UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period Ended June 30, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________.
Commission File Number 0-11179
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of incorporation or organization)
22-2477875
(I.R.S. Employer Identification No.)
1445 Valley Road, Wayne, New Jersey 07474-0558
(Address of principal executive offices) (Zip Code)
(201)305-8800
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES XXX NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock (No par value), of which 27,043,653 shares were
outstanding as of July 29, 1994.
VALLEY NATIONAL BANCORP
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
June 30, 1994 and December 31, 1993 (Unaudited)
Consolidated Statements of Income 4
Six and Three Months Ended June 30, 1994 and 1993
(Unaudited)
Consolidated Statements of Cash Flows 5
Six Months Ended June 30, 1994 and 1993 (Unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7 - 11
Financial Condition and Results of Operations
SIGNATURES 12
- 2 -
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
($ in thousands)
June 30, December 31,
1994 1993
Assets
Cash and due from banks $ 114317 $ 67455
Federal funds sold 42600 88050
Investment securities held
to maturity, fair value of
$856,388 and $960,813 in
1994 and 1993, respectively 874100 939993
Investment securites available
for sale, fair value of
$448,818 in 1993 430176 441482
Loans, net of unearned income 1958692 1802000
Less: Allowance for possible
loan losses -35743 -35205
Loans, net 1922949 1766795
Premises and equipment, net 40274 40248
Due from customers on acceptances
outstanding 1594 1192
Accrued interest receivable 23106 23650
Other assets 52429 44637
Total assets $ 3501545 $ 3413502
Liabilities
Deposits:
Non-interest bearing deposits $ 415004 $ 408605
Interest bearing:
Savings deposits 1621764 1637381
Time deposits 1102128 1033771
Total deposits 3138896 3079757
Federal funds purchased and
securities sold under
repurchase agreements 56503 35110
Treasury tax and loan account 5953 7834
Bank acceptances outstanding 1594 1192
Accrued expenses and other
liabilities 22747 22514
Other borrowings 2466 2667
Total liabilities 3228159 3149074
Shareholders' Equity
Common stock, no par value,
authorized 37,537,500 shares,
issued 27,121,647 shares in
1994 and 24,529,552 in 1993 15112 8660
Surplus 115150 46438
Retained earnings 154155 211296
Unrealized loss on investment
securities available for sale -9065 - -
275352 266394
Cost of shares in treasury
(113,003 common shares in
1994 and 1993) -1966 -1966
Total shareholders' equity 273386 264428
Total liabilities and
shareholders' equity $ 3501545 $ 3413502
See accompanying notes to consolidated financial
statements.
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VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($ in thousands except for per share data)
Six Months Ended
June 30, June 30,
Interest Income 1994 1993 1994 1993
Loans, including fees $ 72121 $ 65491 $ 36616 $ 33079
Loans held for sale 473 - - 151 - -
Investment securities held to maturity
Tax-exempt 6974 6089 3627 3032
Dividends 30 40 15 18
Investments securities available for sale
Taxable 10878 10110 5542 5202
Dividends 43 18 24 9
Federal funds sold and other
short term investments 647 551 355 269
Total Interest Income 111182 110499 56032 55270
Interest Expense
Savings deposits 19397 20112 9900 9950
Time deposits 21379 23993 11056 11709
Federal funds purchased and
securities sold under
repurchase agreements 501 361 276 191
Other short-term borrowings 91 81 52 39
Other borrowings 10 338 5 170
Total Interest Expense 41378 44885 21289 22059
Net interest income 69804 65614 34743 33211
Provision for possible
loan losses 1800 3500 900 2000
Net interest income after
provision for possible
loan losses 68004 62114 33843 31211
Non-Interest Income
Fees from trust services 374 340 194 180
Service charges on deposit
accounts 2868 2469 1472 1307
Net gains on securities
transactions 3964 5574 622 2302
Fees from mortgage servicing 1696 2178 851 923
Gains on sales of loans 240 775 0 318
Other 2377 2242 1181 1261
Total Non-Interest
Income 11519 13578 4320 6291
Non-Interest Expense
Salaries and other
compensation 13580 12268 6796 6211
Employee benefits expense 3623 3269 1838 1678
FDIC insurance premiums 3429 3339 1715 1686
Occupancy and equipment
expense 5536 4648 2750 2293
Amortization of intangible
assets 1512 2383 627 1425
Other 8104 7514 4244 4041
Total Non-Interest
Expense 35784 33421 17970 17334
Income before income taxes 43739 42271 20193 20168
Income tax expense 14766 14552 6711 7101
Income before cumulative
effect of accounting
change 28973 27719 13482 13067
Cumulative effect of
accounting change - - -402 - - - -
Net Income $ 28973 $ 27317 $ 13482 $13067
Per share data:
Income before cumulative
effect of accounting change $1.08 $1.06 $0.5 $0.5
Cumulative effect of
accounting change 0 -0.02 0 0
Net Income $1.08 $1.04 $0.5 $0.5
Weighted average shares
outstanding 26940198 26298758 26990965 26361555
See accompanying notes to consolidated financial
statements.
- 4 -
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in thousands) Six Months Ended
June 30,
1994 1993
Cash flows from operating activities:
Net income
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization
of intangible assets 3766 4236
Amortization of compensation
costs pursuant to long term
stock incentive plan 143 124
Provision for possible loan
losses 1800 3500
Net amortization(accretion)
of premiums and discounts 3455 2533
Net deferred income tax benefit -4300 -1118
Net gains on securities
transactions -3964 -5574
Gain on sale of loans -240 -775
Net increase(decrease) in
unearned income -65 219
Proceeds from recoveries on
charged-off loans 783 668
Net decrease in accrued interest
receivable and other assets 2581 5542
Net increase(decrease) in
accrued expenses and
other liabilities 233 -7357
Net cash provided by operating
activities: 33165 29315
Cash flows from investing activities:
Cash received pursuant to acquisitios - - 7566
Proceeds from maturing investment
securities held to maturity 151669 166551
Proceeds from sales of investment
securities held to maturity 41084 - -
Purchases of investment securities
held to maturity -129232 -180071
Purchases of mortgage servicing
rights -556 -10
Proceeds from sales of investment
securities held for sale 157866 184050
Proceeds from maturing investment
securities held for sale 28162 4711
Purchases of investment securities
held for sale -187391 -133826
Net decrease in federal funds sold 45450 53400
Net increase in loans made to
customers -158432 -98209
Purchases of premises and
equipment -2280 -5768
Net increase in due from customers
on acceptances outstanding -402 -286
Net cash used in investing
activities: -54062 -1892
Cash flows from financing activities:
Net increase(decrease) in deposits 59139 -11129
Net increase(decrease) in federal
funds purchased and other short
term borrowings 19512 -1970
Net increase in bank acceptances
outstanding 402 286
Dividends paid to common
shareholders -12874 -10035
Addition of common shares to
treasury - - -655
Common stock issued, net of
cancellations 1781 1426
Repayments of other borrowings -201 - -
Net cash provided by(used in)
financing activities 67759 -22077
Net increase in cash and due
from banks 46862 5346
Cash and due from banks at
January 1 67455 89695
Cash and due from banks at
June 30 $ 114317 $ 95041
Cash paid during the period for:
Interest on deposits and other
borrowings $ 41308 $ 46061
Federal and state income taxes $ 16000 $ 17273
See accompanying notes to consolidated financial statements
- 5 -
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of June 30,
1994, the Consolidated Statements of Income for the six and three
month periods ended June 30, 1994 and 1993 and the Consolidated
Statements of Cash Flows for the six month periods ended June 30,
1994 and 1993 have been prepared by Valley National Bancorp
("Valley"), without audit. In the opinion of management, all
adjustments (which included only normal recurring adjustments)
necessary to present fairly Valley's financial position, results of
operations, and cash flows at June 30, 1994 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These consolidated
financial statements are to be read in conjunction with the
financial statements and notes thereto included in Valley's
December 31, 1993 Annual Report to Shareholders.
2. Earnings Per Share
All share and per share amounts have been restated to reflect the
10% stock dividend declared March 22, 1994 to shareholders of
record on April 15, 1994 and payable May 3, 1994.
- 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Earnings Summary
Valley National Bancorp's (Valley) net income for the three and six
month period ending June 30, 1994 was $13.5 million and $29.0
million, or $0.50 and $1.08 per share, respectively (the 1993 per
share amounts have been restated to give effect to a 10% stock
dividend declared March 22, 1994 to shareholders of record April
15, 1994 and payable May 3, 1994). This compares with $13.1
million and $27.3 million or $0.50 and $1.04 per share for the same
periods in 1993.
The increase in net income is largely attributable to an increase
in net interest income of $1.5 million and $4.2 million or 4.6% and
6.4% over the same periods in 1993. A reduction in the provision
for possible loan losses of $1.1 million and $1.7 million for the
three and six month periods ending June 30, 1994 as compared to the
same periods in 1993, was substantially offset by decreases in
securities gains, decreases in gains from the sale of mortgage
loans and decreases in mortgage servicing income. The annualized
return on average assets decreased to 1.68% from 1.72% while the
annualized return on average equity decreased to 21.0% from 23.4%,
for the six months ended June 30, 1994 and 1993, respectively.
Book value per share amounted to $10.12 at June 30, 1994 compared
with $9.24 per share at June 30, 1993.
Merger Activity
On July 5, 1994, Valley entered into a letter of intent to acquire
Rock Financial Corporation, holding company of Rock Bank. Rock
Bank, a commercial bank headquartered in North Plainfield, New
Jersey, with total assets at $190 million and five branches, is a
preferred SBA lender, which will introduce a new line of business
to Valley. A definitive merger agreement is expected to be signed
during August, 1994 and the merger is expected to take place by the
end of 1994 or early 1995 at the latest.
Net Interest Income
Net interest income on a fully tax equivalent basis ("FTE")
increased by $1.9 million and $4.8 million or 5.4% and
6.9%, respectively, for the quarter and six months ended June 30,
1994 compared to the same periods in 1993. The increase was due
primarily to the decrease in interest rates on interest bearing
deposit accounts and increased loan volume.
Average interest earning assets increased $244.1 million during the
six months ended June 30, 1994, or 8.1% over the 1993 amount for
the same period, which includes approximately $207.7 million from
the Peoples Bank, N.A. ("Peoples") merger. The average balance of
all investment securities for the six month period ended June 30,
1994, including those available for sale totalled $1.34 billion,
and includes approximately $47.5 million from Peoples. This amount
decreased by $62.0 million or 4.4% over the 1993 average balance to
fund new loans. Loan demand continued to increase, especially
commercial mortgage loans and various types of consumer loans
causing the average balance of all loans to increase by $301.6
million or 19.3% at June 30 1994 compared to June 30 1993,
including $139.3 million from Peoples.
The yield on loans decreased 60 basis points from June 30, 1993 to
June 30, 1994, offsetting the increase in volume of new loans.
Average interest-bearing liabilities grew 5.4% or $140.4 million
including $164.1 million from Peoples during the six months ended
June 30, 1994 over the prior year. Average savings deposit
balances increased $165.6 million or 11.4% including the $110.5
million from Peoples during the six months ended June 30, 1994 over
June 30, 1993, while average time deposits decreased $24.4 million
or 2.2% during the same period including the $53.6 million from
Peoples. Average demand deposits during 1994 continued to grow and
increased by $78.2 million or 23.6% over the 1993 six month
average balance, of which approximately $42.3 million was from the
Peoples merger.
The net interest margin decreased to 4.51% and 4.56% for the second
quarter and six month period ended June 30, 1993 from 4.65% and
4.61% for the same period in 1993 and was mainly the result of
changes in market interest rates. The yield on average earning
assets declined 45 basis points from 7.56% for the three months
ended June 30, 1993 to 7.11% for the three months ended June 30,
1994, while the cost of interest-bearing liabilities dropped 31
basis points, from 3.39% to 3.08% for the same periods. For the
six month period ended June 30, 1994 the yield on average earning
assets
- 7 -
declined 50 basis points from 7.61% to 7.11% over 1993, while the
cost of interest bearing liabilities dropped 43 basis points from
3.46% to 3.03% during the same period. The decrease in the net
interest margin of 5 basis points for the six months ended June 30,
1994 was offset by the increased amount of average earning assets
over average interest-bearing liabilities causing net interest
income to increase.
Non-Interest Income
Non-interest income continues to represent a considerable source of
income for Valley. Excluding gains on securities transactions,
total non-interest income amounted to $3.7 and $7.6 million for the
quarter and six months ended June 30, 1994 compared with $4.0 and
$8.0 million for the same period in 1993.
Service charges on deposit accounts increased $165 thousand or
12.6% and $399 thousand or 16.2% for the quarter and six months
ended June 30, 1994 over the comparable period in 1993. An
expanded customer base and the related volume of transactions
generated most of the increase to service charges.
Fees from mortgage servicing decreased by $72 thousand or 7.8% for
the second quarter ending June 30, 1994 compared to 1993, while
decreasing $482 thousand or 22.1% for the six months ended June 30,
1994 over the same 1993 period.
At June 30, 1994 VNB Mortgage Services, Inc. ("MSI") serviced a
total of $1.12 billion of loans, of which $494.0 million are
serviced for Valley National Bank ("VNB"). The portfolio declined
during the second quarter of 1994 as a result of payments, which
were partially offset by Valley's loan origination volume added to
the portfolio, causing the decline in mortgage servicing revenue.
Other income totalled $1.2 and $2.4 million, respectively, for the
quarter and six month periods ended June 30, 1994 compared with
$1.3 and $2.2 million for the same periods in 1993. The decrease
of 6.4% for the second quarter ended June 30, 1994 was mainly
caused by the recording of an unrealized loss on loans held for
sale of $271 thousand. There were no gains on the sale of loans
and $240 thousand of gains, during the quarter and six months
ending June 30, 1994 as compared to $318 thousand and $775 thousand
during the same period in 1993.
Net gains on securities transactions decreased $1.7 million and
$1.6 million for the quarter and six months ended June 30, 1994 to
$622 thousand and $4.0 million, respectively, compared with $2.3
million and $5.6 million, respectively, for the same periods in
1993.
Non-Interest Expense
Non-interest expense totalled $18.0 and $35.8 million for the
quarter and six months ending June 30, 1994, $636 thousand or 3.7%
and $2.4 million or 7.1% above the same periods in 1993. The
largest component of non-interest expense is salaries and employee
benefit expense which totalled $8.6 million and $17.2 million for
the quarter and six months ended June 30, 1994 compared to $7.9
million and $15.5 million in 1993, an increase of $745 thousand or
9.4% and $1.7 million or 10.7% over the same 1993 periods. This
increase was attributable to increased salaries mostly from
expanded operations and the increased cost of employee benefits.
Occupancy and equipment expense increased by $457 thousand or 19.9%
and $888 thousand or 19.1% for the quarter and six months ended
June 30, 1994 over the same periods in 1993. The increase
represents additional branches and related costs incurred as a
result of the merger with Peoples in 1993.
Amortization of intangible assets decreased by $798 thousand or
56.0% and $871 or 36.6% for the quarter and six months ended June
30, 1994 over the same periods in 1993. The majority of this
decrease represents the decreased amortization of purchased
mortgage servicing rights due to the slow down of pre-payments
during 1994.
Income Taxes
Income tax expense as a percentage of pre-tax income decreased to
33.8% for the six months ending June 30, 1994 compared to 34.4% for
the same period in 1993. During the second quarter of 1994 income
tax expense as a percentage of pre-tax income decreased to 33.2%
from 35.2% partly due to a lower tax rate on a new investment
subsidiary and the elimination in the State of New Jersey corporate
income tax surcharge of .375%.
- 8 -
FUNDS MANAGEMENT
Interest Rate Sensitivity
Managing net interest margin continues to be the single most
important factor in maximizing earnings. Through its
Asset/Liability Policy, Valley strives to maintain a consistent net
interest rate differential by managing the sensitivity and
repricing of its assets and liabilities to interest rate
fluctuations.
Valley seeks to achieve a sufficient level of rate sensitive assets
to equal its rate sensitive liabilities, and analyzes the
maturity and repricing of earning assets and sources of funds at
various intervals. The level by which repricing earning
assets exceed or are exceeded by repricing sources of funds is
expressed as a ratio and dollar value (interest sensitivity
gap) and is used as a measure of interest rate risk.
At June 30, 1994, rate sensitive liabilities exceeded rate
sensitive assets at the 90 day interval and resulted in a negative
gap of $163.8 million or a ratio of .87:1. Rate sensitive
liabilities exceeded rate sensitive assets at the 91 to 365 day
interval by $250.3 million or a ratio of .37:1 and resulted in a
negative gap. The total negative gap repricing within 365
days as of June 30, 1994 is $414.1 million or .75:1. In view of
the present economic climate, management does not view
these amounts as presenting an unusually high risk potential,
although no assurances can be given that Valley is not at
risk from rate increase or decreases.
The above gap results take into account repricing and maturities of
assets and liabilities, but fails to consider the interest
rate sensitivities of those asset and liability accounts.
Management has prepared for its use an income simulation
technique to project future net interest income streams in light of
the current gap position. Management has also prepared for its use
alternative scenarios to measure levels of net interest income
associated with various changes in interest rates. According to
this computer model, an interest rate increase of 300 basis points
or a decrease of 100 basis points had a minimal impact on Valley's
net interest income. Management cannot provide any assurance about
the actual effects of changes in interest rates on Valley's net
interest income.
Liquidity
Liquidity measures the ability to satisfy current and future cash
flow needs as they become due. Maintaining a level of
liquid funds through asset-liability management seeks to ensure
that these needs are met at a reasonable cost. On the asset
side, liquid funds are maintained in the form of cash and due from
banks, federal funds sold, investment securities maturing in one
year or less and securities available for sale. At June 30, 1994,
liquid assets amounted to $687.9 million as compared to $751.7
million at December 31, 1993. This represents 20.8% and 23.0% of
earning assets and 19.7% and 22.0% of total assets at June 30, 1994
and year end 1993, respectively.
On the liability side, the primary source of funds available to
meet liquidity needs is Valley's core deposit base, which
generally excludes certificates of deposit over $100 thousand.
Core deposits averaged $2.51 billion and $2.45 billion
at June 30, 1994 and year end 1993, respectively, representing
77.4% and 78.9% of average earning assets. Short term
borrowings and large dollar certificates of deposit, generally
those over $100 thousand, are used as supplemental funding
sources during periods when growth in the core deposit base does
not keep pace with that of earning assets. Additional
liquidity is derived from scheduled loan and investment payments of
principal and interest, as well as prepayments received. During
the quarter ended June 30, 1994, proceeds from the sales of
investment securities available for sale were $26.8 million,
proceeds from the sale of investment securities held to maturity
were $41.1 million sold within the three months of maturity and
proceeds of $79.2 million were generated from investment maturities
from the portfolio and available for sale categories. Purchases of
investment securities available for sale were $38.2 million and
purchases for the portfolio were $50.2 million during the same
quarter of 1994. Short term borrowings and certificates of deposit
over $100 thousand amounted to $222.5 million and $178.4 million,
on average, at June 30, 1994 and December 31, 1993, respectively.
- 9 -
The parent company's cash requirements consist primarily of
dividends to shareholders. This cash need is routinely
satisfied by dividends collected from its subsidiary bank.
Projected cash flows from this source is expected to be adequate
to pay dividends, given the current strong capital levels and
current profitable operations of its subsidiary.
Investment Securities
Effective January 1, 1994, Valley adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investment in Debt and Equity Securities". The financial impact of
adoption represented an addition to Shareholders' Equity of $4.5
million, net of taxes. At June 30, 1994, the unrealized loss, net
of deferred taxes, resulted in a decrease to Shareholders' Equity
of $9.1 million. As of June 30, 1994 Valley had $430.2 million
of securities available for sale compared with $441.5 million at
December 31, 1993. As of January 1, 1994, those securities are
recorded at fair value with unrealized gains and losses excluded
from earnings and reported as a separate component of shareholder's
equity.
Total investment securities, including securities classified as
held to maturity and available for sale, decreased $77.2 million
from year-end 1993 to the second quarter of 1994 to $1.30 billion.
This decrease was used to fund the increase in new loans.
Loan Portfolio
Residential mortgage and home equity loans, including residential
mortgages held for sale increased by 3.2% or $19.4 million to a
total of $633.8 million at June 30, 1994 since December 31, 1993
and represents 32.3% of the loan portfolio. The volume of
residential mortgage loan applications began to decline during the
quarter as interest rates increased. Installment loans, including
predominantly automobile and credit card loans, totalled $580.0
million at June 30, 1994, increasing by $51.4 million over the
balance at December 31, 1993 or 9.7% and representing 29.6% of the
loan portfolio. Commercial mortgages increased 15.5% or $59.9
million from December 31, 1993 to June 30, 1994, partially as a
result of refinancing activity.
It is expected that the increase in volume of installment and
commercial mortgage loans will continue into the third quarter
of 1994, while residential mortgage loan volume declined due to
higher interest rates causing the recent slow-down in
refinancing activity.
Non-Performing Assets
Non-performing assets include non-accrual loans, other real estate
owned (OREO) and loans past due in excess of 90 days as to the
collection of principal or interest payments. Non-performing
assets were $30.1 million or 1.5% of loans, net of unearned income
at June 30, 1994, compared with $30.2 million, or 1.67% of loans
net of unearned income at December 31, 1993 and $36.0 million, or
2.27% of loans at June 30, 1993. During the six months ended June
30, 1994 one loan became 90 days past due, and subsequently
non-accrual, adding $7.7 million in non-performing assets while a
series of the loans were taken out of the category.
In May of 1993, FASB issued Statement of Financial Accounting
Standard No. 114, "Accounting by Creditors for Impairment of a
Loan" which applied to financial statements for fiscal years
beginning after December 15, 1994. This Statement requires that
impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price
or at the fair value of the collateral if the loan is collateral
dependent. Valley has not yet determined the impact of this
statement.
Asset Quality and Risk Elements
The level of the allowance is the result of an ongoing analysis by
management and Valley's Board of Directors. This analysis attempts
to take into account various data so as to assess the level of the
allowance. Emphasis is placed on the current economic climate and
the condition of the real estate market in the Northern New Jersey
area. Management addressed these current economic conditions and
applied that information to changes in the composition of the loan
- 10 -
portfolio. The level of non-performing assets as well as the level
of the allowance, coupled with the continued recovery of the
economy was responsible for the decision to decrease the provision
from $3.5 million during the first six months of 1993 to $1.8
million in the first six months of 1994.
Valley's level of the loan loss allowance has increased by $538
thousand since year end 1993. At June 30, 1994 the allowance for
loan losses amounted to $35.7 million or 1.8% of loans, including
loans held for sale, net of unearned income, as compared to $35.2
million or 1.9% at year end 1993 and was 119.0% of non-performing
assets at June 30, 1994.
The allowance is adjusted by provisions charged against income and
loans charged-off, net of recoveries. The provision for possible
loan losses amounted to $900 thousand and $1.8 million for the
quarter and six months ended June 30, 1994 compared to $2.0 million
and $3.5 million for the same periods in 1993. Net loan
charge-offs were $1.3 million for the six months ended June 30,
1994 compared with $1.9 million for the same period in 1993. The
ratio of net charge-offs to average loans amounted to 0.14% and
0.25%, respectively, at June 30, 1994 and 1993.
Capital Adequacy
A significant measure of the strength of a financial institution is
a strong capital base which can expand in close proportion to asset
growth. It is the capital base which provides the primary risk
insurance to depositors. Also, it is an important consideration to
federal regulators, analysts of Valley's common stock, as well as
others in the marketplace. At June 30, 1994, shareholders' equity
totalled $273.4 million or 7.81% of total assets, compared with
$264.4 million or 7.75% at year-end 1993. Valley has achieved
steady internal capital generation throughout the past five years.
Risk-based guidelines define a two-tier capital framework. Tier 1
capital consists of common shareholders' equity excluding SFAS 115
net unrealized gains or losses less disallowed intangibles, while
total Tier 1 and Tier 2 capital consists of Tier 1 capital and the
allowance for loan losses up to 1.25% of risk-adjusted assets.
Risk-adjusted assets are determined by assigning various levels of
risk to different categories of assets and off-balance sheet
activities.
Valley's capital position at June 30, 1994 under risk-based capital
guidelines was $277.3 million, or 13.97% of risk-weighted assets,
for Tier 1 capital and $302.2 million, or 15.23% for total Tier 1
and Tier 2 capital. The comparable ratios at December 31, 1993
were 13.93% for Tier 1 capital 15.18% for total Tier 1 and Tier 2
capital. Valley's ratios at June 30, 1994 are above the risk-based
capital standards, which require all bank holding companies to have
Tier 1 capital of at least 4% and total Tier 1 and Tier 2 capital
of 8%.
The Federal Reserve Board requires each bank holding company to
maintain a minimum leverage ratio of 3.0% (Tier 1 capital to
average total assets). The minimum 3.0% leverage requirement
applies only to top-rated banking organizations without any
operating, financial or supervisory deficiencies. Other
organizations will be expected to hold an additional capital
cushion of at least 100 to 200 basis points of Tier 1 capital. In
all cases, banking organizations should hold capital commensurate
with the level and nature of all the risks to which they are
exposed. At June 30, 1994 and December 31, 1993, Valley was in
compliance with the leverage requirement having a Tier 1 leverage
ratio of 7.99% and 7.62%, respectively.
VNB is also subject to similar but separate capital adequacy
guidelines. VNB is subject to risk-based capital rules and
leverage rules issued by the Comptroller of the Currency. As of
June 30, 1994, VNB's total Tier 1 and Tier 2 capital ratio was
13.88% and its leverage ratio was 7.17%.
The primary source of capital growth is through retention of
earnings. Valley's rate of earnings retention, derived by
dividing undistributed earnings by net income was 55.6% for the six
months ended June 30, 1994 compared to 63.3% for the six months
ended June 30, 1993. Cash dividends for the first six months of
1994 amounted to $.50 per share, equivalent to a dividend payout
ratio of 44.4%, up from the 36.7% for the same period in 1993.
Valley's Board of Directors continues to believe that cash
dividends are an important component of shareholder value and that
at its current level of performance and capital, Valley expects to
continue its current dividend policy of a quarterly distribution of
earnings to its shareholders.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VALLEY NATIONAL BANCORP
(Registrant)
Date: August 15, 1994 /s/Peter Southway
PETER SOUTHWAY
PRESIDENT AND CHIEF
OPERATING OFFICER
Date: August 15, 1994 /s/Alan D. Eskow
ALAN D. ESKOW
SENIOR VICE PRESIDENT
FINANCIAL ADMINISTRATION
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