Valley National Bancorp reported a drop in first-quarter profit on Thursday as its loan loss provisions increased fivefold due to its exposure to commercial real estate.
High interest rates and borrowing costs have increased concerns about defaults in the commercial real estate market, which is already in the doldrums due to empty office buildings in the post-pandemic era .
Valley National’s provisions for credit losses jumped to $45.3 million in the first quarter, up from $9.5 million a year earlier.
The lender said the increase in provisions was due to the commercial real estate, commercial and industrial and construction loan portfolios.
Investors are focusing on commercial real estate exposure in regional lenders’ loan portfolios this year, after New York Community Bancorp reported a surprise quarterly loss in January, driven by writedowns on loans tied to that sector.
Valley National’s stock was down 2.6% in afternoon trading, after falling 7.6% earlier in the session. The bank’s shares are down about 30% since the start of the year, which is lower than the regional bank index.
Scrutiny of regional banks has increased after the failures of Silicon Valley Bank, Signature Bank and First Republic Bank last year impacted the global financial system.
Bank profits, particularly regional banks, fell overall in the first quarter as rising interest rates increased the cost of holding deposits and discouraged borrowers from taking out mortgages and other loans.
Valley National’s net interest income, the difference between what a bank earns on loans and what it pays on deposits, fell nearly 10% in the first quarter, to reach $393.5 million. The net interest margin contracted to 2.78%, compared to 3.15% the previous year.
The bank reported net income of 18 cents per share for the quarter ended March 31, up from 28 cents a year ago. (Reporting by Manya Saini in Bengaluru; Editing by Shilpi Majumdar)
