Filed by: ARC533
Pursuant to Rule
425 under the Securities Act of 1933
Subject Company:
Oritani Financial Corp.
Commission File
No.: 001-11277
Valley National Bancorp Company Wide
E-Mail
Subject:
Valley National Bancorp to Acquire Oritani Financial
Corp.
Good morning,
This morning we announced the proposed merger of Oritani Financial
into Valley. Oritani is a franchise we know well and have shared a common geography with for quite some time.
Headquartered in Washington Township, New Jersey, Oritani has
approximately $4.1 billion in assets, $3.5 billion in loans, $2.9 billion in deposits and maintains a branch network of 26 offices
throughout northern New Jersey. You can read the full press release
here
and we’ve also provided some key talking
points for your discussions with customers
here.
It was apparent early in our discussions with Oritani that we
share a very similar culture and philosophy, one that puts customers first, focuses on helping customers succeed and supporting
the local communities we serve in a meaningful way.
There are a number of reasons why we feel Oritani is a strong
fit for our organization. We have a unique opportunity to grow our franchise and double Valley’s market share from 5% to
10%, in the densely populated and affluent Bergen County.
This merger also provides us with an opportunity to deepen Oritani’s
banking relationships by offering a wider array of financial products and services not presently available to their customers.
It also accelerates our strategic initiatives of growing our customer base, leveraging our investments in technology and driving
down our efficiency ratio.
Finally, and most importantly, from a financial viewpoint, this
transaction bolsters capital to support the Bank’s growth across our entire footprint.
We are confident we can manage the integration
with minimal distractions while achieving our core strategic initiatives.
We’re energized about this transaction and excited about
our way forward. Thank you for your continued commitment toward achieving our goals together.
Sincerely,
Ira D. Robbins
President & CEO
Talking Points for Customer and Internal
Conversations
The following talking points are
meant to be a guide as you have conversations with your internal team, customers, business partners and people in the
community about the merger with Oritani Bank. If you are asked something that is not addressed in this document, and you are
unsure of how to answer, please let the person know that you will find out more information and get back to them. Then ask
your manager for the appropriate information or for advice on how best to answer the question.
Key Points
• Valley is under agreement to merge Oritani, a regional
bank headquartered in Washington Township, New Jersey with approximately $4 billion in assets, into our organization.
• Oritani was first founded in 1911. Its NASDAQ trading
symbol is ORIT.
• Oritani currently operates 26 locations in New Jersey.
• Our two banks share a very similar culture and
philosophy, one that puts customers first, focuses on helping customers succeed and supporting the local communities we serve
in a meaningful way.
• We have been impressed with how Oritani operates and
the results they’ve delivered.
• The integration of Oritani’s strong balance
sheet into our organization will enable greater growth and provide their customers with enhanced technology and increased
products and services.
• Oritani’s conservative credit culture overlays
with Valley’s historical operating philosophy.
• This merger will double Valley’s market share
from 5% to 10%, in the densely populated and affluent Bergen County.
• At the time of closing, Oritani’s name will change
to Valley National Bank and be referred to as Valley.
• There will be no immediate changes and the closing is
expected to take place by the end of the year.
JUNE 26, 2019 / 1:00PM
GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
CORPORATE
PARTICIPANTS
Ira D. Robbins
Valley
National Bancorp - President, CEO & Director
Rick Kraemer
Valley
National Bancorp - First Senior VP & IR Officer
Thomas A. Iadanza
Valley
National Bancorp - Senior EVP & Chief Banking Officer
CONFERENCE
CALL PARTICIPANTS
Austin Lincoln Nicholas
Stephens
Inc., Research Division - VP and Research Analyst
Broderick Dyer Preston
Piper
Jaffray Companies, Research Division - Research Analyst
Collyn Bement Gilbert
Keefe,
Bruyette, & Woods, Inc., Research Division - MD and Analyst
David John Chiaverini
Wedbush
Securities Inc., Research Division - Senior Analyst
Frank Joseph Schiraldi
Sandler
O'Neill + Partners, L.P., Research Division - MD of Equity Research
PRESENTATION
Operator
Good day, ladies and gentlemen,
and welcome to the 2019 Valley National Bancorp Conference Call. (Operator Instructions).
I would now like to introduce
your host for today's conference, Rick Kraemer, Director of Corporate Finance. You may begin.
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Thank you, Sara. Good morning. Welcome to Valley's
Conference Call covering the announcement of the acquisition of Oritani Financial Corp. Today's call will include coverage of the
investor presentation materials, which include highlights of the merger announcement made earlier this morning. The investor decks
are meant to accompany the presentation made by management during this call and can be found on our website at
valley.com
.
If you have not read the merger release or the associated Form 8-Ks that we issued this morning, you may access it from our website
at
valley.com
or the SEC website.
Comments made during this call may contain forward-looking
statements relating to Valley National Bancorp and the banking industry. Valley encourages the participants to refer to our SEC
filings, including those found on forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements. Now, I would
like the turn the call over to Valley's President and CEO, Ira Robbins.
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Thank you, Rick. Good morning and thank you for
joining us. I start my prepared remarks on Slide 3 of the investor presentation. We are thrilled to announce the proposed acquisition
of Oritani Financial. Oritani is a franchise we know very well, one in which we have shared a common geography in Northern New
Jersey and the New York City metropolitan area for quite some time.
Our headquarter locations are only 12 miles
apart and all 26 of Oritani's branch facilities are located within a 3-mile radius of a current Valley branch.
We prioritize this acquisition and believe it
is compelling for several reasons. First and foremost, it accelerates our stand-alone strategic initiatives by growing our customer
base, enabling us to leverage our technology investments and enhancing our efficiency ratio through significant cost savings. Secondly,
we're excited about the desirable concentration this provides us in one of the country's wealthiest demographics, Bergen County,
moving us to 10% market share and a top 4 deposit position. Thirdly, it provides us an opportunity to offer Oritani's customers,
our more fulsome product suite. Fourth, we view this transaction as very low risk, which I cannot underestimate the significance
of this as we continue to allocate tremendous resources towards improving Valley's stand-alone performance. The integration complexity
or lack thereof in this instance, was a critical component to this deal, as it was imperative to me that our management team and
employees would not be distracted in executing the core strategic initiatives we have previously outlined.
Finally, and maybe mostly, and maybe most important
from a financial viewpoint, this transaction bolsters our capital while preserving earnings per share. It provides us increased
liquidity from their short duration asset portfolio, thus giving us optionality. Optionality to further allocate capital to growth
geographies, optionality to assign additional capital to more profitable loan types and optionality to enhance financial performance
through balance sheet restructuring, enhanced business line assessment and alternative uses of capital
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
to which previously we were limited.
Now turning to Slide 4. When we changed leadership
and the associated direction of Valley, we announced 3 core initiatives to improve Valley's financial performance. The transaction
we are announcing this morning further leverages the significant internal improvements we have made in 2 of our 3 pillars and will
allow for additional flexibility in the third. Generating a sustainable growth engine focused on organic loan originations, funded
with core deposits was an initial focus.
For the trailing 5 quarters, we have grown loans
over 10% and in the first quarter, recognized linked quarter core deposit growth of 8.8% annualized.
This deal provides additional capital and liquidity
to support this growth initiative while simultaneously introducing approximately 76,000 new customers to Valley. Secondly, we outlined
an efficiency initiative, driven primarily through technology investment and branch optimization.
Through the first quarter of 2019, we have made
tremendous strides reducing our adjusted efficiency ratio to 54.8% from 56.7% in the fourth quarter. This merger provides an opportunity
to accelerate our efficiency objectives by 350 basis points based on conservative cost-save estimates.
Finally, we identify revenue diversification
as a strategic focus. And while this transaction doesn't directly improve Valley's composition of noninterest income, it provides
balance sheet flexibility, flexibility to assess alternatives, which we may have been precluded from previously evaluating.
In summary, this merger absolutely accelerates
our strategic initiatives while remaining consistent with the core strategy of the bank. I will now turn the call over to Rick
to review some of the financial metrics.
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Thank you, Ira. Turning your attention to Slide
5. I'd like to cover a few high-level metrics on the deal. We've agreed to a 100% stock transaction at a 1.6 exchange ratio, which
represents a $740 million deal value at a modest 0.5% premium to yesterday's closing share price of Oritani. As part of the merger
terms, Oritani's normal quarterly cash dividend policy for the period ended June 30, 2019, which is typically paid in August, will
not be impacted by this transaction. However, any subsequent quarterly dividends declared by Oritani will be limited to the current
rate paid by Valley, exchanged-adjusted to approximately $0.18 per common share until the close of the merger. Accordingly, Oritani
is not expected to pay a special dividend through the end of the calendar year. This deal will require shareholder approval from
both shareholder bases and customary regulatory approval. We would expect the deals to close in the fourth quarter of 2019.
Finally, Oritani will receive 1 Board seat,
which we would expect to be filled by Kevin Lynch upon Board approval. I want to reemphasize that we view this as a very low-risk
transaction. It is an in-market acquisition of a franchise we know very well. For those outside the market area, it is worth noting
again that our headquarters are only 12 miles apart and our branches have 100% branch overlap within 3 miles. In addition, we use
the same core provider, so we expect a relatively seamless integration.
Further, Oritani continues to demonstrate excellent
credit quality and we have performed thorough due diligence on their loan book.
Moving to Slide 6. As we evaluated the financial
returns of this acquisition, we parsed it into 2 pieces. First, the returns from the M&A transaction and next, the value of
the excess capital generated as part of the deal. We are paying approximately 9.8x synergized 2020 EPS and 1.4x tangible book value.
We expect the deal to be marginally accretive
to EPS and neutral to tangible book value after taking into account the anticipated balance sheet restructuring. On a capital-adjusted
basis, we paid approximately 8.5x synergized 2020 earnings, which would have provided us 3.5% earnings accretion. In both scenarios,
the transaction produces an IRR in excess of 20%. We anticipate accreting approximately 50 basis points of additional capital,
inclusive of our anticipated charges associated with balance sheet restructuring and purchase
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
accounting marks.
We believe this enhanced capital provides us
with a tremendous amount of strategic optionality to accelerate growth of franchise assets and improve shareholder returns over
time.
On Slide 7, some of the major assumptions behind
the expected returns we discussed. We are assuming 50% cost saves on Oritani's core expense base plus $5 million for the elimination
of legacy mutual costs such as ESOP and other MRP plan expenses. We expect $39 million of one-time expenses, including the retirement
of legacy mutual benefit plans.
We've identified a number of potential revenue
synergies that we have not included in the model, such as increased customer penetration. We are also anticipating to recognize
a $28 million credit mark in line with their existing reserves and loans, CDI of 1.6% amortized over 10-year period and a net fair
value mark of $1 million.
As part of this transaction, we are also planning
to refinance our higher cost FHLB term borrowings which is reflected in our Tier 1 capital as well as our forward-earnings projections.
Moving on to Slide 8 and a brief overview of
Oritani. For those of you who are not familiar with Oritani, they are a $4 billion in asset bank, headquartered in Washington Township,
New Jersey, with 26 branches located in Northern New Jersey. They are a low-risk, short duration balance sheet that is invested
mostly in multifamily and commercial real estate. As you can see, their credit performance through the cycle, including during
the recession, has been outstanding.
On the next page, you can see on the map, all
26 of Oritani's branches are in our backyard. We know their markets, their assets and their customers very well. This transaction
doubled our presence to almost 10% share and top 4 rank in Bergen County, one of the most affluent in the country.
Focusing on Slide 10, you will notice the substantial
breadth of products that Valley will be able to offer to Oritani customers that are not currently available to them. We believe
the opportunity to further penetrate the customer base, especially with our cash management product is a very exciting opportunity.
Converting a high percent of their commercial clients into depositors, with operating accounts is a meaningful opportunity and
would offer sizable upside to the financial returns we presented. With that, I'd like to turn the call back over to Ira for some
closing commentary.
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Thanks, Rick. On Slide 11, we highlight the
improved estimated return on average assets of approximately 8 basis points. As previously mentioned, the expected efficiency ratio
improvement of 350 basis points, it still takes much of the projected financial benefit. While the projected improvement in ROA
is a nice benefit of the merger, the true economic advantage is in the incremental capital generated. Our common equity Tier 1
ratio improves to a pro forma 9.2% range, approximately 70 basis points greater than our reported first quarter results, significantly
above the well-capitalized guidelines and in line with our peers.
To reiterate, we are extremely excited about
this deal. We view it as a compelling transaction that one, bolsters capital while not get negatively impacted earnings per share;
2, accelerates our strategic objectives; and three, do each while importantly not distracting our team from the significant internal
strides being made to improve Valley's organic performance.
With that, I'll open it up to questions. Thank you.
QUESTIONS
AND ANSWERS
Operator
(Operator Instructions) Our first question comes
from the line of Frank Schiraldi with Sandler O'Neill.
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
Frank Joseph Schiraldi
Sandler O'Neill + Partners,
L.P., Research Division - MD of Equity Research
Just first on the cost
saves. 50%, I know, Oritani was running a pretty tight ship on the expense side, and I see you guys talk in the slide deck about
the legacy mutual expenses. But could you just talk a little bit about what's in that other, I guess, what is it $15 million, $20
million?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Yes, so we've got -- I mean, if you take out
some of the higher level comp, that's going to account for a pretty big or substantial portion of it. We are not including any
branch consolidation in that number. So when you think about the comp and the MRP benefit plans that's going to get you probably
about -- that will get you to almost happier saves. And then the rest is kind of combination of some smaller things and I'd be
happy to run through it in more detail after the call. But you're talking total comp and benefits about $16 million. There is going
to be some data processing costs which are fairly significant, just consolidating over to our platform, professional fees that
go away, there's also some elevated costs that were in there related to some compliance efforts that they have had ongoing.
Frank Joseph Schiraldi
Sandler O'Neill + Partners,
L.P., Research Division - MD of Equity Research
Okay, and then you mentioned the -- that there
is no branch closures as part of that cost saves. But you also talked about sort of the perfect overlap. So just wanted if you
could maybe talk a little about how this alters or just the brand strategy overall in New Jersey proforma for the deal?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
I think it's probably important to consider
the impact of this when we go through our branch transformation. So in about a month when we release earnings, as we will have
a more thorough thought for you on that. But I think there is certainly going to be some impact from this, but there's a lot of
branches. In some instances, their branches are literally about -- in the same shopping centers as each other. So certainly, there
will be some form of consolidation. We just haven't factored into the numbers.
Frank Joseph Schiraldi
Sandler O'Neill + Partners,
L.P., Research Division - MD of Equity Research
Okay, and then just finally, if I'm not mistaken,
Oritani still has an agreement on the BSA side that you know -- does that complicate things at all? Or how do you think about that
as you went into this acquisition?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
It's something that we thoroughly
assessed during our diligence. We are comfortable with what Oritani had done internally on their end to address the internal concern
or the external concern. And we believe we have a pretty significant plan in place as to how we're going to address it as we move
forward.
Frank Joseph Schiraldi
Sandler O'Neill + Partners,
L.P., Research Division - MD of Equity Research
Does that impact in the short term though, what Valley can do with Oritani's order in place?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Absolutely not. No impact.
Operator
Our next question comes from the line of Austin Nicholas
with Stephens.
Austin Lincoln Nicholas
Stephens Inc., Research
Division - VP and Research Analyst
Can you maybe just on the synergized valuation
multiple that I think you cited for Oritani, does that just include the $22 million in saves or is there anything else in there
besides 50% cost saves that are...
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Yes, the other major component would be the FHLB
refinancing or savings from that.
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
Austin Lincoln Nicholas
Stephens Inc., Research
Division - VP and Research Analyst
Got it. And then Ira, I think you spoke about
the deal allowing you to entertain some actions that you couldn't do before given the flexibility that you have from the capital
accretion and maybe on the liquidity side as well. Could you maybe speak to that a little bit more in detail on what those actions
could be?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Absolutely. I think as we look to grow our franchise,
our capital position has definitely been impacted to the loan growth that we put on. We did over 13% last year of loan growth.
And as a result of that based on our internal capital generation, our capital ratio has deteriorated a little bit. We were anticipating
and are modeling about 10 to 15 basis points of tangible capital accretion this year with our 6% to 8% loan growth numbers. So
this allows us the ability to potentially accelerate our loan growth internally and across all of our markets.
From a capital flexibility
perspective, I think you're seeing with the restructuring, we haven't had the capacity as some of our peers to restructure balance
sheet and boost the earnings per share as a result of some financial actions. What we're doing here on the FHLB borrowings, I think
provides an indication of some things that we could you as we move forward. And in addition to that, I think as we look at noninterest
income, we've been precluded from entertaining certain business interests based on potential dilution to tangible book value Tier
1. And this may be impacts that for us as well.
Austin Lincoln Nicholas
Stephens Inc., Research Division
- VP and Research Analyst
Understood. Thanks, Ira, that's very helpful.
And then maybe just one last one just on the cost saves, can you speak at all to the timing at which you'd expect to kind of flow
through and be achieved?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Yes, I mean we're expecting them all within
the first 12 months. I think obviously there's going to be a pretty substantial portion of that that will flow through immediately
upon closing. So I would factor, I guess, probably 60% to 75% of that will flow through in the shorter term.
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
One of the merits of the transaction in our mind
was the low integration risk. And our team anticipates being able to convert this rather quickly, which would accelerate a lot
of the cost saves.
Austin Lincoln Nicholas
Stephens Inc., Research
Division - VP and Research Analyst
Understood. And then maybe just one last one. Is
there -- on the BSA aim now is there cost saves that can come out 1-step fully resolved?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Absolutely, I think you're
going to get cost saves right out of the back from the professional fees. And I think just, in general, leveraging their transactions
into our core systems is an incrementally -- expensive to us. We already have the system, it's just laying on additional transaction.
So we anticipate significant cost saves coming from them.
Operator
Our next question comes from the line of David Chiaverini
with Wedbush.
David John Chiaverini
Wedbush Securities Inc.,
Research Division - Senior Analyst
Couple of questions for you. Starting with interest
rate sensitivity, does this change your interest rate sensitivity at all on a combined basis?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
It would make us marginally liability sensitive.
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
David John Chiaverini
Wedbush Securities Inc.,
Research Division - Senior Analyst
Okay, so it moves you in the right direction
given the backdrop. And then a couple of questions just about the deal and how it came together, was this an auction process? Or
was this a privately kind of negotiated deal?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
We were approached by Oritani's financial advisers.
We've been in conversations, exclusive conversations with them for some time period. We've known Kevin and his management team
for a very long time. And you'll find out more I guess as we go through the S-4.
David John Chiaverini
Wedbush Securities Inc.,
Research Division - Senior Analyst
And I guess a question for Kevin, if he's available
on the line, just why sell for essentially no premium here?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
So, David, Kevin is actually not on the line today.
David John Chiaverini
Wedbush Securities Inc.,
Research Division - Senior Analyst
Okay, understood. And then curious if there is a
breakup fee of another bidder or to emerge?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
There's --it's $28 million.
Operator
Our next question comes from the line of Collyn Gilbert
with KBW.
Collyn Bement Gilbert
Keefe, Bruyette, & Woods,
Inc., Research Division - MD and Analyst
Just on the FHLB pay down, what is the prepayment
penalty on that? And can you just talk about -- I know you said in the slide deck, 190 basis points of savings, but just walk through
a little bit more of the specific financial components of that? And then the timing, I know you had said in your opening comments
that we should assume at close, but just curious for a little bit more detail around the plan on that?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Yes, so the prepayment, pretax will be around
$35 million right now. So it technically will be an extinguishment of debt that we would refinance through other channels for a
reporting period and then actually come back to the FHLB if that cost was efficient. So the down 190 was presuming that we stayed
at something close to the duration we are at right now.
If we went a little bit shorter, we can improve
that cost probably by about another 20 to 25 basis points. Look, I mean, we are -- let's assume, we're closing sometime in the
late fourth quarter, if rate moves substantially against us, the prepayment penalty will be smaller, so you will have less book
dilution -- or you have actually book accretion on the deal, and you'd have a little bit less EPS accretion as a result of the
restructure. So there is somewhat as I said is a little bit unknown. The option to lock into the race now were a bit too penalizing
if a deal was to be delayed for some unknown reason.
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
But I think the positive here, Collyn, is if
rates move one way, we're going to get the benefit on one side of the transaction and we may lose on the other. So net-net, we
don't really believe that there is much exposure or risk here.
Collyn Bement Gilbert
Keefe, Bruyette, & Woods,
Inc., Research Division - MD and Analyst
Okay, and the cost of -- the blended cost of that
$635 million that you're prepaying is what? And then what's the duration on that?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
It's almost 4%, and it's -- the duration is about
3 I think it's around 3 years, to close at 3 years.
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
Collyn Bement Gilbert
Keefe, Bruyette, &
Woods, Inc., Research Division - MD and Analyst
Okay, okay. That's helpful. And then just in
terms of your -- the metrics that you gave in terms of Orit's, the multiples on Orit, I'm just curious what you were assuming for
Orit's earnings in 2020 and if you'd assumed any kind of growth rates on that? I'm just trying to figure out to obviously -- in
the wake of the Fed positioning and how you're thinking about, I guess, Orit's balance sheet and earnings in the wake of a potential
Fed cut and how that's flowing through?.
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
So we use consensus. Unfortunately,
because the consensus is somewhat light on a calendar 2020 basis, we basically just flatline the earnings from the current period
to make up for those 2 final quarters that we're in encompassing consensus. So we have flat earnings basically year-over-year.
Collyn Bement Gilbert
Keefe, Bruyette, & Woods,
Inc., Research Division - MD and Analyst
Okay. Okay, all right, that's helpful. And then
you kind of touched on this, Ira, but just trying to get a sense of your capital thoughts from here. I know you had indicated that
this could allow you to accelerate your loan growth. Just kind of walk through broadly, does that indicate that you think that
there is sufficient demand out there that could truly drive higher loan growth? And then how you are thinking about sort of capital
build from here and capital needs from here?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Yes, I think that's -- this is an important piece
of the transaction. I think when we try to forecast where we're comfortable on from a capital position, I think, CET 1 between
9 and 9.50 is where we've targeted. This puts us firmly right in the middle, outside of any additional accretion that we can get
from internal capital generation on our own. When we look at loan growth, if you back out CRE, which is an area that we have been
deemphasizing internally, we did 16% last quarter, 31% the quarter before, 19% the quarter before that, 21% the quarter before
that. So we think what we've done internally to generate significant opportunities for loan growth within this organization, within
the footprints that we're actively operating in, we think this provides us the capital to either reallocate some of the liquidity
that's coming from multifamily loans or just lever a little bit of capital into some of these additional markets that we think
there is growth opportunities that provide us better spreads. And keep in mind, none of that was incorporated in any of the modeling
that we put together when it comes to what EPS is, but it gives us the opportunity to serve our customers in all of our markets,
not just with the CRE emphasis.
Collyn Bement Gilbert
Keefe, Bruyette, & Woods,
Inc., Research Division - MD and Analyst
Okay, okay, that's helpful. And then just along
those lines, you obviously indicated what you guys are doing with your borrowings. Is there any other balance sheet move that you're
anticipating to do with Orit's balance sheet post-closing, accelerate the pay downs of any of these loans or do anything more on
the funding side from their perspective?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Not at this point.
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
The optionality obviously exists but we haven't modeled anything in.
Operator
(Operator Instructions).
Our next question comes from the line of Brody Preston
with Piper Jaffray
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Ira, it was a little over a year ago now when
we sat down and I guess you sort of outlined some of the strategic priorities for Valley. And you'd indicated that M&A was
a bit of a lower priority on the totem pole moving forward. But when I look at sort of the pace of deals that you guys have done
now over the last couple of years relative to the pace of deals in the past, it seems like a pretty similar pace. So I guess I
just wanted to gauge where M&A was on the -- in terms of priority moving forward from here?
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
Let me sort of take a step back and I think when
we started talking about M&A, I was very clear, we will not do a tangible book dilutive deal, we will look for something that
accelerates the strategic initiatives that we've been focusing on. If you look at the improvements we've had over the last year,
our loan growth has been tremendous, the core deposit growth that we put on had been tremendous and we think what we've instituted
internally are repeatable when it comes to what we're looking at from these growths. On the expense side, we've had significant
improvement in what we've done internally in driving expenses down within the organization and once again we think that they are
repeatable. It was important for me that if we were to look at the transactions and the financial parameters that we had outlined,
no tangible book value dilution and it was going to be additive to the strategic initiatives that we outlined and we think this
is additive while providing additional capital for us. So while we look at M&A, maybe as we begin to move forward, it has to
fit within the financial constraints that we're looking for. It has to be additive to the strategic initiatives. And I think we
have a lot of opportunity internally, just organically on our own by reemphasizing internally what we're working on. So I don't
think M&A is a requirement by any means. If it fits within the strategic initiatives this is something we're going to end up
looking at, but it's not something we're targeting.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Okay. Okay. And then I guess, as I think about
the -- your strategic initiatives with regard to loan growth, obviously, Oritani is heavy multifamily player and the loan growth
at Oritani, given market conditions over the last, I don't know, let's call it 4 to 6 quarters, has been pretty consistently negative.
And so as you sort of assess the loan growth opportunity with Oritani moving forward, does it do anything to enhance loan growth?
Or I guess, what are your thoughts there?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
I don't think we're looking
at Oritani as a loan generator within our organization. I think they have a lot of opportunity, a lot of customers that we think
there's opportunities for us to provide a little bit more services to. That said, I think, there is opportunities across all of
our footprints when I look at the loan growth we're seeing in New York, when I look at the loan growth we're seeing in Florida,
to accelerate some loan growth in those specific markets.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Okay, so it seems like this is more of a -- the
deal was more to help bolster capital to allow you to do some things on the legacy Valley side that you couldn't maybe accomplish
without the deal? Is that a fair assessment?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
I think that's a component of it. There's no
question, but I don't want to discount I think the opportunity we have with Oritani. There's 76,000 customers there. We think from
a credit perspective, that is a wonderful franchise and we think there's a lot of opportunity to really grow that specific franchise
immediately. I think what you're describing is probably what we're going to see and recognize first, but I don't want to discount
the Oritani franchise by any means. I think it's that it's a tremendous franchise.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Okay, and I guess as it
relates to your capital position in terms of bolstering it, you guys are obviously a little lighter on TCE than maybe some of your
peers. Did you guys assess anything else internally that you could do without a deal, like a dividend cut or raising capital?
Ira D. Robbins
Valley National Bancorp - President,
CEO & Director
We did a sale-leaseback transaction that we
announced that raised some significant capital previously. We went into last recession with a TCE ratio of 5.70% and arguably probably
one of the worst recessions came out at the time. So I think when we think about the absolute capital position of Valley, we think
we're absolutely comfortable. I think when we look at what capital position we're comfortable with operating today, is really to
provide for additional growth that we think we have within the organization. The organization has changed dramatically in just
the last 1.5 years. We believe that we're a growth franchise and it's a repeatable growth franchise and we need capital to support
that growth.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Okay, okay, and then as it relates to Oritani's
book, what percentage of their multifamily book is tied to rent-regulated properties in New York City?
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
Rick Kraemer
Valley National Bancorp - First
Senior VP & IR Officer
Yes, you will take that, Tom?
Thomas A. Iadanza
Valley National Bancorp - Senior
EVP & Chief Banking Officer
Yes, so if you know, we reviewed their -- pretty
much their entire book of multifamily, and there -- it's they are in the same market as us, same layout of customers. Stand-alone
building, there's not many, but just rent-regulated, rent-controlled within pretty much every building. The positive, similar to
us, they underwrite to current cash flow, not future cash flow, they underwrite to a cushion of debt service coverage of loan-to-value.
So we don't expect any credit problems coming out of their or our portfolio. We do expect to slow down, both of us -- Kevin and
his team slow down their growth to some extent in that market focusing on safety and such as we did. Seeing the margin compression
and the potential rent regulation changes, we kind of slowed down our growth in that business for some time. So we don't foresee
any credit issues.
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
And really just to throw a couple of data points
behind that. So of the little under $1 billion to New York multifamily, approximately 52% of the rental income comes from rent-regulated
properties, but the LTV on that portfolio is about 55%, debt service is close to 1 30.
Thomas A. Iadanza
Valley National Bancorp - Senior
EVP & Chief Banking Officer
That's current, right.
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Current, current, yes. It's all based off of the
current cash flow, nothing is projected off of deregulated or destabilized.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Okay, but given the current -- or the potential
for, I guess, maybe a decrease property valuation as a result of the recent regulatory changes, I just want to know if that's factored
into your fair value mark on their loan portfolio at all?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
It did.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
It did?
Rick
Kraemer
Valley National Bancorp - First Senior VP & IR Officer
Yes. That's 55% LTV though there's a pretty significant cushion there.
Broderick Dyer Preston
Piper Jaffray Companies,
Research Division - Research Analyst
Okay. And then last one from me. The NIMs --
Oritani's NIM is about 50 basis points lower than yours. And so I guess I wanted to better understand with the FHLB restructuring
and understanding their margin relative to yours, what you guys are expecting for the pro forma margin of the institution moving
forward?
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
So absent the FHLB, you'd expect to move up about
negative 7 basis points and the FHLB should we capture for that. So net negative 3.
Operator
And we have no further questions in the queue at
this time. I would now like to turn the call back to Rick Kraemer for any further remarks.
Rick Kraemer
Valley National Bancorp - First Senior
VP & IR Officer
Well, thank you all for joining us this morning
on such short notice. We will be talking to you on about a month when we report our quarterly earnings. Thanks again.
JUNE 26,
2019 / 1:00PM GMT, Valley National Bancorp Acquiring Oritani Financial Corp - M&A Call
Operator
Ladies and gentlemen, thank you for participating
in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed Merger,
Valley intends to file with the Securities and Exchange Commission (the “Commission”) a Registration Statement on Form
S-4 containing a joint proxy statement of Valley and Oritani that also constitutes a prospectus of Valley. Investors and security
holders are advised to read the joint proxy statement/prospectus when it becomes available, AND ANY OTHER RELEVANT DOCUMENTS FILED
WITH THE COMMISSION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THE DOCUMENTS, because they will contain important information.
Investors and security holders may obtain a free copy of the registration statement (when available), including the joint proxy
statement/prospectus, and other documents filed by Valley with the Commission at the Commission’s web site at www.sec.gov.
These documents may be accessed and downloaded for free at Valley’s web site at http://www.valleynationalbank.com/filings.html
or by directing a request to Ronald H. Janis, Senior Executive Vice President & General Counsel, Valley National Bancorp, at
1455 Valley Road, Wayne, New Jersey 07470, telephone (973) 305-8800.
Participants in the Solicitation
This communication is not a solicitation of a proxy from any
security holder of Valley or Oritani. However, Valley, Oritani, their respective directors and executive officers and other persons
may be deemed to be participants in the solicitation of proxies from security holders of Valley or Oritani in respect of the proposed
transaction. Information regarding the directors and executive officers of Valley may be found in its definitive proxy statement
relating to its 2019 Annual Meeting of Shareholders filed with the Commission on March 8, 2019 and its Annual Report on Form 10-K
for the year ended December 31, 2018, each of which can be obtained free of charge from Valley’s website. Information regarding
the directors and executive officers of Oritani may be found in its definitive proxy statement relating to its 2018 Annual Meeting
of Stockholders filed with the Commission on October 11, 2018 and its Annual Report on Form 10-K for the year ended June 30, 2018,
each of which can be obtained free of charge from Oritani’s website. Other information regarding the participants in the
proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained
in the joint proxy statement/prospectus and other relevant materials to be filed with the Commission when they become available.
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