Valley National Bancorp's Q2 2025 Earnings: Can a Regional Giant Stay Steady Amid Banking Storms?

The regional banking sector has been a battleground this year, with rising interest rates, loan portfolio pressures, and regulatory scrutiny testing even the strongest players. Enter Valley National Bancorp (VLY), a $62 billion financial powerhouse with a footprint stretching from New Jersey to California. As VLY prepares to report Q2 2025 results on July 24, investors are asking: Can this diversified regional bank sustain growth while navigating industry-wide headwinds?

Let's dive into the key metrics and risks that will define VLY's trajectory—and whether now is the time to bet on it.

1. Asset Quality: A Fragile Bright Spot?

The first quarter of 2025 showed encouraging signs for VLY's credit health:
- Non-performing assets (NPAs) dropped to $356.2 million, a $17.1 million decline from late 2024. Non-accrual loans fell to 0.71% of total loans, hitting a near-term low.
- Net charge-offs plunged to $41.9 million, nearly halving from Q4's $98.3 million. This suggests fewer troubled loans are dragging down profitability.

But dig deeper, and cracks emerge:
- CRE loans, which make up 353% of risk-based capital, remain a vulnerability. While this concentration dipped from 362%, it's still alarmingly high. A recession or real estate downturn could rekindle losses here.
- Residential mortgage delinquencies inched up, though the bank insists these loans are “well-secured.”

Actionable Insight: The Q2 call must clarify whether CRE loan growth is slowing and whether the allowance for credit losses (now 1.22% of loans) is adequate. If management downplays these risks, proceed with caution.

2. Net Interest Margin: The Deposit “Win” That Could Fade

VLY's NIM rose to 2.96% in Q1, up 4 basis points from Q4, driven by a 29-basis-point drop in deposit costs. The bank slashed high-cost brokered CDs by $661 million, a smart move to boost margins. But here's the catch:

• Asset yields fell 22 basis points, as loan repricing and shorter days (February's 28 days vs. 29 in Q4) weighed on income.
• NII dipped $2.9 million sequentially, showing margin gains are fragile.

Why This Matters: Deposit cost savings can't offset declining loan yields forever. Investors should ask on the call: How will VLY sustain NIM expansion as rates stabilize? A renewed push into higher-yielding C&I or auto loans (which grew 8.8% and 29.5% annually, respectively) could be the answer.

3. Geographic Diversification: A Double-Edged Sword

VLY's presence in six states—New Jersey, New York, Florida, Alabama, California, and Illinois—spreads risk but also exposes it to regional economic shifts.

• Strengths: Florida and California, key growth markets, saw core deposits rise as the bank reduced reliance on volatile CDs.
• Weaknesses: CRE-heavy regions like New York and Florida face overbuilding risks. A slowdown in commercial real estate could hit VLY harder than peers with less exposure.

Investor Takeaway: Look for management to highlight strategic focus on lower-risk segments like C&I loans, which grew strongly in Q1. If Florida/California outperformance continues, this diversification could pay off.

4. Earnings Call Hotspots: What to Watch

The July 24 call will be a litmus test for VLY's story. Key questions:
1. CRE Loan Strategy: Will management cap CRE growth or reprice existing loans?
2. Deposit Competition: Can VLY maintain its cost advantage as rates plateau?
3. Loan Growth Priorities: Are they doubling down on C&I/auto, or backtracking to CRE?

Historically, such a strategy has proven risky: between 2020 and 2025, buying five days before earnings and holding for ten days resulted in a -18.36% return, with a maximum drawdown of -47.57%. This underscores the volatility around earnings and the need for caution.

Risks to Avoid

• CRE Overhang: A 353% CRE-to-capital ratio is a red flag. A single default in a large CRE portfolio could destabilize earnings.
• Insider Signals: While two small insider purchases are bullish, EVP Joseph Chillura's $1M sale of shares raises eyebrows. Is he exiting at a high?
• Institutional Flux: Balyasny Asset Management's 67% stake reduction vs. AQR's 101% jump shows divided sentiment.

Verdict: Hold for Now, but Watch Closely

VLY's Q1 results are a mixed bag: margin wins and credit stability are positives, but CRE risks and slowing NII growth are worrisome. The earnings call must deliver clarity on CRE strategy and NIM durability.

Action:
- Buy if: Management confirms CRE growth is slowing, C&I/auto loans are accelerating, and the allowance for loan losses is sufficient.
- Sell if: CRE issues resurface, deposit cost savings reverse, or NII trends worsen.

For now, sit tight and wait for July 24. This regional giant's future hinges on whether it can balance diversification with discipline.