New York-based Valley National Bancorp is looking to grow both its physical footprint, recently adding a new market through M&A, and its digital offerings through an online bank with a national focus.
With its announced $219.7 million acquisition of White Plains, N.Y.-based Westchester Bank Holding Corp., Valley National is expanding into the Westchester County, N.Y., market, a high-income bedroom community to New York City. Simultaneously, the bank is also building a nationwide brand through its recently launched online bank, Valley Direct. And the company did not close the door on more growth through M&A.
"If M&A is something that's going to accelerate and be additive to some of the organic initiatives that we have, it's something we definitely look at and entertain," Ira Robbins, chairman, president and CEO of Valley National, said in an interview. "If I look to the future, the revenue enhancement and growth is going to be much more of a strategic driver [of M&A] than efficiencies throughout the organization."
For the recently announced Westchester deal, the strategy was all about expansion into lucrative markets.
"The demographics in the Westchester market are really attractive. They're high-net-worth and similar to the markets that we operate in in Northern New Jersey," Robbins said. "It's a natural extension for us."
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"At first blush, we believe it checks several boxes," Keefe Bruyette & Woods analyst Michael Perito wrote in a June 29 note. "While a relatively small deal, Westchester's recent performance looks pretty solid," Perito wrote, pointing to a return on average assets greater than 125 basis points, a net interest margin over 3% and an efficiency ratio below 50%. And the deal's small size should make it low-risk and easy to integrate, Perito wrote.
"Westchester County is one of the primary suburbs of [New York City], boasting great market demographics with limited regional commercial banking competition, as market share is heavily owned by larger banks (a setup that should play to [Valley National]'s favor)," Perito wrote.
Piper Sandler analyst Frank Schiraldi wrote that the deal confirms Valley National as a preferred acquirer in the New York City metropolitan area. "We expect others had an interest in the attractive franchise, and this supports our thinking that [Valley National] is a preferred acquirer in the metro NYC market," he wrote.
While the expansion into Westchester County is attractive, the deal is "a bit of a rounding error" financially, given Westchester Bank's small size relative to Valley's, Schiraldi wrote. The deal is expected to be about 1% accretive to Valley's earnings and neutral to its pro forma tangible book value and capital ratios at close.
As the Westchester deal expands Valley National's brick-and-mortar presence into a new market, the company is targeting the entire U.S. with its recently launched online bank, Valley Direct. The digital bank is part of a technology strategy the company launched about three years ago, Robbins said. The company is focusing on developing its infrastructure to develop a distributed network that can quickly implement new technologies, as opposed to focusing on front-end applications while relying on a single core processor.
"We'll have a state-of-the-art core that really allows us to own the relationship with our customers ... which will provide what I would believe to be an enviable position to be in from an operating expense perspective, as well as the ability to really gain market share," Robbins said.
Valley National hopes to gain sticky, core relationships with the online bank offering. "Our franchise value is a function of core deposit relationships. We understand that, and that's something that we continue to focus on," Robbins said.
Analysts are relatively optimistic on the bank's online offering and its ability to deliver low-cost funding.
"Overall, we believe the digital bank offers another channel for deposit funding that [Valley National] could dial up or down depending on funding needs and the rate environment, and is another example of the company's understanding that the banking landscape is increasingly digitally integrated," RBC Capital Markets analyst Steven Duong wrote in a July 7 note.
Banks have faced a multitude of new challengers recently as several startup, digital-only banks have gained traction. Robbins is confident Valley Direct can compete with the current ecosystem of challenger banks.
"They may be able to provide one component of an experience, but not a full relationship," he said. "We think our customers value full relationships on the asset side as well as the liability side, as well as the treasury services side and a multiple of other product offerings that we have."