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Valley National (VLY) Aided by Loan & Rates Amid Strain on NIM
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Valley National Bancorp (VLY - Free Report) witnessed growth in revenues supported by elevated loan demands, higher interest rates and strategic acquisitions. However, pressure on NIM because of high rates and a rise in non-interest expenses are near-term headwinds.
Valley National’s net revenues witnessed a compound annual growth rate (CAGR) of 16.1% over the last six years (2017-2023), driven by a continued rise in loan balances. Over the same time frame, net loans recorded a CAGR of 18.2%. With strategic acquisitions, high interest rates, efforts to boost fee income and decent loan demand, growth in revenues is expected to continue. Management expects mid-single-digit growth in loans in 2024, with the primary focus on expanding commercial and industrial and non-investor commercial real estate loans.
As of Dec 31, 2023, Valley National had a total debt of $3.25 billion (the majority being long-term in nature), while its cash and due from banks, and interest-bearing deposits with banks were $891.2 million. The company has investment grade credit ratings of BBB on senior unsecured debt from S&P. Thus, given the earnings strength, VLY is expected to continue meeting debt obligations in the near term, even if the economic situation worsens.
Despite the above-mentioned tailwinds, the bank has been witnessing a constant rise in non-interest expenses. Over the last six years (ended 2023), expenses witnessed a CAGR of 14.8%. The rise was driven by higher salary and employee benefits and occupancy expenses. Since VLY is growing inorganically and investing in revenue growth areas, overall costs are expected to remain elevated in the near term.
Elevated funding costs due to high interest rates are likely to keep hurting Valley National’s net interest margin (NIM) in the next couple of quarters. Though NIM, on a tax-equivalent basis, increased in 2020, 2021 and 2022, the metric declined in 2023. With the Fed expected to keep the rates high, the company is less likely to witness solid NIM expansion in the near term.
The Zacks Consensus Estimate for VLY’s 2024 and 2025 earnings have been revised lower by 5.7% and 1.7%, respectively, over the past 30 days. This indicates that analysts are pessimistic regarding its earnings growth potential.
VLY currently carries a Zacks Rank #3 (Hold). Shares of VLY have lost 29.6% over the past 12 months compared with the industry’s decline of 17.7%
Image Source: Zacks Investment Research
Stocks to Consider
A couple of better-ranked finance stocks are Bridgewater Bancshares (BWB - Free Report) and CrossFirst Bankshares (CFB - Free Report) .
Bridgewater Bancshares’ 2024 earnings estimates have moved north by 7.6% in the past 30 days. The company’s shares have gained 15% over the past three months. At present, BWB sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CrossFirst Bankshares’ 2024 earnings estimates have been revised 1.4% upward in the past 30 days. The stock has gained 17.6% over the past three months. Currently, CFB also sports a Zacks Rank #1.
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Valley National (VLY) Aided by Loan & Rates Amid Strain on NIM
Valley National Bancorp (VLY - Free Report) witnessed growth in revenues supported by elevated loan demands, higher interest rates and strategic acquisitions. However, pressure on NIM because of high rates and a rise in non-interest expenses are near-term headwinds.
Valley National’s net revenues witnessed a compound annual growth rate (CAGR) of 16.1% over the last six years (2017-2023), driven by a continued rise in loan balances. Over the same time frame, net loans recorded a CAGR of 18.2%. With strategic acquisitions, high interest rates, efforts to boost fee income and decent loan demand, growth in revenues is expected to continue. Management expects mid-single-digit growth in loans in 2024, with the primary focus on expanding commercial and industrial and non-investor commercial real estate loans.
As of Dec 31, 2023, Valley National had a total debt of $3.25 billion (the majority being long-term in nature), while its cash and due from banks, and interest-bearing deposits with banks were $891.2 million. The company has investment grade credit ratings of BBB on senior unsecured debt from S&P. Thus, given the earnings strength, VLY is expected to continue meeting debt obligations in the near term, even if the economic situation worsens.
Despite the above-mentioned tailwinds, the bank has been witnessing a constant rise in non-interest expenses. Over the last six years (ended 2023), expenses witnessed a CAGR of 14.8%. The rise was driven by higher salary and employee benefits and occupancy expenses. Since VLY is growing inorganically and investing in revenue growth areas, overall costs are expected to remain elevated in the near term.
Elevated funding costs due to high interest rates are likely to keep hurting Valley National’s net interest margin (NIM) in the next couple of quarters. Though NIM, on a tax-equivalent basis, increased in 2020, 2021 and 2022, the metric declined in 2023. With the Fed expected to keep the rates high, the company is less likely to witness solid NIM expansion in the near term.
The Zacks Consensus Estimate for VLY’s 2024 and 2025 earnings have been revised lower by 5.7% and 1.7%, respectively, over the past 30 days. This indicates that analysts are pessimistic regarding its earnings growth potential.
VLY currently carries a Zacks Rank #3 (Hold). Shares of VLY have lost 29.6% over the past 12 months compared with the industry’s decline of 17.7%
Image Source: Zacks Investment Research
Stocks to Consider
A couple of better-ranked finance stocks are Bridgewater Bancshares (BWB - Free Report) and CrossFirst Bankshares (CFB - Free Report) .
Bridgewater Bancshares’ 2024 earnings estimates have moved north by 7.6% in the past 30 days. The company’s shares have gained 15% over the past three months. At present, BWB sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CrossFirst Bankshares’ 2024 earnings estimates have been revised 1.4% upward in the past 30 days. The stock has gained 17.6% over the past three months. Currently, CFB also sports a Zacks Rank #1.