Valley National (VLY) Down 2.5% on Q2 Earnings & Revenue Miss
Shares of Valley National Bancorp VLY lost 2.5% following the release of its lower-than-expected second-quarter 2023 results. Adjusted earnings per share of 28 cents missed the Zacks Consensus Estimate by a penny. The bottom line also declined 12.5% on a year-over-year basis.
Results were hurt by a significant rise in interest expenses, which affected the company’s net interest income. Further, capital and profitability ratios worsened. On the other hand, lower expenses, a rise in non-interest income and decent loans and deposit growth were tailwinds. Also, credit quality improved during the quarter.
Net income available to common shareholders (GAAP basis) was $139.1 million or 27 cents per share, up from $96.4 million or 18 cents per share in the year-ago quarter.
Revenues Improve, Expenses Decline
Total revenues were $479.8 million, rising marginally year over year. The top line, however, missed the Zacks Consensus Estimate of $491.9 million.
NII (fully-taxable-equivalent or FTE basis) was $421.3 million, growing slightly. This was driven by higher loan balances and rising interest rates, majorly offset by a substantial rise in interest expenses. Net interest margin (FTE basis) was 2.94%, down 49 basis points.
Non-interest income grew 2.6% to $60.1 million. The increase was largely driven by a rise in wealth management and trust fees and insurance commissions.
Non-interest expenses of $283 million declined 5.6%. The fall was due to a decrease in all cost components except net occupancy expenses, FDIC insurance assessment, amortization of tax credit investments and other expenses.
The efficiency ratio was 55.59%, up from 50.78% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Jun 30, 2023, total loans were $49.9 billion, up 2.5% sequentially. As of the same date, total deposits amounted to $49.6 billion, rising 4.3%.
Credit Quality Improves
As of Jun 30, 2023, total non-performing assets were $256.1 million, down 18.6% year over year.
Provision for credit losses for loans was $6.1 million, plunging substantially from $44 million. Also, the allowance for credit losses as a percentage of total loans was 0.92%, down from 1.13% in the year-ago quarter.
Profitability & Capital Ratios Deteriorate
At the end of the second quarter, adjusted annualized return on average assets was 0.95%, down from 1.25% in the year-earlier quarter. Annualized return on average shareholders’ equity was 8.99%, down from 10.63%.
VLY's tangible common equity to tangible assets ratio was 7.24% as of Jun 30, 2023, down from 7.46% in the corresponding period of 2022. Tier 1 risk-based capital ratio was 9.47%, down from 9.54%. Also, the common equity tier 1 capital ratio of 9.03% declined from 9.06% as of Jun 30, 2022.
Our Take
Valley National’s organic growth trajectory, strategic acquisitions and digitization efforts will support financials. However, persistently increasing costs and a challenging macroeconomic backdrop remain major concerns.
Valley National Bancorp Price, Consensus and EPS Surprise
Valley National Bancorp price-consensus-eps-surprise-chart | Valley National Bancorp Quote
Valley National currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
BankUnited, Inc. BKU second-quarter 2023 earnings per share of 78 cents missed the Zacks Consensus Estimate by a penny. The bottom line also declined 4.9% from the prior-year quarter.
BKU's results were adversely impacted by an increase in operating expenses, lower deposit and loan balance and a decline in NII. However, higher non-interest income and lower provisions for credit losses acted as tailwinds.
Prosperity Bancshares Inc.’s PB second-quarter 2023 earnings per share of 94 cents missed the Zacks Consensus Estimate of $1.19. The bottom line decreased 32.9% from the prior-year quarter.
PB’s results were hurt by an increase in expenses and a fall in net revenues. The company also reported rise in provisions for credit losses. However, higher fee income and increased loan balances were the major tailwinds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
BankUnited, Inc. (BKU) : Free Stock Analysis Report
Prosperity Bancshares, Inc. (PB) : Free Stock Analysis Report
Valley National Bancorp (VLY) : Free Stock Analysis Report
