Valley National Bancorp Announces First Quarter 2023 Results

NEW YORK, April 27, 2023 (GLOBE NEWSWIRE) -- Valley National Bancorp (NASDAQ:VLY), the holding company for Valley National Bank, today reported net income for the first quarter 2023 of $146.6 million, or $0.28 per diluted common share, as compared to the first quarter 2022 net income of $116.7 million, or $0.27 per diluted common share, and net income of $177.6 million, or $0.34 per diluted common share, for the fourth quarter 2022. Excluding all non-core charges, our adjusted net income (a non-GAAP measure) was $154.5 million, or $0.30 per diluted common share, for the first quarter 2023, $120.3 million, or $0.28 per diluted common share, for first quarter 2022, and $182.9 million, or $0.35 per diluted common share, for the fourth quarter 2022. See further details below, including a reconciliation of our non-GAAP adjusted net income in the “Consolidated Financial Highlights” tables.

Key financial highlights for the first quarter:

• Loan Portfolio: Total loans increased $1.7 billion, or 15 percent on an annualized basis, to $48.7 billion at March 31, 2023 from December 31, 2022 mainly as a result of new commercial loan production from our well-established loan pipelines at the end of 2022 and the continuation of slower prepayment activity within the loan portfolio. See the “Loans” section below for more details.
• Allowance and Provision for Credit Losses for Loans: The allowance for credit losses for loans totaled $461.0 million and $483.3 million at March 31, 2023 and December 31, 2022, respectively, representing 0.95 percent and 1.03 percent of total loans at each respective date. During the first quarter 2023, the provision for credit losses for loans totaled $9.5 million as compared to $7.3 million and $3.5 million for the fourth quarter 2022 and first quarter 2022, respectively.
• Provision for Credit Losses for Available for Sale (AFS) Securities: We recorded a $5.0 million provision related to credit losses on one corporate bond issued by Signature Bank within our AFS debt securities portfolio and fully charged-off the bond during the first quarter 2023.
• Deposits: Total deposits were $47.6 billion at March 31, 2023 and remained relatively unchanged as compared to December 31, 2022. Our deposit base is highly diversified with 625 thousand commercial and retail deposit customers, an average account size of $58 thousand and an average customer relationship with Valley exceeding 10 years. See the “Deposits” section below for more details.
• Credit Quality: Non-accrual loans represented 0.50 percent and 0.57 percent of total loans at March 31, 2023 and December 31, 2022, respectively. Net loan charge-offs totaled $30.4 million for the first quarter 2023 as compared to $22.4 million for the fourth quarter 2022. The charge-offs in both periods primarily related to one commercial and industrial loan that was fully reserved for within our allowance for loan losses at December 31, 2022. The remaining loan balance, net of charge-offs, was immaterial at March 31, 2023. Total accruing past due loans increased $9.4 million to $100.3 million, or 0.21 percent of total loans, at March 31, 2023 as compared to $90.9 million, or 0.19 percent of total loans, at December 31, 2022. See the “Credit Quality” section below for more details.
• Net Interest Income and Margin: Net interest income on a tax equivalent basis of $437.5 million for the first quarter 2023 decreased $29.8 million compared to the fourth quarter 2022 and increased $119.1 million as compared to the first quarter 2022. Our net interest margin on a tax equivalent basis decreased by 41 basis points to 3.16 percent in the first quarter 2023 as compared to 3.57 percent for the fourth quarter 2022. The decline in both net interest income and margin as compared to the linked fourth quarter reflects the impact of rising market interest rates on incremental short-term borrowings and interest bearing deposits, excess cash liquidity held during March 2023, as well as two fewer days in the first quarter 2023. See the “Net Interest Income and Margin” section below for more details.
• Non-Interest Income: Non-interest income increased $1.5 million to $54.3 million for the first quarter 2023 as compared to the fourth quarter 2022 mainly due to increases in other income and capital markets fees. The increase in capital markets fees was driven by both higher fee income from interest rate swap transactions executed for commercial loan customers and foreign exchange fees.
• Non-Interest Expense: Non-interest expense increased $5.9 million to $272.2 million for the first quarter 2023 as compared to the fourth quarter 2022. The overall increase in non-interest expense was mostly due to normal seasonal increases within salary and employee benefits, as well as an increase in the FDIC insurance assessment. These increases were partially offset by lower merger related expenses within technology, furniture and equipment expense and a decline in consulting and managed service fees within the professional and legal fees category. Merger related expense totaled $4.1 million for the first quarter 2023 (mainly reported within salary and employee benefits) and $7.4 million for the fourth quarter 2022 (mainly reported in technology, furniture and equipment expense).
• Efficiency Ratio: Our efficiency ratio was 53.79 percent for the first quarter 2023 as compared to 49.30 percent and 53.18 percent for the fourth quarter 2022 and first quarter 2022, respectively. See the “Consolidated Financial Highlights” tables below for additional information regarding our non-GAAP measures.
• Income Tax Expense: The effective tax rate was 28.1 percent for the first quarter 2023. Income tax expense totaled $57.2 million for the first quarter 2023 and included a $1.4 million provision for unrealizable tax benefits related to the charge-off of the $5.0 million AFS security.
• Performance Ratios: Annualized return on average assets (ROA), shareholders’ equity (ROE) and tangible ROE were 0.98 percent, 9.10 percent and 13.39 percent for the first quarter 2023, respectively. Annualized ROA, ROE, and tangible ROE, adjusted for non-core charges, were 1.03 percent, 9.60 percent and 14.12 percent for the first quarter 2023, respectively. See the “Consolidated Financial Highlights” tables below for additional information regarding our non-GAAP measures.
  

Ira Robbins, CEO commented, “I am extremely proud of our team’s ability to navigate the recent market turmoil and operate the Bank from a position of balance sheet diversification, stability and strength. We have a prudent and industry-leading risk management culture that has enabled us to successfully operate through various economic cycles over several decades and today’s fast-paced transactional environment. Our core deposit base performed very well in recent weeks, as we proactively assist our clients and communities to work towards their own financial goals.”

Mr. Robbins continued, “Since 1927, Valley has supported the financial well-being of the individuals and businesses in our local communities. In times of market stress, our long-standing focus on relationship-based commercial and retail banking helps differentiate our organization. Our set of customers across business lines and geographies, on both sides of the balance sheet, positions us for relative stability during adverse market conditions.”

Net Interest Income and Margin

Net interest income on a tax equivalent basis totaling $437.5 million for the first quarter 2023 decreased $29.8 million as compared to the fourth quarter 2022 and increased $119.1 million as compared to the first quarter 2022. The decrease as compared to the fourth quarter 2022 was mainly due to (i) the negative impact of the significant increase in our excess cash liquidity and other borrowings resulting from prudent and cautionary measures taken by us during the market turmoil of March 2023, (ii) higher interest rates on our average interest bearing deposits and other borrowings, as well as (iii) fewer days in the first quarter. Interest expense increased $103.5 million to $284.2 million for the first quarter 2023 as compared to the fourth quarter 2022 largely due to a $4.0 billion increase in average interest bearing liabilities, including increases of $2.1 billion and $1.9 billion in average time deposits and short-term borrowings, respectively. Interest income on a tax equivalent basis increased $73.7 million to $721.7 million in the first quarter 2023 as compared to the fourth quarter 2022. The increase was mostly due to higher average loan balances driven by our organic new loan volumes, slowing loan prepayments, and increased yields on both new originations and adjustable rate loans in our portfolio.

Net interest margin on a tax equivalent basis of 3.16 percent for the first quarter 2023 decreased by 41 basis points from 3.57 percent for the fourth quarter 2022 and remained unchanged from the first quarter 2022. The decrease as compared to the fourth quarter was largely driven by (i) the net impact of the excess liquidity measures taken in March 2023 and (ii) two fewer days during the first quarter 2023, partially offset by higher yields on average interest earning assets. The yield on average interest earning assets increased by 26 basis points on a linked quarter basis mostly due to the aforementioned higher yields on new and adjustable rate loans in the first quarter 2023 as compared to the fourth quarter 2022. The yield on average loans increased by 28 basis points to 5.48 percent for the first quarter 2023 as compared to the fourth quarter 2022 largely due to the higher level of market interest rates. The yields on average taxable and non-taxable investments also increased 12 basis points and 9 basis points, respectively, from the fourth quarter 2022, largely due to investment maturities and prepayments redeployed into new higher yielding securities, as well as lower premium amortization expense caused by a decline in prepayments on mortgage-backed securities during the first quarter 2023. Our cost of total average deposits increased to 1.96 percent for the first quarter 2023 from 1.36 percent for the fourth quarter 2022. The overall cost of average interest bearing liabilities also increased 87 basis points to 3.02 percent for the first quarter 2023 as compared to the fourth quarter 2022 largely due to a 148 basis point increase in cost of average short-term borrowings.

Loans, Deposits and Other Borrowings

Loans. Loans increased $1.7 billion to approximately $48.7 billion at March 31, 2023 from December 31, 2022 mainly due to continued strong organic loan growth in commercial loan categories and low levels of prepayment activity during the first quarter 2023. Total commercial real estate (including construction) and commercial and industrial loans increased $1.3 billion, or 18.3 percent and $239.1 million, or 10.9 percent, respectively, on an annualized basis during the first quarter 2023. Residential mortgage loans increased $121.7 million during the first quarter 2023 as we largely originated new portfolio loans held for investment. During the first quarter 2023, we sold only $27.3 million of residential mortgage loans. Residential mortgage loans held for sale at fair value totaled $17.2 million and $18.1 million at March 31, 2023 and December 31, 2022, respectively.

Deposits. Total deposits were $47.6 billion at March 31, 2023 and remained relatively unchanged as compared to December 31, 2022. Within the deposit categories, non-interest bearing deposits, and savings, NOW and money market deposits decreased $887.5 million and $713.4 million, respectively, and were mostly offset by an increase in time deposits. Time deposits increased $1.6 billion to $11.1 billion within our overall deposit mix at March 31, 2023 from December 31, 2022, largely due to higher fully-insured brokered CD balances at March 31, 2023. Total fully-insured brokered deposits, consisting of time deposit and money market accounts, increased $1.2 billion to $7.1 billion at March 31, 2023 as compared to $5.9 billion at December 31, 2022. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 29 percent, 48 percent and 23 percent of total deposits as of March 31, 2023, respectively, as compared to 30 percent, 50 percent and 20 percent of total deposits as of December 31, 2022, respectively.

Other Borrowings. Short-term borrowings increased $6.3 billion to $6.4 billion at March 31, 2023 as compared to December 31, 2022. In March 2023, we increased our short-term borrowings, mostly consisting of FHLB advances, to bolster our liquidity position out of an abundance of caution in the wake of the two recent bank failures. Since March 31, 2023, many of our short-term FHLB advances have matured and been repaid, resulting in a more normal liquidity position. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity. Long-term borrowings increased to approximately $2.2 billion at March 31, 2023 as compared to $1.5 billion at December 31, 2022 mainly due to new FHLB advances issued during the first quarter 2023.

Credit Quality

Non-Performing Assets (NPAs). Total NPAs, consisting of non-accrual loans, other real estate owned (OREO) and other repossessed assets, decreased $27.0 million to $244.9 million at March 31, 2023 as compared to December 31, 2022 due to a decline in non-accrual loans. Non-accrual commercial and industrial loans decreased $20.3 million to $78.6 million at March 31, 2023 primarily due to a $19.7 million charge-off a loan participation that was reserved for in our allowance of loan losses at December 31, 2022. Non-accrual construction loans also decreased $5.6 million to $68.6 million at March 31, 2023 due to the partial charge-off of one loan relationship during the first quarter 2023 that had related allowance reserves totaling $4.3 million at December 31, 2022. Non-accrual loans represented 0.50 percent of total loans at March 31, 2023 compared to 0.57 percent at December 31, 2022.

Accruing Past Due Loans. Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $9.4 million to $100.3 million, or 0.21 percent of total loans, at March 31, 2023 as compared to $90.9 million, or 0.19 percent of total loans at December 31, 2022.

Loans 30 to 59 days past due increased $11.2 million at March 31, 2023 as compared to December 31, 2022 mainly due to higher commercial and industrial, and commercial real estate loan delinquencies, partially offset by an improved performance within the residential mortgage and consumer loan categories. Loans 60 to 89 days past due increased $7.0 million to $27.8 million at March 31, 2023 as compared to December 31, 2022 primarily due to an increase in commercial and industrial loan delinquencies. Loans 90 days or more past due and still accruing interest decreased $8.8 million to $17.8 million at March 31, 2023 as compared to December 31, 2022 mainly due to the renewals in the normal course of two matured loans during the first quarter that were previously included in this delinquency category at December 31, 2022. All loans 90 days or more past due and still accruing interest are well-secured and in the process of collection.

Allowance for Credit Losses for Loans and Unfunded Commitments. The following table summarizes the allocation of the allowance for credit losses to loan categories and the allocation as a percentage of each loan category at March 31, 2023, December 31, 2022 and March 31, 2022:

Our loan portfolio, totaling $48.7 billion at March 31, 2023, had net loan charge-offs totaling $30.4 million for the first quarter 2023 as compared to $22.4 million for the fourth quarter 2022 and net recoveries of loan charge-offs of $50 thousand for the first quarter 2022. The net charge-offs for both the first quarter 2023 and fourth quarter 2022 mainly related to partial charge-offs of one commercial and industrial loan participation. This loan was fully reserved for in our allowance of loan losses as of December 31, 2022 and its remaining balance, net of charge-offs, was immaterial at March 31, 2023.

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 0.95 percent at March 31, 2023 as compared to 1.03 percent and 1.07 percent at December 31, 2022 and March 31, 2022, respectively. During the first quarter 2023, the provision for credit losses for loans totaled $9.5 million as compared to $7.3 million and $3.5 million for the fourth quarter 2022 and first quarter 2022, respectively. At March 31, 2023, our allowance for credit losses for loans as a percentage of total loans decreased as compared to December 31, 2022 largely due to the impact of the first quarter 2023 loan charge-offs with prior allocated reserves. The reduction in allocated reserves for specific loans was partially offset by a moderate uptick in non-economic qualitative reserves for commercial and industrial loans within our CECL model at March 31, 2023. The economic component of our current CECL model was relatively stable as compared to December 31, 2022.

Capital Adequacy

Valley’s total risk-based capital, common equity Tier 1 capital, Tier 1 capital and Tier 1 leverage capital ratios were 11.58 percent, 9.02 percent, 9.46 percent and 7.96 percent, respectively, at March 31, 2023.

Investor Conference Call

Valley will host a conference call with investors and the financial community at 11:00 AM Eastern Daylight Savings Time, today to discuss the first quarter 2023 earnings and related matters.

Interested parties should preregister using this link: https://register.vevent.com/register to receive the dial-in number and a personal PIN, which are required to access the conference call. The teleconference will also be webcast live: https://edge.media-server.com and archived on Valley’s website through Monday, May 29, 2023.

About Valley

As the principal subsidiary of Valley National Bancorp, Valley National Bank is a regional bank with nearly $64 billion in assets. Valley is committed to giving people and businesses the power to succeed. Valley operates many convenient branch locations and commercial banking offices across New Jersey, New York, Florida, Alabama, California, and Illinois, and is committed to providing the most convenient service, the latest innovations and an experienced and knowledgeable team dedicated to meeting customer needs. Helping communities grow and prosper is the heart of Valley’s corporate citizenship philosophy. To learn more about Valley, go to www.valley.com or call our Customer Care Center at 800-522-4100.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about our business, new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as “intend,” “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” “may,” “estimate,” “outlook,” “project,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

• the impact of Federal Reserve actions impacting the level of market interest rates and increases in business failures, specifically among our clients, as well as on our business, our employees and our ability to provide services to our customers;
• the potential impact of recent and possible future bank failures on the business environment in which we operate, including potential customer deposit withdrawals from Valley National Bank or business disruptions or liquidity issues that may affect our customers;
• the impact of unfavorable macroeconomic conditions or downturns, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by and factors outside of our control, such as geopolitical instabilities or events; natural and other disasters (including severe weather events) and health emergencies, acts of terrorism or other external events;
• risks associated with our acquisition of Bank Leumi USA, including (i) the inability to realize expected cost savings and synergies from the acquisition in the amounts or timeframe anticipated and (ii) greater than expected costs or difficulties relating to integration matters;
• the loss of or decrease in lower-cost funding sources within our deposit base;
• the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
• the inability to attract new customer deposits to keep pace with loan growth strategies;
• a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
• greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
• the risks related to the replacement of the London Interbank Offered Rate with Secured Overnight Financing Rate and other reference rates, including increased expenses, risk of litigation and the effectiveness of hedging strategies;
• cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
• damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
• changes to laws and regulations, including changes affecting oversight of the financial services industry; changes in the enforcement and interpretation of such laws and regulations; and changes in accounting and reporting standards;
• higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
• results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (CFPB) and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
• our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
• a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and Illinois, as well as an unexpected decline in commercial real estate values within our market areas; and
• unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022.

We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

-Tables to Follow-

NOTES TO SELECTED FINANCIAL DATA