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 September 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 1-11277
----------------------
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 59,974,850 shares were outstanding as of
November 8, 2000.
<PAGE>
TABLE OF CONTENTS
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (Unaudited)
Nine and Three Months Ended September 30, 2000
and 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 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 9
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>
September 30, December 31,
2000 1999
<S> <C> <C>
Assets
Cash and due from banks $ 172,939 $ 161,561
Federal funds sold - 123,000
Investment securities held to maturity, fair value
of $298,576 and $318,329 in 2000 and 1999,
respectively 341,576 351,501
Investment securities available for sale 989,505 1,005,419
Loans 4,592,211 4,542,567
Loans held for sale 10,296 12,185
Total loans 4,602,507 4,554,752
Less: Allowance for loan losses (55,363) (55,120)
Net loans 4,547,144 4,499,632
Premises and equipment, net 86,236 84,790
Accrued interest receivable 38,225 35,504
Other assets 90,773 98,987
Total assets $ 6,266,398 $ 6,360,394
Liabilities
Deposits:
Non-interest bearing $ 958,278 $ 931,016
Interest bearing:
Savings 1,910,657 2,018,530
Time 2,062,200 2,101,709
Total deposits 4,931,135 5,051,255
Short-term borrowings 168,055 129,065
Long-term debt 591,828 564,881
Accrued expenses and other liabilities 51,812 61,693
Total liabilities 5,742,830 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 60,610,684 shares in 2000 and
60,621,040 shares in 1999 25,963 25,943
Surplus 325,901 325,147
Retained earnings 203,801 244,605
Unallocated common stock held by employee benefit plan (822) (965)
Accumulated other comprehensive loss (14,178) (16,733)
540,665 577,997
Treasury stock, at cost (671,212 shares in 2000 and
927,750 shares in 1999) (17,097) (24,497)
Total shareholders' equity 523,568 553,500
Total liabilities and shareholders'
equity $ 6,266,398 $ 6,360,394
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $277,498 $250,977 $ 94,475 $ 85,839
Interest and dividends on investment
securities:
Taxable 55,811 55,626 18,632 18,903
Tax-exempt 5,471 5,506 1,789 1,920
Dividends 2,124 1,782 693 608
Interest on federal funds sold and other
short-term investments 2,695 2,954 1,131 636
Total interest income 343,599 316,845 116,720 107,906
Interest Expense
Interest on deposits:
Savings deposits 36,288 30,401 12,104 10,298
Time deposits 82,953 75,864 28,873 25,410
Interest on short-term borrowings 4,787 2,007 1,776 761
Interest on long-term debt 26,549 15,260 9,177 5,965
Total interest expense 150,577 123,532 51,930 42,434
Net Interest Income 193,022 193,313 64,790 65,472
Provision for loan losses 5,430 6,095 1,730 2,320
Net Interest Income after Provision
for Loan Losses 187,592 187,218 63,060 63,152
Non-Interest Income
Trust and investment services 2,443 1,632 940 535
Service charges on deposit accounts 12,232 10,691 4,272 3,599
Gains on securities transactions, net 117 2,570 117 140
Fees from loan servicing 8,281 5,990 2,769 2,137
Credit card fee income 6,162 6,497 2,110 2,299
Gains on sales of loans, net 1,787 1,890 437 442
Other 5,789 6,583 1,901 2,179
Total non-interest income 36,811 35,853 12,546 11,331
Non-Interest Expense
Salary expense 46,590 43,186 15,950 14,721
Employee benefit expense 10,003 9,978 3,423 3,667
FDIC insurance premiums 783 927 258 303
Occupancy and equipment expense 15,896 14,937 5,956 5,141
Credit card expense 3,808 3,932 1,233 1,286
Amortization of intangible assets 5,579 3,647 2,000 1,505
Advertising 3,108 3,389 895 1,155
Merger-related charges - 3,005 - -
Other 17,913 18,423 5,740 6,145
Total non-interest expense 103,680 101,424 35,455 33,923
Income Before Income Taxes 120,723 121,647 40,151 40,560
Income tax expense 40,738 42,482 13,768 13,281
Net Income $ 79,985 $ 79,165 $ 26,383 $ 27,279
Earnings Per Share:
Basic $ 1.32 $ 1.24 $ 0.44 $ 0.43
Diluted $ 1.30 $ 1.23 $ 0.44 $ 0.43
Weighted Average Number of Shares Outstanding:
Basic 60,803,028 63,905,848 60,004,266 63,241,185
Diluted 61,363,585 64,554,774 60,596,952 63,907,683
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 79,985 $ 79,165
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,747 9,217
Amortization of compensation costs pursuant to
long-term stock incentive plan 1,175 654
Provision for loan losses 5,430 6,095
Net amortization of premiums and accretion of discounts 1,562 3,307
Gains on securities transactions, net (117) (2,570)
Proceeds from sales of loans 34,089 67,489
Gain on sales of loans, net (1,787) (1,890)
Proceeds from recoveries of previously
charged-off loans 2,677 2,800
Net decrease (increase) in accrued interest receivable
and other assets 896 (16,414)
Net (decrease) increase in accrued expenses and other
liabilities (12,141) 10,696
Net cash provided by operating activities 123,516 158,549
Cash flows from investing activities:
Purchases and originations of mortgage servicing
rights (1,119) (8,005)
Proceeds from sales of investment securities
available for sale 10,141 26,774
Proceeds from maturing investment securities
available for sale 121,044 360,067
Purchases of investment securities
available for sale (111,044) (396,211)
Purchases of investment securities held to maturity (21,695) (157,123)
Proceeds from maturing investment securities held
to maturity 30,931 46,271
Proceeds from sales of trading account securities - 1,415
Net decrease in federal funds sold and other
short-term investments 123,000 108,100
Net increase in loans made to customers (87,921) (323,148)
Purchases of premises and equipment, net of sales (7,614) (5,117)
Net cash provided by (used in) investing activities 55,723 (346,977)
Cash flows from financing activities:
Net decrease in deposits (120,120) (8,542)
Net increase in short-term borrowings 38,990 58,041
Advances of long-term debt 55,000 283,000
Repayments of long-term debt (28,053) (81,050)
Dividends paid to common shareholders (46,648) (44,301)
Addition of common shares to treasury (70,035) (46,036)
Common stock issued, net of cancellations 3,005 3,081
Net cash (used in) provided by financing activities (167,861) 164,193
Net increase (decrease) in cash and cash equivalents 11,378 (24,235)
Cash and cash equivalents at beginning of period 161,561 185,921
Cash and cash equivalents at end of period 172,939 $ 161,686
Supplemental disclosure of cash flow information:
Cash paid during the period for interest on deposits
and borrowings 148,858 121,888
Cash paid during the period for federal and state
income taxes 40,007 40,329
Transfer of securities from held to maturity to
available for sale - 42,387
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of
September 30, 2000 and December 31, 1999, the Consolidated Statements of
Income for the nine and three month periods ended September 30, 2000
and 1999 and the Consolidated Statements of Cash Flows for the nine month
periods ended September 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 September 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 nine and three months ended September 30, 2000 and 1999.
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
(in thousands, except per share data)
Net income $ 79,985 $ 79,165 $ 26,383 $ 27,279
Basic weighted-average number of
shares outstanding 60,803,028 63,905,848 60,004,266 63,241,185
Plus: Common stock equivalents 560,557 648,926 592,686 666,498
Diluted weighted-average number
of shares outstanding 61,363,585 64,554,774 60,596,952 63,907,683
Earnings per share:
Basic $ 1.32 $ 1.24 $ 0.44 $ 0.43
Diluted 1.30 1.23 0.44 0.43
Common stock equivalents for the nine and three months ended September 30,
2000 exclude 254 thousand common stock options in both periods, because the
exercise prices exceed the average market value.
3. Recent Developments
On September 6, 2000, Valley and Merchants New York Bancorp, Inc.
("Merchants") jointly announced that they have entered into a definitive
merger agreement by which Valley will acquire Merchants. Merchants is the
holding company for The Merchants Bank of New York ("Merchants Bank"), a
commercial bank with $1.4 billion in assets operating seven offices
all located in Manhattan. Merchants will be merged into Valley and
Merchants Bank will be merged into Valley National Bank. The Merchants Bank
will continue to operate in Manhattan, under its existing name, as a division
of Valley National Bank. The acquisition of Merchants is structured as a
tax-free merger to be accounted for as a pooling-of-interests. Each of the
18,647,543 outstanding shares of Merchants common stock will be exchanged
for .7634 shares of Valley common stock. Valley will issue approximately
14,235,534 shares of its common stock in exchange for the outstanding shares
of Merchants. At September 30, 2000, Merchants had $104.3 million of
shareholders equity.
The acquisition is conditioned upon necessary regulatory
approvals, the approval of Valley and Merchants' shareholders and other
customary conditions. The parties anticipate that the merger will be
consummated in the first quarter of 2001.
Consummation of the merger requires approval of the Office of the Comptroller
of the Currency ("OCC"). Valley filed an application for OCC approval on
October 30, 2000. Valley also corresponded with the Federal Reserve Board on
October 30, 2000 to obtain confirmation that it will waive its approval
requirement to complete the merger based upon the OCC approval.
<PAGE>
Both Valley and Merchants will hold their special shareholder meetings on
Tuesday, December 5, 2000.
On September 19, 2000, Valley announced, in connection with the signing of
the merger agreement, the termination of its common stock repurchase
program of 3,000,000 shares as previously approved by its Board of
Directors on May 23, 2000. As of September 19, 2000, 571,070 shares had been
repurchased under this program.
4. Other Comprehensive Income (Loss)
Valley's 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 other
comprehensive income for the nine and three months ended September
30, 2000 and 1999.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
(in thousands)
<S> <C> <C> <C> <C>
Net income $79,985 $79,165
Other comprehensive income, net of tax:
Foreign currency translation adjustments (280) 285
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $2,909 $(13,160)
Less reclassification adjustment
for gains realized in
net income (74) (1,631)
Net unrealized gains (losses) 2,835 (14,791)
Other comprehensive income (loss) 2,555 (14,506)
Total other comprehensive income $82,539 $64,659
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
(in thousands)
Net income $26,383 $27,279
Other comprehensive income, net of tax:
Foreign currency translation adjustments (108) (63)
Unrealized gains(losses) on securities:
Unrealized holding gains (losses)
arising during period $4,706 $(7,516)
Less reclassification adjustment
for gains realized in net income (74) (87)
Net unrealized gains (losses) 4,632 (7,603)
Other comprehensive income (loss) 4,524 (7,666)
Total other comprehensive income $30,907 $ 19,613
</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 nine months ended September 30, 2000 was $80.0 million,
or $1.30 per diluted share. These results compare with net income of $79.2
million, or $1.23 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 20.28 percent from 18.14 percent, while the annualized
return on average assets decreased to 1.71 percent from 1.76 percent, for the
nine months ended September 30, 2000 and 1999, respectively.
Net income was $26.4 million or $0.44 per diluted share for the three month
period ended September 30, 2000, compared with $27.3 million or $0.43 per
diluted share for the same period in 1999. The annualized return on
average equity increased to 20.35 percent from 19.25 percent, while the
annualized return on average assets decreased to 1.70 percent from 1.80
percent, for the three months ended September 30, 2000 and 1999, respectively.
The nine 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 remained
basically unchanged at $196.3 million for the nine months ended
September 30, 2000 compared with $196.6 million for the same period in 1999.
Although net interest income remained relatively unchanged, higher
average balances of total interest earning assets, primarily loans, combined
with higher average interest rates for these interest earning assets were
recorded during 2000. For the nine months ended September 30, 2000, compared
with the same period in the prior year, total interest bearing liabilities
increased as well as the interest rates associated with these liabilities.
Net interest 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 4.37 percent for the nine months
ended September 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.
<PAGE>
Average interest earning assets increased $241.1 million or 4.2 percent for
the nine months ended September 30, 2000 over the same period in 1999. This
was the result of the increase in average balance of loans of $344.0
million or 8.1 percent. Total investments decreased $102.9 million or 6.8
percent.
Average interest bearing liabilities for the nine months ended September 30,
2000 increased $228.0 million or 5.1 percent from the same period in 1999.
Average savings deposits decreased $44.9 million or 2.2 percent and average
time deposits decreased $13.9 million or 0.7 percent. Average short-term
borrowings increased $55.1 million or 85.9 percent and long-term debt,
which includes primarily FHLB advances, increased $231.8 million, or 65.8
percent. Average demand deposits increased $69.9 million or 7.9 percent over
1999 balances.
Average interest rates, in all categories of interest earning assets,
increased during the nine months ended September 30, 2000 compared with the
nine months ended September 30, 1999. The average interest rate for loans
increased 18 basis points to 8.11 percent. Average interest rates on total
interest earning assets increased 29 basis points to 7.72 percent. Average
interest rates on deposits increased by 48 basis points to 3.94 percent.
Average interest rates also increased on total interest bearing liabilities
by 58 basis points to 4.23 percent from 3.65 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 nine months ended September 30, 1999 to 4.37 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 nine months ended September 30, 2000 contributed
to the decline in the net interest margin.
Net interest income on a tax equivalent basis decreased to $65.9 million
from $66.6 million for the three months ended September 30, 2000 compared
with the same period in 1999, with an increase of $158.4 million in average
balance and an increase of 39 basis points in the rate earned on total interest
earning assets. The average balance of loans increased $269.6 million or 6.3
percent, while the average balance of investments decreased $111.2
million or 7.3 percent. The average interest rate for loans increased by 29
basis points, and the average interest rate on all investments increased
by 52 basis points.
Increases in the average balance and rate earned on total interest earning
assets were offset by a $148.3 million increase in average balance and an
increase of 69 basis points in the rate paid on total interest bearing
liabilities. Average savings deposits decreased $68.3 million or 3.3 percent,
and average time deposits decreased $33.5 million or 1.6 percent, while
average short-term borrowings and long-term debt increased by $60.1
million or 84.7 percent and $189.9 million or 47.1 percent, respectively. The
average interest rates on deposits increased 62 basis points to 4.09 percent,
and also increased 69 basis points on all interest-bearing liabilities
to 4.39 percent. The net interest margin decreased to 4.40 percent for the
three months ended September 30, 2000 compared with 4.58 percent for the same
period in 1999 as a result of the increase of 39 basis points in the rate
earned on average interest earning assets offset by the greater increase of
69 basis points in the rate paid on average interest bearing liabilities.
<PAGE>
<TABLE>
<CAPTION>
The following table reflects the components of net interest income for each
of the nine months ended September 30, 2000 and 1999.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Nine Months Ended September 30, 2000 Nine Months Ended September 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) $4,568,706 $277,854 8.11% $ 4,224,704 $251,337 7.93%
Taxable
invest-
ments(3) 1,197,923 57,935 6.45 1,275,208 57,408 6.00
Tax-exempt
invest-
ments(1)(3) 163,556 8,417 6.86 166,374 8,471 6.79
Federal funds
sold and
other short-term
investments 57,611 2,695 6.24 80,392 2,954 4.90
Total interest
earning
assets 5,987,796 $346,901 7.72 5,746,678 $320,170 7.43
Allowance for
loan
losses (55,857) (55,068)
Cash and due from
banks 142,753 148,100
Other assets 176,714 171,848
Unrealized loss
on securities
available
for sale (29,003) (1,774)
Total assets $6,222,403 $6,009,784
Liabilities and
Shareholders' Equity
Interest bearing
liabilities
Savings
deposits $1,990,921 $36,288 2.43% $2,035,833 $ 30,401 1.99%
Time deposits 2,048,413 82,953 5.40 2,062,319 75,864 4.90
Total interest
bearing
deposits 4,039,334 119,241 3.94 4,098,152 106,265 3.46
Short-term
borrowings 119,298 4,787 5.35 64,185 2,007 4.17
Long-term debt 584,098 26,549 6.06 352,345 15,260 5.77
Total interest
bearing
liabilities 4,742,730 150,577 4.23 4,514,682 123,532 3.65
Demand
deposits 949,444 879,576
Other
liabilities 4,475 33,624
Shareholders'
equity 525,754 581,902
Total
liabilities and
shareholders'
equity $6,222,403 $6,009,784
Net interest
income
(tax equivalent
basis) 196,324 196,638
Tax equivalent
adjustment (3,302) (3,325)
Net interest income $ 193,022 $ 193,313
Net interest rate
differential 3.49% 3.78%
Net interest margin (4) 4.37% 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 total
interest earning assets.
<PAGE>
The following table reflects the components of net interest income for each
of the three months ended September 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 September 30, 2000 Three Months Ended September 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) $4,577,593 $94,593 8.27% $4,307,991 $85,980 7.98%
Taxable
invest-
ments(3) 1,178,459 19,325 6.56 1,287,618 19,511 6.06
Tax-exempt
invest-
ments(1)(3) 158,148 2,753 6.96 173,840 2,953 6.79
Federal funds
sold and
other short-
term
investments 68,654 1,131 6.59 54,963 636 4.63
Total interest
earning
assets 5,982,854 $117,802 7.88 5,824,412 $109,080 7.49
Allowance for
loan
losses (55,989) (55,343)
Cash and due
from banks 141,569 146,913
Other assets 173,625 167,278
Unrealized
loss on
securities
available
for sale (26,286) (10,360)
Total
assets $6,215,773 $6,072,900
Liabilities and
Shareholders' Equity
Interest bearing
liabilities
Savings
deposits $1,974,611 $12,104 2.45% $2,042,929 $10,298 2.02%
Time
deposits 2,036,763 28,873 5.67 2,070,230 25,410 4.91
Total
interest
bearing
deposits 4,011,374 40,977 4.09 4,113,159 35,708 3.47
Short-
term
borrowings 131,190 1,776 5.42 71,041 761 4.28
Long-term
debt 592,794 9,177 6.19 402,876 5,965 5.92
Total
interest
bearing
liabilities 4,735,358 51,930 4.39 4,587,076 42,434 3.70
Demand
deposits 958,052 899,247
Other
liabilities 3,775 19,695
Shareholders'
equity 518,588 566,882
Total
liabilities and
shareholders'
equity $6,215,773 $6,072,900
Net interest
income (tax
equivalent basis) 65,872 66,646
Tax equivalent
adjustment (1,082) (1,174)
Net interest income $ 64,790 $ 65,472
Net interest rate
differential 3.49% 3.79%
Net interest margin (4) 4.40% 4.58%
(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 total
interest earning assets.
</TABLE>
<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.
<TABLE>
<CAPTION>
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Nine Months Ended September 30, Three Months Ended September 30,
2000 Compared With 1999 2000 Compared With 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) $ 26,517 $20,824 $ 5,693 $ 8,613 $ 5,502 $ 3,111
Taxable
investments 527 (3,595) 4,122 (186) (1,723) 1,537
Tax-exempt
investments(1) (54) (144) 90 (200) (272) 72
Federal funds sold and
other short-term
investments (259) (953) 694 495 183 312
26,731 16,132 10,599 8,722 3,690 5,032
Interest expense:
Savings deposits 5,887 (684) 6,571 1,806 (354) 2,160
Time deposits 7,089 (515) 7,604 3,463 (417) 3,880
Short-term
borrowings 2,780 2,090 690 1,015 774 241
Long-term debt 11,289 10,499 790 3,212 2,929 283
27,045 11,390 15,655 9,496 2,932 6,564
Net interest income
(tax equivalent
basis) $ (314) $ 4,742 $ (5,056) $ (774) $ 758 $(1,532)
(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.
</TABLE>
<PAGE>
Non-Interest Income
The following table presents the components of non-interest income for the
nine and three months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
NON-INTEREST INCOME
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
(in thousands)
<S> <C> <C> <C> <C>
Trust and investment services $ 2,443 $ 1,632 $ 940 $ 535
Service charges on deposit accounts 12,232 10,691 4,272 3,599
Gains on securities transactions, net 117 2,570 117 140
Fees from loan servicing 8,281 5,990 2,769 2,137
Credit card fee income 6,162 6,497 2,110 2,299
Gains on sales of loans, net 1,787 1,890 437 442
Other 5,789 6,583 1,901 2,179
Total non-interest income $ 36,811 $ 35,853 $ 12,546 11,331
</TABLE>
<PAGE>
Non-interest income continues to represent a considerable source of income
for Valley. Excluding gains on securities transactions, total non-interest
income amounted to $36.7 million for the nine months ended September 30, 2000
while the comparable amount for the prior year period was $33.3 million.
For the quarter ended September 30, 2000 total non-interest income,
excluding security gains, was $12.4 million compared with $11.2 million
for the quarter ended September 30, 1999.
Trust and investment services includes income from trust operations,
brokerage commissions, and asset management fees. Trust and investment
services income increased $811 thousand or 49.7 percent for the nine months
ended September 30, 2000 from the same period in 1999 and $405 thousand or
75.7% 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"), as well as the acquisition on
July 6, 2000 of Hallmark Capital Management, Inc. ("Hallmark") both
NJ-based money and investment management firms. These transactions were
accounted for as purchase accounting transactions.
Service charges on deposit accounts increased $1.5 million or 14.4
percent from $10.7 million for the nine months ended September 30, 1999 to
$12.2 million for the same period in 2000 and increased $673 thousand
from $3.6 million for the quarter ended September 30, 1999 to $4.3 million
for the quarter ended September 30, 2000. A majority of this increase is due
to the implementation of new service fees and increased emphasis placed on
collection efforts.
Included in fees from loan servicing are fees for servicing residential
mortgage loans and SBA loans. Fees from loan servicing increased by 38.2
percent from $6.0 million for the nine months ended September 30, 1999 to
$8.3 million for the nine months ended September 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 loan portfolios with an unpaid principal balance of
approximately $668.2 million, which were acquired at the end of 1999. For
the three months ended September 30, 2000 fees from loan servicing were $2.8
million, an increase of $632 thousand or 29.6% percent from the same period in
1999.
Included in credit card fee income is fee income from both the ShopRite credit
card portfolio and Valley's own credit card portfolio. During August
2000, Valley entered into a contract to sell its ShopRite credit card
portfolio to American Express and expects to record and close the transaction
during the first quarter of 2001. This transaction is expected to reduce both
credit card fee income and related credit card expense. *
Other non-interest income decreased $794 thousand to $5.8 million for the
nine months ended September 30, 2000 compared with $6.6 million for the nine
months ended September 30, 1999. The largest components of other
non-interest income included fees from the sale of title insurance policies,
safe deposit box fees and letter of credit fees. Fees from the sale of title
insurance increased to $1.5 million for the nine months ended September
30, 2000 compared with $452 thousand for the same period in 1999. These
fees resulted from the acquisition of a title insurance business during the
second quarter of 1999. This increase was offset primarily by a decline in
the gain on sale of OREO property recorded during 1999.
<PAGE>
Non-Interest Expense
The following table presents the components of non-interest expense for
the nine and three months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
NON-INTEREST EXPENSE
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
(in thousands)
<S> <C> <C> <C> <C>
Salary expense $ 46,590 $ 43,186 $ 15,950 $ 14,721
Employee benefit expense 10,003 9,978 3,423 3,667
FDIC insurance premiums 783 927 258 303
Occupancy and equipment expense 15,896 14,937 5,956 5,141
Credit card expense 3,808 3,932 1,233 1,286
Amortization of intangible assets 5,579 3,647 2,000 1,505
Advertising 3,108 3,389 895 1,155
Merger-related charges - 3,005 - -
Other 17,913 18,423 5,740 6,145
Total non-interest expense $ 103,680 $ 101,424 $ 35,455 $ 33,923
</TABLE>
Non-interest expense totaled $103.7 million and $35.5 million for the nine
and three months ended September 30, 2000. This represents an increase of 5.3
percent and an increase of 4.5 percent over the respective nine month and
three month 1999 levels after excluding the $3.0 million merger-related
charge reported during the nine month period ended September 30, 1999. The
largest components of non-interest expense are salaries and employee
benefit expense which totaled $56.6 million for the nine months ended
September 30, 2000 compared with $53.2 million in the comparable period of
1999 and $19.4 million for the quarter ended September 30, 2000 compared
with $18.4 million for the quarter ended September 30, 1999. At September 30,
2000, full-time equivalent staff was 1,831 compared with 1,800 at September 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 nine months
ended September 30, 2000 was 44.6 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 42.9 percent for the nine months ended September 30, 1999.
Valley strives to control its efficiency ratio and expenses as a means of
producing increased earnings for its shareholders.
Occupancy and equipment expense increased $959 thousand and $815 thousand for
the nine months and three months ended September 30, 2000, respectively,
compared to the same periods in the prior year. This increase can be
attributed to an overall increase in the cost of operating bank facilities.
<PAGE>
Amortization of intangible assets increased to $5.6 million for the nine
months ended September 30, 2000 from $3.6 million in 1999, representing an
increase of $1.9 million or 53.0 percent. The majority of this expense
resulted from the amortization of residential mortgage servicing rights
totaling $4.3 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
September 30, 2000, amortization of intangible assets increased $495
thousand or 32.9 percent to $2.0 million. The majority of this increase is
also due to the additional amount of loans being serviced.
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 $9.5 million and $8.7 million for the nine months
ended September 30, 2000 and 1999, respectively, and $3.3 million and $2.9
million for the three months ended September 30, 2000 and 1999,
respectively.
Income Taxes
Income tax expense as a percentage of pre-tax income was 33.7 percent and
34.3 percent for the nine and three months ended September 30, 2000
respectively, compared with 34.9 percent and 32.7 percent for the same
periods in 1999. The effective tax rate for the remainder of 2000 is expected
to approximate 34 percent.*
Business Segments
Valley has four business segments it monitors and reports on to manage its
business operations. These segments are consumer lending, commercial
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. Internal expense transfer, defined as income and
expenses related to the branch network, all other components of retail
banking, along with the back office departments are
allocated from the corporate and other adjustments segment to each of the
other three business segments. The financial reporting for each segment
contains allocations and reporting in line with Valley'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 nine months ended
September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
<S> <C> <C> <C> <C> <C>
Average interest
earning assets $ 2,792,758 $ 1,811,940 $ 1,383,098 $ -- $ 5,987,796
Income (loss)
before income
taxes $ 52,309 $ 49,253 $ 21,396 $ (2,235) $ 120,723
Return on average
interest earning
assets (pre-tax) 2.50% 3.62% 2.06% --% 2.69%
Nine Months Ended September 30, 1999
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
Average interest
earning assets $ 2,576,943 $ 1,689,029 $ 1,480,706 $ -- $ 5,746,678
Income (loss)
before income
taxes $ 52,960 $ 48,856 $ 21,998 $ (2,167) $ 121,647
Return on average
interest earning
assets (pre-tax) 2.74% 3.86% 1.98% --% 2.82%
</TABLE>
Consumer Lending
The consumer lending segment had a return on average interest earning
assets before taxes of 2.50 percent for the nine months ended
September 30, 2000 compared with 2.74 percent for the nine months ended
September 30, 1999. Average interest earning assets increased $215.8
million, attributable to an increase in residential lending. Average
interest rates on consumer loans increased by 7 basis points, while the cost of
funds increased by 48 basis points. Income before income taxes remained
relatively unchanged.
Commercial Lending
The return on average interest earning assets before taxes decreased 24
basis points to 3.62 percent for the nine months ended September 30, 2000.
Average interest earning assets increased $122.9 million as a result of
an increased volume of loans. Interest rates on commercial loans
increased by 29 basis points, offset by an increase in the cost of funds of
48 basis points. Income before income taxes increased by $397 thousand as a
result of an increase in average interest earning assets.
<PAGE>
Investment Management
The return on average interest earning assets before taxes increased to 2.06
percent for the nine months ended September 30, 2000 compared with 1.98
percent for the nine months ended September 30, 1999. The yield on interest
earning assets increased by 43 basis points to 6.40 percent, offset by an
increase in the cost of funds of 48 basis points to 3.35 percent. Average
interest earning assets decreased by $98 thousand and income before income
taxes decreased $602 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 $2.2
million for both the nine months ended September 30, 2000 and 1999.
Included in the 1999 loss before taxes was the pre-tax merger related
charges of $3.0 million incurred during 1999. In 2000, Valley incurred an
increase in expense items not directly attributable to as specific segment and
a reduction in security gains, partially offset by an increase in deposit
account charges.
The following table represents the financial data for the three months ended
September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
<S> <C> <C> <C> <C> <C>
Average interest
earning assets $ 2,825,749 $ 1,764,416 $ 1,392,689 $ -- $ 5,982,854
Income (loss)
before income
taxes $ 16,779 $ 17,282 $ 6,935 $ (845) $ 40,151
Return on average
interest earning
assets (pre-tax) 2.38% 3.92% 1.99% --% 2.68%
Three Months Ended September 30, 1999
(in thousands)
Corporate
Consumer Commercial Investment and Other
Lending Lending Management Adjustments Total
Average interest
earning assets $ 2,611,801 $ 1,711,876 $ 1,500,735 $ -- $5,824,412
Income (loss)
before income
taxes $ 16,977 $ 16,664 $ 7,286 $ (367) $ 40,560
Return on average
interest earning
assets (pre-tax) 2.60% 3.89% 1.94% --% 2.79%
</TABLE>
<PAGE>
Consumer Lending
The consumer lending segment had a return on average interest earning
assets before taxes of 2.38 percent for the three months ended September
30, 2000 compared with 2.60 percent for the three months ended
September 30, 1999. Average interest earning assets increased $213.9
million, attributable to an increase in residential lending. Average
interest rates on consumer loans increased by 4 basis points, while the cost
of funds increased by 61 basis points. Income before income taxes
decreased $198 thousand 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 increased 3
basis points to 3.92 percent for the three months ended September 30, 2000.
Average interest earning assets increased $52.5 million as a result of
an increased volume of loans. Interest rates on commercial loans increased
by 56 basis points, offset by an increase in the cost of funds of 49 basis
points. Income before income taxes increased to $17.3 million.
Investment Management
The return on average interest earning assets before taxes increased to 1.99
percent for the three months ended September 30, 2000 compared with 1.94
percent for the three months ended September 30, 1999. The yield on interest
earning assets increased by 47 basis points to 6.42 percent, offset by an
increase in the cost of funds of 54 basis points to 3.47 percent. Average
interest earning assets decreased by $108.0 million and income before income
taxes decreased $351 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 $845
thousand for the three months ended September 30, 2000 compared with a loss
of $367 thousand for the three months ended September 30, 1999. The
increase in the loss was the result of an increase in expense items not
directly attributable to a specific segment.
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, investment 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
September 30, 2000 and December 31, 1999, respectively. This represents 20.2
percent and 22.0 percent of earning assets, and 19.1 percent and 20.9 percent
of total assets at September 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 nine months ended September 30, 2000 and for the year
ended December 31, 1999, representing 72.8 percent and 73.3 percent of
average earning assets. Demand deposits have continued to increase, while
both savings deposits and time deposits have been declining. The decreases are
not considered to be substantial to Valley's deposit base. The level of time
deposits is affected by interest rates offered, which is often influenced by
Valley's need for funds. 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 September 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 nine months ended September 30, 2000 there
were $10.1 million from the sales of investment securities available for
sale, and proceeds of $152.0 million were generated from investment
maturities. Purchases of investment securities for the nine months ended
September 30, 2000 were $132.7 million. Short-term borrowings and
certificates of deposit over $100 thousand amounted to $750.3 million and
$637.1 million, on average, for the nine months ended September 30, 2000 and
the year ended December 31, 1999, respectively.
Valley'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 may repurchase
shares of its outstanding common stock. The cash required for a purchase
of shares can be met by using its own funds, dividends received from its
subsidiary bank as well as borrowed funds. At September 30, 2000 Valley
maintained a floating rate line of credit in the amount of $35 million, of
which $20.0 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.
<PAGE>
As of September 30, 2000, Valley had $989.5 million of securities
available for sale recorded at their fair value, compared with $1.0 billion
at December 31, 1999. As of September 30, 2000, the investment securities
available for sale had an unrealized loss of $13.5 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 that may be sold to meet
the various liquidity and interest rate requirements of Valley.
Loan Portfolio
As of September 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 September 30, 2000 and December 31, 1999.
LOAN PORTFOLIO
September 30, December 31,
2000 1999
(in thousands)
Commercial $ 523,654 $ 512,164
Total commercial loans 523,654 512,164
Construction 143,978 123,531
Residential mortgage 1,283,445 1,247,721
Commercial mortgage 1,202,779 1,164,065
Total mortgage loans 2,630,202 2,535,317
Home equity 300,979 276,261
Credit card 87,942 92,097
Automobile 993,998 1,053,457
Other consumer 65,732 85,456
Total consumer loans 1,448,651 1,507,271
Total loans 4,602,507 4,554,752
As a percent of total
loans:
Commercial loans 11.4% 11.2%
Mortgage loans 57.1 55.7
Consumer loans 31.5 33.1
Total 100.0 l00.0
The majority of the increase in loans during 2000 was divided among
commercial, construction, residential mortgage, commercial mortgage and
home equity loans. It is not known if the trend of increased lending in
these loan types will continue, especially if interest rates continue to
increase. Automobile loan origination volume 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. Refinance activity has weakened during the
first half of 2000, as a result of higher interest rates, but increased during
the third quarter of 2000. New purchase originations have remained strong due
to the demand for housing.
<PAGE>
Included in the credit card portfolio are both ShopRite MasterCard credit
card loans and Valley's own credit card and revolving credit loans.
During August 2000, Valley entered into a contract to sell its ShopRite
Master Card credit card loans to American Express and expects to record and
close the transaction during the first quarter of 2001. This transaction is
expected to reduce the total credit card portfolio. * Of the $87.9 million
of credit card loans outstanding at September 30, 2000, approximately $64.8
million are ShopRite MasterCard credit card loans.
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 $3.5 million at September 30, 2000, compared
with $5.7 million at December 31, 1999, a decrease of $2.2 million or 38.5
percent. OREO decreased $1.7 million from December 31, 1999 to September
30, 2000 due to sales of OREO properties. Non-accrual loans decreased $545
thousand during the same period. Non-performing assets at September 30, 2000
and December 31, 1999, respectively, amounted to 0.08 percent and 0.13
percent of loans and OREO, respectively. Both non-accrual loans and OREO
have been on a downward trend over the past two years. It is not known if
the trend will continue.*
Loans 90 days or more past due and still accruing, not included in the
non-performing category, totaled $13.8 million at September 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 $4.3 million at September 30, 2000 and $1.5
million at December 31, 1999, respectively. Loans 90 days or more past
due and still accruing have remained at relatively stable levels during
the past two years. It is not known if this trend will
continue.*
<PAGE>
Loans past due in excess of 30 days delinquent, including non-accrual loans,
as a percentage of the respective loan portfolio were 0.88% for commercial,
commercial mortgage, and construction loans, 1.62% for residential mortgage
loans, and 1.91% for consumer loans.
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 loan quality ratios for Valley.
LOAN QUALITY
September 30, December 31,
2000 1999
(in thousands)
Loans past due in excess of
90 days and still accruing $ 13,756 $ 11,698
Non-accrual loans $ 2,937 $ 3,482
Other real estate owned 591 2,256
Total non-performing assets $ 3,528 $ 5,738
Troubled debt restructured loans $ 4,737 $ 4,852
Non-performing loans as a % of
Loans 0.06% 0.08%
Non-performing assets as a % of
loans plus other real estate owned 0.08% 0.13%
Allowance as a % of loans 1.20% 1.21%
At September 30, 2000 the allowance for loan losses amounted to $55.4
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 nine and three months ended September 30, 2000 were $5.4 million and $1.7
million, compared with $6.1 and $2.3 million for the same periods in 1999.
Net loan charge-offs were $5.2 million and $1.5 million for the nine and
three months ended September 30, 2000 compared with $6.0 million and $2.5
million for the nine and three months ended September 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. Valley'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 in Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and
SFAS No 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures."
During the first nine 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 September 30, 2000, shareholders' equity totaled
$523.6 million or 8.4 percent of total assets, compared with $553.5 million
or 8.7 percent at year-end 1999.
<PAGE>
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 3,000,000
shares. The majority of these shares were used for the stock dividend which
was issued May 16, 2000. As of September 19, 2000 Valley had repurchased
571,070 shares of its common stock under the new repurchase program. This
repurchase program was terminated in connection with the signing of the
definitive merger agreement with Merchants. 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 loss at September 30, 2000 was a $13.5 million unrealized loss
on investment securities available for sale, net of tax, and a translation
adjustment loss of $699 thousand related to the Canadian subsidiary of
Valley National Bank, compared with an unrealized loss of $16.3 million
and a $418 thousand translation adjustment loss at December 31, 1999.
Valley's capital position at September 30, 2000 under risk-based capital
guidelines was $531.6 million, or 10.8 percent of risk-weighted assets, for
Tier 1 capital and $587.0 million, or 12.0 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 September
30, 2000 and December 31,1999, 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 September 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 $8.73 at September 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 41.7 percent for the nine months ended
September 30, 2000, compared with 44.4 percent for the nine months ended
September 30, 1999. Cash dividends declared amounted to $0.77 per share,
for the nine months ended September 30, 2000, equivalent to a dividend payout
ratio of 58.3 percent, compared with 55.6 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.
The FASB has issued Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 140"). Statement No. 140 replaces
SFAS No. 125. SFAS 140 resolves certain implementation issues, but it
carries forward most of SFAS No. 125's provisions without change. SFAS No.
140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. Valley anticipates that the
adoption of SFAS No. 140 will not have a material impact in the financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 19 for a discussion of interest rate sensitivity.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(10) Material Agreements
Merger agreement with Merchants New York Bancorp. Inc.,
incorporated by reference from Form 8-K filed
September 6,2000.
(27) Financial Data Schedule
b) Reports on Form 8-K
1) Filed July 6, 2000 to report the acquisition of Hallmark
Capital Management, Inc.
2) Filed September 6, 2000 to report the merger agreement with
Merchants New York Bancorp, Inc. and to report that the
Board of Directors rescinded its previously announced
treasury stock repurchase program.
<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: November 14, 2000 /s/ Peter Southway
PETER SOUTHWAY
VICE CHAIRMAN
Date: November 14, 2000 /s/ Alan D. Eskow
ALAN D. ESKOW
SENIOR VICE PRESIDENT AND CONTROLLER
FINANCIAL ADMINISTRATION
