticipate in a higher for longer environment that there's actually incremental value to Valley.
Great. Thanks for that. You also mentioned about deposit growth should double over the next three years. Should we expect that growth to be linear over the next three years? I'm thinking about how to think about the 8% accretion in 2028.
Yeah, I think you can assume between $200 million and $300 million of deposit growth per quarter, and I think that's the number that would kind of accelerate. Where we stand out of the gate to be kind of towards the lower end there. As we ramp up with Bluevine integration, I think you would see that kind of migrate higher. From an end of period perspective, we have penciled in over $3 billion at transition. Call that early April, if you want to take the midpoint of our comment there. A little bit less than $4 billion of balances by the end of 2027 and around $5 billion by the end of 2028.
Great. Thank you.
Thank you. Our next question comes from Chris McGratty with KBW. Your line is open.
Good morning. Thanks for the question. Travis, just to come back to the comment before about the buyback. You are comfortable with where street buybacks are. Would that imply you are also basing the 8% off of the consensus 2028, which is about $1.75, which would put you at pro forma about around it? Is that what you are assuming? Okay. Perfect. On the ROE, maybe you could expand. I think you had previously said 15% by the end of 2027. I want to make sure I get those numbers right. So that would be penciling in kind of 16.5% or 17% for 2028. Is that right?
Yeah, that is right. I mean, our standalone fourth quarter 2027 return on tangible common equity target was 15%. We said Providence would add about 30 basis points to that. We think that Bluevine adds all in when it is fully baked, 150 basis points to 200 basis points on top of that. By the fourth quarter 2027, we will not have all the cost saves out. It is probably towards or below the lower end. That 15% target we gave you should be 16%+ at this point, and then growing into the high teens thereafter.
Okay. Thank you.
Yep.
Thank you. Our next question comes from Timur Braziler with UBS. Your line is open.
Hi, good morning. For Bluevine, is the expectation that that entity remains largely independent in terms of loan production, deposit generation, or is that going to be more broadly integrated into the Valley model?
I think from a client acquisition perspective, the focus is to let them continue to really do what they do. As I mentioned earlier, there's a lot of operational synergies that we believe Valley can really recognize. Eyal's coming here. He's going to run the entire small business portfolio for Valley. That's just not the online digital piece, but that's also the traditional bankers that we have. While we anticipate them definitely keeping the name running as an independent entity, we believe there's going to be massive synergies as to how we think about the ability to really scale even Valley's own business. We believe that Eyal is going to be able to amplify the growth that they have within their portfolio.
Okay. Could you talk about the asset side of the equation here in terms of the type of production that they do and the appetite to put more of that on the Valley balance sheet?
Yeah, Timur, it's Travis. They have about $130 million of on-balance sheet loans today. However, they have a variety of forward flow agreements, and they sell a lot of their production for a gain. We assume that that remains fairly constant. So, the growth in on-balance sheet loans is fairly modest. We do anticipate we'll continue to sell some of the production into the forward flow agreements that are in place today. So that'll support fee income. The risk-adjusted returns on the loans have been very strong historically. But this is certainly a deposit play, not an on-balance sheet loan play.
Okay. Just last for me on slide nine where you call out the loans to core deposits, 2028 target of 100% pro forma for the two deals there at 103%. Is the expectation that you get to that 100% organically? If so, maybe give us a stair step there, or does that involve potentially more M&A down the line?
It does not include more M&A. So, we've kept ourselves busy with the two deals we've announced in the last month and a half. It does factor in, obviously, the close and integration of those deals and then additional progress thereafter, but it does not factor in additional M&A. As Ira said in his prepared remarks, we're out of the M&A game for the foreseeable future. These are two highly strategic and financially compelling deals that we have, and we'll be focused on integration, execution, and organic growth.
Great. Thank you.
Thank you. Our next question comes from Dave Rochester with Cantor. Your line is open.
Hey, guys. Congrats on the deal.
Thank you.
I was just curious on the 175,000 new customers. You mentioned that you are not looking to grow the loan portfolio based on the production that they have today. I guess I am just wondering why could that not be at least at some point additive to your loan growth going forward? You mentioned that they were, t he risk-adjusted returns were there, but it sounds like you are planning on selling more of that product going forward.
Historically, Bluevine actually started with a focus on the lending side, and over the last couple of years has transitioned to the deposit focus that you see today that has resulted in the very attractive deposit originations that they have posted. While the loans are attractive from a risk-adjusted return perspective, obviously, we have our credit appetite that will continue to drive the majority of the loans that we would on balance sheet across the franchise. As we have talked about historically, loan growth is not a problem for Valley, it is funding that loan growth. While the loans that will come from Bluevine is modest in size and we are willing to continue, it will not become an outsized part of the portfolio in aggregate.
Okay. You mentioned a couple times now that as rates go up, deposit costs are expected to remain stable in this arm. Is it the granularity of the deposits that helps that out, the low granularity or the small size of the deposits, or is it something else? You mentioned the extra value add from the platform. If you could just go into that a little bit more detail, that would be great.
Yeah. I think maybe just take Bluevine out of it for a specific second here. This is a segment that we've been focused on for a long period of time now. We believe that it's a fragmented segment. We believe that our clients are less price sensitive here and more experience sensitive, and the Bluevine model has really proven that out when you look at what they're paying. The clients really want a different type of user experience. They want an ability to have a cash flow management platform that really provides an ease of use for them. This is a segment that we believe is really attractive. It inures to a lower price sensitivity, which has a lower beta associated with it, and we think that's going to continue.
It's a segment that we've been targeting, and this really accelerates the ability to get into that based on user preference of how these clients have behaved is really the main driver as to why we think this is going to be a lower beta product as we continue to go into a higher interest rate environment.
Okay.
I think specifically to Bluevine, I would just say, just specifically to Bluevine, the user experience here is, I think, why customers choose to partner with them. There was a good article, ironically, in the American Banker last week that talked about the utilization of AI in banking, and it lists Bluevine specifically as one of the companies that is differentiating themselves from traditional banks in terms of their ability to grow customers. Again, that customer growth is primarily based on the user experience technology platform that they've been able to build that adds value to the clients, the bank or the quote unquote bank with them.
Great. Very nice. Maybe just one last one. If you guys can just provide some additional background on the deal. How did this come together? Why was now the time for Bluevine to sell? Then why was Valley the right partner for this?
I think there is a lot of different things that we think about. From a strategic perspective, once again, this is a segment that we have been targeting. There is a lot of different reasons as to why Bluevine really looked to sell. Eyal here, maybe you want to speak to a little bit as to what was in your thought process as you were going down the journey, but this was a company, a founder that we had known for a very long period of time as well.
Hi, this is Eyal. You are seeing a lot of fintechs becoming banks right now. It makes a lot of sense, both the economics, the regulatory certainty, just the ability to control your destiny, the infrastructure, and so on. There is different paths to get there. De novo, acquire a bank, get acquired by a bank. For us, when we looked at the options in front of us, this felt like for us, the best option to accelerate our vision of building our small business franchise, and ultimately is a combination of complementary capabilities here, but also a strong cultural fit.
All right, great. Thanks, guys.
Thank you.
Thank you. Our next question comes from Anthony Elian with JP Morgan. Your line is open.
Morning. This is Mike Pietrini for Tony. I guess to start, just to confirm, there should be no impact from either Bluevine or Providence for that matter, I guess, to Valley's organic growth profiles going forward, right?
That's correct.
Okay, great. This question's been asked in a couple different ways, but I guess I'll put it like this. You're not assuming any incremental benefit from either cross-sell for some of these Bluevine customers, obviously being non-borrowing, any cross-sell to loans or other products in Valley, and you're not assuming anything incremental from AI either. I know there's a reason you're not assuming anything but would you say there's maybe some potential upside to the 8% EPS accretion if you were to assume any incremental benefit from either of those two things?
Yeah, I think we modeled this fairly conservatively based on kind of the base case here. Bluevine has a subset of their customers already that are small business under their definition, but would migrate towards the business banking end of our product offering, meaning they're a little bit larger. Things like treasury management offerings to that subset of customers specifically is like a low-hanging early fruit that we can target. But none of that's factored in. We've specified internally where we think the opportunities lie that for us to outperform the guidance that we've given. But again, none of that is factored into the modeling that we've provided.
That's all for me. Thank you, guys.
Thanks.
Thank you. Our next question comes from Ryan Kenny with Morgan Stanley. Your line is open.
Hi, good morning. Can you walk through a little bit more detail of what Bluevine's customer acquisition strategy is? You mentioned that they don't lead with rates, so wondering what do they lead with? As we enter an agentic AI world, how do you view the durability of that strategy?
I would say that they are well-positioned for an AI world. Again, that reference back to the American Banker article I mentioned. I think their targeted marketing is a level of expertise that is new to us and certainly helps them drive the funnel. Maybe, Eyal, if you have other thoughts on what differentiates you from a customer acquisition perspective.
Sure. First of all, I think we focus a lot on onboarding customers. It is really, really simple and easy to open an account. It takes literally five minutes, and we make it very easy to learn the product experience itself and really understand the value that we bring in a way that you can test it out. In addition, the second part, and this includes AI as kind of a broader consideration, we pack into the account a whole lot of software. Think about a small business that needs a lot of software to run their business, bill pay, invoicing, accounting, all of that. We just pack more and more software as part of the platform. The small business, instead of needing to rely on multiple sorts of SaaS or online services, you are able to integrate it all at once, and everything magically works together.
That is a big part of it. AI is coming into that as part of the overall customer experience. We are creating more and more customer and the ability for customers to leverage agentic experiences. That is starting soon with the ability to query your data through external terminals. That is something that is not typically found at traditional banks.
Thanks. Got it. Then just as a follow-up on the customer side, 175,000 active small and medium business customers. Can you just give a little bit more color on what the customer base looks like? Is there any specific industry or geography? I know it is national, but any areas of concentration we should be aware of?
No, it's highly granular by industry and geography. 40% of their customers overlap with our existing footprint. But when you think about the markets that we operate in and the density of, call it metro New York and Florida and things like California, now Chicago, that covers 40% of their client base. The remaining 60%, it's spread across the country in markets that we're not in today but may be attractive, things like Texas, Georgia, other parts of the Southeast that we don't exist in physically. So, from a geographic perspective, very broad-based. But again, 40% in our existing footprint. From an industry perspective, there are no notable concentrations. Business services is, I think, the largest industry concentration with around 20% of their depositors. But obviously, that's a title that captures a hell of a lot of different kinds of companies.
Thank you.
Thank you. Our next question comes from Jared Shaw with Barclays. Your line is open.
Hi. Good morning. Thanks. I guess, just what's the risk of retention as you repatriate these deposits that are outside the bank? Are they all under the Bluevine servicing right now, and so it should be fairly seamless for them? Or what's sort of the risk that people don't come back in when you bring them back to Valley?
Yeah. There are multiple paths that we've considered in terms of our plan for integration and transition. We're focusing on minimizing customer disruption. Bluevine will leave their core in place in terms of the core that supports the deposits and then points those deposits to the partner bank. We will effectively repoint the deposits from the partner bank to Valley in order to not add disruption from a customer perspective. From a retention perspective, we've effectively cut the deposit growth expectations in half relative to what the initial expectations were for Bluevine on a standalone basis. We think that covers not only a conservative approach on gross growth in the deposit base but also captures potential runoff of any clients that retention would be an issue. I think we've been fairly conservative on that front as well.
Okay, thanks. On the lending side, on the $130 million that you're bringing over, what's the credit profile of those loans? Is that something that we should expect you to keep consistent, or could those be run off?
Yeah. The average FICO on their loans is around 720. It's fairly high quality. The loss rates, as you'd imagine for a small business, are somewhat higher than what we're used to. But the portfolio is very small, and the loss rates have improved actually in the last couple of years. They have, I think average annual losses are running kind of low to mid-single digits. They have an 11% allowance against it today. We'll add to that allowance at acquisition. That's kind of the approach that we'll preserve going forward.
Okay, thanks. Just final question, if I can ask, what's the total expense base and fee base annualized at Bluevine?
Yeah. So where they stand today, call it around $200 million of annual expenses as of the second quarter of 2026, and about $120 million of annual fee income. So that is where they kind of run today.
Great. Thank you.
Thank you. Our next question comes from Manuel Navas with Piper Sandler & Company. Your line is open.
Hey, good morning. Could you speak a little bit more about the Bluevine user experience and how it can improve your own product offering and what can be brought over from your offering to their side? It seems like you are siloing this in the deposit categories, and I just would want there to be some places where you can learn from either side.
Maybe I'll just start with our user experience. It's definitely not five minutes to open an account at Valley. There's not a platform that provides some of the capabilities that Eyal was speaking to. It's really relationship and people dependent, which is great. The clients that we serve really appreciate that. That said, the ability to really integrate in what Bluevine does and provide a holistic type of experience is something that we think on an integrate basis is going to be extremely valuable to us and lead to accelerated growth within our own traditional plan.
There's a lot of things that we can't do today because we work with a partner bank, and we don't control our destiny and our infrastructure. There's shortcomings with the fact that, again, the way this model works. For example, we can't do Zelle today, which is requested by a lot of the customers. We can't do cash deposits. We want to do FedNow. There's a lot of things that we want to do and deliver more value to our customers, and some of that is right now being prevented. I think the ability here to be part of Valley and the ability to control our destiny and control some of the underlying infrastructure will deliver a lot of value to customers.
Just wondering, how quickly can some of those capabilities be added once the deposits come over?
That's all part of the work stream. Again, as we said, our number one integration priority is getting the deposits onto the Valley system. Then I think we'll look for the early wins that are easier to integrate in the second half of 2027 post-deposit transition. So maybe there's more to come on that front.
Okay. The 86% customer retention, can you talk about the parts of that that are positive? What's the reason for the 14% that leave in a year?
The model itself, the way it works is, again, we make it extremely easy to open an account, and it's free for our standard tier. So, you do have just customers that are kicking the tires. That's kind of number one. Number two, you have small businesses that a lot of them are hopeful entrepreneurs. They start their business. Many times, it's a failed start. So, a lot of this is because we've been growing quite fast and the fact that small businesses, many of them don't succeed in their first year, this is a big part of that. So the dynamic that you're seeing on an overall basis, our ability to retain deposits is very high. The deposits actually, when you look at active customers, they double over time.
So, in terms of the overall active behavior, that retention is extremely high. You just have a little bit of noise from the beginning.
How long is this foreseeable future M&A pause? Is it for the integration of these two platforms? Any kind of added color on the length of time?
Well, it was four or five years between announcing the Bank Leumi acquisition and Providence. Obviously, a lot of focus internally in those years. The integration and execution on the low-hanging fruit opportunities, a lot of which have been mentioned on this call here, are our number one priority, as well as our organic loan growth, obviously. We are sitting here in September of 2026. It is going to take us call it till the middle of 2027 to get fully transitioned and integrated with both opportunities. Then thereafter we will want to be focusing on the organic side. I think it is, as Ira said, nothing anytime soon.
Maybe I will just add to that. Look, as I mentioned earlier, there are a massive amount of operational and revenue synergies here. For us to be able to allocate the appropriate resources, time commitment from a management perspective as well as the capital needed to do that is definitely a significant priority for us. Even though integration may look like it will happen in early 2027, the focus here is where we see the outsized opportunity really comes from those synergies. That is really going to be the focus for us even after the integration period.
Thank you for the commentary this morning.
Thank you.
Thank you. Our next question comes from Nicholas Holowko with Raymond James. Your line is open.
Hi, good morning. Thanks for taking my question. Most of them have been answered to this point, but maybe just one more on the customer acquisition strategy at Bluevine. Looking back at their historical growth, can you just touch on how much of that has been deposit-led as opposed to loan lending-led? As you think about those customer relationships, how many of those do you consider to be primary relationships as opposed to people who are just trying out the platform or using it as an additional source of placing their deposits?
Over the years, acquisition has been primarily through deposits. We are still acquiring net lending customers directly, but the magnitude is like 10 times more checking account customers. We have been opening up 10,000 to 20,000 accounts per month in the last couple of months. So certainly, very rapid growth. The second question was around, remind me again.
Just the primacy of deposit accounts.
Oh, the primacy. Yeah, sorry. The primacy, as opposed to consumers where you don't have direct deposits and it's very clear if it's the primary account or not, we have different ways to assess whether it's a primary account. Is there a merchant account connected? Are they using us for their bill pay? Are they using their debit cards? Are they using us for merchant processing? Right now, our assessment, it's around 70%, so it's quite high. We've been seeing this growing over time.
Perfect. Thank you.
Thank you.
Thank you. This concludes the question-and-answer session. Thank you for your participation. You may now disconnect. Good day.