DBRS Confirms VLY at A (low) Following 1st United Bancorp Acq. Announcement; Trend Remains Stable

DBRS, Inc. (DBRS) has today confirmed all ratings of Valley National Bancorp (Valley or the Company) and its rated commercial bank subsidiary, including Valley’s Issuer & Senior Debt at A (low). The trend on all ratings remains Stable. The ratings action follows the Company’s announcement to acquire 1st United Bancorp, Inc. (1st United), a bank holding company with approximately $1.7 billion in assets, in an all-stock transaction valued at approximately $312 million. Subject to approvals from regulators and other customary approvals, the transaction is expected to close in 4Q14.

DBRS’s confirmation is based on Valley’s proven track record of acquiring and successfully integrating acquisitions, most recently with State Bancorp, Inc. (State) in early 2012. Moreover, the announced acquisition builds both Valley’s tier 1 risk-based capital and tangible common equity ratios, and the deal is expected to be accretive to earnings in 2015. The Stable trend incorporates DBRS’s expectation that this acquisition will be integrated without significant issues.

While DBRS remains skeptical of non-contiguous acquisitions, particularly in Florida where many banks have struggled historically, Valley is a proven operator with considerable acquisition integration experience. Moreover, the Company has employment contracts with key 1st United personnel, including the CEO, CFO, and Chairman, which should increase client retention and help ensure a smoother integration. Lastly, technological advances have made these types of transactions easier to successfully execute and manage.

Headquartered in Boca Raton, Florida, 1st United is a $1.7 billion in assets financial holding company that operates 21 branches in the attractive urban markets of southeast and central Florida. Besides attractive demographics, 1st United also has a strong core deposit franchise, of which, approximately 38% of deposits are comprised of non-interest bearing deposits. On a pro-forma basis, 1st United comprises approximately 11% of the Company’s total assets, which is similar to the size of the State acquisition. To grow revenues, Valley plans to increase 1St United’s lending limits, as well as introduce Valley’s more robust product offerings, including indirect auto, wealth management and trust services. Management has targeted 25% of cost savings, which seems aggressive for a non-contiguous acquisition, but achievable.

DBRS notes that Valley already had a concentration in commercial real estate (CRE) including construction at 48% of total loans and 1st United was even more reliant on CRE. Indeed, on a pro-forma basis, CRE including construction would represent approximately 50% of the total loan portfolio. This concentration is mitigated by Valley’s conservative credit culture that underpins the ratings and typically requires significant equity from borrowers. 1st United’s loan portfolio was quite clean with non-covered nonperforming assets to total assets of just 0.87% at March 31, 2014. Valley noted that it reviewed approximately 70% of the non-covered loan portfolio and plans to take a loan mark of approximately 1.93%.

Valley’s sound capital profile modestly benefits from the announced transaction. Specifically, the Company’s pro-forma tangible common equity to tangible assets ratio would be 7.00%, up nine basis points from 6.91%. Meanwhile, pro-forma regulatory capital ratios either showed modest improvements or were stable.

Valley National Bancorp, a commercial bank headquartered in Wayne, New Jersey, had $16.3 billion in total assets at March 31, 2014.

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

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other applicable methodologies include the DBRS Criteria: Support Assessment for Banks and Banking Organisations and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. These can be found on the DBRS website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Michael Driscoll
Rating Committee Chair: William Schwartz
Initial Rating Date: 5 October 2009
Most Recent Rating Update: 8 March 2013

For additional information on this rating, please refer to the linking document under Related Research.