Growth accelerates as CRE risk falls and AI cuts costs
- Total assets reached $66.3 billion at the end of the second quarter.
- Management expects gross loan growth at or above the high end of its 4% to 6% range.
- Fee income is expected to move toward the high end of the 6% to 9% range.
- The CRE concentration ratio dropped to 317% in the second quarter.
- The bank is targeting structural efficiency gains through new AI adoption.
Better growth, lower CRE pressure, and AI gains
Valley is making the story simpler. It is gathering deposits, making more relationship loans, and shrinking the part of the loan book that worried investors most. That is non-owner occupied commercial real estate, or CRE. In the second quarter of 2026, management raised its tone again. It expects gross loan growth at or above the high end of the 4% to 6% range, and fee income toward the high end of its 6% to 9% range.
The bank also added a new efficiency lever. Management highlighted AI initiatives that are already yielding tangible run-rate expense savings. The goal is to structurally lower the efficiency ratio over time. If Valley can grow loans while holding credit losses in check and cutting costs, earnings can rise without taking extreme new risks.
The risk is that the plan still needs steady execution. A weaker economy could slow loan demand, raise net charge-offs, and bring back market fear around CRE. Management also dialed back share repurchases to prioritize funding organic loan growth. That is sensible, but it means the stock story depends more on core banking results than on shrinking the share count.
The open question is whether deposit generation can catch up to the accelerated pace of loan growth. If deposit growth lags, the bank may have to rely on expensive brokered deposits, which would hurt the net interest margin.
A spread bank with a cleanup job and new tech
Valley is a traditional bank. Customers place deposits at the bank. Valley uses that funding to make loans and buy investment securities. The bank earns money when the yield on those assets is higher than the cost of deposits and other funding.
Commercial Banking is the main engine. For the year ended December 31, 2024, that segment produced $475.2 million of pre-tax income on $40.1 billion of average interest-earning assets. Consumer Banking produced $47.8 million of pre-tax income on $9.9 billion of average interest-earning assets.
The cleanup job is the CRE concentration. Valley is still a CRE lender, but it is trying to shift the mix toward relationship loans and away from more transactional non-owner occupied and multifamily loans. The CRE concentration ratio fell to 317% at June 30, 2026. The longer-term goal is below 300%. The bank is also using AI and technology partnerships to lower its efficiency ratio.
Where this can break is funding and credit. If deposits get expensive or leave the bank, the spread can shrink. If borrowers weaken, Valley may need higher loan loss provisions, which are reserves for expected credit losses.
What Valley is trying to grow
Commercial and industrial loans
C&I loans are loans to operating businesses. Management expects this area to drive growth as Valley leans into relationship-based lending.
Owner-occupied commercial real estate
These are property loans where the borrower uses the building for its own business. Valley views them as part of its relationship lending push, not the main CRE risk it is trying to reduce.
Non-owner occupied and multifamily CRE
This is the book investors watch most closely. Valley is letting certain non-relationship and transactional loans run off and is being more selective with new originations.
Consumer and residential loans
This book adds balance to the loan portfolio. Management previously described consumer and residential growth as mid single digit for 2026.
Core deposits
Deposits are not the main revenue product, but they are the fuel for bank earnings. Strong deposit gathering is needed to fund the accelerated loan growth.
Investment securities
Securities help Valley deploy funds and manage liquidity. The main profit lever remains the yield earned on assets compared with the cost of funding.
Commercial banking leads the bank
The mix uses average interest-earning assets for the year ended December 31, 2024. Commercial Banking is the clear center of gravity, so changes in commercial and CRE credit matter most.
What could still go wrong
CRE fear returns
High impact · Medium oddsValley has reduced its CRE concentration ratio, but the market still watches this number closely. The ratio was 317% at June 30, 2026. If the decline stalls or credit losses rise in CRE, the stock could be treated as a problem bank again.
Deposit costs eat the margin
High impact · Medium oddsValley depends on strong deposit growth funding loan growth at a good spread. Accelerated loan growth requires catching up on deposit generation. A shift toward higher-cost brokered deposits would pressure net interest income.
Loan growth slows before earnings catch up
Medium impact · Medium oddsManagement expects 2026 loan growth at or somewhat above the high end of the 4% to 6% range. A weak economy could reduce borrower demand or make Valley pull back on credit standards. That would make the growth guidance harder to reach.
Credit quality turns
High impact · Low oddsCurrent credit trends are stable to improving. That lowers the near-term tail risk. Still, banks can look healthy until borrower stress shows up quickly in provisions and charge-offs.
Buybacks take a back seat
Low impact · Medium oddsManagement dialed back the pace of share repurchases to ensure capital is available to support strong organic loan growth. That is not a core problem if organic growth is strong, but it removes one direct support for per-share earnings.
In one breath
What does Valley National Bancorp do?
Valley is a regional bank. It takes deposits, makes loans, and earns most of its money from net interest income, which is the spread between what it earns on assets and what it pays for funding.
Why do investors focus on Valley's CRE exposure?
Commercial real estate can create large credit losses when property values or rents fall. Valley is reducing this risk, with its CRE concentration ratio down to 317% in the second quarter of 2026.
What is the main bull case for VLY stock?
The bull case is that deposit growth, loan growth, and AI-driven cost savings drive higher earnings while CRE risk keeps falling. Management's upgraded 2026 outlook supports that view.
What could change the thesis quickly?
A rise in net charge-offs, weaker deposit growth, or a stalled CRE concentration decline would be warning signs. Strong quarterly loan growth and fee income would support the bull case.
