-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V2JtrejeMYM30UISs+zSZfZXu9Tvdt1sR90Qn8TIlRq/14EaQzcfugQEBg3XhtFI ivbxgi66d3Gx4vpGY535aw== 0000714310-97-000010.txt : 19970520 0000714310-97-000010.hdr.sgml : 19970520 ACCESSION NUMBER: 0000714310-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALLEY NATIONAL BANCORP CENTRAL INDEX KEY: 0000714310 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [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: 001-11277 FILM NUMBER: 97608616 BUSINESS ADDRESS: STREET 1: 1445 VALLEY RD CITY: WAYNE STATE: NJ ZIP: 07474 BUSINESS PHONE: 2013058800 MAIL ADDRESS: STREET 1: 1445 VALLEY RD CITY: WAYNE STATE: NJ ZIP: 07474-0558 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q (Mark One) [X] Quarter Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Period Ended March 31, 1997 [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-11179 ---------------------- VALLEY NATIONAL BANCORP (Exact name of registrant as specified in its charter) New Jersey (State or other Jurisdiction of incorporation or organization) 22-2477875 (I.R.S. Employer Identification No.) 1455 Valley Road, Wayne, New Jersey 07474-0558 (Address of principal executive offices) 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 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 42,251,141 shares were outstanding as of May 1, 1997. TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page Number Item 1. Financial Statements Consolidated Statements of Financial Condition 3 March 31, 1997 and December 31, 1996 (Unaudited) Consolidated Statements of Income Three Months Ended March 31, 1997 and 1996 4 (Unaudited) Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 and 1996 5 (Unaudited) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7-15 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Matters 16 Item 6. Exhibits and Reports on Form 8-K. 16-17 SIGNATURES 18 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) ($ in thousands)
March 31, December 31, 1997 1996 Assets Cash and due from banks...............................$ 192,713 $ 196,995 Federal funds sold.................................... 45,000 82,450 Investment securities held to maturity, fair value of $204,760 and $257,213 in 1997 and 1996, respectively.. 204,254 255,277 Investment securities available for sale.............. 1,064,579 989,698 Loans, net of unearned income......................... 3,488,223 3,471,248 Less: Allowances for possible loan losses............ (45,911) (46,022) Loans, net............................................ 3,442,312 3,425,226 Premises and equipment, net........................... 72,546 71,244 Due from customers on acceptances outstanding......... 773 940 Accrued interest receivable........................... 30,009 29,808 Other assets.......................................... 64,933 63,909 Total assets................................ $5,117,119 $5,115,547 Liabilities Deposits: Non-interest bearing deposits................$ 683,595 $ 715,563 Interest bearing: Savings..............................1,911,488 1,835,476 Time ........................... 1,955,804 2,016,026 Total deposits............. 4,550,887 4,567,065 Federal funds purchased and securities sold under repurchase agreements......................... 19,166 23,339 Treasury tax and loan account and other short-term borrowings.................................... 27,764 17,202 Other borrowings....................................... 33,057 35,071 Bank acceptances outstanding........................... 773 940 Accrued expenses and other liabilities................. 48,986 41,546 Total liabilities............................$4,680,633 $4,685,163 Shareholders' Equity Common stock, no par value, authorized 75,000,000 shares, issued 40,486,490 shares in 1997 and 40,449,671 in 1996,...................... 22,341 22,321 Surplus ........................... 238,821 238,540 Retained earnings..................................... 187,493 176,853 Unrealized gain (loss) on investment securities available for sale, net of tax......................... (5,321) 259 443,334 437,973 Treasury stock, at cost (246,509 shares in 1997 and 272,093 shares in 1996)...................... (6,848) (7,589) Total shareholders' equity................... 436,486 430,384 Total liabilities and shareholders' equity...$5,117,119 $5,115,547
See accompanying notes to consolidated financial statements. VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ($ in thousands, except for per share data)
Three Months Ended March 31, 1997 1996 Interest Income Interest and fees on loans............................. $ 71,452 $ 64,463 Interest and dividends on investment securities: Taxable....................................... 15,262 18,049 Tax-exempt.................................... 2,818 3,370 Dividends..................................... 418 200 Interest on federal funds sold and other short term investments................................... 1,543 1,453 Total Interest Income......................... 91,493 87,535 Interest Expense Interest on deposits: Savings....................................... 10,455 10,379 Time ..................................... 27,613 26,567 Interest on federal funds purchased and securities sold under repurchase agreements................... 281 283 Interest on other short-term borrowings................ 218 160 Interest on other borrowings........................... 485 572 Total Interest Expense........................ 39,052 37,961 Net interest income.................................... 52,441 49,574 Provision for possible loan losses..................... 1,200 780 Net interest income after provision for possible loan losses................................... 51,241 48,794 Non-Interest Income Trust income........................................... 258 260 Service charges on deposit accounts.................... 2,909 2,761 Gains on securities transactions, net.................. 1,116 331 Fees from mortgage servicing........................... 1,126 1,015 Credit card income..................................... 2,538 474 Gains on sales of loans................................ 377 662 Other ..................................... 1,582 1,492 Total Non-Interest Income..................... 9,906 6,995 Non-Interest Expense Salaries expense....................................... 11,269 10,526 Employee benefit expense............................... 2,911 3,022 FDIC insurance premiums................................ 208 717 Occupancy and equipment expense........................ 4,461 4,606 Credit card expense.................................... 4,076 496 Amortization of intangible assets...................... 849 763 Other ..................................... 5,625 5,505 Total Non-Interest Expense.................... 29,399 25,635 Income before income taxes............................. 31,748 30,154 Income tax expense..................................... 10,848 10,735 Net Income............................................. $ 20,900 $ 19,419 Net income per share................................... $ 0.50 $ 0.45 Weighted average shares outstanding.................... 42,235,562 43,190,719
See accompanying notes to consolidated financial statements. VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($ in thousands)
Three Months Ended March 31, 1997 1996 Cash flows from operating activities: Net income....................................... $ 20,900 $ 19,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangible assets 2,626 2,372 Amortization of compensation costs pursuant to long term stock incentive plan.. 137 108 Provision for possible loan losses....... 1,200 780 Net amortization of premiums and discounts.. 502 943 Net gains on securities transactions........(1,116) (331) Proceeds from sale of loans................. 7,209 8,688 Gains on sales of loans..................... (377) (662) Proceeds from recoveries on charged-off loans 413 1,894 Net decrease in accrued interest receivable and other assets....................... 1,785 6,559 Net increase in accrued expenses and other liabilities 6,639 6,621 Net cash provided by operating activities: 39,918 46,391 Cash flows from investing activities: Proceeds from maturing investment securities held to maturity.................................18,096 8,313 Purchases of investment securities held to maturity (7,034) (998) Proceeds from sales of investment securities available for sale..........................29,206 23,667 Proceeds from maturing investment securities available for sale..........................60,544 100,873 Purchases of investment securities available for sale..................................(133,489) (92,551) Purchases and originations of mortgage servicing rights (13) (438) Net decrease in federal funds sold and other short term investments............................37,450 51,925 Net increase in loans made to customers.............(25,529) (54,054) Purchases of premises and equipment, net of sales....(3,079) (4,182) Net decrease (increase) in due from customers on acceptances outstanding..................... 167 (74) Net cash (used in) provided by investing activities: (23,681) 32,481 Cash flows from financing activities: Net decrease in deposits.......................... (16,178) (93,210) Net increase(decrease) in federal funds purchased and other short term borrowings.......... 6,389 (5,634) Advances of other borrowings...................... -- 20,000 Repayments of other borrowings.................... (2,014) (14) Net (decrease)increase in bank acceptances outstanding (167) 74 Dividends paid to common shareholders............. (9,101) (9,197) Addition of common shares to treasury............. -- (16,479) Common stock issued, net of cancellations......... 552 26 Net cash used in financing activities:... (20,519 (104,434) Net decrease in cash and due from banks.................... (4,282) (25,562) Cash and due from banks at January 1....................... 196,995 198,857 Cash and due from banks at March 31........................$ 192,713 173,295 Supplemental cash flow disclosure: Cash paid for interest on deposits and other borrowings $ 39,084 37,643 Cash paid for federal and state income taxes......$ 86 900 Transfer of Midland securities held to maturity to securities available for sale..................$ 39,833 --
See accompanying notes to consolidated financial statements. VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Consolidated Financial Statements The Consolidated Statements of Financial Condition as of March 31, 1997 and December 31, 1996, the Consolidated Statements of Income for the three month periods ended March 31, 1997 and 1996 and the Consolidated Statements of Cash Flows for the three month periods ended March 31, 1997 and 1996 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, 1997 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, 1996 Annual Report to Shareholders. The Consolidated Statement of Financial Condition as of December 31, 1996 and the Consolidated Statements of Income and Cash Flows for the three month period ended March 31, 1996 have been restated to include the merger of Midland Bancorporation, Inc. on the close of business February 28, 1997 in a transaction accounted for as a pooling of interest. 2. Earnings Per Share Earnings per share amounts and weighted average shares outstanding have been restated to reflect the 5% stock dividend declared April 2, 1997 to Shareholders of record on April 30, 1997 and payable May 15, 1997. Balances and share amounts included in Shareholders' Equity on the Statement of Financial Condition have not been restated for the 5% stock dividend or the increase in authorized common stock. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Development Effective as of the close of business on February 28, 1997, Valley consummated its previously announced merger agreement with Midland Bancorporation, Inc. ("Midland"), parent of The Midland Bank and Trust Company ("Midland Bank"), headquartered in Paramus, New Jersey. On December 31, 1996 Midland had total assets of $438.9 million and deposits of $401.6 million, with 13 branches located in Bergen County, New Jersey. The transaction was accounted for using the pooling of interests method of accounting and resulted in the issuance of approximately 3,775,000 shares of Valley common stock. Each share of common stock of Midland was exchanged for 30 shares of Valley common stock. Earnings Summary Net income was $20.9 million, or $0.50 per share for the three month period ended March 31, 1997 compared with $19.4 million or $0.45 per share for the three month period ended March 31, 1996 (1996 amounts have been restated for the Midland merger and earnings per share amounts have been restated to give effect to a 5% stock dividend payable May 15, 1997). The annualized return on average assets increased to 1.64% from 1.57%, while the annualized return on average equity also increased to 19.34% from 17.93%, for the quarters ended March 31, 1997 and 1996, respectively. This increase in net income is largely attributable to an increase in net interest income of $2.9 million, offset by increased net expenses from the Shop-Rite credit card program. Net Interest Income Net interest income is the largest source of Valley's operating income. Net interest income on a tax equivalent basis increased to $54.1 million from $51.6 million for the quarter ended March 31, 1997 as compared to the quarter ended March 31, 1996. The increase in net interest income is due primarily to increased loan volume funded from the sale and maturities of investment securities and growth in deposits, resulting in an increase in the net interest margin to 4.48% for the quarter ended March 31, 1997 compared to 4.43% for the same quarter in 1996. Average interest earning assets increased $177.4 million in 1997, or 3.8% over the 1996 amount. This increase was mainly the result of an increased volume of credit card loans, automobile loans, commercial mortgages and commercial loans. Average loans increased by $399.6 million or 13.1% over the 1996 amount. The average rate on loans was negatively impacted by balances not paying interest and the introductory below market interest rates offered on co-branded credit cards. The increase in average loan volume caused interest income on loans for 1997 to increase by $7.0 million over 1996. Offsetting this increase, was a decline in average taxable and tax exempt investment securities of $227.4 million or 15.1% from the amount in the portfolio during 1996. Average interest-bearing liabilities grew 2.6% or $101.6 million. Deposit growth, similar to the past few years, was held to a small increase due to competitive factors and alternative investment opportunities for consumers. Average demand deposits continued to grow and increased by $65.7 million or 10.9% over 1996 balances. Average savings deposits decreased by $9.5 million or 0.5%, while average time deposits increased $116.7 million or 5.9%. The following table reflects the components of net interest income for the three months ended March 31, 1997 and 1996. ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST EARNINGS ON A TAX EQUIVALENT BASIS
Three Months Ended Three Months Ended March 31, 1997 March 31, 1996 Average Avg Average Avg Balance Interest Rate Balance Interest Rate Assets Interest earning assets Loans (1) (2)...........$3,439,764 $ 71,634 8.33% $3,040,167 $ 64,680 8.51% Taxable investments (3).......... 1,018,858 15,680 6.16 1,196,441 18,249 6.10 Tax-exempt investments (1) (3)... 255,104 4,336 6.80 304,877 5,184 6.80 Federal funds sold and other short-term investments (1) 119,937 1,543 5.15 114,740 1,453 5.07 Total interest earning assets....$4,833,663 $ 93,193 7.71% $4,656,225 $ 89,566 7.69% Allowance for possible loan losses ..... (46,237) (45,360) Unrealized loss on securities available for sale...... (2,497) (258) Cash and due from banks.......... 166,878 177,527 Other assets ...... 156,298 158,281 Total assets............$5,108,105 $4,946,415 Liabilities and Shareholders' Equity Interest bearing liabilities Savings deposits........$1,792,488 $ 10,455 2.33% $1,801,964 $ 10,379 2.30% Time deposits........... 2,096,869 27,613 5.27 1,980,209 26,567 5.37 Total interest bearing deposits........3,889,357 38,068 3.92 3,782,173 36,946 3.91 Federal funds purchased and securities sold under repurchase agreements 26,237 281 4.28 25,517 283 4.45 Other borrowings................... 48,583 703 5.79 54,934 732 5.33 Total interest bearing liabilities3,964,177 39,052 3.94 3,862,624 37,961 3.93 Demand deposits................... 669,967 604,242 Other liabilities................. 41,706 46,424 Shareholders' equity.............. 432,255 433,125 Total liabilities and shareholders' equity...5,108,105 $4,946,415 Net interest income (tax equivalent basis)........ 54,141 51,605 Tax equivalent adjustment......... (1,700) (2,031) Net interest income............... $ 52,441 $ 49,574 Net interest rate differential.... 3.77% 3.76% Net interest margin (4)........... 4.48% 4.43%
(1) Interest income is presented on a tax equivalent basis using a 35% tax rate. (2) Loans are stated net of unearned income, and include non-accrual loans. (3) The yield for securities that are classified as available for sale is based on the average historical amortized cost. (4) Net interest income on a tax equivalent basis as a percentage of earning assets. The following table demonstrates the relative impact on net interest income of changes in volume of earning assets and interest bearing liabilities and changes in rates earned and paid by Valley on such assets and liabilities. CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
1997 Compared to 1996 Increase (Decrease) (2) Interest Volume Rate (in thousands) Interest income: Loans (1) ..........................$ 6,954 $ 8,346 $(1,392) Taxable investments................................ (2,569) (2,732) 163 Tax-exempt investments (1)......................... (848) (846) (2) Federal funds sold and other short term investments...................... 90 68 22 3,627 4,836 (1,209) Interest expense: Savings deposits................................... 76 (55) 131 Time deposits...................................... 1,047 1,543 (496) Federal funds purchased and securities sold under repurchase agreements....................... (24) 7 (31) Other borrowings................................... (8) (89) 81 1,091 1,406 (315) Net interest income..................................$ 2,536 $ 3,430 $ (894)
(1) Interest income is adjusted to a tax equivalent basis using a 35% 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. Non-Interest Income The following table presents the components of non-interest income for three months ended March 31, 1997 and 1996. NON-INTEREST INCOME
Three Months Ended March 31, 1997 1996 (in thousands) Trust income..................................... $ 258 $ 260 Service charges on deposit accounts 2,909 2,761 Gains on securities transactions, net 1,116 331 Fees from mortgage servicing..................... 1,126 1,015 Credit card income............................... 2,538 474 Gains on sales of loans.......................... 377 662 Other............................................ 1,582 1,492 Total................................... $9,906 $6,995
Non-interest income continues to represent a considerable source of income for Valley. Excluding gains on securities transactions, total non-interest income amounted to $8.8 million for the quarter ended March 31, 1997 compared with $6.7 million for the quarter ended March 31, 1996. Fees from mortgage servicing increased by 10.9% from $1.0 million for the quarter ended March 31, 1996 to $1.1 million for the quarter ended March 31, 1997. This reflects the increase in the size of the serviced portfolio. Included in credit card income is merchant discount income and net interchange fees. The increase in credit card income is the result of a co-branded credit card program that began during the second quarter of 1996. Gains on the sales of loans were $377 thousand for the three months ended March 31, 1997 compared to $662 thousand for the three months ended March 31, 1996. The gains recorded are primarily from the sale of the guaranteed portion of SBA loans. The significant components of other non-interest income include safe deposit rentals and gain on the sale of REO property. Other non-interest income increased $90 thousand to $1.6 million for the three months ended March 31, 1997 in comparison to the same period in 1996. Non-Interest Expense The following table presents the components of non-interest expense for the three months ended March 31, 1997 and 1996. NON-INTEREST EXPENSE
Three Months Ended March 31, 1997 1996 (in thousands) Salary expense........................ $ 11,269 $ 10,527 Employee benefit expense.............. 2,911 3,022 FDIC insurance premiums............... 208 717 Occupancy expense..................... 4,461 4,605 Credit card expense................... 4,076 496 Amortization of intangible assets..... 849 763 Other................................. 5,625 5,505 Total........................... $ 29,399 $ 25,635
Non-interest expense totalled $29.4 million for the three month period ended March 31, 1997, an increase of 14.7% from the 1996 level. The largest component of non-interest expense is salaries and employee benefit expense which totalled $14.2 million in 1997 compared to $13.5 million in 1996. At March 31, 1997, full-time equivalent staff was 1,560 compared to 1,525 at March 31, 1996. 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 three months ended March 31, 1997 is 46.3%, one of the lowest in the industry, compared with an efficiency ratio for the year 1996 of 46.7%. Valley strives to control its efficiency ratio and expenses as a means of producing increased earnings for its shareholders. Valley's deposit base consists of both BIF and SAIF deposits. BIF deposits, which represent approximately 70% of the insurable deposit base, were exempt from premiums in 1996. As a result of the Funds Act enacted in 1996, Valley is paying insurance premiums on both its BIF and SAIF deposits beginning in 1997, however, the revised rate structure resulted in a decline in the premium expense. Credit card expense includes cardmember rebates, processing expenses, and fraud losses. The increase in credit card expenses is directly attributable to the co-branded credit card that VNB began issuing during the second quarter of 1996. Amortization of intangible assets increased to $849 thousand for the three months ended March 31, 1997 from $763 thousand for the same period in 1996, representing an increase of $86 thousand or 11.3%. The majority of this increase resulted from the increase in amortization of purchased mortgage servicing rights. The significant components of other non-interest expense include advertising, professional fees, postage, telephone expense and REO expense which total approximately $2.7 for the three months ended March 31, 1997. Income Taxes Income tax expense as a percentage of pre-tax income was 34.2% for the three months ended March 31, 1997 compared to 35.6% for the same period in 1996. The decreased percentage is attributable to a reduction in state income taxes. ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity 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 alternative scenarios to measure levels of net interest income associated with various changes in interest rates. According to the model, an interest rate increase or decrease of 100 basis points resulted in an impact on net interest income over the next twelve months of less than 1-1/2%, while an increase in interest rates of 300 basis points would impact net interest income by about 1-1/2%. These amounts are consistent with the target levels contained in Valley's Asset/Liability Policy, which permits a maximum impact in a rising or falling interest rate scenario of plus or minus 5% of net interest income. Management cannot provide any assurance about the actual effect of changes in interest rates on Valley's net interest income. At March 31, 1997, rate sensitive assets exceeded rate sensitive liabilities at the 0-3 month interval and resulted in a positive gap of $688.2 million or a ratio of 1.68:1. The total positive gap repricing within 1 year as of March 31, 1997 is $313.3 million or 1.19:1. 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. 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, 1997, liquid assets amounted to $1.3 billion, unchanged from December 31, 1996. This represents 27.4% and 27.2% of earning assets, and 25.7% and 25.5% of total assets at March 31, 1997 and year-end 1996, 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 $3.30 billion and $3.23 billion for the three months ended March 31, 1997 and year ended December 31, 1996, respectively, representing 68.2% and 67.2% of average earning assets. Short term borrowings through Federal funds lines and Federal Home Loan Bank ("FHLB") advances and large dollar certificates of deposit, generally those over $100 thousand, are used as supplemental funding sources. As of March 31, 1997, Valley had outstanding advances of $32.5 million with the FHLB. 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 $29.2 million, and proceeds of $78.6 million were generated from investment maturities. Purchases of investment securities were $140.5 million. Short term borrowings and certificates of deposit over $100 thousand amounted to $637.1 million and $628.3 million, on average, for the three months ended March 31, 1997 and year ending December 31, 1996, 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. Investment Securities As of March 31, 1997 Valley had $1.1 billion of securities available for sale compared with $990 million at December 31, 1996. These securities are recorded at their fair value on an aggregate basis. As of March 31, 1997 the investment securities available for sale had an unrealized loss of $5.3 million, net of deferred taxes, compared to an unrealized gain of $259 thousand, net of deferred taxes, at December 31, 1996. This change was primarily due to a decrease in market values, resulting from increased interest rates. These securities are not considered trading account securities, which may be sold on a continuous basis, but rather securities which may be sold to meet the various liquidity and interest rate requirements of Valley. Loan Portfolio The following table reflects the composition of the loan portfolio as of March 31, 1997 and December 31, 1996. LOAN PORTFOLIO
March 31, December 31, 1997 1996 Commercial $ 458,355 $ 466,580 Total commercial loans 458,355 466,580 Construction 84,694 87,486 Residential mortgage 923,009 924,764 Commercial mortgage 813,089 786,916 Total mortgage loans 1,820,792 1,799,166 Home equity 171,037 174,534 Credit card 137,751 149,494 Automobile 801,513 798,436 Other consumer 99,109 83,555 Total consumer loans 1,209,410 1,206,019 Less: unearned income (334) (517) Loans, net of unearned income $3,488,223 $3,471,248 As a percent of total loans: Commercial loans 13.1% 13.5% Mortgage loans 52.2 51.8 Consumer loans 34.7 34.7 Total loans 100.0% 100.0%
During the second quarter of 1996, Valley announced and began issuing a co-branded credit card, the ShopRite Mastercard. Of the $137.8 million of credit card loans outstanding at March 31, 1997, approximately $119.5 million are the result of this co-branded credit card program. Valley National Bank entered into an agreement with an affiliate of the State Farm Insurance Company under which, on an experimental basis, participating State Farm Insurance agents will act as agents for Valley in assisting potential borrowers in obtaining home mortgage financing from Valley National Bank. State Farm will assist Valley by publicizing Valley's home mortgage products in test regions and educating agents about the products. This program merely expands upon a long-standing relationship between the parties. This is an experimental program and it is not anticipated that the program will have a material impact on the financial statements of Valley National Bancorp for the foreseeable future. Non-Performing Assets Non-performing assets include non-accrual loans and other real estate owned (OREO). Non- performing assets continued to decrease, and totalled $14.2 million at March 31, 1997 compared with $16.9 million at December 31, 1996, a decrease of $2.7 million, or 16.2%. Non- performing assets at March 31, 1997 and December 31, 1996, respectively, amounted to 0.41% and 0.49% of loans and other real estate owned. Loans 90 days or more past due and not included in the non-performing category totaled $12.0 million at March 31, 1997, compared to $10.2 million at December 31, 1996. These loans are primarily residential mortgage loans, commercial mortgage loans and commercial loans which are generally well-secured and in the process of collection. The following table sets forth non-performing assets and accruing loans which are 90 days or more past due as to principal or interest payments on the dates indicated, in conjunction with asset quality ratios for Valley. LOAN QUALITY
March 31, December 31, 1997 1996 (in thousands) Loans past due in excess of 90 days and still accruing..... $ 11,967 $ 10,166 Non-performing loans............. $ 10,201 $ 13,182 Other real estate owned.......... 3,987 3,750 Total non-performing assets.... $ 14,188 $ 16,932 Troubled debt restructured loans. $ 5,335 $ 5,363 Non-performing loans as a % of loans................... 0.29% 0.38% Non-performing assets as a % of loans plus other real estate owned................... 0.41% 0.49% Allowance as a % of loans........ 1.32% 1.33% Allowance as a % of non-performing assets.......... 323.59% 271.80%
Asset Quality and Risk Elements At March 31, 1997, the allowance for loan losses amounted to $45.9 million or 1.32% of loans, net of unearned income, as compared to $46.0 million or 1.33% at year-end 1996. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. Net loan charge-offs were $1.3 million for the three months ended March 31, 1997 compared with net recoveries of $444 thousand for the three months ended March 31, 1996. Capital Adequacy A significant measure of the strength of a financial institution is its shareholders' equity, which should expand in close proportion to asset growth. At March 31, 1997, shareholders' equity totalled $436.5 million or 8.5% of total assets, compared with $430.4 million or 8.4% at year-end 1996. Valley has achieved steady internal capital generation throughout the past five years. Included in shareholders equity at March 31, 1997 is a $5.3 million unrealized loss on investment securities available for sale, net of tax, compared to an unrealized gain of $259 thousand at December 31, 1996. Valley's capital position at March 31, 1997 under risk-based capital guidelines was $437.4 million, or 12.6% of risk-weighted assets, for Tier 1 capital and $481.0 million, or 13.8% for Total risked-based capital. The comparable ratios at December 31, 1996 were 12.2.% for Tier 1 capital and 13.5% for Total risk-based capital. Valley's ratios at March 31, 1997 are above the "well capitalized" requirements, which require Tier I capital of at least 6% and Total risk-based capital of 10%. The Federal Reserve Board requires "well capitalized" bank holding companies to maintain a minimum leverage ratio of 5.0%. At March 31, 1997 and December 31, 1996, Valley was in compliance with the leverage requirement having a Tier 1 leverage ratio of 8.57% and 8.35%, respectively. Book value per share amounted to $10.33 at March 31, 1997 compared with $10.20 per share at December 31, 1996. 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 51.9% for the three month period ended March 31, 1997, compared to 52.8% for the three month period ended March 31, 1996. Cash dividends declared amounted to $.24 per share for the quarter ended March 31, 1997, equivalent to a dividend payout ratio of 48.1%, compared to 47.2% for the same quarter 1996. Valley declared a 5% common stock dividend on April 2, 1997 to shareholders of record on April 30, 1997, payable May 15, 1997. The annual dividend rate will be increased to $1.10 per share after the stock dividend. The cash dividend increase will be payable quarterly beginning on July 1, 1997. 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. Recent Accounting Pronouncements In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on consistent application of a financial components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 is effective for transfers that occur after December 31, 1996, and has been applied prospectively. The adoption of SFAS No. 125 did not have a material effect on the financial position or results of operation of Valley. In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which specifies the computation, presentation, and disclosure requirements for earnings per share (EPS). SFAS No. 128 was issued to simplify the computation of EPS and to make the U.S. standard more compatible with the EPS standards of other countries and that of the International Accounting Standards Committee: (IASC). It replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. It also requires dual presentation of Basic EPS and Diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the Basic EPS computation to the numerator and denominator of the Diluted EPS computation. Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS, like Fully Diluted EPS, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. SFAS 128 is effective for financial statements for both interim and annual periods after December 15, 1997. Earlier application is not permitted. After adoption, all prior period EPS data presented shall be restated (including interim financial statements, summaries of earnings and selected financial data) to conform with SFAS 128. PART II Item 4. Submission of Matters to a Vote of Security Holders a) On April 2, 1997 the Annual Meeting of Shareholders of Valley National Bancorp was held. The Shareholders voted upon the election of 19 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 Andrew Abramson 26,344,035 183,605 Pamela Bronander 26,338,608 189,032 Joseph Coccia, Jr. 26,344,035 183,605 Austin C. Drukker 26,343,308 184,332 Willard L. Hedden 26,187,462 340,176 Graham O. Jones 26,343,850 183,790 Walter H. Jones, III 26,329,883 197,757 Gerald Korde 26,344,035 183,605 Gerald H. Lipkin 26,330,272 197,368 Joleen Martin 26,342,703 184,937 Robert E. McEntee 26,342,159 185,481 William McNear 26,184,627 343,011 Sam P. Pinyuh 26,341,354 186,286 Robert Rachesky 26,339,960 187,679 Barnett Rukin 26,337,930 189,710 Peter Southway 26,270,035 257,605 Richard F. Tice 26,341,694 185,946 Leonard J. Vorcheimer 26,342,703 184,937 Joseph L. Vozza 26,341,354 186,286 Item 5. Other Matters a) The Board of Directors approved a five percent common stock dividend on April 2, 1997. The new stock will be issued May 15, 1997 to shareholders of record as of April 30, 1997. Item 6. Exhibits and Reports on Form 8-K a) Exhibits (3) Article of Incorporation and Bylaws Restated Certificate of Incorporation of the Registrant dated April 30, 1997 (10) Material Contracts No material contracts entered into or becoming effective in the Reporting Period. (27) Financial Data Schedule b) Reports on Form 8-K 1) Filed March 13, 1997 to report the merger of Midland Bancorporation, Inc. into Valley National Bancorp effective as of the close of business on February 28, 1997. 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: May 14, 1997 /s/ Peter Southway PETER SOUTHWAY VICE CHAIRMAN Date: May 14, 1997 /s/ Alan D. Eskow ALAN D. ESKOW SENIOR VICE PRESIDENT FINANCIAL ADMINISTRATION INDEX TO EXHIBITS Exhibit No. Description 3 Restated Certificate of Incorporation of the Registrant dated April 30, 1997. EX-3 2 EXHIBIT 3 EXHIBIT 3 AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF VALLEY NATIONAL BANCORP Valley National Bancorp, a New Jersey corporation, pursuant to N.J.S.A. 14A:7-15.1, does hereby certify as follows: (a) The name of the corporation is: Valley National Bancorp (the "Corporation"). (b) A five percent (5%) stock split was declared by the Corporation on April 2, 1997, pursuant to which one share of Common Stock, no par value, will be distributed for each twenty (20) shares of Common Stock, no par value, held by shareholders on the record date of April 30, 1997, effective April 30, 1997. A resolution approving the share division was adopted by the Board of Directors of the Corporation at its regular meeting held on the 2nd day of April, 1997. (c) The share division will not adversely affect the rights or preferences of the holders of outstanding shares and will not result in the percentage of authorized shares that remains unissued after the share division exceeding the percentage of authorized shares that was unissued before the share division. (d) There were issued and outstanding, as of the record date of April 30, 1997, 40,240,903 shares of Common Stock without par value which are the shares subject to the share division. As a result of the share division in which one share will be issued for every twenty (20) shares issued and outstanding, those 40,240,903 will be divided into 42,252, 948 shares issued and outstanding. (e) The Corporation is hereby amending its certificate of incorporation in connection with the share distribution as follows: The existing "Article V" is deleted in its entirety. In lieu thereof, the following Article V is added to the certificate of incorporation: "The Corporation is authorized to issue 78,750,000 shares of common stock without nominal or par value." (f) The share division and amendment are to become effective as of April 30, 1997. IN WITNESS WHEREOF, Alan D. Eskow, Senior Vice President and Corporate Secretary of Valley National Bancorp has executed this Certificate on behalf of Valley National Bancorp on this 29th day of April, 1997. VALLEY NATIONAL BANCORP By: /s/ Alan D. Eskow ALAN D. ESKOW Senior Vice President and Corporate Secretary EX-27 3 FDS --
9 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 192,713 0 45,000 0 1,064,579 204,254 204,760 3,488,223 45,911 5,117,119 4,550,887 46,930 49,759 33,057 0 0 22,341 414,145 5,117,119 71,452 18,498 1,543 91,493 38,068 39,052 52,441 1,200 1,116 29,399 31,748 31,748 0 0 20,900 0.50 0.50 4.48 10,201 11,967 5,335 0 46,022 1,723 412 45,911 37,274 34 8,603 -----END PRIVACY-ENHANCED MESSAGE-----