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In 4Q10, core revenue decreased 4.3% LQ but increased 0.7% y/y to $130.1 million. Net interest income decreased 3.9% LQ but
increased 1.4% y/y to $113.1 million (87.0% of core revenue). The NIM decreased to 3.59% from 3.73% in 3Q10 and 3.43% in 4Q09.
The NIM was negatively impacted by excess liquidity from loan sales and lower accretion on covered loans. Earning assets increased
2.4% LQ. Core noninterest income decreased 7.0% LQ and 3.6% y/y to $16.9 million (13.0% of core revenue). Trust and investment
fees decreased 0.9% LQ but increased 3.0% y/y to $1.9 million (1.5% of core revenue). Insurance premiums increased 13.9% LQ and
35.7% y/y to $2.9 million (2.2% of core revenue). Deposit account fees decreased 5.5% LQ and 7.5% y/y to $6.2 million (4.8% of core
revenue). Loan servicing fees increased 8.3% LQ and 2.5% y/y to $1.3 million (1.0% of core revenue). Bank owned life insurance
(BOLI) decreased 31.8% LQ and 23.4% y/y to $1.2 million (0.9% of core revenue). Other noninterest income decreased 18.9% LQ and
15.3% y/y to $3.5 million (2.7% of core revenue).
Total revenue, which includes gains on loan sales, trading, securities, asset sales, and other-than-temporary impairment (OTTI)
charges, increased 10.3% LQ and 9.4% y/y. The company had net gains on loan sales of $7.5 million due to strong refinancing
activity. Total revenue was negatively impacted by trading losses of $2.1 million in 4Q10 compared to a loss of $2.6 million in 3Q10
and $1.5 million in 4Q09. Net securities gains were $7.0 million (up from $112,000 in 3Q10). The company also recorded a $6.3
million gain from an FDIC loss-sharing agreement, which offset the $6.4 million provision for covered loans during the quarter.
Credit quality continued to shows signs of improvement and losses remained very low. Excluding the provision for FDIC covered
loans, the provision for loan losses decreased to $8.7 million from $9.3 million in 3Q10 and $12.2 million in 4Q09. NCOs decreased
29.3% LQ and 68.4% y/y to $4.3 million in 4Q10. NCOs were only 0.18% of average loans, down from 0.26% in 3Q10 and 0.58% in
4Q09. The company added $4.4 million to the allowance for loan losses compared to $3.2 million in 3Q10 and $7.2 million in 2Q10.
The allowance-to-total loans ratio increased to 1.33% from 1.21% in 3Q10 and 1.09% in 4Q09.
Nonaccrual loans decreased 0.5% LQ but increased 14.2% y/y to $105.1 million. C&I nonaccruals decreased 19.1% LQ and
construction nonaccruals decreased 7.5% LQ, but commercial real estate (CRE) nonaccruals increased 10.6% LQ, residential
mortgage nonaccruals increased 4.8% LQ, and consumer nonaccruals increased 23.1% LQ.
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Total loans decreased 0.7% LQ but were flat y/y at $9.4 billion. Non-covered loans decreased 0.5% LQ and 3.9% y/y to $9.0 billion.
Commercial loans decreased 0.7% LQ and 1.9% y/y to $5.6 billion (60.1% of total loans). Residential mortgages increased 1.9% LQ
but decreased 0.9% y/y to $1.9 billion (20.6% of total loans). Consumer loans decreased 2.7% LQ and 13.8% y/y to $1.5 billion (15.5%
of total loans). Covered loans decreased 5.4% LQ to $357 million (3.8% of total loans).
Total Non-covered Loans 96.2 9,009 9,055 9,046 9,145 9,370 (0.5) (3.9)
Total Loan 100.0 9,366 9,432 9,431 9,570 9,370 (0.7) (0.0)
Average Yield (%) 5.64 5.82 5.72 5.75 5.77 (18) bp (13) bp
Source: Company data.
Average deposits decreased 0.4% LQ and 1.5% y/y to $9.4 billion. Noninterest bearing deposits increased 4.4% LQ and 9.1% y/y to
$2.5 billion (26.9% of total deposits). Time deposits decreased 2.5% LQ and 14.1% y/y to $2.7 billion (28.6% of total deposits). The
average rate paid on interest bearing deposits decreased to 0.99% in 4Q10 from 1.02% in 3Q10 and 1.32% in 4Q09. The average rate
paid on total deposits decreased to 0.72% in 4Q10 from 0.76% in 3Q10 and 1.00% in 4Q09.
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Noninterest Bearing (DDAs) 26.9 2,530 2,423 2,442 2,316 2,319 4.4 9.1
Savings, NOW, & Money Market 44.6 4,199 4,270 4,144 4,072 4,111 (1.7) 2.1
Time Deposits 28.6 2,693 2,761 3,027 3,116 3,135 (2.5) (14.1)
Total Int. Bearing Deposits 73.1 6,892 7,031 7,171 7,188 7,247 (2.0) (4.9)
Average Rate Paid Int. Bearing 0.99 1.02 1.09 1.14 1.32 (3) bp (33) bp
Total Deposits 100.0 9,421 9,454 9,613 9,504 9,565 (0.4) (1.5)
Average Rate Paid (%) 0.72 0.76 0.81 0.86 1.00 (4) bp (28) bp
Source: Company data.
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VLY Deposit Market Share by County
Total Total
Market Deposits in Market
Share Branch Market Share
County Rank Count ($000) (%)
Passaic, NJ 1 30 2,197,653 22.66
Bergen, NJ 6 42 1,921,803 4.99
Essex, NJ 9 26 1,232,259 5.87
New York, NY 27 16 1,202,805 0.25
Morris, NJ 9 21 867,671 4.62
Kings, NY 14 8 408,255 1.18
Hudson, NJ 10 13 394,316 1.64
Monmouth, NJ 14 14 364,385 2.08
Union, NJ 14 10 231,993 1.32
Sussex, NJ 5 6 181,561 7.97
Somerset, NJ 10 5 164,831 1.95
Middlesex, NJ 22 6 131,523 0.61
Queens, NY 36 5 112,897 0.27
Warren, NJ 7 3 99,944 4.47
Source: SNL.
As of June 30, 2010.
Source: SNL.
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Balance Sheet 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11E 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E
Average Assets 14,127 14,201 14,051 14,100 14,119 14,269 14,319 14,369 14,431 14,347 14,506 14,594 14,694 14,794 14,647
Average Earning Assets 12,747 12,737 12,616 12,621 12,680 12,870 12,920 12,970 13,033 12,948 13,108 13,195 13,295 13,395 13,248
Average Loans 9,422 9,544 9,475 9,458 9,475 9,353 9,328 9,341 9,403 9,356 9,478 9,566 9,666 9,766 9,619
Average Deposits 12,824 12,873 9,345 9,421 11,116 9,389 9,439 9,489 9,539 9,464 9,589 9,651 9,726 9,801 9,692
Average Equity 1,255 1,265 1,275 1,288 1,271 1,297 1,300 1,303 1,307 1,301 1,311 1,317 1,325 1,334 1,322
Total Assets 14,474 14,112 14,088 14,144 14,144 14,194 14,244 14,294 14,369 14,369 14,444 14,544 14,644 14,744 14,744
Total Earning Assets 13,071 12,720 12,443 12,745 12,745 12,795 12,845 12,895 12,970 12,970 13,045 13,145 13,245 13,345 13,345
Total Loans 9,570 9,431 9,432 9,366 9,366 9,341 9,316 9,366 9,441 9,441 9,516 9,616 9,716 9,816 9,816
Total Deposits 9,780 9,420 9,269 9,364 9,364 9,414 9,464 9,514 9,564 9,564 9,614 9,689 9,764 9,839 9,839
Total Common Equity 1,259 1,269 1,278 1,295 1,295 1,298 1,301 1,305 1,309 1,309 1,314 1,321 1,329 1,339 1,339
Preferred Equity - - - - - - - - - - - - - - -
Total Equity 1,259 1,269 1,278 1,295 1,295 1,298 1,301 1,305 1,309 1,309 1,314 1,321 1,329 1,339 1,339
Intangible Assets 333 334 337 344 344 344 344 344 344 344 340 340 340 340 340
Tangible Common Equity 927 935 941 952 952 954 957 961 965 965 974 981 989 999 999
Income Statement 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11E 2Q11E 3Q11E 4Q11E 2010E 1Q12E 2Q12E 3Q12E 4Q12E 2010E
Net Interest Income (FTE) 116.38 118.43 119.21 114.48 468.50 116.80 116.28 116.08 115.99 465.15 117.31 120.08 121.65 123.24 482.28
Tax-Equivalent Adjustment 1.53 1.40 1.48 1.34 5.75 1.34 1.34 1.34 1.34 5.36 1.40 1.40 1.40 1.40 5.60
Provision for Loan Losses 12.61 12.44 9.31 15.10 49.46 8.50 8.00 7.00 6.00 29.50 5.50 5.00 4.50 4.50 19.50
Noninterest Income (NII) 15.68 22.48 17.33 35.85 91.33 20.00 20.75 21.25 21.75 83.75 22.25 22.75 23.00 23.50 91.50
Core Fee Income 17.83 18.79 18.22 16.95 71.79 17.50 18.75 19.25 19.75 75.25 20.50 21.00 21.50 22.00 85.00
Net Gains Loan Sales 2.52 1.02 1.55 7.50 12.59 2.50 2.00 2.00 2.00 8.50 1.75 1.75 1.50 1.50 6.50
Net Gains Trading (3.03) 0.84 (2.63) (2.08) (6.90) - - - - - - - - - -
Net Gains Securities 0.86 3.66 0.11 6.97 11.60 - - - - - - - - - -
Net Gains Asset Sales 0.09 0.22 0.08 0.24 0.62 - - - - - - - - - -
Nonrecurring/OTTI Charges (2.59) (2.05) - 6.27 1.63 - - - - - - - - - -
Core Revenue 132.68 135.82 135.95 130.09 534.54 132.96 133.69 133.99 134.40 535.04 136.41 139.68 141.75 143.84 561.68
Noninterest Expense (NIE) 78.35 79.97 78.95 80.41 317.68 81.25 81.75 82.25 82.75 328.00 83.00 83.50 84.25 85.00 335.75
Core Expense 66.68 66.29 65.59 67.22 265.78 68.25 68.75 69.25 69.75 276.00 70.00 70.50 71.25 72.00 283.75
Amortization 1.70 2.45 2.60 0.97 7.72 1.00 1.00 1.00 1.00 4.00 1.00 1.00 1.00 1.00 4.00
Other 9.98 11.24 10.76 12.21 44.18 12.00 12.00 12.00 12.00 48.00 12.00 12.00 12.00 12.00 48.00
Goodwill Impair./Nonrecu. - - - - - - - - - - - - - - -
Pretax Income 39.56 47.09 46.81 53.48 186.94 45.71 45.94 46.74 47.65 186.04 49.66 52.93 54.50 55.84 212.93
Tax Expense 12.20 14.08 14.17 15.32 55.77 13.71 13.78 14.02 14.30 55.81 15.40 16.41 16.90 17.31 66.01
Net Income 27.36 33.01 32.64 38.16 131.17 31.99 32.16 32.72 33.36 130.23 34.27 36.52 37.61 38.53 146.92
Pref. Div./Warrant Accretion - - - - - - - - - - - - - - -
Net income to Common 27.36 33.01 32.64 38.16 131.17 31.99 32.16 32.72 33.36 130.23 34.27 36.52 37.61 38.53 146.92
After-Tax Unusual Items (3.08) 1.76 (1.61) 3.38 4.59 - - - - - - - - - -
Net Income Common (Op) 30.45 31.25 34.25 34.77 126.58 31.99 32.16 32.72 33.36 130.23 34.27 36.52 37.61 38.53 146.92
Period End Shares 160.81 160.97 161.12 161.46 161.46 161.50 161.50 161.50 161.50 161.50 162.00 162.00 162.00 162.00 162.00
Average Diluted Shares 160.79 160.97 161.12 161.36 161.07 162.00 162.00 162.00 162.00 162.00 162.50 162.50 162.50 162.50 162.50
Credit Quality 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11E 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E
Net Charge-Offs (NCOs) 10.98 5.22 6.10 4.31 26.61 6.00 6.00 6.00 6.00 24.00 5.50 5.00 4.50 4.00 19.00
Allowance for Loan Losses 103.49 110.65 113.79 124.70 124.70 127.20 129.20 130.20 130.20 130.20 130.20 130.20 130.20 130.70 130.70
Nonaccrual Loans 91.60 103.51 105.60 105.06 105.06 105.00 95.00 90.00 80.00 80.00 75.00 70.00 65.00 60.00 40.00
90 Days Past Due 4.05 6.08 4.37 2.49 2.49 5.50 5.00 5.00 5.00 5.00 5.00 4.00 3.00 2.00 2.00
OREO + Other 7.09 6.30 6.55 12.21 12.21 7.00 8.00 9.00 8.00 8.00 8.00 7.00 7.00 6.00 6.00
Total NPAs 102.74 115.89 116.52 119.75 119.75 117.50 108.00 104.00 93.00 93.00 88.00 81.00 75.00 68.00 68.00
Provision/Total Loans (%) 0.53 0.53 0.39 0.64 0.53 0.36 0.34 0.30 0.25 0.31 0.23 0.21 0.19 0.18 0.20
Allowance/Total Loans (%) 1.08 1.17 1.21 1.33 1.33 1.36 1.39 1.39 1.38 1.38 1.37 1.35 1.34 1.33 1.33
Allowance/Nonaccruals (%) 112.98 106.89 107.75 118.70 118.70 121.15 136.00 144.67 162.76 162.76 173.61 186.01 200.31 217.84 326.76
Allowance/NPLs (%) 108.20 100.96 103.47 115.96 115.96 115.12 129.20 137.06 153.18 153.18 162.76 175.95 191.48 210.81 311.20
Allowance/NPAs (%) 100.73 95.48 97.66 104.14 104.14 108.26 119.63 125.20 140.00 140.00 147.96 160.75 173.61 192.21 192.21
NPAs/Loans+OREO (%) 1.07 1.23 1.23 1.28 1.28 1.26 1.16 1.11 0.98 0.98 0.92 0.84 0.77 0.69 0.69
NPAs/Total Assets (%) 0.71 0.82 0.83 0.85 0.85 0.83 0.76 0.73 0.65 0.65 0.61 0.56 0.51 0.46 0.46
NCOs/Average Loans (%) 0.47 0.22 0.26 0.18 0.28 0.26 0.26 0.26 0.26 0.26 0.23 0.21 0.19 0.16 0.20
Performance Data 1Q10A 2Q10A 3Q10A 4Q10A 2010A 1Q11E 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E
Operating EPS 0.19 0.19 0.21 0.22 0.79 0.20 0.20 0.20 0.21 0.80 0.21 0.22 0.23 0.24 0.90
Reported EPS 0.17 0.21 0.20 0.24 0.81 0.20 0.20 0.20 0.21 0.80 0.21 0.22 0.23 0.24 0.90
Reported Book Value/Sh. 7.83 7.88 7.93 8.02 8.02 8.04 8.06 8.08 8.10 8.10 8.11 8.16 8.21 8.26 8.26
Tangible Book Value/Sh. 5.76 5.81 5.84 5.89 5.89 5.91 5.93 5.95 5.97 5.97 6.01 6.06 6.11 6.17 6.17
Dividends Paid 0.18 0.18 0.18 0.18 0.72 0.18 0.18 0.18 0.18 0.72 0.18 0.18 0.18 0.18 0.72
Operating ROA (%) 0.86 0.88 0.97 0.99 0.93 0.90 0.90 0.91 0.92 0.91 0.94 1.00 1.02 1.04 1.00
Operating ROE (%) 9.70 9.88 10.75 10.80 10.32 9.87 9.90 10.05 10.21 10.01 10.45 11.09 11.35 11.55 11.11
Net Int. Margin (NIM) (%) 3.60 3.68 3.73 3.59 3.69 3.63 3.60 3.58 3.56 3.59 3.58 3.64 3.66 3.68 3.64
Adj. NII/Revenue (FTE) (%) 13.29 13.70 13.26 12.90 13.29 13.03 13.89 14.22 14.55 13.92 14.88 14.89 15.02 15.15 14.98
Adj. NIE/Revenue (FTE) (%) 58.38 58.28 57.45 61.18 58.80 60.50 60.54 60.78 60.96 60.70 60.23 59.19 58.85 58.53 59.19
Av. Loans/Deposits (%) 73.47 74.14 101.39 100.39 85.24 99.62 98.83 98.44 98.58 98.87 98.85 99.12 99.38 99.64 99.25
Av. Lns/Earn. Assets (%) 73.92 74.93 75.10 74.94 74.72 72.67 72.20 72.02 72.15 72.26 72.31 72.49 72.70 72.91 72.61
Total Eq./Total Assets (%) 8.70 8.99 9.07 9.16 9.16 9.15 9.13 9.13 9.11 9.11 9.10 9.08 9.08 9.08 9.08
Tan.Com. Eq./Tan. Ass. (%) 6.55 6.78 6.84 6.90 6.90 6.89 6.89 6.89 6.88 6.88 6.90 6.91 6.92 6.93 6.93
Effective Tax Rate (%) 30.84 29.90 30.27 28.65 29.83 30.00 30.00 30.00 30.00 30.00 31.00 31.00 31.00 31.00 31.00
Effective Tax Rate FTE (%) 33.41 31.93 32.40 30.39 31.93 31.99 31.98 31.95 31.91 31.96 32.89 32.78 32.73 32.69 32.77
Source: Company data and Raymond James.
Anthony Polini (212) 856-4897
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Analyst Information
Registration of Non-U.S. Analysts: The analysts listed on the front of this report who are not employees of Raymond James & Associates,
Inc., are not registered/qualified as research analysts under FINRA rules, are not associated persons of Raymond James & Associates, Inc.,
and are not subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public companies,
and trading securities held by a research analyst account.
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus
system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success
in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors
may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general
productivity and revenue generated in covered stocks.
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part
of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
contained in this research report. In addition, said analyst has not received compensation from any subject company in the last
12 months.
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providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should
not be relied upon.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a
higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments.
Rating Distributions
Out of approximately 821 rated stocks in the Raymond James coverage universe, 53% have Strong Buy or Outperform ratings (Buy), 41% are
rated Market Perform (Hold) and 7% are rated Underperform (Sell). Within those rating categories, 23% of the Strong Buy- or Outperform
(Buy) rated companies either currently are or have been Raymond James Investment Banking clients within the past three years; 12% of the
Market Perform (Hold) rated companies are or have been clients and 16% of the Underperform (Sell) rated companies are or have been
clients.
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Stock Charts, Target Prices, and Valuation Methodologies
Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness;
competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on
overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have
target prices and thus valuation methodologies.
Target Prices: The information below indicates our target price and rating changes for VLY stock over the past three years.
Update
Closing
Target
Rating
Price
Price
Date
MO2 $14.51 MO2 $17.14 MO2 $16.00
$13.00
$12.00
$11.00
$10.00
$9.00
1/28/08
2/26/08
3/26/08
4/23/08
5/21/08
6/19/08
7/18/08
8/15/08
9/15/08
10/13/08
11/10/08
12/9/08
1/8/09
2/6/09
3/9/09
4/6/09
5/1/09
6/1/09
6/29/09
7/27/09
8/24/09
9/22/09
10/20/09
11/16/09
12/15/09
1/14/10
2/11/10
3/12/10
4/12/10
5/7/10
6/7/10
7/6/10
8/2/10
8/30/10
9/28/10
10/25/10
11/20/10
12/17/10
1/14/11
Analyst Recommendations & 12 Month Price Objective
Adjusted for 5% Stock Dividend on 5/6/2009 SB1: Strong Buy NA: Not Applicable
Adjusted for 5% Stock Dividend on 5/5/2010 MO2: Outperform NM: Not Meaningful
MP3: Market Perform UR: Under Review
MU4: Underperform
S: Suspended
Date: 01/26/11
Price Rating Change Target Price Change
Coverage Suspended Target Price and Rating Change Split Adjustment
Valuation Methodology: For VLY, our valuation methodology utilizes a projected P/E multiple based on projected EPS power and takes into
account growth potential, earnings quality and visibility, and risk profile.
Risk Factors
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research:
(1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected
revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes
toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or
practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major
segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as
currency fluctuations, differing financial accounting standards, and possible political and economic instability.
Specific Investment Risks Related to the Industry or Issuer
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available at rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research or Raymond James’ summary
policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James
Financial Services office (please see raymondjames.com for office locations) or by calling 727-567-1000, toll free 800-237-5643 or
th
sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6 Floor, 880 Carillon Parkway,
St. Petersburg, FL 33716.
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