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Valley National (VLY) Rides on Buyouts & Loans, High Costs Ail
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Valley National Bancorp (VLY - Free Report) is well poised to capitalize on a robust loan balance, strategic acquisitions and higher rates. Yet, a persistent rise in operating expenses, rising funding costs and a concentrated loan portfolio are major headwinds.
Valley National’s organic growth trajectory looks impressive. Driven by a continued rise in loan balances, the company’s top line witnessed a CAGR of 17.1% over the last six years (2016-2022). Net loans saw a CAGR of 18.1% over the same period. Driven by higher rates, strategic buyouts, decent loan demand and efforts to improve non-interest income, revenue growth is expected to continue.
Also, VLY has been expanding mainly via acquisitions. In 2022, the company acquired Bank Leumi Le-Israel B.M.’s U.S. banking arm, while in 2021, it acquired Westchester Bank and the Arizona-based advisory firm Dudley Ventures. These, along with several past buyouts, are expected to be earnings accretive and help diversify revenues and footprint. Given a solid balance sheet position, Valley National remains well-placed to grow further through opportunistic buyouts.
Over the past 30 days, the Zacks Consensus Estimate for VLY’s earnings has remained unchanged for both 2023 and 2024. Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 18.8%, outperforming the industry's 8.1% rise.
Image Source: Zacks Investment Research
However, mounting expenses are a major concern for VLY. Non-interest expenses recorded a CAGR of 13.6% over the past six years (ended 2022). The rise was primarily due to an increase in equipment expenses and net occupancy. Expenses are expected to remain high as the company expands through acquisitions and invests in revenue growth areas.
Rising funding costs due to high interest rates are expected to hurt Valley National’s net interest margin (NIM). Though NIM on a tax-equivalent basis increased in 2020, 2021 and 2022, the metric declined in the first nine months of 2023. With the Federal Reserve expected to keep the interest rates high in the near term, increasing deposit costs will exert pressure on NIM expansion in the upcoming quarters.
Bank Stocks Worth a Look
A couple of top-ranked stocks from the banking space are WSFS Financial Corporation (WSFS - Free Report) and Byline Bancorp (BY - Free Report) .
Earnings estimates for WSFS have remained unchanged for 2023 over the past 30 days at $4.47. The company’s shares have gained 6.2% over the past six months. WSFS Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Byline Bancorp’s earnings estimates have moved 1.4% north for the current year at $2.83 over the past 30 days. In six months’ time, BY’s shares have gained 14.2%. The company carries a Zacks Rank #2 at present.
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Valley National (VLY) Rides on Buyouts & Loans, High Costs Ail
Valley National Bancorp (VLY - Free Report) is well poised to capitalize on a robust loan balance, strategic acquisitions and higher rates. Yet, a persistent rise in operating expenses, rising funding costs and a concentrated loan portfolio are major headwinds.
Valley National’s organic growth trajectory looks impressive. Driven by a continued rise in loan balances, the company’s top line witnessed a CAGR of 17.1% over the last six years (2016-2022). Net loans saw a CAGR of 18.1% over the same period. Driven by higher rates, strategic buyouts, decent loan demand and efforts to improve non-interest income, revenue growth is expected to continue.
Also, VLY has been expanding mainly via acquisitions. In 2022, the company acquired Bank Leumi Le-Israel B.M.’s U.S. banking arm, while in 2021, it acquired Westchester Bank and the Arizona-based advisory firm Dudley Ventures. These, along with several past buyouts, are expected to be earnings accretive and help diversify revenues and footprint. Given a solid balance sheet position, Valley National remains well-placed to grow further through opportunistic buyouts.
Over the past 30 days, the Zacks Consensus Estimate for VLY’s earnings has remained unchanged for both 2023 and 2024. Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 18.8%, outperforming the industry's 8.1% rise.
Image Source: Zacks Investment Research
However, mounting expenses are a major concern for VLY. Non-interest expenses recorded a CAGR of 13.6% over the past six years (ended 2022). The rise was primarily due to an increase in equipment expenses and net occupancy. Expenses are expected to remain high as the company expands through acquisitions and invests in revenue growth areas.
Rising funding costs due to high interest rates are expected to hurt Valley National’s net interest margin (NIM). Though NIM on a tax-equivalent basis increased in 2020, 2021 and 2022, the metric declined in the first nine months of 2023. With the Federal Reserve expected to keep the interest rates high in the near term, increasing deposit costs will exert pressure on NIM expansion in the upcoming quarters.
Bank Stocks Worth a Look
A couple of top-ranked stocks from the banking space are WSFS Financial Corporation (WSFS - Free Report) and Byline Bancorp (BY - Free Report) .
Earnings estimates for WSFS have remained unchanged for 2023 over the past 30 days at $4.47. The company’s shares have gained 6.2% over the past six months. WSFS Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Byline Bancorp’s earnings estimates have moved 1.4% north for the current year at $2.83 over the past 30 days. In six months’ time, BY’s shares have gained 14.2%. The company carries a Zacks Rank #2 at present.