-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YR6ACF8IEU2hofKpMmsTTLUOvba151L6Z0l+SAuvvK8ftG7AmVYkjclyRLmJ6W9+ rSbLjtwB7yR6yqEbIic9Uw== 0000714310-94-000009.txt : 19940601 0000714310-94-000009.hdr.sgml : 19940601 ACCESSION NUMBER: 0000714310-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALLEY NATIONAL BANCORP CENTRAL INDEX KEY: 0000714310 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 222477875 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11179 FILM NUMBER: 94528608 BUSINESS ADDRESS: STREET 1: 1445 VALLEY RD CITY: WAYNE STATE: NJ ZIP: 07474 BUSINESS PHONE: 2013058800 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarter Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period Ended March 31, 1994 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________. Commission File Number 0-11179 VALLEY NATIONAL BANCORP (Exact name of registrant as specified in its charter) New Jersey (State or other Jurisdiction of incorporation or organization) 22-2477875 (I.R.S. Employer Identification No.) 1445 Valley Road, Wayne, New Jersey 07474-0558 (Address of principal executive offices) (Zip Code) (201)305-8800 (Registrant's Telephone Number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XXX NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (No par value), of which 26,993,248 shares were outstanding as of May 5, 1994. VALLEY NATIONAL BANCORP INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition 3 March 31, 1994 and December 31, 1993 (Unaudited) Consolidated Statements of Income 4 Three Months Ended March 31, 1994 and 1993 (Unaudited) Consolidated Statements of Cash Flows 5 Three Months Ended March 31, 1994 and 1993 (Unaudited) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7 - 12 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Matters 14 Item 6. Exhibits and Reports on Form 8-K. 15 SIGNATURES 16 - 2 - VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) ($ in thousands) March 31, December 31, 1994 1993 Assets Cash and due from banks $ 126359 $ 67455 Federal funds sold 11000 88050 Investment securities held to maturity, fair value of $924,113 and $960,813 in 1994 and 1993, respectively 932184 939993 Investment securites available for sale, fair value of $448,818 in 1993 440316 441482 Loans, net of unearned income 1851464 1802000 Less: Allowance for possible loan losses -35585 -35205 Loans, net 1815879 1766795 Premises and equipment, net 40007 40248 Due from customers and acceptances outstanding 1395 1192 Accrued interest receivable 21124 23650 Other assets 49775 44637 Total assets $ 3438039 $ 3413502 Liabilities Deposits: Non-interest bearing deposits $ 407446 $ 408605 Interest bearing: Savings deposits 1626097 1637381 Time deposits 1043379 1033771 Total deposits Federal funds purchased and securities sold under repurchase agreements 50282 35110 Treasury tax and loan account 6102 7834 Bank acceptances outstanding 1395 1192 Accrued expenses and other liabilities 29747 22514 Other borrowings 2582 2667 Total liabilities 3167030 3149074 Shareholders' Equity Common stock, no par value, authorized 37,537,500 shares, issued 27,065,331 shares in 1994 and 24,529,552 in 1993 14990 8660 Surplus 114553 46438 Retained earnings 147375 211296 Unrealized loss on investment securities available for sale -3943 - - 272975 266394 Cost of shares in treasury (113,003 common shares in 1994 and 113,003 common shares in 1993) -1966 -1966 Total shareholders' equity 271009 264428 Total liabilities and shareholders' equity $ 3438039 $ 3413502 See accompanying notes to consolidated financial statements. - 3 - VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($ in thousands except for per share data) Three Months Ended March 31 1994 1993 Interest Income Loans, including fees $35827 $32411 Investment securities held to maturity Taxable 10314 14539 Tax-exempt 3347 3057 Dividends 15 31 Investment securities available for sale Taxable 5336 4909 Dividends 19 - - Federal funds sold and other short term investments 292 282 Total Interest Income 55150 55229 Interest Expense Savings deposits 9497 10199 Time deposits 10323 12284 Federal funds purchased and securities sold under repurchase agreements 226 169 Other short-term borrowings 39 41 Other borrowings 5 169 Total Interest Expense 20090 22862 Net interest income 35060 32367 Provision for possible loan losses 900 1500 Net interest income after provision for possible loan losses 34160 30867 Non-Interest Income Fees from trust services 180 160 Service charges on deposit accounts 1396 1161 Gains on securities transactions, net 3342 3272 Fees from mortgage servicing 845 1039 Gains on sales of loans 240 457 Other 1196 1198 Total Non-Interest Income 7199 7287 Non-Interest Expense Salaries and other compensation 6784 6054 Employee benefit expense 1786 1592 FDIC insurance premiums 1715 1652 Occupancy and equipment expense 2786 2355 Amortization of intangible assets 884 958 Other 3859 3436 Total Non-Interest Expense 17814 16047 Income before income taxes 23545 22107 Income tax expense 8055 7451 Income before cumulative effect of accounting change 15490 14656 Cumulative effect of accounting change 0 -402 Net Income $15490 $14254 Per share data: Income before cumulative effect of accounting change $0.58 $ 0.56 Cumulative effect of accounting change 0.00 -0.02 Weighted average shares outstanding 26888868 26233002 See accompanying notes to consolidated financial statements. - 4 - VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($ in thousands) Three Months Ended March 31, 1994 1993 Cash flows from operating activities: Net income $ 15490 $14253 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangible assets 2,015 1,831 Amortization of compensation costs pursuant to long term stock incentive plan 71 51 Provision for possible loan losses 900 1500 Net amortization (accretion) of premiums and discounts 2154 1309 Net deferred income tax benefit -521 -787 Net gains on securities transactions -3342 -3272 Gain on sales of loans -240 -457 Net increase(decrease) in unearned income - - 944 Proceeds from recoveries on charged-off loans 387 356 Net increase(decrease) in accrued interest receivable and other assets -253 -653 Net (increase)decrease in accrued expenses and other liabilities 7233 6875 Net cash provided by operating activities: 23894 21950 Cash flows from investing activities: Proceeds from maturing investment securities held to maturity 85354 73877 Proceeds from sales of investment securities held to maturity - - - - Purchases of investment securities held to maturity -79068 -134288 Proceeds from sales of investment securities available for sale 131109 98682 Proceeds from maturing investment securities available for sale 152671284 Purchases of investment securities available for sale -149164 -62056 Purchases of mortgage servicing rights - - 10 Net (increase) decrease in federal funds sold 77050 54650 Net increase in loans made to customers -50130 -50032 Purchases of premises and equipment -891 -1184 Net (increase)decrease in due from customers on acceptances outstanding -203 481 Net cash provided by (used in) investing activities: 29324 -18576 Cash flows from financing activities: Net decrease in deposits -2835 -9601 Net increase in federal funds purchased and other short term borrowings 13440 25816 Repayments of other borrowings -85 - - Net increase(decrease) in bank acceptances outstanding 203-481 Dividends paid to common shareholders -6123 -4771 Common stock issued 1086 27 Net cash provided by financing activities 5686 10990 Net increase in cash and due from banks 58904 14364 Cash and due from banks at January 1 67455 89695 Cash and due from banks at March 31 $126359 $104059 Cash paid during the period for: Interest on deposits and other borrowings $ 20010 $ 23896 Federal and state income taxes $ 2200 $ - - See accompanying notes to consolidated financial statements - 5 - VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Consolidated Financial Statements The Consolidated Statements of Financial Condition as of March 31, 1994, the Consolidated Statements of Income for the three month periods ended March 31, 1994 and 1993 and the Consolidated Statements of Cash Flows for the three month periods ended March 31, 1994 and 1993 have been prepared by Valley National Bancorp ("Valley"), without audit. In the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly Valley's financial position, results of operations, and cash flows at March 31, 1994 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements are to be read in conjunction with the financial statements and notes thereto included in Valley's December 31, 1993 Annual Report to Shareholders. 2. Earnings Per Share All share and per share amounts have been restated to reflect the 10% stock dividend declared March 22, 1994 to Shareholders of record on April 15, 1994 and payable May 3, 1994. - 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings Summary Net income grew to $15.5 million, or $0.58 per share for the first quarter ended March 31, 1994 compared with $14.3 million or $0.54 per share for the same period in 1993 (the 1993 per share amounts have been restated to give effect to a 10% stock dividend declared March 22, 1994 to shareholders of record April 15, 1994 and payable May 3, 1994). This increase is largely attributable to an increase in net interest income of $2.7 million or 8.3%, and to a lesser extent a decrease in the provision for loan losses of $600 thousand or 40.0%. This was offset by increased operating expenses of $1.8 million or 11.0% due substantially to the acquisition of Peoples Bank in the second quarter 1993. The annualized return on average assets was 1.81% for both the quarter ended March 31, 1994 and 1993, while the annualized return on average equity decreased to 22.6% for the first quarter of 1994 from 25.13% for the first quarter of 1993. Net Interest Income Net interest income is the largest source of Valley's operating income. Net interest income on a fully tax equivalent ("FTE") basis increased to $37.1 million for the quarter ended March 31, 1994 as compared to $34.2 million for the same quarter in 1993. The increase in 1994 was due primarily to the decrease in interest rates on all interest bearing liabilities of 56 basis points, which was greater than the decline of 54 basis points on all interest earning assets. This caused the net interest margin to increase 2 basis points to 4.61% for quarter ended March 31, 1994 compared to 4.59% for the quarter ended March 31, 1993. Average interest earning assets increased $234.6 million during the first quarter of 1994, or 7.9% over the 1993 quarter. This increase was mainly the result of the acquisition of Peoples Bancorp ("Peoples") during June of 1993 with loans and investments acquired of approximately $185.9 million. The average balance of taxable investment securities held to maturity and available for sale decreased by $123.6 million or 10.5% over the 1993 average balance. Non-taxable investments increased $65.3 million or 28.7% taking advantage of the increased yield available over taxable investments. Residential mortgage loans, automobile loans and commercial mortgages have increased during the first quarter of 1994 and continue to be the largest source of loan volume. Average loans, including loans held for sale, increased $292.3 million or 19.1% during the quarter ended March 31, 1994 over the same period in 1993 with $138.5 million of this increase from the Peoples acquisition. The average rate on loans, including loans held for sale, decreased 60 basis points, but combined with the increase in average loan volume, interest income on loans on an FTE basis for the first quarter of 1994 increased by $3.4 million over the same quarter in 1993. Average interest-bearing liabilities grew 4.7% or $120.8 million and was due mainly to the 1993 acquisition of Peoples. Average demand deposits continued to grow and increased by $88.0 million or 27.5% over 1993 first quarter balances. The net interest margin increased to 4.61% from 4.59% during the first quarter in 1994 compared to the same period in 1993 which was substantially the result of changes in market interest rates. The increase in the net interest margin of 2 basis points, coupled with the increase in average earning assets over average interest- bearing liabilities, was the basis for the increase in net interest income. - - - 7 - Non-Interest Income Non-interest income continues to represent a considerable source of income for Valley. Excluding gains on securities transactions, total non-interest income amounted to $3.9 million for the quarter ended March 31, 1994 compared with $4.0 million for the same quarter in 1993, representing a decrease of $158 thousand or 3.9%. Service charges on deposit accounts increased $235 thousand or 20.2% for the first quarter ended March 31, 1994 compared to the same period in 1993. Increased volume due to the Peoples acquisition and increased fees charged on deposit accounts generated a majority of this increase. Fees from mortgage servicing decreased by 18.7% from $1.0 million for the three months ended March 31, 1993 to $845 thousand for the same period in 1994. As of March 31, 1994 MSI serviced a total of $1.14 billion of loans, of which $484.0 million are serviced for VNB. The portfolio declined during the first quarter of 1994 as a result of large amounts of prepayments, which were partially offset by Valley's loan origination volume added to the portfolio. Gains on the sales of loans were $240 thousand for the quarter ended March 31, 1994 compared to $457 thousand for the same quarter in 1993. During the quarter ended March 31, 1994 Valley sold 15- year and 30-year loans as part of its ongoing program to sell higher interest-rate risk, fixed rate loans. Loans are sold based upon loan to value ratio and maturity, and are classified as loans held for sale on the consolidated statement of financial condition. Due to decreased origination volume it was decided not to continue to sell 15 year fixed rate loans beginning April 1, 1994 except for those already scheduled to be sold. Net gains on securities transactions for both the first quarter in 1994 and 1993 amounted to $3.3 million. The sales during 1994 were in response to a rising interest rate environment, with the ability to reinvest the proceeds in higher yields or in other types of securities. Non-Interest Expense Non-interest expense totalled $17.8 million for the first quarter of 1994, $1.8 million, or 11.0% above the 1993 quarter. The branch staff and office facilities for the seven branches acquired from Peoples account for a large portion of the increase in non-interest expense. The largest component of non-interest expense is salaries and employee benefit expense which totalled $8.6 million for the quarter ended March 31, 1994 compared to $7.6 million for the first quarter in 1993, an increase of $924 thousand or 12.1%. At March 31, 1994, full-time equivalent staff was approximately 1,101 compared to approximately 943 at the March 31, 1993. Net occupancy and furniture and fixture expense increased to $2.8 million during the first quarter ended March 31, 1994 from $2.4 million during the same quarter in 1993. The increase of $431 thousand or 18.3% represents additional rent, utilities, tax, maintenance and depreciation expense on facilities acquired due to the Peoples acquisition. Amortization of intangible assets decreased to $884 thousand during the first quarter in 1994 from $958 thousand during the same quarter in 1993, representing a decrease of $74 thousand, or 7.7%. This was due to the declining level of amortization on core deposits and purchased mortgage servicing rights. - - - 8 - Income Taxes Income tax expense as a percentage of pre-tax income rose slightly to 34.2% in 1994 compared to 33.7% in 1993. This increase was attributable to the change in the federal income tax rate from 34% to 35% enacted July 1993 and was offset by a lower tax rate on a new investment subsidiary and by a reduction in the state of New Jersey income tax rate due to the elimination of the .375% surtax exemption. FUNDS MANAGEMENT Interest Rate Sensitivity At March 31, 1994, rate sensitive liabilities exceeded rate sensitive assets at the 90 day interval and resulted in a negative gap of $202 million or a ratio of .84:1. Rate sensitive assets exceeded rate sensitive liabilities at the 91 to 365 day interval by $20.8 million or a ratio of 1.05:1 and resulted in a small positive gap. The total negative gap repricing within 365 days as of March 31, 1994 is $181.0 million or .89:1. In view of the present economic climate, management does not view these amounts as presenting an unusually high risk potential, although no assurances can be given that Valley is not at risk from rate increases or decreases. The above gap results take into account repricing and maturities of assets and liabilities, but fails to consider the interest rate sensitivities of those asset and liability accounts. Management has prepared for its use an income simulation model to project future net interest income streams in light of the current gap position. Management has also prepared for its use alternative scenarios to measure levels of net interest income associated with various changes in interest rates. According to this computer model, an interest rate increase of 300 basis points and a decrease of 100 basis points had a minimal impact on Valley's future net interest income. Management cannot provide any assurance about the actual effect of changes in interest rates on Valley's net interest income. Liquidity Liquidity measures the ability to satisfy current and future cash flow needs as they become due. Maintaining a level of liquid funds through asset-liability management seeks to ensure that these needs are met at a reasonable cost. On the asset side, liquid funds are maintained in the form of cash and due from banks, federal funds sold, investments securities held to maturity maturing within one year, securities available for sale and loans held for sale. At March 31, 1994, liquid assets amounted to $731.6 million, as compared to $1.07 billion at December 31, 1993. This represents 22.6% and 34.3% of earning assets, and 21.3% and 31.2% of total assets at March 31, 1994 and December 31, 1993, respectively. On the liability side, the primary source of funds available to meet liquidity needs is Valley's core deposit base, which generally excludes certificates of deposit over $100 thousand. Core deposits averaged $2.50 billion and $2.45 billion at March 31, 1994 and December 31, 1993, respectively, representing 77.9% and 78.9% of average earning assets. Short term borrowings and large dollar certificates of deposit, generally those over $100 thousand, are used as supplemental funding sources during periods when growth in the core deposit base does not keep pace with that of earning assets. Additional liquidity is derived from scheduled loan and investment payments of principal and interest, as well as prepayments received. Proceeds from the sales of investment securities available for sale were $131.1 million, and proceeds of $100.6 million were generated from investment maturities. Purchases of investment securities during the same year were $228.2 million. Short term borrowings and certificates of deposit over $100 thousand amounted to $199.5 million and $170.4 million, on average, at March 31, 1994 and December 31, 1993, respectively. - - - 9 - The parent company's cash requirements consist primarily of dividends to shareholders. This cash need is routinely satisfied by dividends collected from its subsidiary bank. Projected cash flows from this source are expected to be adequate to pay dividends, given the current capital levels and current profitable operations of its subsidiary. Investment Securities Effective January 1, 1994, Valley adopted Statement of Financial Accounting Standards No.115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities". The finanical impact of adoption represented an addition to Shareholders' Equity of $4.5 million, net of taxes. At March 31, 1994, the unrealized loss, net of deferred taxes, resulted in a decrease to Shareholders' Equity of $3.9 million. As of March 31, 1994 Valley had $440.3 million of securities available for sale compared with $441.5 million at December 31, 1993. As of January 1, 1994, those securities are recorded at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. Total investment securities, including securities classified as held to maturity and available for sale, decreased $9.0 million from year-end 1993 to the first quarter of 1994 to $1.37 billion. Loan Portfolio Residential mortgage loans, including residential mortgages held for sale increased by 1.5% or $9.5 million to a total of $623.8 million at March 31, 1994 since December 31, 1993, and represent 33.7% of the loan portfolio. The volume of residential mortgage loan applications began to decline during the quarter as interest rates increased. Installment loans, including predominantly automobile and credit card loans, totalled $542.9 million at March 31, 1994, increasing by $14.3 million over the balance at December 31, 1993 or 2.7% and representing 29.3% of the loan portfolio. Commercial mortgages increased 3.7% or $14.3 million from December 31,1993 to March 31, 1994, also the result of refinancing activity due to decreased interest rates. It is expected that the increase in volume of installment and commercial mortgage loans will continue into the second quarter of 1994, while residential mortgage loan volume declines due to higher interest rates causing the recent slow-down in refinancing activity. Non-Performing Assets Non-performing assets include non-accrual loans, other real estate owned (OREO) and loans past due in excess of 90 days as to the collection of principal or interest payments. Non-performing assets were $33.1 million or 1.8% of loans, net of unearned income at March 31, 1994, compared with $30.2 million, or 1.5% of loans net of unearned income at December 31, 1993 and $34.1 million, or 1.9% of loans at March 31, 1993. During the quarter ended March 31, 1994 one loan became 90 days past due and still accruing (subsequently moved to non-accrual during the second quarter) causing an increase of $6.6 million in non-performing assets over December 31, 1993 which was partially offset by a decrease in non- accrual loans of $3.4 million during the same period and a small decrease in other real estate owned. In May of 1993, FASB issued Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan" which applies to financial statements for fiscal years beginning after December 15, 1994. This Statement requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependent. Valley has not yet determined the impact of this statement. - - - 10 - Asset Quality and Risk Elements The level of the allowance is the result of an on going analysis by management and Valley's Board of Directors. This analysis attempts to take into account various data so as to assess the level of the allowance. Emphasis is placed on the current economic climate and the condition of the real estate market in the Northern New Jersey area. Management addressed these current economic conditions and applied that information to changes in the composition of the loan portfolio. The level of non-performing assets, coupled with the continued recovery of the economy was responsible for the decision to decrease the provision from $1.5 million in the first quarter of 1993 to $900 thousand in the first quarter of 1994. Valley's allowance for loan loss increased by $380 thousand since year-end 1993. At March 31, 1994 the allowance for loan losses amounted to $35.6 million or 1.92% of loans, including loans held for sale, net of unearned income, as compared to $35.2 million or 1.95% at year-end 1993. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. Net loan charge-offs were $520 thousand for the quarter ended March 31, 1994 compared with $451 thousand for the quarter ended March 31, 1993. The ratio of annualized net charge-offs to average loans amounted to 0.12% for both quarters ended March 31, 1994 and 1993. Capital Adequacy A significant measure of the strength of a financial institution is its stockholders' equity, which must expand in close proportion to asset growth. At March 31, 1994, shareholders' equity totalled $271.0 million, compared with $264.4 million at year-end 1993. Valley has achieved steady internal capital generation throughout the past five years. Risk-based guidelines define a two-tier capital framework. Tier 1 capital consists of common shareholders' equity excluding SFAS 115 net unrealized gains or losses less disallowed intangibles, while total Tier 1 and Tier 2 capital consists of Tier 1 capital and the allowance for loan losses up to 1.25% of risk-adjusted assets. Risk-adjusted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities. Valley's capital position at March 31, 1994 under risk-based capital guidelines was $268.9 million, or 14.35% of risk-weighted assets, for Tier 1 capital and $292.4 million, or 15.60% for total Tier 1 and Tier 2 capital. The comparable ratios at December 31, 1993 were 13.93% for Tier 1 capital and 15.18% for total Tier 1 and Tier 2 capital. Valley's ratios at March 31, 1993 are above the risk-based capital standards, which require all bank holding companies to have Tier 1 capital of at least 4% and total Tier 1 and Tier 2 capital of 8%. The Federal Reserve Board requires each bank holding company to maintain a minimum leverage ratio of 3.0% (Tier 1 capital to average total assets). The minimum 3.0% leverage requirement applies only to top-rated banking organizations without any operating, financial or supervisory deficiencies. Other organizations are expected to hold an additional capital cushion of at least 100 to 200 basis points of Tier 1 capital. In all cases, banking organizations should maintain capital commensurate with the level and nature of all the risks to which they are exposed. At March 31, 1994 and December 31, 1993, Valley was in compliance with the leverage requirement having a Tier 1 leverage ratio of 7.92% and 7.62%, respectively. VNB is also subject to similar but separate capital adequacy guidelines. VNB is subject to risk-based capital rules and leverage rules issued by the Comptroller of the Currency. As of March 31, 1993, VNB's total Tier 1 and Tier 2 capital ratio was 14.24% and its leverage ratio was 7.11%. - - - 11 - 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 60.5% at March 31, 1994, compared to 66.5% at March 31, 1993. Quarterly cash dividends declared amounted to $.25 per share, equivalent to a dividend payout ratio of 39.5%, up from the 33.5% for the same quarter in 1993. Valley declared a 10% common stock dividend on March 22, 1994 to shareholders of record on April 15, 1994, payable May 3, 1994. Valley maintained the cash dividend at $1.00 per share per annum after the payment of the stock dividend. The Board of Directors during February increased the regular quarterly cash dividend from $0.20 to $0.25 per share, or from $0.80 to $1.00 per share per annum, a 25.0% increase, including the stock dividend. Valley's Board of Directors continues to believe that cash dividends are an important component of shareholder value and that at its current level of performance and capital, Valley expects to continue its current dividend policy of a quarterly distribution of earnings to its shareholders. - - - 12 - PART II Item 4. Submission of Matters to a Vote of Security Holders a) On March 22, 1994 the Annual Meeting of Shareholders of Valley National Bancorp was held. The Shareholders voted upon the election of 16 persons, named in the Proxy Statement, to serve as directors of the Corporation for the ensuing year. All directors were elected and there was no solicitation in opposition to management's nominees as listed in the proxy statement. The following is a list of directors elected at the Annual Meeting with the number of votes "For" and "Withheld". There were no abstentions. Number of Votes Name For Withheld Pamela Bronander 17557455 13481 Joseph Coccia, Jr. 17559417 11519 Austin C. Drukker 17561470 9467 Thomas P. Infusino 17561049 9888 Gerald Korde 17561470 9467 Gerald H. Lipkin 17560878 10058 Robert L. Marcalus 17561049 9888 Robert E. McEntee 17561470 9467 Sam P. Pinyuh 17559741 11196 Robert Rachesky 17561470 9467 Barnett Rukin 15560873 10064 Peter Southway 17523234 47702 Richard F. Tice 17561470 9467 Leonard J. Vorcheimer17561470 9467 Joseph L. Vozza 17561470 9467 b) On March 22, 1994 at the Annual Meeting of Shareholders, the shareholders voted for the approval of amendments to the Corporation's Long-Term Stock Incentive Plan approved by the shareholders on March 28, 1989 pursuant to which the Corporation may issue incentive stock options, nonqualified stock options, stock appreciation rights and restricted stock awards for up to 1,577,438 shares of the Corporation's common stock to officers and key employees of the Corporation and Valley National Bank. - - - 13 - Item 5. Other Matters a) The Board of Directors approved a ten percent common stock dividend on March 22, 1994. The new stock was issued May 3, 1994 to shareholders of record as of April 15, 1994. In conjunction with the announced stock dividend, the Board of Directors also approved to maintain the regular quarterly dividend of 25 cents. In connection with the stock dividend the company filed an amendment to its Certificate of Incorporation which increased the authorized common shares to 37,537,500 shares effective April 15, 1994. Item 6. Exhibits and Reports on Form 8-K b) Reports on Form 8-K 1) On March 22, 1994 to report a ten percent common stock dividend issued May 3, 1994. - - - 14 - 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. Date: May 13, 1994 PETER SOUTHWAY PRESIDENT & COO Date: May 13, 1994 ALAN D. ESKOW SENIOR VICE PRESIDENT FINANCIAL ADMINSTRATION - - - 15 - -----END PRIVACY-ENHANCED MESSAGE-----