UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
-----------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2000
[ ] 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.)
1455 Valley Road, Wayne, New Jersey 07474-0558
(Address of principal executive offices)
973-305-8800
(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 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 X 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 60,161,422 shares were outstanding as
of August 8, 2000.
<PAGE>
TABLE OF CONTENTS
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (Unaudited)
Six and Three Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
<PAGE>
PART I
Item 1. Financial Statements
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
Assets
Cash and due from banks $165,344 161,561
Federal funds sold 37,000 123,000
Investment securities held to maturity,
fair value of $313,289
and $318,329 in 2000 and 1999, respectively 358,489 351,501
Investment securities available for sale 941,093 1,005,419
Loans 4,618,198 4,542,567
Loans held for sale 11,439 12,185
Total loans 4,629,637 4,554,752
Less: allowance for loan losses (55,150) (55,120)
Net loans 4,574,487 4,499,632
Premises and equipment, net 84,931 84,790
Accrued interest receivable 36,158 35,504
Other assets 95,227 98,987
Total assets $6,292,729 $6,360,394
Liabilities
Deposits:
Non-interest bearing $ 972,109 $ 931,016
Interest bearing:
Savings 1,978,216 2,018,530
Time 2,067,892 2,101,709
Total deposits 5,018,217 5,051,255
Short-term borrowings 114,710 129,065
Long-term debt 591,845 564,881
Accrued expenses and other liabilities 47,392 61,693
Total liabilities 5,772,164 5,806,894
Shareholders' Equity
Preferred stock, no par value,
authorized 30,000,000 shares;
none issued - -
Common stock, no par value, authorized
108,527,344 Shares; issued 60,615,977
shares in 2000 and 60,621,040 shares
in 1999 25,956 25,943
Surplus 325,688 325,147
Retained earnings 193,534 244,605
Unallocated common stock held by
employee benefit plan (869) (965)
Accumulated other comprehensive loss (18,703) (16,733)
525,606 577,997
Treasury stock, at cost (182,746 shares
in 2000 and 927,750 shares in 1999) (5,041) (24,497)
Total shareholders' equity 520,565 553,500
Total liabilities and
shareholders' equity $6,292,729 $6,360,394
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data) Six Months Three Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $183,024 $165,138 $ 92,461 $83,316
Interest and dividends on investment
securities:
Taxable 37,179 36,722 18,435 18,626
Tax-exempt 3,681 3,587 1,865 1,843
Dividends 1,431 1,174 746 580
Interest on federal funds sold
and other short-term investments 1,564 2,318 900 1,429
Total interest income 226,879 208,939 114,407 105,794
Interest Expense
Interest on deposits:
Savings deposits 24,183 20,103 12,110 10,097
Time deposits 54,081 50,454 27,709 25,538
Interest on short-term borrowings 3,011 1,246 1,752 667
Interest on long-term debt 17,372 9,295 8,925 5,235
Total interest expense 98,647 81,098 50,496 41,537
Net Interest Income 128,232 127,841 63,911 64,257
Provision for loan losses 3,700 3,775 2,200 1,775
Net Interest Income after Provision
for Loan Losses 124,532 124,066 61,711 62,482
Non-Interest Income
Trust and investment services 1,503 1,096 783 554
Service charges on deposit accounts 7,960 7,091 4,334 3,572
Gains on securities transactions, net - 2,431 - 456
Fees from loan servicing 5,512 3,853 2,782 1,921
Credit card fee income 4,053 4,199 2,103 2,208
Gains on sales of loans, net 1,349 1,448 584 785
Other 3,888 4,404 2,049 2,303
Total non-interest income 24,265 24,522 12,635 11,799
Non-Interest Expense
Salary expense 30,640 28,465 15,417 14,047
Employee benefit expense 6,579 6,311 3,449 3,171
FDIC insurance premiums 525 624 262 311
Occupancy and equipment expense 9,940 9,796 4,741 5,054
Credit card expense 2,575 2,646 1,343 1,332
Amortization of intangible assets 3,579 2,142 1,920 818
Advertising 2,212 2,234 1,288 1,396
Merger-related charges - 3,005 - 3,005
Other 12,174 12,278 6,217 6,102
Total non-interest expense 68,224 67,501 34,637 35,236
Income Before Income Taxes 80,573 81,087 39,709 39,045
Income tax expense 26,970 29,201 13,049 13,648
Net Income $53,603 $51,886 $26,660 $25,397
Earnings Per Share:
Basic $ 0.88 $ 0.81 $ 0.44 $ 0.40
Diluted $ 0.87 $ 0.80 $ 0.44 $ 0.39
Weighted Average Number of Shares
Outstanding:
Basic 61,206,797 64,243,687 60,491,929 63,930.027
Diluted 61,779,558 64,905,541 61,111,320 64,636,698
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended
June 30,
2000 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 53,603 $ 51,886
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 6,862 5,838
Amortization of compensation costs
pursuant to long-term stock incentive
plan 616 440
Provision for loan losses 3,700 3,775
Net amortization of premiums and
accretion of discounts 1,131 2,253
Gains on securities transactions, net - (2,431)
Proceeds from sales of loans 25,983 57,675
Gain on sales of loans, net (1,349) (1,448)
Proceeds from recoveries of
previously charged-off loans 1,823 1,884
Net decrease(increase) in accrued
interest receivable and other assets 134 (9,914)
Net (decrease)increase in accrued
expenses and other liabilities (13,402) 405
Net cash provided by operating
activities 79,101 110,363
Cash flows from investing activities:
Purchases and originations of
mortgage servicing rights (782) (4,212)
Proceeds from sales of investment
securities available for sale - 8,497
Proceeds from maturing investment
securities available for sale 80,419 235,416
Purchases of investment securities
available for sale (19,469) (341,697)
Purchases of investment securities
held to maturity (20,150) (119,055)
Proceeds from maturing investment
securities held to maturity 12,700 27,764
Proceeds form sales of trading
account securities -- 1,415
Net decrease in federal funds sold
and other short-term investments 86,000 108,100
Net increase in loans made to
customers (105,012) (222,710)
Purchases of premises and equipment,
net of sales (3,326) (3,058)
Net cash provided by (used in)
investing activities 30,380 (309,540)
Cash flows from financing activities:
Net (decrease)increase in deposits (33,038) 75,326
Net (decrease)increase in short-term
borrowings (14,355) 33,554
Advances of long-term debt 30,000 183,000
Repayments of long-term debt (3,036) (31,033)
Dividends paid to common shareholders (30,974) (29,276)
Addition of common shares to treasury (55,309) (46,036)
Common stock issued, net of
cancellations 1,014 4,441
Net cash (used in) provided by
financing activities (105,698) 189,976
Net increase (decrease) in cash and
cash equivalents 3,783 (9,201)
Cash and cash equivalents at January 1 161,561 185,921
Cash and cash equivalents at June 30 165,344 176,720
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest on deposits and borrowings $ 98,699 $ 80,585
Cash paid during the period for
federal and state income taxes 28,350 28,179
Transfer of Ramapo securities from
held to maturity to available for sale -- 42,387
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of June
30, 2000 and December 31, 1999, the Consolidated Statements of
Income for the six and three month periods ended June 30, 2000
and 1999 and the Consolidated Statements of Cash Flows for the
six month periods ended June 30, 2000 and 1999 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, 2000 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, 1999 Annual Report to Shareholders.
Certain prior period amounts have been reclassified to conform
to 2000 financial presentations.
2. Earnings Per Share
Earnings per share ("EPS") amounts and weighted average shares
outstanding have been restated to reflect the 5 percent stock
dividend declared April 6, 2000 to Shareholders of record on May
5, 2000 and issued May 16, 2000.
For Valley, the numerator of both the Basic and Diluted EPS is
equivalent to net income. The weighted average number of shares
outstanding used in the denominator for Diluted EPS is increased
over the denominator used for Basic EPS by the effect of
potentially dilutive common stock equivalents utilizing the
treasury stock method. For Valley, common stock equivalents are
common stock options outstanding.
<PAGE>
The following table shows the calculation of both Basic and
Diluted earnings per share for the six and three months ended
June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
(in thousands, except for share data)
<S> <C> <C> <C> <C>
Net income $ 53,603 $ 51,886 $ 26,660 $25,397
Basic weighted-average
number of
shares outstanding 61,206,797 64,243,687 60,491,929 63,930,027
Plus: Common stock
equivalents 572,761 661,854 619,391 706,671
Diluted weighted-
average number
of shares outstanding 61,779,558 64,905,541 61,111,320 64,636,698
Earnings per share:
Basic $ 0.88 $ 0.81 $ 0.44 $ 0.40
Diluted 0.87 0.80 0.44 0.39
</TABLE>
Common stock equivalents for the six and three months ended June
30, 2000 exclude 488 thousand and 255 thousand common stock
options, respectively because the exercise prices exceed the
average market value.
3. Recent Developments
During the second quarter, Valley announced that it had entered
into a definitive contract to acquire Hallmark Capital
Management, Inc. ("Hallmark"), a Fairfield, N J-based investment
management firm with $190 million of assets under management.
The transaction closed July 6, 2000. Under the terms of the
agreement, Valley will continue Hallmark's operations as a
wholly-owned subsidiary of Valley National Bank.
Also during the second quarter Valley announced that its Board of
Directors authorized the Company to purchase up to 3,000,000
shares of the Company's outstanding common stock. At June 30,
2000, 8,170 shares had been repurchased under this program.
Purchases may be made from time to time in the open market or in
privately negotiated transactions at prices not exceeding
prevailing market prices. Reacquired shares are held in treasury
and are expected to be used for employee benefit programs, stock
dividends and other corporate purposes. This is in addition to
the 3,000,000 common shares authorized by the Board of Directors
in December 1999, of which all shares have been purchased. The
majority of these shares were reissued for the stock dividend
which was issued May 16, 2000.
<PAGE>
4. Accumulated Other Comprehensive Income (Loss)
Valley's accumulated other comprehensive income (loss) consists
of foreign currency translation adjustments and unrealized gains
(losses) on securities. The following table shows the related
tax effects on each component of accumulated other comprehensive
income for the six and three months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
(in thousands)
<S> <C> <C> <C> <C>
Net income $53,603 $51,886
Accumulated other comprehensive
income, net of tax:
Foreign currency translation
adjustments (173) 349
Unrealized losses on securities:
Unrealized holding losses
arising during period $(1,797) $(8,733)
Less: reclassification
adjustment for gains realized
in net income -- 1,544
Net unrealized losses (1,797) (7,189)
Other comprehensive loss (1,970) (6,840)
Accumulated other comprehensive
income $51,633 $ 45,046
Three Months Three Months
Ended Ended
June 30, 2000 June 30, 1999
(in thousands)
Net income $26,660 $25,397
Accumulated other comprehensive
income, net of tax:
Foreign currency translation (160) 205
adjustments
Unrealized gains(losses)on
securities:
Unrealized holding gains
(losses) arising during $1,070 $(4,836)
period
Less: reclassification
adjustment for gains realized
in net income -- 290
Net unrealized gains (losses) 1,070 (4,546)
Other comprehensive income (loss) 910 (4,341)
Accumulated other comprehensive
income $27,570 $21,056
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
This Form 10-Q, both in the MD & A and elsewhere, contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are
not historical facts and include expressions about management's
confidence and strategies and management's expectations about
new and existing programs and products, relationships,
opportunities, technology and market conditions. These
statements may be identified by an "asterisk" (*) or such
forward-looking terminology as "expect," "look," "believe,"
"anticipate," "may," "will," or similar statements or variations
of such terms. Such forward-looking statements involve certain
risks and uncertainties. These include, but are not limited to,
the direction of interest rates, continued levels of loan
quality and origination volume, continued relationships with
major customers including sources for loans, as well as the
effects of economic conditions and legal and regulatory barriers
and structure. Actual results may differ materially from such
forward-looking statements. Valley assumes no obligation for
updating any such forward-looking statement at any time.
Earnings Summary
Net income for the six months ended June 30, 2000 was $53.6
million, or $0.87 per diluted share. These results compare with
net income of $51.9 million, or $0.80 per diluted share for the
same period in 1999 (1999 earnings per share amounts have been
restated to give effect to a 5 percent stock dividend issued May
16, 2000). The annualized return on average equity increased to
20.25 percent from 17.60 percent, while the annualized return on
average assets decreased to 1.72 percent from 1.74 percent, for
the six months ended June 30, 2000 and 1999, respectively.
Net income was $26.7 million or $0.44 per diluted share for the
three month period ended June 30, 2000, compared with $25.4
million or $0.39 per diluted share for the same period in 1999.
The six and three month net income and net income per diluted
share for 1999 include a pre tax merger -related charge of $3.0
million.
Net Interest Income
Net interest income continues to be the largest source of
Valley's operating income. Net interest income on a tax
equivalent basis increased to $130.5 million compared with
$130.0 million for the six months ended June 30, 1999. The
increase in net interest income is due to higher average
balances of total interest earning assets, primarily loans,
combined with higher average interest rates for these interest
earning assets. This was offset by an increase in average rates
paid on both savings and time deposits, offset by slightly lower
average balances in both of these categories. Net interest
<PAGE>
income was also negatively impacted by the increase in the
average balance and the rate associated with short-term
borrowings and long-term debt and the use of funds for the
repurchase of the Valley common stock. The net interest margin
decreased to 4.36 percent for the six months ended June 30, 2000
compared with 4.56 percent for the same period in 1999.
Assuming a rising interest rate environment, the net interest
margin is expected to continue to decline.* While loans have
been growing, competition for loans has caused rates on new
loans and total interest earning assets to increase at a slower
pace than rates on interest bearing liabilities.
Average interest earning assets increased $283.1 million or 5.0
percent for the six months ended June 30, 2000 over the same
period in 1999. This was mainly the result of the increase in
average balance of loans of $381.8 million or 9.1 percent offset
partly by the decrease in average balance of taxable investments
of $61.1 million or 4.8 percent and federal funds sold and other
short-term investments of $41.3 million or 44.2 percent.
Average interest bearing liabilities for the six months ended
June 30, 2000 increased $268.6 million or 6.0 percent from the
same period in 1999. Average savings deposits decreased $33.1
million or 1.6 percent and average time deposits decreased $4.0
million. Average short-term borrowings increased $52.6 million
or 86.6 percent and long-term debt, which includes primarily
FHLB advances, increased $253.0 million, or 77.5 percent.
Average demand deposits increased $75.5 million or 8.7 percent
over 1999 balances.
Average interest rates, in all categories of interest earning
assets, increased during the six months ended June 30, 2000
compared with the six months ended June 30, 1999. The average
interest rate for loans increased 12 basis points to 8.03
percent. Average interest rates on total interest earning
assets increased 25 basis points to 7.65 percent. Average
interest rates on deposits increased by 41 basis points to 3.86
percent. Average interest rates also increased on total
interest bearing liabilities by 54 basis points to 4.16 percent
from 3.62 percent. Although both interest earning assets and
interest bearing liabilities increased relatively at the same
volume, the decline in the net interest margin from 4.56 percent
for the six months ended June 30, 1999 to 4.36 percent in 2000
resulted from interest rates on total interest bearing
liabilities increasing at a faster pace than interest rates on
total interest earning assets. Additionally, the use of capital
to purchase treasury shares during the quarter and six months
ended June 30, 2000 contributed to the decline in the net
interest margin.
Net interest income on a tax equivalent basis decreased to $65.0
million from $65.4 million for the three months ended June 30,
2000 compared with the same period in 1999. This can be
attributed to an increase of $206.9 million in average balance
and an increase of 32 basis points in the rate earned on total
interest earning assets. These increases were offset by a
$198.0 million increase in average balance and an increase of 60
basis points in the rate paid on total interest bearing
liabilities. The net interest margin decreased to 4.33 percent
for the three months ended June 30, 2000 compared with 4.51
percent for the same period in 1999 as a result of the increase
of 32 basis points in the rate earned on average interest
earning assets offset by the greater increase of 60 basis points
in the rate paid on average interest bearing liabilities.
<PAGE>
The following table reflects the components of net interest
income for each of the six months ended June 30, 2000 and 1999.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Six Months Ended June 30, 1999
Average Average Average Average
Balance Interest Rate Balance Interest Rate
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest
earning
assets
Loans (1)(2) $4,564,214 $183,262 8.03% $4,182,369 $ 165,358 7.91%
Taxable
investments(3)1,207,762 38,610 6.39 1,268,900 37,896 5.97
Tax-exempt
investments
(1)(3) 166,289 5,663 6.81 162,580 5,518 6.79
Federal
funds sold
and other
short-term
investments 52,029 1,564 6.01 93,317 2,318 4.97
Total
interest
earning
assets 5,990,294 $229,099 7.65 5,707,166 $ 211,090 7.40
Allowance
for loan
losses (55,790) (54,929)
Cash and due
from banks 143,352 148,703
Other assets 178,276 174,173
Unrealized
(loss) gain
on securities
available
or sale (30,377) 2,590
Total assets $6,225,755 $5,977,703
Liabilities and
Shareholders'
Equity
Interest
bearing
liabilities
Savings
deposits $1,999,166 $ 24,183 2.42% $2,032,227 $ 20,103 1.98
Time
deposits 2,054,301 54,081 5.27 2,058,298 50,454 4.90
Total
interest
bearing
deposits 4,053,467 78,264 3.86 4,090,525 70,557 3.45
Short-term
borrowings 113,287 3,011 5.32 60,700 1,246 4.11
Long-term
debt 579,703 17,372 5.99 326,661 9,295 5.69
Total
interest
bearing
liabilities 4,746,457 98,647 4.16 4,477,886 81,098 3.62
Demand
deposits 945,093 869,578
Other
liabilities 4,828 40,703
Shareholders'
equity 529,377 589,536
Total
liabilities
and
shareholders'
equity $6,225,755 $5,977,703
Net interest
income (tax)
equivalent
basis) 130,452 129,992
Tax
equivalent
adjustment (2,220) (2,151)
Net interest
income 128,232 127,841
Net interest
rate
differential 3.49% 3.78%
Net interest
margin (4) 4.36% 4.56
</TABLE>
(1 ) Interest income is presented on a tax equivalent basis using a 35
percent tax rate.
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) The yield for securities that are classified as available for
sale is based on the average historical amortized cost.
(4) Net interest income on a tax equivalent basis as a percentage of
earning assets.
<PAGE>
The following table reflects the components of net interest
income for each of the three months ended June 30, 2000 and
1999.
<TABLE>
<CAPTION>
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Three Months Ended June 30, 2000 Three Months Ended June 30, 1999
Average Average Average Average
Balance Interest Rate Balance Interest Rate
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest
earning
assets
Loans(1)(2)$4,584,696 $92,579,696 8.08% $4,225,243 $83,425 7.90%
Taxable
investments
(3) 1,192,422 19,181 6.43 1,290,515 19,206 5.95
Tax-exempt
investments
(1)(3) 167,853 2,869 6.84 168,279 2,841 6.75
Federal
funds sold
and other
short-term
investments 57,185 900 6.30 111,196 1,429 5.14
Total
interest
earning
assets 6,002,156 $115,529 7.70 5,795,233 $106,901 7.38%
Allowance
for loan
losses (55,889) (54,323)
Cash and due
from
banks 140,546 147,557
Other assets 180,744 171,528
Unrealized
loss on
securities
available
for sale (31,054) (541)
Total
assets $6,236,503 $6,059,454
Liabilities
and
Shareholders'
Equity
Interest
bearing
Liabilities
Savings
deposits $1,993,932 $12,110 2.43% $2,036,849 $10,097 1.98%
Time
deposits 2,047,344 27,709 5.41 2,093,593 25,538 4.88
Total
interest
bearing
deposits 4,041,276 39,819 3.94 4,130,442 35,635 3.45
Short-term
borrowings 125,077 1,752 5.60 64,321 667 4.15
Long-term
debt 592,858 8,925 6.02 366,437 5,235 5.71
Total
interest
bearing
Liabilities 4,759,211 50,496 4.24 4,561,200 41,537 3.64
Demand
deposits 956,979 876,182
Other
liabilities 3,782 37,802
Shareholders'
equity 516,531 584,270
Total
liabilities
and
shareholders'
equity $6,236,503 $6,059,454
Net interest
income
(tax
equivalent
basis) 65,033 65,364
Tax
equivalent
Adjustment (1,122) (1,107)
Net interest
income $63,911 $64,257
Net interest
rate
Differential 3.46% 3.74%
Net interest
margin (4) 4.33% 4.51%
</TABLE>
(1 ) Interest income is presented on a tax equivalent basis using a 35
percent tax rate.
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) The yield for securities that are classified as available for
sale is based on the average historical amortized cost.
(4) Net interest income on a tax equivalent basis as a percentage of
earning assets.
<PAGE>
The following table demonstrates the relative impact on net
interest income of changes in volume of interest earning assets
and interest bearing liabilities and changes in rates earned and
paid by Valley on such assets and liabilities.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
Six Months ended June 30, Three Months ended June 30,
2000 Compared to 1999 2000 Compared to 1999
Increase(Decrease)(2) Increase(Decrease)(2)
Interest Volume Rate Interest Volume Rate
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans (1) $ 17,904 $15,298 $ 2,606 $ 9,154 $7,224 $ 1,930
Taxable
investments 714 (1,878) 2,592 (25) (1,517) 1,492
Tax-exempt
investments(1) 145 126 19 28 (7) 35
Federal funds
sold and
other short-
term
investments (754) (1,172) 418 (529) (801) 272
18,009 12,374 5,635 8,628 4,899 3,729
Interest expense:
Savings deposits 4,080 (332) 4,412 2,013 (217) 2,230
Time deposits 3,627 (98) 3,725 2,171 (575) 2,746
Short-term
borrowings 1,765 1,317 448 1,085 791 294
Long-term debt 8,077 7,558 519 3,690 3,395 295
17,549 8,445 9,104 8,959 3,394 5,565
Net interest
income
(tax equivalent
basis) 460 3,929 (3,469) (331) 1,505 (1,836)
</TABLE>
(1) Interest income is adjusted to a tax equivalent basis using a 35
percent tax rate.
(2) Variances resulting from a combination of changes in volume and rates
are allocated to the categories in proportion to the absolute dollar
amounts of the change in each category.
<PAGE>
Non-Interest Income
The following table presents the components of non-interest
income for the six and three months ended June 30, 2000 and
1999.
NON-INTEREST INCOME
Six Months ended June 30, Three Months ended June 30,
2000 1999 2000 1999
(in thousands)
Trust and investment
services $ 1,503 $ 1,096 $ 783 $ 554
Service charges on
deposit accounts 7,960 7,091 4,334 3,572
Gains on securities
transactions, net -- 2,431 -- 456
Fees from loan
servicing 5,512 3,853 2,782 1,921
Credit card fee income 4,053 4,199 2,103 2,208
Gains on sales of
loans, net 1,349 1,448 584 785
Other 3,888 4,404 2,049 2,303
Total non-interest
income $ 24,265 $24,522 $12,635 $11,799
Non-interest income continues to represent a considerable source
of income for Valley. Total non-interest income amounted to
$24.3 million for the six months ended June 30, 2000 while the
comparable amount for the prior year period, excluding security
gains, was $22.1 million. For the quarter ended June 30, 2000
total non-interest income excluding security gains, was $12.6
million compared with $11.3 million for the quarter ended June
30, 1999.
Trust and investment services includes income from trust
operations, brokerage commissions, and asset management fees.
Trust and investment services income increased $407 thousand or
37.1 percent for the six months ended June 30, 2000 from the
same period in 1999 and $229 thousand for the quarter.
Additional fee income to the operations of Valley resulted
primarily from the July 30, 1999 acquisition of New Century
Asset Management, Inc. ("New Century"), a NJ-based money
manager. The transaction was accounted for as a purchase.
During the second quarter of 2000, Valley announced that it had
entered into a definitive contract to acquire Hallmark Capital
Management, Inc. ("Hallmark"), a Fairfield, N J-based investment
management firm with $190 million of assets under management.
The transaction closed July 6, 2000 and was accounted for as a
purchase. Under the terms of the agreement, Valley will
continue Hallmark's operations as a wholly-owned subsidiary of
Valley National Bank. The generation of this fee based business
is expected to contribute additional fee income to the
operations of Valley beginning in the third quarter of 2000.*
<PAGE>
Service charges on deposit accounts increased $869 thousand or
12.3 percent from $7.1 million for the six months ended June 30,
1999 to $8.0 million for the same period in 2000 and increased
$762 thousand from $3.6 million for the quarter ended June 30,
1999 to $4.3 million for the quarter ended June 30, 2000. A
majority of this increase is due to the implementation of new
service fees and increased emphasis placed on collection efforts
which occurred during the second quarter of 2000.
Included in fees from loan servicing are fees for servicing
residential mortgage loans and SBA loans. Fees from loan
servicing increased by 43.1 percent from $3.9 million for the
six months ended June 30, 1999 to $5.5 million for the six
months ended June 30, 2000 due to an increase in the size of the
servicing portfolio. The increase in the servicing portfolio
was due mainly to the acquisition of servicing of several
residential mortgage portfolios with an unpaid principal balance
of approximately $668.2 million, which were acquired at the end
of 1999. For the three months ended June 30, 2000 fees from
loan servicing were $2.8 million, an increase of $861 thousand
or 44.8% percent form the same period in 1999.
Other non-interest income decreased $516 thousand to $3.9
million for the six months ended June 30, 2000 compared with
$4.4 million for the six months ended June 30, 1999. This
decrease is primarily attributable to the gain of $399 thousand
realized on the sale of OREO properties during the six months
ended June 30, 1999.
<PAGE>
Non-Interest Expense
The following table presents the components of non-interest
expense for the six and three months ended June 30, 2000 and
1999.
<TABLE>
<CAPTION>
NON-INTEREST EXPENSE
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
(in thousands)
<S> <C> <C> <C> <C>
Salary expense $30,640 $28,465 $15,417 $14,047
Employee benefit expense 6,579 6,311 3,449 3,171
FDIC insurance premiums 525 624 262 311
Occupancy and equipment
expense 9,940 9,796 4,741 5,054
Credit card expense 2,575 2,646 1,343 1,332
Amortization of
intangible assets 3,579 2,142 1,920 818
Advertising 2,212 2,234 1,288 1,396
Merger-related charges - 3,005 - 3,005
Other 12,174 12,278 6,217 6,102
Total non-interest
expense $68,224 $67,501 $34,637 $35,236
</TABLE>
Non-interest expense totaled $68.2 million and $34.6 million for
the six and three months ended June 30, 2000. This represents
an increase of 5.8 percent and 7.5 percent over the respective
six month and three month 1999 levels after excluding the $3.0
million merger-related charge. The largest components of non-
interest expense are salaries and employee benefit expense which
totaled $37.2 million for the six months ended June 30, 2000
compared with $34.8 million in the comparable period of 1999 and
$18.9 million for the quarter ended June 30, 2000 compared with
$17.2 million for the quarter ended June 30, 1999. At June 30,
2000, full-time equivalent staff was 1,898 compared with 1,813
at June 30, 1999.
The efficiency ratio measures a bank's gross operating expense
as a percentage of fully-taxable equivalent net interest income
and other non-interest income without taking into account
security gains and losses and other non-recurring items.
Valley's efficiency ratio for the six months ended June 30, 2000
was 44.3 percent, one of the lowest in the industry, compared
with an efficiency ratio of 43.9 percent for the year ended
December 31, 1999 and 42.6 percent for the six months ended June
30, 1999. Valley strives to control its efficiency ratio and
expenses as a means of producing increased earnings for its
shareholders.
Amortization of intangible assets increased to $3.6 million for
the six months ended June 30, 2000 from $2.1 million in 1999,
representing an increase of $1.4 million or 67.1 percent. The
majority of this expense resulted from the amortization of
residential mortgage servicing rights totaling $2.8 million
during 2000. An increase in the servicing portfolio is
responsible for the increase in amortization expense. An
impairment analysis is completed quarterly to determine the
adequacy of the mortgage servicing asset valuation allowance.
For the three months ended June 30, 2000 amortization of
intangible assets increased $1.1 million or 134.7 percent to
$1.9 million. The majority of this increase is due to the
increase in the amortization of the servicing portfolio.
<PAGE>
The $3.0 million of merger-related charges resulted from the June
1999 acquisition of Ramapo Financial Corporation.
The significant components of other non-interest expense include
data processing, professional fees, postage, telephone and
stationery expense which totaled approximately $6.2 million and
$6.5 million for the six months ended June 30, 2000 and 1999,
respectively, and $3.0 million and $2.7 million for the three
months ended June 30, 2000 and 1999, respectively.
<PAGE>
Income Taxes
Income tax expense as a percentage of pre-tax income was 33.5
percent and 32.9 percent for the six and three months ended June
30, 2000 respectively, compared with 36.0 percent and 35.0
percent for the same periods in 1999. The reduction in the
effective tax rate is mainly attributable to a business plan
implemented during the second quarter of 1999. The effective
tax rate for 2000 is expected to approximate 34 percent.*
Business Segments
VNB has four business segments it monitors and reports on to
manage its business operations. These segments are commercial
lending, consumer lending, investment management and corporate
and other adjustments. Lines of business and actual structure of
operations determine each segment. Each is reviewed routinely
for its asset growth, contribution to pretax net income and
return on assets. Expenses related to the branch network, all
other components of retail banking, along with the back office
departments of the bank are allocated from the corporate and
other adjustments segment to each of the other six business
segments. The financial reporting for each segment contains
allocations and reporting in line with VNB's operations, which
may not necessarily be compared to any other financial
institution. The accounting for each segment includes internal
accounting policies designed to measure consistent and
reasonable financial reporting.
<PAGE>
The following table represents the financial data for the six months
ended June 30, 2000 and 1999.
Six Months Ended June 30, 2000
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
Average interest-
earning assets $2,800,795 $1,799,925 $1,389,574 $ -- $5,990,294
Income (loss) before
income taxes $ 35,110 $ 32,581 $ 14,271 $ (1,389) $ 80,573
Return on average
interest-earning
assets (pre-tax) 2.51% 3.62% 2.05% --% 2.69%
Six Months Ended June 30, 1999
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Manageme Adjustments Total
Average interest-
earning assets $2,632,965 $1,658,465 $1,415,736 -- $5,707,166
Income (loss) before
income taxes $ 35,983 $ 32,192 $ 14,712 $ (1,800) $ 81,087
Return on average
interest-earning
assets (pre-tax) 2.73% 3.88% 2.08% --% 2.84%
Consumer Lending
The consumer lending segment had a return on average interest-earning
assets before taxes of 2.51 percent for the six months ended June 30,
2000 compared to 2.73 percent for the six months ended June 30, 1999.
Average interest-earning assets increased $167.8 million,
attributable to an increase in residential lending. Average interest
rates on consumer loans increased by 23 basis points, while the cost
of funds increased by 45 basis points. Income before income taxes
remained relatively unchanged.
Commercial Lending
The return on average interest-earning assets before taxes decreased
26 basis points to 3.62 percent for the six months ended June 30,
2000. Average interest-earning assets increased $141.5 million as a
result of an increased volume of loans. Interest rates on commercial
loans increased by 23 basis points, offset by an increase in the cost
of funds of 45 basis points. Income before income taxes increased by
$389 thousand as a result of an increase in average interest-earning
assets.
<PAGE>
Investment Management
The return on average interest earning assets before taxes decreased
to 2.05 percent for the six months ended June 30, 2000 compared to
2.08 percent for the six months ended June 30, 1999. The yield on
interest earning assets increased by 13 basis points to 6.34 percent,
offset by an increase in the cost of funds of 45 basis points to 3.29
percent. Average interest-earning assets decreased by $26.2 million
and income before income taxes decreased $441 thousand.
Corporate and Other Adjustments
Corporate and other adjustments represent income and expense items
not directly attributable to a specific segment which may include
merger-related charges, gains on sales of securities, service charges
on deposit accounts, and certain revenues and expenses recorded by
acquired banks that could not be allocated to a line of business.
The loss before taxes was $1.4 million for the six months ended June
30, 2000 compared with a loss before taxes of $1.8 million for the
six months ended June 30, 1999. The pre-tax merger related charges
of $3.0 million incurred in the second quarter of 1999 were offset by
net gains realized on securities transactions, of $2.0 million in the
first quarter of 1999.
<PAGE>
The following table represents the financial data for the three months
ended June 30, 2000 and 1999.
Three Months Ended June 30, 2000
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
Average interest-
earning assets $2,809,414 $1,811,217 $1,381,525 $ -- $6,002,156
Income (loss) before
income taxes $ 16,838 $ 16,261 $ 7,038 $ (428) $ 39,709
Return on average
interest-earning
assets (pre-tax) 2.40% 3.59% 2.04% --% 2.65%
Three Months Ended June 30, 1999
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
Average interest-
earning assets $ 2,662,965 $ 1,706,532 $ 1,425,736 -- $ 233
Income (loss) before $ $ $ $ $
income taxes 19,327 17,796 7,385 (5,463) 39,045
Return on average
interest-earning
assets (pre-tax) 2.90% 4.17% 2.07% --% 2.69%
<PAGE>
Consumer Lending
The consumer lending segment had a return on average interest-earning
assets before taxes of 2.40 percent for the three months ended June
30, 2000 compared to 2.90 percent for the three months ended June 30,
1999. Average interest-earning assets increased $146.4 million,
attributable to an increase in residential lending. Average interest
rates on consumer loans increased by 29 basis points, while the cost
of funds increased by 43 basis points. Income before income taxes
decreased $2.5 million to $16.8 million as a result of an increase in
the internal expense transfer .
Commercial Lending
The return on average interest-earning assets before taxes decreased
58 basis points to 3.59 percent for the three months ended June 30,
2000. Average interest-earning assets increased $104.7 million as a
result of an increased volume of loans. Interest rates on commercial
loans increased by 26 basis points, offset by an increase in the cost
of funds of 54 basis points. Income before income taxes decreased by
$1.5 million mainly as a result of an increase in the cost of funds
offset by a lesser increase in the yield on average interest-earning
assets.
Investment Management
The return on average interest earning assets before taxes decreased
to 2.04 percent for the three months ended June 30, 2000 compared
with 2.07 percent for the three months ended June 30, 1999. The
yield on interest earning assets increased by 31 basis points to 6.39
percent, offset by an increase in the cost of funds of 59 basis
points to 3.37 percent. Average interest-earning assets decreased by
$44.2 million and income before income taxes decreased $347 thousand.
Corporate and Other Adjustments
Corporate and other adjustments represent income and expense items
not directly attributable to a specific segment which may include
merger-related charges, gains on sales of securities, service charges
on deposit accounts, and certain revenues and expenses recorded by
acquired banks that could not be allocated to a line of business.
The loss before taxes was $428 thousand for the three months ended
June 30, 2000 compared with a loss of $5.5 million for the three
months ended June 30, 1999. The increase in the loss was the result
of the pre-tax merger-related charges incurred in the second quarter
of 1999.
<PAGE>
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Valley's success is largely dependent upon its ability to manage
interest rate risk. Interest rate risk can be defined as the
exposure of Valley's net interest income to the movement in
interest rates. Valley does not currently use derivatives to
manage market and interest rate risks. Valley's interest rate
risk management is the responsibility of the Asset/Liability
Management Committee ("ALCO"), which reports to the Board of
Directors. ALCO establishes policies that monitor and
coordinate Valley's sources, uses and pricing of funds.
<PAGE>
Valley uses a simulation model to analyze net interest income
sensitivity to movements in interest rates. The simulation
model projects net interest income based on various interest
rate scenarios over a twelve and twenty-four month period. The
model is based on the actual maturity and repricing
characteristics of rate sensitive assets and liabilities. The
model incorporates assumptions regarding the impact of changing
interest rates on the prepayment rates of certain assets and
liabilities. Assuming a rising interest rate environment, the
net interest margin and net interest income are expected to
continue to decline.*
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, investments securities held to
maturity maturing within one year, securities available for sale
and loans held for sale. Liquid assets amounted to $1.2 billion
and $1.3 billion at June 30, 2000 and December 31, 1999,
respectively. This represents 20.0 percent and 22.0 percent of
earning assets, and 18.9 percent and 20.9 percent of total
assets at June 30, 2000 and December 31, 1999, 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 approximately $4.4 billion for both the
six months ended June 30, 2000 and $3.5 billion for the year
ended December 31, 1999, representing 73.1 percent and 73.3
percent of average earning assets. Short-term and long-term
borrowings through Federal funds lines, repurchase agreements,
Federal Home Loan Bank ("FHLB") advances and large dollar
certificates of deposit, generally those over $100 thousand, are
used as supplemental funding sources. Valley borrowed from the
FHLB as part of a leverage strategy and matched funding to
increase earning assets and net interest income. As of June 30,
2000, Valley had outstanding advances of $461.5 million with the
FHLB and repurchase agreements of $130.0 million. Additional
liquidity is derived from scheduled loan and investment payments
of principal and interest, as well as prepayments received. For
the six months ended June 30, 2000 there were no proceeds from
the sales of investment securities available for sale, and
<PAGE>
proceeds of $93.1 million were generated from investment
maturities. Purchases of investment securities for the six
months ended June 30, 2000 were $39.6 million. Short-term
borrowings and certificates of deposit over $100 thousand
amounted to $734.7 million and $637.1 million, on average, for
the six months ended June 30, 2000 and the year ended December
31, 1999, respectively.
Valley National Bancorp'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 are expected to be
adequate to pay dividends, given the current capital levels and
current profitable operations of its subsidiary. In addition,
Valley National Bancorp may repurchase shares of its
outstanding common stock. The cash required for a purchase of
shares can be met by using the Bancorp's own funds, dividends
received from its subsidiary bank as well as borrowed funds. At
June 30, 2000 Valley maintained a floating rate line of credit
in the amount of $35 million, of which $25 million was drawn.
This line is available for general corporate purposes and
expires June 15, 2001. Borrowings under this facility are
collateralized by mortgage-backed and equity securities.
As of June 30, 2000, Valley had $941.1 million of securities
available for sale recorded at their fair value, compared with
$1.0 billion at December 31, 1999. As of June 30, 2000, the
investment securities available for sale had an unrealized loss
of $18.1 million, net of deferred taxes, compared to an
unrealized loss of $16.3 million, net of deferred taxes, at
December 31, 1999. This change was primarily due to a decrease
in prices resulting from an increasing interest rate
environment. These securities are not considered trading
account securities, which may be sold on a continuous basis, but
rather are securities which may be sold to meet the various
liquidity and interest rate requirements of Valley.
<PAGE>
Loan Portfolio
As of June 30, 2000, total loans were $4.6 billion, unchanged
from December 31, 1999. The following table reflects the
composition of the loan portfolio as of June 30, 2000 and
December 31, 1999.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(in thousands)
<S> <C> <C>
Commercial $ 549,927 $ 512,164
Total commercial loans $ 549,927 $ 512,164
Construction 116,409 123,531
Residential mortgage 1,290,133 1,247,721
Commercial mortgage 1,206,117 1,164,065
Total mortgage loans 2,612,659 2,535,317
Home equity 289,920 276,261
Credit card 87,851 92,097
Automobile 1,019,825 1,053,457
Other consumer 69,455 85,456
Total consumer loans 1,467,051 1,507,271
Total loans $4,629,637 $4,554,752
As a percent of total
loans:
Commercial loans 11.9 % 11.2 %
Mortgage loans 56.4 55.7
Consumer loans 31.7 33.1
Total 100.0 100.0
</TABLE>
The majority of the increase in loans during 2000 was divided
among commercial loans, residential mortgage loans and
commercial mortgage loans. It is not known if the trend of
increased lending in these loans types will continue,
especially if interest rates continue to increase. Automobile
loan growth has been partially hampered by low interest rates
offered by automobile manufacturers as incentives in their
attempt to sell vehicles. These rates are substantially lower
than what Valley can offer. Residential loan origination
volume has begun to soften with the rise in interest rates.
Refinance activity has mostly disappeared with higher interest
rates and new purchase originations also have begun to decline
with the Federal Reserve's attempt to slow the economy.
<PAGE>
Non-performing Assets
Non-performing assets include non-accrual loans and other real
estate owned ("OREO"). Loans are generally placed on a non-
accrual status when they become past due in excess of 90 days as
to payment of principal or interest. Exceptions to the non-
accrual policy may be permitted if the loan is sufficiently
collateralized and in the process of collection. OREO is
acquired through foreclosure on loans secured by land or real
estate. OREO is reported at the lower of cost or fair value at
the time of acquisition and at the lower of fair value, less
estimated costs to sell, or cost thereafter.
Non-performing assets totaled $6.8 million at June 30, 2000,
compared with $5.7 million at December 31, 1999, an increase of
$1.1 million or 19.0 percent. Non-performing assets at June 30,
2000 and December 31, 1999, respectively, amounted to 0.15
percent and 0.13 percent of loans and OREO, respectively.
Loans 90 days or more past due and not included in the non-
performing category totaled $11.5 million at June 30, 2000,
compared with $11.7 million at December 31, 1999. These loans
are primarily residential mortgage loans, commercial mortgage
loans and commercial loans which are generally well-secured and
in the process of collection. Also included are matured
commercial mortgage loans in the process of being renewed, which
totaled $3.1 million at June 30, 2000 and $1.5 million at
December 31, 1999, respectively.
The following table sets forth non-performing assets and
accruing loans which were 90 days or more past due as to
principal or interest payments on the dates indicated, in
conjunction with asset quality ratios for Valley.
LOAN QUALITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(in thousands)
<S> <C> <C>
Loans past due in
excess of 90 days and still
accruing $11,538 $11,698
Non-accrual loans $ 6,166 $ 3,482
Other real estate owned 662 2,256
Total non-performing $ 6,828 $ 5,738
Troubled debt
restructured loans $ 4,765 $ 4,852
Non-performing loans
as a % of loans 0.13% 0.08%
Non-performing assets
as a % of loans plus other
real estate owned 0.15% 0.13%
Allowance as a % of loans 1.19% 1.21%
</TABLE>
<PAGE>
At June 30, 2000 the allowance for loan losses amounted to $55.2
million, relatively unchanged from the $55.1 million at year-end
1999. The allowance is adjusted by provisions charged against
income and loans charged-off, net of recoveries. The provisions
charged to operations for the six and three months ended June
30, 2000 were $3.7 million and $2.2 million, compared with $3.8
and $1.8 million for the same periods in 1999. Net loan charge-
offs were $3.7 million and $2.4 million for the six and three
months ended June 30, 2000 compared with $3.5 million and $1.9
million for the six and three months ended June 30, 1999.
The allowance for loan losses is maintained at a level estimated
to absorb loan losses inherent in the loan portfolio as well as
other credit risk related charge-offs. The allowance is based
on ongoing evaluations of the probable estimated losses inherent
in the loan portfolio and unused commitments to provide
financing. VNB's methodology for evaluating the appropriateness
of the allowance consists of several significant elements, which
include the allocated allowance, specific allowances for
identified problem loans and portfolio segments and the
unallocated allowance. The allowance also incorporates the
results of measuring impaired loans as required for in Statement
of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan."
During the first six months of 2000, continued emphasis was
placed on the current economic climate and the condition of the
real estate market in the northern New Jersey area. Management
addressed these economic conditions and applied that information
to changes in the composition of the loan portfolio and net
charge-off levels.
Capital Adequacy
A significant measure of the strength of a financial institution
is its shareholders' equity. At June 30, 2000, shareholders'
equity totaled $520.6 million or 8.3 percent of total assets,
compared with $553.5 million or 8.7 percent at year-end 1999.
On May 23, 2000 Valley's Board of Directors authorized the
repurchase of up to 3,000,000 shares of the Company's
outstanding common stock. This is in addition to the 3,000,000
shares authorized by the Board of Directors in December 1999 for
which Valley has completed the purchase of 3 million shares.
The majority of these shares were reissued for the stock
dividend which was issued May 16, 2000. As of June 30, 2000
Valley had repurchased 8,170 shares of its common stock under
the new repurchase program. Reacquired shares are held in
treasury and are expected to be used for employee benefit
programs, stock dividends and other corporate purposes.
Included in shareholders' equity as components of accumulated
other comprehensive income at June 30, 2000 was an $18.1 million
unrealized loss on investment securities available for sale, net
of tax, and a translation adjustment loss of $591 thousand
related to the Canadian subsidiary of VNB, compared with an
unrealized loss of $16.3 million and a $418 thousand translation
adjustment loss at December 31, 1999.
<PAGE>
Valley's capital position at June 30, 2000 under risk-based
capital guidelines was $534.5 million, or 10.8 percent of risk-
weighted assets, for Tier 1 capital and $589.7 million, or 11.9
percent for Total risk-based capital. The comparable ratios at
December 31, 1999 were 11.6 percent for Tier 1 capital and 12.8
percent for Total risk-based capital. At June 30, 2000 and
1999, Valley was in compliance with the leverage requirement
having Tier 1 leverage ratios of 8.6 percent and 9.1 percent,
respectively. Valley's ratios at June 30, 2000 were above the
"well capitalized" requirements, which require Tier I capital to
risk-adjusted assets of at least 6 percent, Total risk-based
capital to risk-adjusted assets of 10 percent and a minimum
leverage ratio of 5 percent.
Book value per share amounted to $8.61 at June 30, 2000
compared with $8.83 per share at December 31, 1999.
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 42.2 percent
for the six months ended June 30, 2000, compared with 46.5
percent for the six months ended June 30, 1999. Cash dividends
declared amounted to $0.51 per share, for the six months ended
June 30, 2000, equivalent to a dividend payout ratio of 57.8
percent, compared with 53.5 percent for the same period in
1999. Valley declared a five percent stock dividend on April
6, 2000 to shareholders of record on May 5, 2000, and issued
May 16, 2000. The annual dividend rate was increased from
$0.99 per share, on an after stock dividend basis, to $1.04 per
share. The increased cash dividend, which is payable
quarterly, began on July 3, 2000. 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 cash distribution of
earnings to its shareholders.*
Recent Accounting Pronouncement
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), was issued by the FASB in June 1998. SFAS No. 133
standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial
condition at fair value. Valley would have had to adopt SFAS
No. 133 by January 1, 2000. However, SFAS No. 137 extended the
adoption of SFAS No. 133 to fiscal years beginning after June
15, 2000. Upon adoption, the provisions of SFAS No. 133 must be
applied prospectively. Valley anticipates that the adoption of
SFAS No. 133 will not have a material impact in the financial
statements.
In June of 2000, the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities, an Amendment of FASB Statement
No. 133 and 137," which amends the accounting and reporting
standards of SFAS No. 133 for derivative instruments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 20 for a discussion of interest rate sensitivity.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(27) Financial Data Schedule
b) Reports on Form 8-K
1) Filed April 6, 2000 to report the declaration of
the Company's 5 percent stock dividend on the
Company's outstanding common stock issued May 16,
2000.
2) Filed May 23, 2000 to report the purchase of up
to 3,000,000 shares of its outstanding common
stock.
(10) Contracts
A. "The Valley National Bancorp Long-term Stock Incentive Plan"
dated January 10, 1989.
B. Amendments to 1989 Long-term Stock Incentive Plan.
C. Amendments to 1999 Long-term Stock Incentive Plan.
<PAGE>
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 11, 2000 /s/ Peter Southway
PETER SOUTHWAY
VICE CHAIRMAN
Date: August 11, 2000 /s/ Alan D. Eskow
ALAN D. ESKOW
SENIOR VICE PRESIDENT AND CONTROLLER
FINANCIAL ADMINISTRATION
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit Description
(10)A Valley National Bancorp Long-Term Stock Incentive Plan
(10)B Amendments to 1989 Long-Term Stock Incentive Plan
(10)C Amendments to 1999 Long-Term Stock Incentive Plan
(27) Financial Data Schedule
