Valley Bank Ratio Analysis

Abstract

The company that I will be evaluating based on my research in bank industry is Valley Bank.  I will provide an analysis based on my internet research information. The information that I have obtained is from the 10k financial report and some calculations I have done on some financial ratios to support my research. The ratio analysis calculation is from financial statement and they are from 2016 through 2018.  I will compare income statements and balance sheets. I will provide information based on the audit that if it is considerable to invest in the company

Valley Bank Ratio Analysis 

Valley National Bank is a business bank with is headquartered in Wayne, New Jersey. The bank was incorporated in 1983 and it register under the “Bank Holding Company Act”. According to the most resent 10k annual report Valley has $31.9 billion consolidate assets, a total net loan of $24.9 billion, total deposit of $24.5 billion, and shareholders’ equity of $3.4 billion. In addition, it operates more than 200 branch locations across New Jersey, New York, Florida and Alabama. The Bank provides several services such as commercial, retail, insurance and wealth financial services products. The Bank also offers a large variety of banking services including automated teller machines, telephone and internet banking, drive-in and night deposit services, and safe deposit boxes facilities. Furthermore, some international banking services are available to customers including letters of credit, documentary letters of credit, and certain subsidiary services such as foreign currency exchange transactions, and international wire transfers.

Valley Risk Factor

Banking is an industry that faces risk every day. Hence, banking industry is surrounding by many risky factors. According to the financial report 10k of 2018 Valley some of these risks can be affected by the economic growth and the instability of bank. Some of these risks are the market risk, unable to meet obligations, also risk keep up with technology changes, risk related to compliance and environment, new acquisition risk, strategy risk, and operation risk. One of more important things that Valley needs to be successful are their earnings and cash flows which are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets, such as loans and investment securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Interest rates are sensitive to many factors that are beyond Valley’s control, including general economic conditions, competition, and policies of various governmental and regulatory agencies and, the policies of the Federal Reserve Board (FRB). Changes in interest rates driven by such factors could influence not only the interest Valley receives on loans and investment securities but also on the amount of interest it pays on deposits and borrowings.  Such changes could also affect Valley’s ability to originate loans and obtain deposits.  This also includes the risk that interest-earning assets may be more approachable to changes in interest rates than interest-bearing liabilities, or, the risk that the individual interest rates or rate indices underlying various interest-earning assets and interest-bearing liabilities may not change in the same degree over a given time period, and the risk of changing interest rate relationships across the range of interest-earning asset and interest-bearing liability maturities

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While the economy and real estate market conditions have significantly improved in recent years, a return to a recessionary economy could result in financial stress on our borrowers that would adversely affect our financial condition and results of operations. Financial institutions can be affected by changing conditions in the real estate and financial markets. Instability in the housing markets, real estate values and unemployment levels could result in significant write-downs of asset values by financial institutions. Adverse economic conditions in our market areas can reduce our rate of growth, affect our customers’ ability to repay loans and unfavorably impact our financial condition and earnings. General economic conditions, including inflation, unemployment and money supply fluctuations, also may adversely affect their profitability.

What kind of audit opinion was given for Valley’s 2018 10k report?

Valley National Bank’s audit was performed in February 2019 by an independent register public accounting firm that is called KMPG LLC. They collected the information based on financial documents obtained from December 2017 through 2018.  These were consolidated financial income statements, changes in shareholder’s equity, and cash flow for each year. These statements were presented fairly in all material respect.  The financial position of the company and compliance with the US generally accepted accounting principles. The audit conducted according to the standard Public Company Accounting Oversight Board (PCAOB) evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements. The audit for the year provided was expressed as an unqualified opinion.

The Analysis in the year to year change and ratios

When analyzing Valley Bank’s consolidated financial statement and balance sheet, the changes from 2016 through 2018 were reasonable.  An industry looks for profitable ratio that helps investors understand if the company can grow. For Valley Bank, I have evaluated various ratios.  The first one is current ratio. Current ratio examines whether a firm can cover short term debts.  If its below 1 the firm may have difficult meeting short term obligations. For Valley Bank current ratio for 2016 was 0.17, 2017 was 0.18 and 2018 was 0.14. This indicates that Valley has a very low ratio which means it can struggle to meet their short-term obligations and might not be the right place to invest. Another ratio is Earnings Per Share (EPS).  In 2016 through 2018 this was 0.063, 0.060 and 0.075. Earnings per share shows the profit a company has generated and for Valley bank it has increased between 2016 and 2018. Another ratio is the return on assets (ROA) which indicates how profitable a company’s asset is generating revenue.  For the year 2016 through 2018, Valley has 74%, 67% and 82% of ROA which was a high increase in 2018 which indicated how much the bank earns for each dollar invested. Another ratio is return on equity (ROE).  ROE for the year 2016 through 2018, the ratios were 7.1,6.4 and 7.8.   Return on equity (ROE) measures the profit earned for each dollar invested in a company’s stock. However, the higher the ROE ratio, the more efficient management is at utilizing its equity base. This measurement is important to stockholders and potential investors because it compares earnings to owners’ investments. The other analysis was retention ratio for the year 2016 through 2018 which was 103%, 134% and 115%.  Retention ratio helps investors determine how much money a company keeps reinvesting in the company’s operation. If a company pays all its retained earnings out as dividends or does not reinvest back into the business, earning growth might suffer. Also, a company that is not using its retained earnings effectively have an increased likelihood of taking on additional debt or issuing new equity shares to finance growth.

Identify concern about material misstatement

When analyzing the 10k financial statements some concerns are the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that are particularly exposed to change are the allowance for loan losses, purchased credit-impaired loans, the evaluation of goodwill and other intangible assets for impairment, and income taxes. (Bank, Section-1-10k, 2019). Although, when estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are considered necessary. In addition, management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

In note 12 of Valley’s 10K financial statement, talks about the Pension plans were affected on December 31, 2013.  The benefits earned under the qualified and non-qualified plans were frozen. As a result, Valley re-measured the projected benefit obligations of the affected plans and the funded status of each plan on June 30, 2013 (Bank, Section-1-10k, 2019). Consequently, participants in each plan will not accrue further benefits and their pension benefits will be determined based on their compensation and service as of December 31, 2013. Plan benefits will not increase for any compensation or service earned after such date.

Finally, while analyzing all the financial statements and comparing ratios, the net income has increased during 2016 through 2018.  Liability also has increased.  I think that Valley is not a very lucrative bank. These issues can concern people if they choose Valley if they want to invest.  Some of the factors why this can be is because of the fluctuation of the economy and the bank competition and technology.

References

• Snl.com. (2019). Document Contents. [online] Available at: http://www.snl.com/Cache/c396925706.html#s5EDB3C70E60A57C9B6B3CF2F7E5FC4ED [Accessed 7 Jul. 2019].
• Last Ir.valleynationalbank.com. (2019). Valley National Bank- Corporate Profile. [online] Available at: http://ir.valleynationalbank.com/ [Accessed 7 Jul. 2019].
• Courses.lumenlearning.com. (2019). Ratio Analysis and Statement Evaluation | Boundless Business. [online] Available at: https://courses.lumenlearning.com/boundless-business/chapter/ratio-analysis-and-statement-evaluation/ [Accessed 7 Jul. 2019].