Growth is winning as CRE risk falls
- Management now expects 2026 net interest income growth near the high end of its 11% to 13% range.
- Loan growth is guided between the midpoint and high end of the 4% to 6% range, led by C&I and owner-occupied CRE.
- Deposit growth is also expected near the high end of the 5% to 7% range, which helps fund new lending.
- The CRE concentration ratio fell to 329% in Q1 2026 from 333% at the end of 2025.
- The main bear case is a downturn that hurts loan demand or credit quality before the bank reaches its longer-term returns target.
Better growth, lower CRE pressure
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: non-owner occupied commercial real estate, or CRE. In Q1 2026, management raised its tone on the year. It now expects net interest income growth near the high end of the prior 11% to 13% range, deposits near the high end of the 5% to 7% range, and loans between the midpoint and high end of the 4% to 6% range.
That matters because a bank earns most of its money from the spread between what it earns on loans and securities and what it pays on deposits and borrowings. That spread is called net interest income, or NII. If Valley can grow deposits and loans while holding credit losses in check, earnings can rise without taking a wild new risk.
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 said buybacks may run below the first-quarter pace because capital may be needed for 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 the path from the achieved 1% return on assets goal to the 15% return on tangible common equity target by late 2027 or early 2028. Return on tangible common equity, or ROTCE, measures profit against common equity after removing goodwill and other intangible assets. Investors need to see whether margin gains, deposit mix, fee income, and cost control can bridge that gap.
A spread bank with a cleanup job
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 329% at March 31, 2026 from 333% at December 31, 2025, and the longer-term goal is below 300%.
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 loan 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. Management expects total deposit growth near the high end of the 5% to 7% 2026 range.
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 C&I 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 329% at March 31, 2026, down from 333% at December 31, 2025. 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's bull case depends on strong deposit growth funding loan growth at a good spread. Management expects deposits near the high end of the 5% to 7% range, but that only helps if the cost of those deposits stays under control. A shift toward higher-cost deposits would pressure net interest income.
Loan growth slows before earnings catch up
Medium impact · Medium oddsManagement expects 2026 loan growth between the midpoint and 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 high-end NII guide harder to reach.
Credit quality turns
High impact · Low oddsCurrent credit trends are stable to improving, with non-accrual loans and net charge-offs down in Q1 2026. 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 said buybacks may be lower than the first-quarter pace because capital may be needed to support loan growth. That is not a core problem if organic growth is strong. It does reduce 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 329% in Q1 2026 from 333% at year-end 2025.
What is the main bull case for VLY stock?
The bull case is that deposit growth, loan growth, and margin improvement 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 NII, loan, and deposit growth would support the bull case.