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Valley National (VLY) Gains Despite Q4 Earnings Miss, Cost Hike

Valley National Bancorp’s VLY fourth-quarter 2022 adjusted earnings per share of 35 cents missed the Zacks Consensus Estimate by a penny. The bottom line improved 20.7% on a year-over-year basis.

Results were hurt by an increase in expenses. Nevertheless, an improvement in net interest income (NII), driven by higher interest rates and loan growth, along with a rise in fee income, supported the results to some extent. A decline in provisions was another tailwind. Probably because of the positives, shares of the company gained 3.1% following the earnings release.

Net income available to common shareholders (GAAP basis) was $174 million or 34 cents per share, up from $111.9 million or 27 cents per share in the year-ago quarter.

Adjusted earnings per share of $1.31 for 2022 met the Zacks Consensus Estimate. The bottom line improved 12% on a year-over-year basis. Net income available to common shareholders (GAAP basis) was $555.7 million or $1.14 per share, up from $461.2 million or $1.12 per share recorded in 2021.

Revenues Improve, Expenses Rise

Total quarterly revenues were $518.6 million, jumping 46.7% year over year. The top line missed the Zacks Consensus Estimate of $529.6 million.

For 2022, revenues were $1.86 billion, up 36.5% from the previous year. However, the top line lagged the Zacks Consensus Estimate of $1.88 billion.

Quarterly NII (fully-taxable-equivalent or FTE basis) was $467.2 million, growing 47.9% year over year. This was driven by higher loan balances and rising interest rates.

The net interest margin (FTE basis) grew 34 basis points (bps) year over year to 3.57%.

Non-interest income grew 38.1% year over year to $52.8 million. The increase was largely driven by a rise in almost all fee income components, except for net gains on sales of loans and fees from loan servicing. In the reported quarter, the company recorded a net loss on securities transactions against a gain in the year-ago quarter.

Non-interest expenses of $266.2 million jumped 44.3% year over year. The rise was due to an increase in all cost components.

The efficiency ratio was 49.3%, down from 49.44% in the prior-year quarter. A fall in the efficiency ratio indicates an improvement in profitability.

As of Dec 31, 2022, total loans were $46.9 billion, up 3.8% sequentially. As of the same date, total deposits amounted to $47.6 billion, up from $45.3 billion at the end of the previous quarter.

Credit Quality: Mixed Bag

At the end of the reported quarter, total non-performing assets were $272 million, up 10.8% year over year.

However, the allowance for credit losses as a percentage of total loans was 1.03%, down from 1.10% in the year-ago quarter. Provision for credit losses for loans was $7.3 million, down 37.2% from the year-ago quarter.

Profitability Ratios Improve, Capital Ratios Deteriorate

At the end of the fourth quarter, the adjusted annualized return on average assets was 1.29%, up from 1.18% in the year-earlier quarter. Annualized return on average shareholders’ equity was 11.56%, up from 10.19%.

VLY's tangible common equity to tangible assets ratio was 7.45% as of Dec 31, 2022, down from 7.46% in the corresponding period of 2021. Tier 1 risk-based capital ratio was 9.46%, down from 9.54%. Also, the common equity tier 1 capital ratio of 9.01% declined from 9.06% as of Dec 31, 2021.

Our Take

Valley National’s organic growth trajectory, strategic acquisitions and digitization efforts will keep supporting financials. However, persistently increasing costs and a tough macroeconomic backdrop remain major concerns.

Valley National Bancorp Price, Consensus and EPS Surprise

 

Valley National Bancorp Price, Consensus and EPS Surprise
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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Bank of New York Mellon Corporation’s BK fourth-quarter 2022 adjusted earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.22. The bottom line reflects a rise of 25% from the prior-year quarter. Our estimate for earnings was $1.09.

BK’s results have been aided by a rise in net interest revenues. However, asset balances witnessed a decline, which was a negative. Higher expenses and lower fee revenues have hurt BK’s results to some extent.

Northern Trust Corporation’s NTRS fourth-quarter 2022 adjusted earnings per share of $1.65 missed the Zacks Consensus Estimate of $1.81. Also, the bottom line declined 14% year over year.

Results were adversely impacted by a rising expense base, worsening credit quality, lower fee income and weak capital ratios. Yet, a rise in net interest income, driven by higher rates, acted as a tailwind for NTRS.

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