Valley National Bancorp's first deals in nearly four years have come in response to a growing competitive threat from more aggressive rivals, some analysts say.
In a span of three weeks late last year the Wayne, N.J., company struck deals for the $600 million-asset Norcrown Bank in Livingston (announced Nov. 9) and the $425 million-asset Shrewsbury Bancorp (announced Dec. 2).
The deals for the two New Jersey banks are the 15th and 16th that Gerald H. Lipkin, Valley's chairman, president, and chief executive, has negotiated since taking the helm in 1989. But they are the first since January 2001, when it bought Merchants New York Bancorp in Manhattan for $376 million.
Mr. Lipkin, 63, insists that the $10.6 billion-asset Valley has not been idle, just unlucky. Without naming names, he said it has made runs at several banks, only to uncover problems during due diligence or to lose out to rivals willing to pay more.
"We weren't able to get the ones we wanted," he said.
But analysts who follow Valley, the third-largest banking company headquartered in New Jersey, say it is bulking up there largely to protect its turf.
In the past year regional banking companies such as North Fork Bancorp in Melville, N.Y., and PNC Financial Services Group Inc. in Pittsburgh have made sizable purchases in the Garden State, where Valley was already slugging it out with such retail heavyweights as Bank of America Corp. and Commerce Bancorp Inc. of Cherry Hill.
Thomas J. Monaco, an analyst with Moors & Cabot Inc. in New York, said the additional competition is putting pressure on loan and deposit pricing and could lead to shrinking net interest margins.
However, "if anybody knows how to compete, it's Gerry Lipkin," Mr. Monaco said.
Valley is paying $140 million for Norcrown and $136 million for Shrewsbury. Mr. Lipkin said his company has the resources to make other purchases in New Jersey, if the price is right.
"We'd like to acquire more banks and expand our franchise," though Valley will not consider deals that are not immediately accretive, he said.
Mr. Monaco said Valley would "love to consolidate what's left in northern New Jersey." He mentioned Lakeland Bancorp Inc. in Oak Ridge and Interchange Financial Services Corp. in Saddle Ridge as potential targets.
Of course, Valley is hardly alone in its expansion ambitions. Along with outside banks moving into the state, several community banks there are growing through acquisitions.
Over the past 20 months the $1.5 billion-asset Interchange, the $6.5 billion-asset Provident Financial Services Inc. of Jersey City, and the $3 billion-asset Sun Bancorp Inc. in Vineland have each made an acquisition; the $2 billion-asset Lakeland has made two.
In a research note published Dec. 2, Anthony R. Davis, an analyst who covers Valley for BankAtlantic Bancorp's Ryan Beck & Co. Inc., wrote that Valley's back-to-back acquisition announcements "signal an intensified effort to protect and expand its valuable New Jersey franchise."
He titled his note, "Defending the Homeland."
Other analysts dismissed suggestions that Valley's deals may have been a response to market pressure.
"That's just not their style," said John M. Kline of Sandler O'Neill & Partners LP in New York. If Valley had been in a reactive mode, "it would have done a bigger deal."
Mr. Lipkin also rejected the notion that Valley was making deals to keep up with its rivals. "We don't run after the herd," he said.
Instead of buying at prices Mr. Lipkin considered inflated, Valley has focused on building. It has opened 10 branches since the beginning of 2002, and he said it could open as many as 10 this year. (It currently has 136 in New York and New Jersey.)
In the case of Shrewsbury, Mr. Lipkin said, Valley waited for about eight years for the company to decide to sell.
"I had made it clear" to Shrewsbury's management "that we were interested in owning the franchise but that we wouldn't do a hostile deal," he said.
Norcrown was forced to sell after its owner was convicted of tax fraud and illegal campaign contribution charges. Federal law bars felons from owning or investing in banks.
Observers say Mr. Lipkin's willingness to be patient with Shrewsbury illustrates the controlled approach he brings to M&A.
"Gerry is a conservative, disciplined CEO who will only do a deal if it makes sense for his shareholders," said Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets.
Valley is willing to endure slow growth to avoid making a deal - or even a loan - with which it is not completely comfortable, Mr. Cassidy said. In the first nine months of last year its net income fell 0.4% from a year earlier, to $114.5 million. On the plus side, its chargeoff rate for the first three quarters was just 0.14%.
"We're advising our clients to look for banks with bullet-proof balance sheets," Mr. Cassidy said. "Valley National is one of those banks. It does not surprise."
