Shares of Valley National Bancorp (VLY) slumped 2.3% following its fourth-quarter 2013 earnings release before the opening bell on Jan 30. The company reported earnings per share of 20 cents, which surpassed the Zacks Consensus Estimate of 15 cents. Moreover, results compared favorably with the year-ago quarter earnings of 19 cents per share.
For full-year 2013, Valley National Bancorp recorded earnings per share of 66 cents versus 73 cents in 2012. However, earnings for the year surpassed the Zacks Consensus Estimate of 64 cents.
In the reported quarter, the company recorded nearly 11.0% rise in commercial real estate (:CRE) loans. However, investors are acquainted with the inherent risks associated with these loans. Moreover, the rise in non-interest income includes a one-time gain of $11.3 million from certain lease termination. Therefore, the bearish stance of the investors is justified.
Moreover, the overall market depicted a decline during the mentioned time frame and that could be responsible for the stock price decline.
Results benefited from top-line improvement, partially offset by higher expenses. Growth in loans and deposits were the tailwinds of the quarter. Further, while capital ratios deteriorated, profitability ratios improved. Credit quality was a mixed bag.
Net income for the reported quarter came in at $39.6 million, up 7.6% from $36.8 million in the year-ago period. However, for the full year, net income came in at $132.0 million, declining 8.1% from $143.6 million in 2012.
Valley National Bancorp’s total revenue came in at $158.2 million, up 3.8% year over year. Moreover, total revenue surpassed the Zacks Consensus Estimate of $144.0 million.
For 2013, total revenue came in at $576.4 million, down 5.6% from $610.8 million in 2012. Moreover, total revenue lagged the Zacks Consensus Estimate of $587.0 million.
Net interest income declined 2.0% year over year to $116.1 million, driven by a decline in interest income partially offset by lower interest expenses. Moreover, net interest margin contracted 14 basis points (bps) from the prior-year quarter to 3.27%.
Non-interest income increased 24.4% from the prior-year quarter to $42.1 million. The increase was primarily driven by a substantial rise in gains on securities as well as gains on sales of assets. These positives were partially offset by a decline in gains on sales of loans and trading gains.
Non-interest expense increased slightly (0.5%) year over year to $96.1 million. The increase mainly resulted from rise in salary and employee benefits, Federal Deposit Insurance Corporation assessments and other costs. These negatives were partially offset by a fall in net occupancy and equipment expense, amortization of other intangible assets, advertising expenditures, professional and legal fees.
Asset quality, apart from the ratio of net charge-offs to average loans, reflected improvement in the reported quarter. Total non-performing assets were $124.9 million as of Dec 31, 2013, down 36.1% from Dec 31, 2012.
Total non-accrual loans were $95.1 million, down 27.9% year over year. However, the ratio of net charge-offs to average loans was 0.19% as of Dec 31, 2013, up 4 bps from 0.15% as of Dec 31, 2012. Nevertheless, compared with the prior quarter, the ratio declined 14 bps.
Allowance for credit losses as a percentage of total loans was 1.01%, compared with 1.20% as of Dec 31, 2012.
Loans and Deposits
As of Dec 31, 2013, total loans were $11.6 billion, up 6.3% from $10.9 billion as of Dec 31, 2012.
Total deposits were $11.31 billion, up marginally from $11.26 billion as of Dec 31, 2012.
Profitability and Capital Ratios
In the reported quarter, while Valley National Bancorp’s capital ratios deteriorated, profitability ratios improved. As of Dec 31, 2013, Tier 1 leverage ratio was 7.27%, compared with 8.09% as of Dec 31, 2012. Tier 1 risk-based capital ratio was 9.65%, compared with 10.87% as of Dec 31, 2012. Total risk-based capital ratio came in at 11.87% versus 12.38% as of Dec 31, 2012.
The return on average assets came in at 0.98%, improving from 0.93% as of Dec 31, 2012. As of Sep 30, 2013, return on average stockholder equity came in at 10.35%, increasing from 9.71% as of Dec 31, 2012.
Performance of Other Regional Banks
Associated Banc-Corp’s (ASBC) earnings per share were in line with the Zacks Consensus Estimate in the same quarter. Improvement seen in net interest income and core fee revenues were the tailwinds of the quarter.
Synovus Financial Corporation’s (SNV) net income per share was also in line with the Zacks Consensus Estimate. Results were primarily impacted by a slump in mortgage business which partially offset lower expenses.
However, Commerce Bancshares, Inc.’s (CBSH) earnings missed the Zacks Consensus Estimate due to a decline in net interest income and higher operating expense.
Though Valley National Bancorp’s real estate loan portfolio reflected improvement in this quarter, we remain skeptical about the sustainability of the profits being generated from the highly-volatile real estate market. Further, the low interest rate scenario will continue to weigh on interest income as well as margins. However, disciplined expense management will support the company’s financials going forward.
Valley National Bancorp currently carries a Zacks Rank #3 (Hold).