Why Shares of Valley National Bancorp Are Falling Today

What happened

Shares of the $64 billion asset Valley National Bancorp (NASDAQ: VLY) based in New Jersey traded nearly 15% lower as of 11:05 a.m. ET today after analysts at Raymond James downgraded the stock this morning.

So what

Raymond James analyst Steve Moss lowered his rating on Valley National's stock from strong buy to market perform, citing potential revenue challenges.

Moss' main concern has to do with rising deposit and funding costs, which have accelerated at Valley National. In the bank's first-quarter earnings report last Thursday, Valley National reported seeing the cost of its interest-bearing liabilities rise from 2.15% at the end of 2022 to 3.02% at the end of the first quarter.

The higher funding costs resulted in the bank's net interest margin (NIM), essentially the difference between the interest banks make on interest-earning assets like loans and payout on interest-bearing liabilities such as deposits, falling from 3.56% to 3.15% in the quarter.

Moss believes Valley National's deposit costs have been climbing faster than peers. "We are concerned that deposit costs will continue to increase until the gap with Fed funds narrows further," he said.

Now what

Not only is Valley National experiencing intense deposit pressure, but the bank also has more commercial real estate exposure than its peers, which the market is very worried about right now.

For these reasons, I do not see any need to rush into the stock right now. Investors should monitor deposit and credit trends in the coming quarters to look for more clarity.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.