DBRS: VLY’s 4Q One-time Items Result in Lower Net Income; B/S Fundamentals Improving

Summary:
• Valley reported net income of $25.1 million, down 9% sequentially primarily reflecting numerous one-time items. Absent these items, net income would have been higher.
• On November 1, 2014, Valley acquired 1st United Bancorp, Inc., a commercial bank headquartered in Florida with approximately $1.7 billion in assets.
• 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) 4Q14 results as solid, reflecting organic loan and deposit growth. Reported results were impacted by numerous one-time items including merger expenses, a deferred tax valuation charge, gain on sale of a branch, a loss on the prepayment of debt, and a much higher amortization of tax credit investments. In aggregate, these items negatively impacted net income by approximately $6.6 million.

On November 1, 2014, Valley acquired 1st United Bancorp, Inc., a commercial bank headquartered in Florida with approximately $1.7 billion in assets and 20 branches. Valley has already introduced its broader products and services to 1St United customers. While already seeing traction on the commercial side with new loan originations in Florida, Valley is keenly focused on retail opportunities as well, including retail lending and wealth management, which should start to produce dividends in 2H15. The systems integration will be completed in February.

Excluding the acquisition, Valley reported solid loan and deposit growth. Specifically, organic loan growth came primarily from commercial real estate, auto, and other consumer loans. Meanwhile, Valley has been running some promotional deposit campaigns generating $800 million of organic deposit growth, as it works to improve its funding profile and support the solid loan growth it has been experiencing. Valley’s CD pricing was introduced to its new Florida branches to great success. Indeed, the 20 branch Florida footprint generated more deposit growth than all of Valley’s legacy footprint during the same time period.

Asset quality continues to underpin the rating. During the quarter, both delinquencies and non-performing assets declined. Although net charge-offs did increase during the quarter, they remain at low levels.

Lastly, the acquisition and balance sheet growth had a negligible impact on capital metrics with the Company’s tangible common equity to tangible assets ratio declining five basis points to 6.87%

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

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