Regional bank weighed down by CRE loans goes back on offense

• Key insight: By announcing plans to acquire Providence Financial, Valley National Bancorp is pivoting toward growth. Earlier it was focused on reducing a large concentration in commercial real estate loans that had weighed on its stock price.
  
• Supporting data: Valley's ratio of commercial real estate loans to capital, which was 474% at the end of 2023, fell to 317% on June 30, 2026.
  
• Forward look: The acquisition of Providence, which is based in the Chicago area, is expected to close in early 2027.
  

In a sign that bank mergers are making a resurgence after a lull earlier this year, New Jersey-based Valley National Bancorp is moving to bolster its Chicago-area presence with a $247 million acquisition.

Valley, which made a modest entry into the Chicago market four years ago, on Tuesday announced a stock-and-cash deal for Providence Financial, a 22-year-old Chicagoland bank with $1.6 billion of assets. For the $66 billion-asset buyer, a key benefit is the seller's relatively low cost of funding. Valley's cost of total deposits is more than 50% higher than Providence's, the companies said.

"The acquisition of Providence is in direct alignment with our strategic priorities of enhancing our core funding base, diversifying our loan portfolio and driving fee income," Valley Chairman, President and CEO Ira Robbins said in a press release.

Valley entered the competitive Chicago regional market in 2022 by acquiring Israel-based Bank Leumi's U.S. operations, but its current local footprint is small. Valley today has $800 million of loans in the market, which it says will rise to $1.9 billion after the deal closes. Its $300 million of deposits in Chicago are expected to increase to $1.6 billion.

'The Chicago market is competitive'

The acquisition, which Valley expects to close in early 2027, complements its existing middle-market commercial banking presence in Chicagoland, while opening up opportunities for retail and small-business growth in the market, the bank said in a press release.

Jon Arfstrom, an analyst at RBC Capital Markets, said investors will question why Valley is pursuing growth in the Chicago area, rather than focusing on markets where it has a larger branch presence. Valley has bigger operations in New York, New Jersey and Florida than it does in Illinois.

"We do know the Chicago market is competitive, but it has also consolidated materially over the past decade plus, so carving out a smaller community bank and lower middle market strategy makes sense to us," Arfstrom wrote.

Read more:

• These are the Top Performing Banks of 2026 in four asset tiers
• New York bank regulator says vendor flaw hit its firms
• The best credit unions to work for in 2026
• Tokenized deposits are here. Banks need to manage the risks.

Valley, headquartered in Morristown, New Jersey, worked in recent years to reduce its concentration in commercial real estate lending. The bank started to diversify its balance sheet in 2024 after its stock price got hammered amid broader concerns about the CRE sector, which were tied to higher interest rates and the rise of remote work.

Valley's ratio of commercial real estate loans to capital was 474% at the end of 2023, but it fell to 317% on June 30, 2026.

The deal announced Tuesday shows Valley is no longer as focused on reducing its commercial real estate concentration. Its stock price has risen by 35% over the past 12 months.

Commercial real estate loans account for 56% of Providence's loan portfolio, and commercial and industrial loans, including owner-occupied commercial real estate loans, account for another 36%, according to a TD Cowen research note.

In late 2024, Valley announced a $400 million capital raise, which analysts said would help it capitalize on loan-growth opportunities. In the aftermath of that move, Valley executives have said the company's strategic growth imperatives include possible geographic expansion, growing core deposits and generating diverse loan growth.

"In general, our loan portfolio continues to evolve in line with our strategic priorities, as we replace low-value transactional CRE with relationship-based C&I and owner-occupied

CRE loans, which are contributing deposits to the bank," Valley Chief Financial Officer Travis Lan said during a July 23 call with analysts.

Arfstrom wrote Tuesday that while some observers may have viewed Valley as a target of banks that are seeking to buy, that has not been his own view. "This acquisition does send a message that Valley is on offense," he wrote.

'Merely pausing for breath'

Under the terms of the deal announced Tuesday, Providence shareholders will receive 4.3854 shares of Valley common stock and $21.47 in cash for each share they own. 

Valley said it expects the transaction to be approximately 2% accretive to the buyer's earnings and less than 1% dilutive to its pro forma tangible book value, with an earnback period of less than three years. 

The seller's banking subsidiary, Providence Bank & Trust, has 14 branches in the Chicago area, mostly in the suburbs. Its return on equity and return on assets both exceeded industry-wide averages in the first six months of 2026.

Providence's president and CEO, Steven Van Drunen, will join Valley as market president for Chicagoland, according to the two banks.

The pace of bank mergers slowed this spring following the start of the U.S. war with Iran, but partners at consultancy Bain & Co. wrote in an analysis published Monday that they're "confident that M&A teams were merely pausing for breath."

"Under the Trump administration's more pro-consolidation agenda, deal approvals are faster, antitrust scrutiny below $250 billion in assets has eased, and capital requirements are moderating," the Bain partners wrote. "This regulatory shift is accelerating standalone industry trends, such as AI-related cost reduction, to create ideal dealmaking conditions likely to last for two to three years."