Valley National Returns to Beating Expectations

Valley National (NYSE: VLY  ) reported earnings for its third quarter this morning, and the results point to a successful quarter for the bank. With analysts expecting $0.17 in earnings per share, the bank checked in at $0.20. After missing on analyst expectations the previous three quarters, Valley finally reversed the trend, which bodes well for the near-term performance of the New Jersey bank.

What I was watching
In addition to the standard metrics referenced above, I was also watching for continued improvement of the bank's balance sheet. One way to measure balance sheet performance is to take a look at the nonperforming assets ratio. This ratio measures the number of assets that are not generating income for the bank because of nonpayment or for other reasons.

There wasn't a whole lot of room for improvement, with Valley reporting 1.22% of loans as nonperforming at the end of the last quarter. This quarter, nonperforming assets were 1.17%, showing improving loan quality. This was partially helped by a shift to an "originate and sell" model during the quarter, which helped in getting a lot of new loans of the bank's balance sheet almost immediately. Total deposits also increased slightly during the quarter to $10.9 billion, helping to strengthen the bank's balance sheet.

What to expect going forward
With one of the larger dividends in the financial sector, currently pushing its yield near 7%, Valley National is a favorite of many investors. It doesn't appear that this will stop any time soon, so investors in Valley National should continue to receive a sizable dividend in the near future.

If the bank can continue to be successful with its "originate and sell" model for its residential mortgages, it will continue to reap the income from the sale of loans without the added risk of adding the loans to its balance sheet. While this was the cause of a lot of the bank issues back in 2008, Valley's smaller size should prevent trouble from occurring. It is led by a long-term CEO that has been through numerous banking cycles and should be able to successfully navigate this often perilous strategy.

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Robert Eberhard has no positions in the stocks mentioned above. Follow him on Twitter for even more earnings news during the next couple of weeks. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days.

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