DBRS: Valley National’s 4Q13 Imp. Balance Sheet Fundamentals; Net Income Helped by Non-core Gains

Summary:

• Valley National’s positive balance sheet fundamentals sequentially reflect solid loan and deposit growth, and significantly lower levels of non-performing assets.
• Non-core items that included securities gains and a terminated lease added $12.8 million to net income.
• DBRS rates Valley National Bancorp Issuer & Senior Debt at A (low) with a Stable trend.

DBRS, Inc. (DBRS) views Valley National Bancorp’s (Valley or the Company) 4Q13 results favorably reflecting solid loan and deposit growth, and significant declines in NPAs, all of which better position the Company for improved performance in 2014. The ratings remain supported by a superior credit culture that contributes to consistent profitability.

During the quarter, Valley sold $48.3 million of previously impaired trust preferred securities issued by one deferring bank holding company, which generated a $10.7 million pre-tax gain and greatly reduced NPAs. The Company also terminated a lease on a branch that generated a pre-tax gain of $11.3 million. Excluding these two items, net income would have been $26.8 million, or down a modest 1% from 3Q13. The Company noted that it owns over 100 additional properties that in aggregate could provide an additional $200 million of gains, if management ever decided to sell them.

Total non-covered loans grew an annualized 7% during the quarter primarily reflecting commercial real estate growth, and to a lesser extent, indirect auto. Pipelines remain solid, especially in the New York City metro area, where Valley has been seeing the majority of their growth originate from. Loan growth and net interest margin expansion resulted in higher sequential quarter net interest income.

As previously announced, Valley has launched a branch modernization initiative that will focus more on technology that should be relatively cost neutral. Newer technologies are expected to be installed in approximately 1/3 of Valley’s branches during 2014. The speed in which the Company will integrate technologies and upgrade additional locations will largely be driven by customer acceptance and equipment installation time frames.

While the redemption of trust preferred securities during the quarter hurt the Company’s Tier 1 and total capital risk-based ratios by approximately 100 bps, DBRS notes that Valley’s Basel III Tier 1 common capital ratio on a fully phased in basis improved during the quarter to 9.28%, which is already materially above the minimum regulatory requirement.

DBRS rates Valley National Bancorp Issuer & Senior Debt at A (low) with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]