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Valley National (VLY) Q2 Earnings Top as Revenues Rise, Stock Up

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Valley National Bancorp (VLY - Free Report) gained 3.3% in response to better-than-expected second-quarter 2022 results. Adjusted earnings per share of 32 cents beat the Zacks Consensus Estimate of 29 cents. The bottom line also improved 6.7% on a year-over-year basis.

The acquisition of Bank Leumi USA during the quarter majorly supported the results, driving revenues, loans and deposit balances. Also, organic expansion efforts and higher interest rates acted as tailwinds. However, a drastic jump in non-interest expenses and higher provisions (indicating the Bank Leumi deal and deteriorating economic outlook) were the undermining factors.

Results in the reported quarter included the impact of the acquisition of Bank Leumi. After considering these, net income available to common shareholders (GAAP basis) was $93.2 million or 18 cents per share, down from $117.3 million or 29 cents per share in the year-ago quarter.

Revenues Improve, Expenses Rise

Total revenues were $476.7 million, jumping 38.6% year over year. The top line also surpassed the Zacks Consensus Estimate of $451.5 million.

Net interest income (NII) (fully-taxable-equivalent or FTE basis) was $419.6 million, surging 39% year over year. This was driven by higher average loan balances and rising interest rates.

Net interest margin (FTE basis) grew 25 basis points (bps) to 3.43%.

Non-interest income grew 35.3% to $58.5 million. The increase was largely driven by all fee income components except fees from loan servicing, net gains on sales of loans and bank-owned life insurance.

Non-interest expenses of $299.7 million jumped 75.1% year over year. The rise was due to an increase in all cost components. Excluding the Bank Leumi acquisition-related charges, adjusted expenses were $242 million, increasing 50.8%.

The efficiency ratio was 50.78%, up from 46.64% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.

As of Jun 30, 2022, total loans were $43.6 billion, up 23.2% sequentially. This reflected $5.9 billion of loans acquired from Bank Leumi and robust organic loan growth. As of the same date, total deposits amounted to $43.9 billion, growing 23.1%.

Credit Quality Worsens

At the end of the reported quarter, total non-performing assets were $314.7 million, up 28.3% year over year.

Also, provision for credit losses was $44 million, rising from $8.8 million in the year-ago quarter. Allowance for credit losses as a percentage of total loans was 1.13%, up from 1.09% in the year-ago quarter.

Profitability Ratios Improve, Capital Ratios Deteriorate

At the end of the second quarter, annualized return on average assets was 1.25%, up from 1.23% in the year-earlier quarter. Return on annualized average shareholders’ equity was 10.63%, up from 10.09%.

VLY's tangible common equity to tangible assets ratio was 7.46% as of Jun 30, 2022, down from 7.98% in the corresponding period of 2021. Tier 1 risk-based capital ratio was 9.54%, down from 10.69%. Also, Common equity tier 1 capital ratio of 9.06% declined from 10.06% as of Jun 30, 2021.

Our Take

Valley National’s organic growth trajectory, strategic acquisitions and digitization efforts will keep supporting financials. Persistently increasing costs and worsening 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-eps-surprise-chart | Valley National Bancorp Quote

Valley National currently carries a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Hilltop Holdings Inc.’s (HTH - Free Report) second-quarter 2022 earnings of 45 cents per share easily outpaced the Zacks Consensus Estimate of 32 cents. However, the bottom line plunged 62.8% from the prior-year quarter.

Results benefited from higher rates and rising loan balance, which led to an increase in NII. Also, lower expenses acted as a tailwind. However, lower non-interest income, mainly due to the weak mortgage business, was the undermining factor for HTH. Further, a worsening U.S. economic outlook resulted in higher provisions during the quarter.

Associated Banc-Corp’s (ASB - Free Report) second-quarter 2022 earnings of 56 cents per share surpassed the Zacks Consensus Estimate of 44 cents. The bottom line, however, was the same as the prior-year quarter.

ASB’s results were aided by a rise in revenues and no provisions. The quarter witnessed an increase in loans and deposit balances. However, a rise in expenses hurt results to some extent.

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