Banks in the New York City area said the work they've done to pad their balance sheets will lead to increased profitability in 2025, as they continue efforts at tackling the disrupted market of the Big Apple.
Valley National Bank and Dime Community Bancshares said the hundreds of millions of dollars they each recently raised have helped them both shed underwater bonds that have been plaguing the industry, and build capital cushions that had been under enhanced scrutiny.
Now, the banks aim to keep hitting the gas on their playbooks to reduce their commercial real estate exposures and reel in cheaper deposits, as they aim to expand net interest margin and regain lost ground with investors.
Valley, headquartered in New Jersey, and the Long Island-based Dime said Thursday during presentations of their fourth-quarter earnings results that they expect their net interest margins to top 3% in the near future.
As the commercial real estate market has shown cracks in recent years, investors and regulators have kept a closer eye on banks with CRE portfolios totaling more than 300% of their capital. Valley has shrunk that ratio to 362% by the end of its fourth quarter, from 474% the year prior. Dime has managed its ratio down to about 445% and expects to reduce it to the low 400s.
Ira Robbins, chairman and CEO of $62 billion-asset Valley, said during a Thursday call with analysts that last year's focus was on "strengthening the balance sheet and normalizing certain metrics that were outliers relative to peers," referring to the bank's outsized commercial real estate loan book and capital levels. But,
"While our strategic priorities remain consistent, specific initiatives that support our goals continue to evolve," he said. "From a deposit perspective, we are focused on leveraging our specialty verticals and enhancing our commercial customer base. We expect to supplement these efforts with branch deposit growth as we reprioritize retail delivery and customer acquisition."
But
After rate hikes in 2022 and 2023 increased competition for high-yielding places to park cash, and liquidity concerns followed bank failures in 2023, many companies saw deposit levels wobble. Chief Financial Officer Avinash Reddy said Dime's consumer deposits have stabilized in the back half of 2024, and business deposits have helped the bank begin to recreate a balance sheet funded by core deposits. He added that he expects "pretty solid" deposit growth in 2025, based on current pipelines.
President and CEO Stuart Lubow said Dime is continuing its growth plan.
"We have differentiated our franchise from the competition as it relates to our growth and ability to attract talented bankers," Lubow said. "We have solid momentum and we continue to grow the business loans and core deposits."
The bank increased total deposits by $268.8 million in the fourth quarter, totaling $11.69 billion. But core deposits, which excludes more expensive brokered and time deposits, grew by $513.4 million in the period.
While Valley's total deposits decreased $320.1 million in the quarter, to $50.1 billion, the bank's balance of costlier deposits inched down due to growth in branch deposits, specialty niche deposits and benefit from the treasury management business. And Robbins said the bank, which primarily operates in New York and New Jersey, sees plenty of runway.
"I think there's a lot of opportunity just sitting within the New Jersey market," the CEO said. "There's been some tremendous disruption with some of our competitors here and their ability to really reinvest back into this footprint. …So there's a pretty good tailwind there on the consumer side, and not even to mention what we're doing on the small business side."
After the failures of Signature and San Francisco-based First Republic Bank, which had a large regional presence, along with the ongoing overhaul of Flagstar Financial (formerly known as New York Community Bancorp), banks across the Tri-State area have been working to increase their piece of the pie. Valley and Dime, along with Peapack-Gladstone Financial Corporation,
The industry should save on interest expenses this year as it follows the Fed's lead in cutting rates. The downside is that the lower deposit rates signal fewer opportunities to make loans.
Dime's Reddy said that after focusing about "80% to 90% of our energy" on hiring for the deposit side of the bank in 2023 and 2024, upcoming recruiting efforts will be
Both macro trends and strategic moves have given the banks more flexibility to target growth objectives in 2025.
After bank stocks surged in November while investors priced in the potential monetary and regulatory benefits of a Trump administration,
Dime used the funds to sell low-yielding holdings,
Mark Fitzgibbon, an analyst at Piper Sandler, upgraded his rating of Dime from neutral to overweight after the earnings call "to account for the significant balance sheet restructuring."
"We believe the stronger outlook should drive the company's valuation higher and create more upside to the stock," Fitzgibbon said.
Dime's stock fell Thursday some 2.77% by the afternoon, trading at $30.87.
Valley brought in $115.7 million in net income, or 20 cents per share, during its fourth quarter, but noted a major tax benefit that boosted its bottom line. Excluding the one-time impact, the bank earned $75.7 million in net income, or 13 cents per share, just missing the S&P analyst estimate of 14 cents a share.
Valley's share price surged Thursday morning shortly after announcing its earnings, before coming back down close to where it opened, at $9.73.
