Valley National Bancorp’s (VLY) third-quarter 2013 earnings per share came in at 14 cents, missing the Zacks Consensus Estimate by a penny. Moreover, results were below the year-ago quarter earnings of 20 cents per share.
A decline in top line and higher operating expenses were primarily responsible for the lower-than-expected results. Further, both credit quality and capital ratios were a mixed bag. Though total deposits declined, there was an increase in loans for the reported quarter.
Net income for the reported quarter came in at $27.1 million, down 31.2% from $39.4 million in the year-ago period.
Quarterly Highlights
Valley National Bancorp’s total revenue came in at $176.2 million, down 15.2% year over year. However, total revenue surpassed the Zacks Consensus Estimate of $140.0 million.
Net interest income declined 8.3% year over year to $111.7 million. Moreover, net interest margin contracted 27 basis points (bps) from the prior-year quarter to 3.14%.
Non-interest income decreased 44.7% from the prior-year quarter to $22.4 million.
Non-interest expense nudged up 1.3% year over year to $94.5 million. The increase mainly resulted from rise in net occupancy and equipment expense, professional and legal fees as well as other costs. These negatives were partially offset by a fall in salary and employee benefits expenditure, Federal Deposit Insurance Corporation assessments, amortization of other intangible assets as well advertising expenditures.
Asset Quality
Asset quality was a mixed bag in the said quarter. Total nonperforming assets were $194.2 million as of Sep 30, 2013, up 4.8% from Sep 30, 2012.
Total non-accrual loans were $116.1 million down 4.4% year over year. However, the ratio of net charge-offs to average loans was 0.33% as of Sep 30, 2013, up 4 bps from with 0.29% as of Sep 30, 2012.
Allowance for credit losses as a percentage of total loans was 1.02%, compared with 1.18% as of Sep 30, 2012.
Loans and Deposits
As of Sep 30, 2013, total loans, net of allowance for loan losses, was $11.3 billion, up 3.6% from $11.0 billion as of Dec 31, 2012.
Total deposits were $11.1 billion, down 1.3% from $11.3 billion as of Dec 31, 2012.
Profitability and Capital Ratios
In the reported quarter, Valley National Bancorp’s capital ratios were a mixed bag and profitability ratios deteriorated. As of Sep 30, 2013, Tier 1 leverage ratio was 8.03%, compared with 8.07% as of Sep 30, 2012. Tier 1 risk-based capital ratio was 10.64%, compared with 10.87% as of Sep 30, 2012. Total risk-based capital ratio came in at 12.87% versus 12.36% as of Sep 30, 2012.
The return on average assets came in at 0.68%, declining from 0.99% as of Sep 30, 2012. As of Sep 30, 2013, return on average stockholder equity came in at 7.11%, decreasing from 10.45% as of Sep 30, 2012.
Performance of Other Regional Banks
Associated Banc-Corp (ASBC) and Commerce Bancshares, Inc. (CBSH) reported better-than-expected earnings this quarter. Results of Associated Banc-Corp were driven by growth in net interest income and lower operating expenses, partially offset by a fall in non-interest income. Commerce Bancshares’ quarterly results, on the other hand, were aided by higher non-interest income and lower operating expense, partly offset by a fall in net interest income.
Synovus Financial Corporation (SNV) earnings were in line with the Zacks Consensus Estimate. Results benefited from lower non-interest expenses and considerable improvement in credit quality, partially offset by decline in the top line.
Our Viewpoint
On expectations of continued recovery in the real estate market, we believe that commercial real estate loans will continue to witness growth and boost Valley National Bancorp organic growth going forward. However, we remain concerned about the inherent risks related to these loans and a protracted economic recovery.
Valley National Bancorp currently carries a Zacks Rank #2 (Buy).
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