Valley National Bancorp: Performance Improvements, But Still Avoiding Preferred Shares

2025-02-24 09:28:24 ET

Summary

• Valley National Bancorp's financial results have improved with better interest spreads and net interest income, but loan performance issues remain a concern.
• The bank's preferred shares offer high yields but are priced above par, limiting potential upside and warranting a hold rating.
• Nonowner occupied commercial real estate loans, which make up 25% of total loans, continue to underperform, posing a risk to earnings.
• Despite recent progress, the elevated loan to deposit ratio and reliance on external financing suggest caution, leading to a sell rating on common shares.

Introduction

Valley National Bancorp ( VLY ) is a regional bank that has seen its share of volatility since the regional banking crisis nearly two years ago. In addition to its common shares, the bank offers three separate preferred shares. The Series A preferred shares ( VLYPP ) are set to float in July. The Series B preferred shares ( VLYPO ) are currently floating with a dividend yield of over 8%. The bank issued a fixed rate reset Series C preferred share ( VLYPN ) last year that will be reset in 2029. I was cautious about the bank back in October and while the preferred shares are either about to or currently yielding above 8%, I believe there are still too many risks to warrant an investment at this time....

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