April 25 (Reuters) - Valley National Bancorp ( VLY )

reported a slump in its first-quarter profit on Thursday,

dragged down by a fivefold increase in rainy-day funds on

account of its exposure to commercial real estate.

High interest rates and borrowing costs have heightened

worries of debt defaults in the commercial real estate (CRE)

market, which is already in doldrums due to empty office

buildings in the post-pandemic era.

Valley National's provisions for credit losses surged to

$45.3 million in the first quarter, compared with $9.5 million a

year earlier.

The lender said the increase in provisions was driven by

commercial real estate, commercial and industrial and

construction loan portfolios.

Investor focus this year is on the CRE exposure in regional

lenders' loan books after New York Community Bancorp ( NYCB )

reported a surprise quarterly loss in January due to writedowns

on loans tied to the sector.

Valley National's stock was last down 2.6% in afternoon

trading, after falling as much as 7.6% earlier in the session.

The bank's shares are down roughly 30% so far this year,

underperforming the regional banking index.

Scrutiny of regional banks has increased after the failures

of Silicon Valley Bank, Signature Bank and First Republic Bank

last year reverberated across the global financial system.

Profits of banks, particularly regional lenders, have

declined broadly in the first quarter as higher rates raise the

cost of holding deposits and discourage borrowers from taking

out mortgages and other loans.

Valley National's net interest income, the difference

between what a bank earns on loans and pays on deposits,

declined nearly 10% in the first quarter to $393.5 million. Net

interest margin contracted to 2.78% from 3.15% a year ago.

The bank reported net income of 18 cents per share in the

three months ended March 31, versus 28 cents a year ago.