VLY Q1 Deep Dive: Deposit Growth and CRE Portfolio Trends Shape Outlook

June 23, 2025 at 13:44 PM EDT

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Regional banking company Valley National Bancorp (NASDAQ: VLY) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 5.7% year on year to $478.4 million. Its non-GAAP profit of $0.18 per share was in line with analysts’ consensus estimates.

Is now the time to buy VLY? Find out in our full research report (it’s free).

Valley National Bank (VLY) Q1 CY2025 Highlights:

Revenue: $478.4 million vs analyst estimates of $485.2 million (5.7% year-on-year growth, 1.4% miss)
Adjusted EPS: $0.18 vs analyst estimates of $0.19 (in line)
Market Capitalization: $4.86 billion

StockStory’s Take

Valley National Bank delivered first quarter results that reflected mixed underlying performance, as revenue growth was offset by pressures in operating income. Management attributed the 5.7% increase in sales to continued expansion in commercial and industrial lending, along with a notable rise in core customer deposits. CEO Ira Robbins emphasized that “consistent C&I expansion has primarily come from small and middle market businesses where demand continues to percolate.” However, the company also saw incremental spread compression due to heightened competition and lower yields on new loan originations. While net interest income benefited from lower deposit costs, the bank acknowledged headwinds from sluggish commercial real estate activity and a modest seasonal slowdown in certain fee-based businesses.

Looking ahead, Valley National Bank’s outlook is shaped by expectations for modest loan growth, ongoing improvements in funding costs, and a stable credit environment. Management anticipates loan and net interest income growth to trend toward the lower end of previous guidance, offset in part by disciplined expense management. CFO Travis Lan noted that “continued growth in lending lines will support low single-digit loan growth for the year,” while also stressing the importance of controlling non-interest expenses. The bank remains focused on further reducing its reliance on higher-cost brokered deposits and expects a gradual pickup in commercial real estate originations as the year progresses. Management highlighted a diversified loan pipeline and resilient small business customers as key supports for future performance.

Key Insights from Management’s Remarks

Management pointed to several operational shifts impacting Q1, including deposit mix improvements, ongoing commercial real estate portfolio adjustments, and cost discipline efforts.

Deposit mix optimization: Valley National Bank saw strong growth in core customer deposits, which enabled repayment of $700 million in higher-cost brokered balances. Management highlighted that non-interest deposit balances increased for the third consecutive quarter, helping to reduce overall funding costs.
CRE portfolio recalibration: The company continued to intentionally shrink its exposure to certain commercial real estate (CRE) investments, with a $350 million decline in regulatory CRE balances. CEO Ira Robbins stated that while CRE concentration is expected to stabilize, future reductions will likely be driven more by growth in other loan categories rather than further portfolio contraction.
C&I loan growth momentum: Management reported 9% annualized growth in commercial and industrial (C&I) lending, attributing this to a focus on small and middle market businesses. This expansion helped offset weaker activity in CRE originations during the quarter.
Expense control measures: Adjusted non-interest expenses fell 3% sequentially, driven by lower technology, consulting, and marketing costs. CFO Travis Lan emphasized that future expense growth will likely fall to the low end of initial guidance, aiding profitability improvement.
Stable credit performance: Non-accrual loans and delinquent balances improved, and net loan charge-offs along with provisions declined meaningfully from the prior quarter. Chief Credit Officer Mark Sager explained that the allowance coverage ratio now stands at a five-year high, reflecting a more stable credit outlook.

Drivers of Future Performance

Management expects future results to hinge on disciplined deposit strategy, commercial lending momentum, and maintaining credit quality as competition intensifies.

Deposit cost reduction: Continued efforts to reprice and grow core deposits are expected to drive further declines in funding costs, supporting net interest margin improvement through the rest of the year. Management sees the ongoing runoff of brokered deposits as a key lever for controlling expenses.
Loan growth diversification: The bank anticipates that modest growth in C&I and consumer lending will offset slower commercial real estate activity. Management highlighted an expanding loan pipeline, which now exceeds $2.7 billion in potential deals, as a sign of healthy demand despite broader economic uncertainty.
Credit and expense discipline: Management expects net charge-offs and loan loss provisions to remain stable or improve, supported by a conservative reserve position. Additionally, strict expense controls are intended to preserve operating leverage even if revenue growth slows.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) continued progress in shifting the funding mix toward lower-cost core deposits, (2) stabilization and potential growth in commercial real estate originations as market conditions evolve, and (3) the ability to sustain double-digit annualized growth in commercial and industrial lending. Execution on expense management and further improvement in credit quality will also be key markers of success.

Valley National Bank currently trades at $8.74, up from $8.61 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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