Valley National Bancorp :VLY-US: Earnings Analysis: 2016 By the Numbers : January 30, 2017

Valley National Bancorp reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Valley National Bancorp – Lakeland Bancorp, Inc. and M&T Bank Corporation (LBAI-US and MTB-US) that have also reported for this period.

Highlights

  • Net interest income margins narrowed from 86.65% to 85.85% compared to the same period last year.
  • Net loan assets changed 7.43% compared to same period last year and 7.43% from previous period, total deposits changed 9.09% compared to same period last year and 9.09% from previous period.
  • Earnings growth from operating margin improvements as well as from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 720.02 635.17 542.91 567.72 616.06
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 168.15 102.96 116.17 131.96 143.63
Earnings Growth (YOY) 63.32 -11.38 -11.96 -8.12 7.46
Net Margin 23.35 16.21 21.4 23.24 23.31
EPS 0.63 0.42 0.56 0.66 0.73
Return on Equity 7.02 4.87 6.83 8.67 10.38
Return on Assets 0.76 0.51 0.66 0.82 0.95

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Earnings Growth Analysis

VLY-US‘s earnings rose year-on-year. But this growth has not come as a result of improvement in net interest income margins or any loan loss improvement activities in its operations. Net interest income margins were 85.85% compared to 86.65% in the immediate last period. Net interest income after provisions margins were 84.20% this period compared to 85.37% in the previous period. In addition, loan loss provisions as a percentage of net interest income were 1.92% this period and 1.47% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (HY YOY)
Total Deposits Growth Rate History (HY YOY)

The firm’s decline in net interest income margins was influenced primarily by the relative increase in the levels of net loan assets. On an absolute basis, net loan assets changed 7.43% compared to the same period last year and 7.43% from the previous period, while total deposits changed 9.09% compared to the same period last year and 9.09% from the previous period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 27.92% to 32.27% and (2) one-time items. The company’s pretax margins are now 32.41%, compared to 19.98% for the same period last year.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

Valley National Bancorp is a bank holding company, which engages in the provision of retail and commercial banking services. It operates through the following segments: Consumer Lending; Commercial Lending; Investment Management; and Corporate & Other Adjustments. The Consumer Lending segment offers mortgage, automobile, and home equity loans. The Commercial Lending segment deals with industrial and real estate financing services. The Investment Management segment includes securities investment, retirement funds, educational plans, and financial and estate planning. The Corporate & Other Adjustments segment consists of securities gains and losses, net impairment losses, and net trading. The company was founded in 1983 and is headquartered in Wayne, NJ.

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