-----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, Qq1i0Tn9XRyCKGfuIt+sZc2fpEiVgEheHG3AcTuBgUnpPG6EmYYOQAAPOwdAxgRG zGVd7nB1nkw7HFLxO1ETWA== 0000950123-96-000902.txt : 19960301 0000950123-96-000902.hdr.sgml : 19960301 ACCESSION NUMBER: 0000950123-96-000902 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960229 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11179 FILM NUMBER: 96528575 BUSINESS ADDRESS: STREET 1: 1445 VALLEY RD CITY: WAYNE STATE: NJ ZIP: 07474 BUSINESS PHONE: 2013058800 10-K 1 VALLEY NATIONAL BANCORP 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 22-2477875 (STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1455 VALLEY ROAD 07474 WAYNE, NEW JERSEY (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201-305-8800 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------------------------------------------------------- Common Stock, no par value New York Stock Exchange, Inc.
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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $831,051,000 on January 31, 1996. There were 35,713,374 shares of Common Stock outstanding at January 31, 1996. DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's Definitive Proxy Statement (the "1996 Proxy Statement") for the 1996 Annual Meeting of shareholders to be held April 2, 1996 will be incorporated by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................................... 1 Item 2. Properties.................................................................. 6 Item 3. Legal Proceedings........................................................... 6 Item 4. Submission of Matters to a Vote of Security Holders......................... 7 Item 4A. Executive Officers of the Registrant........................................ 7 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters....... 7 Item 6. Selected Financial Data..................................................... 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................... 9 Item 8. Financial Statements and Supplementary Data: Valley National Bancorp and Subsidiaries: Consolidated Statements of Income...................................... 26 Consolidated Statements of Financial Condition......................... 27 Consolidated Statements of Changes in Shareholders' Equity............. 28 Consolidated Statements of Cash Flows.................................. 29 Notes to Consolidated Financial Statements............................. 30 Independent Auditors' Report........................................... 50 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................................. 51 PART III Item 10. Directors and Executive Officers of the Registrant.......................... 51 Item 11. Executive Compensation...................................................... 51 Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 51 Item 13. Certain Relationships and Related Transactions.............................. 51 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 51 Signatures.............................................................................. 53
3 PART I ITEM 1. BUSINESS Valley National Bancorp ("Valley") is a New Jersey corporation incorporated as a bank holding company under the Bank Holding Company Act of 1956, as amended ("Holding Company Act"). At December 31, 1995, Valley had consolidated total assets of $4.6 billion, total deposits of $4.1 billion, and total shareholders' equity of $400.2 million. Its principal subsidiary is Valley National Bank ("VNB"). VNB is a national banking association chartered in 1927 under the laws of the United States. VNB provides a full range of commercial and retail banking services through 80 branch offices located in northern New Jersey. These services include the acceptance of demand, savings and time deposits; extension of consumer, real estate, Small Business Administration and other commercial credits; and full personal and corporate trust services, as well as pension and fiduciary services. VNB has five New Jersey wholly-owned subsidiaries which include a mortgage servicing company, a real estate company which holds and disposes of real estate which VNB may acquire through foreclosure, an investment company which holds, maintains and manages tangible investment assets for VNB, an investment banking company which offers investment banking services to middle market companies, and an Edge Act Corporation which is the holding company for a wholly-owned finance company located in Toronto, Canada. The mortgage servicing company services loans for others as well as VNB. RECENT DEVELOPMENTS On February 28, 1995, Valley acquired American Union Bank ("American"), headquartered in Union, New Jersey, with two branches and approximately $58 million in assets. The transaction resulted in the issuance of 288,734 shares of Valley common stock and was accounted for using the pooling of interests method of accounting. The financial statements for Valley have not been restated to include American as they would not have been materially different from those presented. American's financial statements are included in Valley's consolidated financial statements as of January 1, 1995. Each share of common stock of American was exchanged for 0.50 shares of Valley common stock. On June 30, 1995 Valley acquired the $671 million asset Lakeland First Financial Group, Inc. ("LFG"), the holding company for Lakeland Savings Bank ("Lakeland"), a state chartered savings bank headquartered in Succasunna, New Jersey, with sixteen branches in Morris, Sussex and Warren counties, New Jersey. The transaction resulted in the issuance of 5,136,446 shares of Valley common stock and was accounted for using the pooling of interests method of accounting. Each share of common stock of LFG was exchanged for 1.286 shares of Valley common stock. Valley began offering investment banking services to middle market companies in 1995 through its recently chartered investment banking subsidiary, Halidon Hill & Co., which provides a full range of merger and acquisition advisory services, private placement of debt and equity, strategic planning services, and also offers advice to middle market firms with respect to management buyouts, capital formation strategies and recapitalizations. During the fourth quarter of 1995, Valley received all the necessary approvals to establish a finance company in Toronto, Canada. The finance company will make consumer loans in Canada, primarily auto loans, utilizing Valley's expertise in the area and extending to Canada the existing referral program Valley has with a major insurance company. Valley anticipates that the Canadian finance company will become operational during the first quarter of 1996. VNB is a credit card issuer and has initiated several successful affinity programs during 1994 and 1995, primarily with local municipalities in New Jersey. In late 1995, VNB signed a letter of intent with a proposed partner for a substantial co-branding credit card program. VNB anticipates this program, if it occurs, could add a significant number of credit card accounts to VNB within two years. The program is subject to the execution of a definitive agreement and if the parties reach a definitive agreement, VNB anticipates this program will begin in the second quarter of 1996. Management can offer no assurance that VNB and its proposed partner will enter into a definitive agreement. 1 4 During 1995 the Board of Directors authorized the repurchase of up to one million shares of Valley's common stock. As of December 31, 1995 the company has purchased 563,160 shares, all of which have been reissued under the company's stock option plan and expired warrant program. Subsequent to December 31, 1995, through February 15, 1996, approximately 115,000 additional shares were purchased for the treasury. On February 20, 1996, the Board of Directors authorized the repurchase of an additional one million shares of Valley's common stock to be used for employee benefit programs and other general corporate purposes. COMPETITION The market for banking and bank related services is highly competitive. Valley and its subsidiary compete with other providers of financial services such as other bank holding companies, commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage companies, and a growing list of other local, regional and national institutions which offer financial services. Mergers between financial institutions within New Jersey and in neighboring states have added competitive pressure. Competition is expected to intensify as a consequence of interstate banking laws now in effect or that may be in effect in the future. Valley and its subsidiary compete by offering quality products and convenient services at competitive prices. In order to maintain and enhance its competitive position, Valley regularly reviews its products, locations and various acquisition prospects and periodically engages in discussions regarding such possible acquisitions. EMPLOYEES At year-end 1995, VNB and its subsidiaries employed 1,304 full-time equivalent persons. Management considers relations with employees to be satisfactory. SUPERVISION AND REGULATION The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to deploy assets and maximize income. The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the bank. It is intended only to briefly summarize some material provisions. BANK HOLDING COMPANY REGULATION Valley is a bank holding company within the meaning of the Holding Company Act. As a bank holding company, Valley is supervised by the Board of Governors of the Federal Reserve System ("FRB") and is required to file reports with the FRB and provide such additional information as the FRB may require. The Holding Company Act prohibits Valley, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident thereto." The Holding Company Act requires prior approval by the FRB of the acquisition by Valley of more than five percent of the voting stock of any additional bank. Under current law, a New Jersey based bank holding company, like Valley, is permitted to acquire banks located in New Jersey and in certain other states if the states had enacted laws specifically to permit acquisitions of banks by out-of-state bank holding companies having the largest proportion of their deposits in New Jersey. Satisfactory capital ratios and Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions. Acquisitions through Valley National Bank require approval of the Comptroller of the Currency of the United States ("OCC"). Statewide branching is permitted in New Jersey. The Holding Company Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act") passed by Congress and signed into law on September 29, 1994, significantly changed interstate banking rules. Pursuant to the Interstate Banking and Branching Act, bank holding companies are able to acquire banks in states other than its home state effective September 29, 1995, regardless of applicable state law. 2 5 The Interstate Banking and Branching Act also authorizes banks to merge across state lines, thereby creating interstate branches, beginning June 1, 1997. Under such legislation, each state has the opportunity either to "opt out" of this provision, thereby prohibiting interstate branching in such states, or to "opt in" at an earlier time, thereby allowing interstate branching within that state prior to June 1, 1997. Furthermore, a state may "opt-in" with respect to de novo branching, thereby permitting a bank to open new branches in a state in which the bank does not already have a branch. Without de novo branching, an out-of-state bank can enter the state only by acquiring an existing bank. The New Jersey legislature is presently examining whether it will opt-in with respect to earlier interstate banking and branching, as well as whether it will authorize de novo branching and the entry into New Jersey of foreign country banks. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on Valley cannot be determined at this time. The policy of the FRB provides that a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support such subsidiary bank in circumstances in which it might not do so absent such policy. REGULATION OF BANK SUBSIDIARY VNB is subject to the supervision of, and to regular examination by, the OCC. Various laws and the regulations thereunder applicable to Valley and its bank subsidiary impose restrictions and requirements in many areas, including capital requirements, the maintenance of reserves, establishment of new offices, the making of loans and investments, consumer protection, employment practices and other matters. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, to the extent which a bank subsidiary may finance or otherwise supply funds to its holding company or its holding company's non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank) or take their securities as collateral for loans to any borrower. Each bank subsidiary is also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions. DIVIDEND LIMITATIONS Valley is a legal entity separate and distinct from its subsidiaries. Valley's revenues (on a parent company only basis) result in part from dividends paid to Valley by VNB. Payment of dividends to the Company by its subsidiary bank, without prior regulatory approval, is subject to regulatory limitations. Under the National Bank Act, dividends may be declared only if, after payment thereof, capital would be unimpaired and remaining surplus would equal 100 percent of capital. Moreover, a national bank may declare, in any one year, dividends only in an amount aggregating not more than the sum of its net profits for such year and its retained net profits for the preceding two years. Under this limitation, VNB could declare dividends in 1996 without prior approval of the OCC of up to $59,540,000 plus an amount equal to VNB's net profits for 1996 to the date of such dividend declaration. In addition, the bank regulatory agencies have the authority to prohibit a bank subsidiary from paying dividends or otherwise supplying funds to Valley if the supervising agency determines that such payment would constitute an unsafe or unsound banking practice. TRANSACTIONS WITH RELATED PARTIES VNB's authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of 12 U.S.C. 375 of the National Bank Act and Regulation O of the FRB thereunder. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with 3 6 unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank's capital. In addition, extensions of credit in excess of certain limits must be approved by the bank's board of directors. COMMUNITY REINVESTMENT Under the Community Reinvestment Act ("CRA"), as implemented by OCC regulations, a national bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OCC, in connection with its examination of a national bank, to assess the association's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such association. The CRA also requires all institutions to make public disclosure of their CRA ratings. VNB received a "Satisfactory" CRA rating in its most recent examination. In April 1995, the OCC and the other federal banking agencies adopted amendments revising their CRA regulations. Among other things, the amended CRA regulations substitute for the prior process-based assessment factors a new evaluation system that would rate an institution based on its actual performance in meeting community needs. In particular, the proposed system would focus on three tests: (i) a lending test, to evaluate the institution's record of making loans in its service areas; (ii) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution's delivery of services through its branches, ATMs and other offices. The amended CRA regulations also clarify how an institution's CRA performance would be considered in the application process. RESTRICTIONS ON ACTIVITIES OUTSIDE THE UNITED STATES The Corporation's activities in Canada are subject to Section 25 and 25A of the Federal Reserve Act, certain regulations under the National Bank Act and, primarily, Regulation K promulgated by the FRB. Under these provisions, VNB may invest no more than 10% of its capital in foreign banking operations. In addition to investments, VNB may extend credit or guarantee loans for these entities and such loans or guarantees are generally not subject to the loans to one person limitation, although they are subject to prudent banking limitations. The foreign banking operations are subject to supervision by the FRB, as well as the OCC. Regulation K generally restricts activities by United States banks outside of the United States to activities that are permitted for banks within the United States. As a consequence, activities by VNB through its subsidiaries outside of the United States would generally be limited to banking and activities closely related to banking. FIRREA Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservatory or receiver and "in danger of default" is defined generally as the existence of certain conditions, including a failure to meet minimum capital requirements, indicating that a "default" is likely to occur in the absence of regulatory assistance. These provisions have commonly been referred to as FIRREA's "cross guarantee" provisions. Further, under FIRREA the failure to meet capital guidelines could subject a bank to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC. 4 7 FIRREA also imposes certain independent appraisal requirements upon a bank's real estate lending activities and further imposes certain loan-to-value restrictions on a bank's real estate lending activities. The bank regulators have promulgated regulations in these areas. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which became law in December of 1991, required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of non-traditional activities. In addition, pursuant to FDICIA, each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized", or "critically undercapitalized", and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. The OCC's regulations implementing these provisions of FDICIA provide that an institution will be classified as "well capitalized" if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0 percent, and (iv) meets certain other requirements. An institution will be classified as "adequately capitalized" if it (i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 4.0 percent, (iii) has Tier 1 leverage ratio of (a) at least 4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in its most recent examination, and (iv) does not meet the definition of "well capitalized". An institution will be classified as "undercapitalized" if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0 percent or (b) less than 3.0 percent if the institution was rated 1 in its most recent examination. An institution will be classified as "significantly undercapitalized" if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified as "critically undercapitalized" if it has a tangible equity to total assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination. Insured institutions are generally prohibited from paying dividends or management fees if after making such payments, the institution would be "undercapitalized". An "undercapitalized" institution also is required to develop and submit to the appropriate federal banking agency a capital restoration plan, and each company controlling such institution must guarantee the institution's compliance with such plan. The liability of a holding company under any such guarantee is limited to the lesser of five percent of the institution's total assets at the time it became undercapitalized or the amount needed to comply with all applicable capital standards. The FDIC is accorded a priority over the claims of unsecured creditors in any bankruptcy proceeding of a holding company that has guaranteed an institution's compliance with a capital restoration plan. Further, "undercapitalized", "significantly undercapitalized", and "critically undercapitalized" institutions are subject to increasingly extensive requirements and limitations, including mandatory sale of stock, forced mergers, and ultimately receivership or conservatorship. A "critical undercapitalized" institution, beginning 60 days after it becomes "critically undercapitalized", generally is prohibited from making any payment of principal or interest on the institution's subordinated debt. FDICIA also contained the Truth in Savings Act, which requires certain disclosures to be made in connection with deposit accounts offered to consumers. The FRB has adopted regulations implementing the provisions of the Truth in Savings Act. In addition, significant provisions of FDICIA required federal banking regulators to draft standards in a number of other important areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. FDICIA also required the regulators to establish maximum ratios of classified assets to capital, and minimum earnings sufficient to absorb losses without impairing capital. The legislation also 5 8 contained other provisions which restricted the activities of state-chartered banks, amended various consumer banking laws, limited the ability of "undercapitalized" banks to borrow from the Federal Reserve's discount window, and required federal banking regulators to perform annual onsite bank examinations and set standards for real estate lending. BIF PREMIUMS AND RECAPTURE OF SAIF VNB is a member of the Bank Insurance Fund ("BIF") of the FDIC. The FDIC also maintains another insurance fund, the Savings Association Insurance Fund ("SAIF"), which primarily covers savings and loan association deposits but also covers deposits that are acquired by a BIF-insured institution from a savings and loan association. VNB has approximately $1.3 billion of deposits at December 31, 1995, with respect to which VNB pays SAIF insurance premiums. For the first three quarters of 1995, both SAIF-member institutions and BIF-member institutions paid deposit insurance premiums based on a schedule from $0.23 to $0.31 per $100 of deposits. In August, 1995, the FDIC, in anticipation of the BIF's imminent achievement of a required 1.25% reserve ratio, reduced the deposit insurance premium rates paid by BIF-insured banks from a range of $0.23 to $0.31 per $100 of deposits to a range of $0.04 to $0.31 per $100 of deposits. The new rate schedule for the BIF was made effective June 1, 1995. The FDIC refunded to BIF-insured institutions the premiums they had paid for the period beginning on June 1, 1995. On November 14, 1995, the FDIC voted to reduce annual assessments for the semi-annual period beginning January 1, 1996 to the legal minimum of $2,000 for BIF-insured institutions, except for institutions that are not well capitalized and are assigned to the higher supervisory risk categories. Given the undercapitalized nature of the SAIF, the FDIC will continue the range of assessment rates of $0.23 to $0.31 per $100 of deposits for SAIF-insured institutions and BIF-insured institutions, like VNB, required to pay SAIF premiums with respect to SAIF deposits. On July 28, 1995, the FDIC and the Treasury Department released statements outlining a plan to recapitalize the SAIF, certain features of which were subsequently approved by the House of Representatives and the Senate of the United States in bills that provided for different resolutions of the BIF-SAIF issues. In negotiations between members of the Banking Committees of the House and Senate to reconcile the differences in the two bills, it was agreed that all SAIF-member institutions would pay a special assessment to recapitalize the SAIF. The amount of the special assessment required to recapitalize the SAIF was estimated to be approximately 80 basis points of the SAIF-assessable deposits. BIF-insured institutions with deposits subject to SAIF assessments would be able to reduce such SAIF deposits by 20% in computing the institutions special assessment. Management cannot predict whether the above legislation will be enacted, or, if enacted, the amount of any special SAIF assessment. A significant one-time fee to recapitalize the SAIF may have an adverse effect on the operating expenses and results of operations of VNB in the quarter in which the assessment is made. ITEM 2. PROPERTIES The corporate headquarters and principal office of Valley are located in a facility owned by VNB in Wayne, New Jersey. The operations and data processing center for the bank is located in a facility owned by VNB in Passaic, New Jersey and retail lending is located in a leased facility in Wayne, New Jersey. During 1996, Valley plans to continue its consolidation of operations by relocating its operations and data processing center to a building purchased during the first quarter of 1996 which is across the street from Valley's corporate headquarters in Wayne. VNB provides banking services at 80 locations of which 43 locations are owned and 37 locations are leased. ITEM 3. LEGAL PROCEEDINGS There were no material pending legal proceedings to which Valley, or any of its direct or indirect subsidiaries were a party, or to which their property was subject, other than ordinary routine litigations 6 9 incidental to business and which had no material effect on the presentation of the financial statements contained in this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT DECEMBER 31, IN OFFICE NAMES 1995 SINCE OFFICE - ------------------------- ------------ --------- -------------------------------------- Gerald H. Lipkin......... 54 1989 Chairman of the Board and Chief Executive Officer Peter Southway........... 61 1987 President and Chief Operating Officer Sam P. Pinyuh............ 63 1990 Executive Vice President Peter Crocitto........... 38 1992 First Senior Vice President Robert E. Farrell........ 49 1992 First Senior Vice President Richard P. Garber........ 52 1992 First Senior Vice President Alan D. Lipsky........... 51 1994 First Senior Vice President Robert Mulligan.......... 48 1993 First Senior Vice President Peter John Southway...... 35 1992 First Senior Vice President Jack M. Blackin.......... 53 1993 Senior Vice President Alan D. Eskow............ 47 1993 Senior Vice President
All officers serve at the pleasure of the Board of Directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Valley's common stock trades on the New York Stock Exchange (NYSE) under the symbol VLY. The following table sets forth for each quarter period indicated the high and low sales prices for the common stock of Valley, as reported by the NYSE, and the dividends paid per share for each quarter. The amounts shown in the table below have been adjusted for all stock dividends.
YEAR 1995 YEAR 1994 -------------------------- -------------------------- HIGH LOW DIVIDEND HIGH LOW DIVIDEND ---- ---- -------- ---- ---- -------- First Quarter........... $27 7/8 $23 7/8 $ 0.24 $28 5/8 $20 1/4 $ 0.22 Second Quarter.......... $26 1/4 $22 7/8 $ 0.25 $30 1/8 $24 7/8 $ 0.24 Third Quarter........... $26 $23 $ 0.25 $26 1/4 $24 3/8 $ 0.24 Fourth Quarter.......... $25 1/2 $23 1/2 $ 0.25 $25 7/8 $23 1/4 $ 0.24
Federal laws and regulations contain restrictions on the ability of Valley and VNB to pay dividends. For information regarding restrictions on dividends, see Part I, Item 1, "Business -- Dividend Limitations" and Part II, Item 8, "Financial Statements and Supplementary Data -- Note 15 of the Notes to Consolidated Financial Statements". There were 6,457 registered shareholders of record as of December 31, 1995. 7 10 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with Valley's Consolidated Financial Statements and the accompanying notes presented elsewhere herein. The data for the years 1994 and prior have been restated for the acquisition of Lakeland First Financial Group and Rock Financial Corporation.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) SUMMARY OF OPERATIONS: Interest income (taxable equivalent)........................ $ 325,098 $ 301,366 $ 288,471 $ 281,308 $ 253,221 Interest expense..................... 143,271 117,465 114,021 133,690 135,582 ---------- ---------- ---------- ---------- ---------- Net interest income (taxable equivalent)........................ 181,827 183,901 174,450 147,618 117,639 Less: tax equivalent adjustment...... 8,448 8,783 7,778 7,385 7,838 ---------- ---------- ---------- ---------- ---------- Net interest income............. 173,379 175,118 166,672 140,233 109,801 Provision for possible loan losses... 2,669 5,197 7,966 18,855 13,551 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses........................ 170,710 169,921 158,706 121,378 96,250 Gains on securities transactions..... 1,471 5,974 7,494 7,319 2,601 Non-interest income.................. 19,497 17,993 20,496 25,273 12,836 Non-interest expense................. 90,203 90,594 85,671 79,947 61,296 ---------- ---------- ---------- ---------- ---------- Income before income taxes and cumulative effect of accounting change............................. 101,475 103,294 101,025 74,023 50,391 Income tax expense................... 38,879 38,723 35,638 25,272 15,716 ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of accounting change.................. 62,596 64,571 65,387 48,751 34,675 Cumulative effect of accounting change, net of tax................. -- -- (402) 473 -- ---------- ---------- ---------- ---------- ---------- Net income(1)................... $ 62,596 $ 64,571 $ 64,985 $ 49,224 $ 34,675 ========== ========== ========== ========== ========== PER COMMON SHARE(2): Income before cumulative effect of accounting change.................. $ 1.76 $ 1.83 $ 1.88 $ 1.43 $ 1.02 Cumulative effect of accounting change............................. -- -- (.01) .01 -- Net income........................... 1.76 1.83 1.87 1.44 1.02 Dividends............................ 0.99 0.94 0.74 0.67 0.63 Book value........................... 11.19 9.90 9.65 8.30 7.49 Weighted average shares outstanding........................ 35,615,339 35,302,341 34,736,301 34,244,003 34,101,148 RATIOS: Return on average assets(3).......... 1.40% 1.48% 1.58% 1.33% 1.22% Return on average shareholders' equity(3).......................... 16.60 18.66 20.95 18.33 14.11 Average shareholders' equity to average assets..................... 8.45 7.96 7.56 7.28 8.68 Dividend payout...................... 56.48 51.94 38.81 43.74 58.56 Risk-based capital: Tier 1 capital..................... 13.89 13.96 14.55 14.17 12.88 Total capital...................... 15.14 15.21 15.80 15.42 14.13 Leverage ratio....................... 8.41 8.23 7.70 7.47 7.34 FINANCIAL CONDITION AT YEAR-END: Assets............................... $4,585,811 $4,418,586 $4,257,739 $3,937,660 $3,461,638 Loans, net of allowance.............. 2,753,505 2,550,732 2,230,647 1,901,127 1,732,173 Deposits............................. 4,083,873 3,880,002 3,770,228 3,532,996 3,075,479 Shareholders' equity................. 400,237 350,616 333,240 280,376 251,924
8 11 - --------------- (1) Net income before merger expenses was $67,972 thousand and $69,240 thousand for 1995 and 1994, respectively. Merger expenses consist primarily of income tax expense and professional fees. (2) All per share amounts have been restated for stock dividends and splits. (3) Return on average assets and return on average equity before merger expenses was 1.52% and 18.03% for 1995, respectively, and 1.59% and 20.01% for 1994, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this analysis is to provide the reader with information relevant to understanding and assessing Valley's results of operations for each of the past three years and financial condition for each of the past two years. In order to fully appreciate this analysis the reader is encouraged to review the consolidated financial statements and statistical data presented in this document. RECENT DEVELOPMENTS On February 28, 1995, Valley acquired American Union Bank ("American"), headquartered in Union, New Jersey, with two branches and approximately $58 million in assets. The transaction resulted in the issuance of 288,734 shares of Valley common stock and was accounted for using the pooling of interests method of accounting. The financial statements for Valley have not been restated as they would not have been materially different from those presented. American's financial statements are included in Valley's consolidated financial statements as of January 1, 1995. Each share of common stock of American was exchanged for 0.50 shares of Valley common stock. On June 30, 1995 Valley acquired the $671 million asset Lakeland First Financial Group, Inc. ("LFG"), the holding company for Lakeland Savings Bank ("Lakeland"), a state chartered savings bank headquartered in Succasunna, New Jersey, with sixteen branches in Morris, Sussex and Warren counties, New Jersey. The transaction resulted in the issuance of 5,136,446 shares of Valley common stock and was accounted for using the pooling of interests method of accounting. Each share of common stock of LFG was exchanged for 1.286 shares of Valley common stock. Valley began offering investment banking services to middle market companies in 1995 through its recently chartered investment banking subsidiary, Halidon Hill & Co., which provides a full range of merger and acquisition advisory services, private placement of debt and equity, strategic planning services, and also offers advice to middle market firms with respect to management buyouts, capital formation strategies and recapitalizations. During the fourth quarter of 1995, Valley received all the necessary approvals to establish a finance company in Toronto, Canada. The finance company will make consumer loans in Canada, primarily auto loans, utilizing Valley's expertise in the area and extending to Canada the existing referral program Valley has with a major insurance company. Valley anticipates that the Canadian finance company will become operational during the first quarter of 1996. VNB is a credit card issuer and has initiated several successful affinity programs during 1994 and 1995, primarily with local municipalities in New Jersey. In late 1995, VNB signed a letter of intent with a proposed partner for a substantial co-branding credit card program. VNB anticipates this program, if it occurs, could add a significant number of credit card accounts to VNB within two years. The program is subject to the execution of a definitive agreement and if the parties reach a definitive agreement, VNB anticipates this program will begin in the second quarter of 1996. Management can offer no assurance that VNB and its proposed partner will enter into a definitive agreement. During 1995 the Board of Directors authorized the repurchase of up to one million shares of Valley's common stock. As of December 31, 1995 the company has purchased 563,160 shares, all of which have been reissued under the company's stock option plan and expired warrant program. Subsequent to December 31, 1995, through February 15, 1996, approximately 115,000 additional shares were purchased for the treasury. 9 12 EARNINGS SUMMARY Net income was $62.6 million, or $1.76 per share in 1995 compared with $64.6 million or $1.83 per share in 1994 (all amounts have been restated for the Lakeland First Financial Group merger and the per share amounts have been restated to give effect to a 5% stock dividend paid in May 1995). Return on average assets decreased in 1995 to 1.40% from 1.48% in 1994, while the return on average equity also decreased to 16.60% in 1995 from 18.66% in 1994. Net operating income, defined as net income before merger expenses and securities gains, increased $1.4 million to $67.0 million from $65.6 million in 1994. This increase in net operating income is largely attributable to a decrease in the provision for loan losses of $2.5 million and an increase in non-interest income of $1.5 million, which was offset by a decrease in net interest income of $1.7 million or 1.0%. Net operating income produced a return on average assets of 1.50% in 1995 compared to 1.51% in 1994, and a return on average equity of 17.78% in 1995 compared to 18.97% in 1994. NET INTEREST INCOME Net interest income is the largest source of Valley's operating income. Net interest income on a tax equivalent basis decreased to $181.8 million for 1995 as compared to $183.9 million for 1994. The decrease in 1995 was due primarily to the increase in the average rate of interest bearing liabilities of 68 basis points during 1995, partially offset by an increase in rates on interest earning assets of 31 basis points in the same period. The net interest margin decreased 20 basis points to 4.28% for 1995 compared to 4.48% in 1994. The decrease in net interest margin was partially due to the upward movement in interest rates during 1994. This increase in rates caused depositors to shift funds from short term savings accounts to longer term certificates of deposit. Deposit rates increased faster than loan rates in 1994 and continued throughout 1995, leading to a decline in the net interest margin during 1995. Average interest earning assets increased $144.2 million in 1995, or 3.5% over the 1994 amount. This increase was mainly the result of increased volume of automobile loans, commercial mortgages and commercial loans. Average loans increased by $288.3 million or 11.8% over the 1994 amount. The average rate on loans increased 24 basis points, and combined with the increase in average loan volume, interest income on loans for 1995 increased by $30.0 million over 1994. Offsetting this increase, was a decline in average taxable investment securities of $120.8 million or 9.3% from the amount in the portfolio during 1994. Average tax-exempt investments remained almost unchanged during 1995 as compared to 1994. Average interest-bearing liabilities grew 1.48% or $52.1 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 $22.0 million or 4.8% over 1994 balances. Average savings deposits decreased by $188.7 million or 9.9%, while average time deposits increased $266.8 million or 18.2%. 10 13 The following table reflects the components of net interest income, for each of the three years ended December 31, 1995. ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST EARNINGS ON A TAX EQUIVALENT BASIS
1995 1994 1993 ------------------------------- ------------------------------- ------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- (IN THOUSANDS) ASSETS Interest earning assets Loans(1)(2)............... $2,721,443 $226,260 8.31% $2,433,167 $196,278 8.07% $2,110,804 $174,226 8.25% Taxable investments....... 1,179,567 75,470 6.40 1,300,320 80,558 6.20 1,473,901 93,222 6.32 Tax-exempt investments(1).......... 311,156 21,473 6.90 325,017 22,580 6.95 255,351 19,667 7.70 Federal funds sold and other short term investments(1).......... 36,513 1,895 5.19 45,934 1,950 4.25 42,503 1,356 3.19 ---------- -------- ----- ---------- -------- ---- - ---------- -------- ---- - Total interest earning assets.................. 4,248,679 $325,098 7.65% 4,104,438 $301,366 7.34% 3,882,559 $288,471 7.43% -------- ----- -------- ---- - -------- ---- - Allowance for possible loan losses............. (41,544) (43,136) (39,592) Cash and due from banks... 146,467 140,929 125,919 Other assets.............. 109,206 147,001 136,255 ---------- ---------- ---------- Total assets.............. $4,462,808 $4,349,232 $4,105,141 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities Savings deposits.......... $1,726,888 $ 45,975 2.66% $1,915,596 $ 48,645 2.54% $1,853,691 $ 49,028 2.64% Time deposits............. 1,732,902 91,986 5.31 1,466,092 63,412 4.33 1,397,634 60,662 4.34 ---------- -------- ----- ---------- -------- ---- - ---------- -------- ---- - Total interest bearing deposits................ 3,459,790 137,961 3.99 3,381,688 112,057 3.31 3,251,325 109,690 3.37 Federal funds purchased and securities sold under repurchase agreements.............. 52,718 2,833 5.37 78,425 3,114 3.97 47,533 1,560 3.28 Other borrowings.......... 49,727 2,477 4.98 50,028 2,294 4.59 59,081 2,771 4.69 ---------- -------- ----- ---------- -------- ---- - ---------- -------- ---- - Total interest bearing liabilities............. 3,562,235 143,271 4.02 3,510,141 117,465 3.35 3,357,939 114,021 3.40 -------- ----- -------- ---- - -------- ---- - Demand deposits........... 481,477 459,434 404,350 Other liabilities......... 42,099 33,642 32,627 Shareholders' equity...... 376,997 346,015 310,225 ---------- ---------- ---------- Total liabilities and shareholders' equity.... $4,462,808 $4,349,232 $4,105,141 ========== ========== ========== Net interest income (tax equivalent basis)....... 181,827 183,901 174,450 Tax equivalent adjustment.............. (8,448) (8,783) (7,778) -------- -------- -------- Net interest income....... $173,379 $175,118 $166,672 -------- -------- -------- Net interest rate differential............ 3.63% 3.99% 4.03% ----- ---- - ---- - Net interest margin(3).... 4.28% 4.48% 4.49% ----- ---- - ---- -
- --------------- (1) Interest income is presented on a tax equivalent basis using a 35% tax rate. (2) Loans are stated net of unearned income. (3) Net interest income on a tax equivalent basis as a percentage of earning assets. 11 14 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
1995 COMPARED TO 1994 1994 COMPARED TO 1993 ------------------------------ ----------------------------- INCREASE(DECREASE)(2) INCREASE(DECREASE)(2) ------------------------------ ----------------------------- INTEREST VOLUME RATE INTEREST VOLUME RATE -------- -------- -------- -------- ------- -------- (IN THOUSANDS) Interest income: Loans (1)......................... $ 29,982 $ 23,821 $ 6,161 $ 22,052 $26,082 $ (4,030) Taxable investments............... (5,088) (7,662) 2,574 (12,664) (10,787) (1,877) Tax-exempt investments(1)......... (1,107) (957) (150) 2,913 4,979 (2,066) Federal funds sold and other short term investments(1)............ (55) (443) 388 594 118 476 ------- ------- -------- -------- -------- ------- 23,732 14,759 8,973 12,895 20,392 (7,497) ------- ------- -------- -------- -------- ------- Interest expense: Savings deposits.................. (2,670) (4,948) 2,278 (383) 1,608 (1,991) Time deposits..................... 28,574 12,706 15,868 2,750 2,962 (212) Federal funds purchased and securities sold under repurchase agreements.......... (281) (1,194) 913 1,554 1,175 379 Other borrowings.................. 183 (14) 197 (477) (416) (61) ------- ------- -------- -------- -------- ------- 25,806 6,550 19,256 3,444 5,329 (1,885) ------- ------- -------- -------- -------- ------- Net interest income................. $ (2,074) $ 8,209 $(10,283) $ 9,451 $15,063 $ (5,612) ======= ======= ======== ======== ======== =======
- --------------- (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 the years ended December 31, 1995, 1994 and 1993.
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (IN THOUSANDS) Trust income.................................. $ 950 $ 805 $ 665 Service charges on deposit accounts........... 7,957 7,303 6,805 Gains on securities transactions, net......... 1,471 5,974 7,494 Fees from mortgage servicing.................. 3,776 3,320 3,812 Gains on sales of loans....................... 846 539 3,505 Other income.................................. 5,968 6,026 5,709 ------- ------- ------- Total............................... $20,968 $23,967 $27,990 ======= ======= =======
Non-interest income continues to represent a considerable source of income for Valley. Excluding gains on securities transactions, total non-interest income amounted to $19.5 million in 1995 compared with $18.0 million in 1994. 12 15 Service charges on deposit accounts increased $654 thousand or 9.0% from $7.3 million in 1994 to $8.0 million in 1995. A majority of this increase is due to the expansion of account volume and increased fees charged on deposit accounts. Fees from mortgage servicing increased by 13.7% from $3.3 million in 1994 to $3.8 million in 1995. These fees represent gross servicing fees and related ancillary fees for servicing mortgage portfolios by VNB Mortgage Services, Inc. ("MSI"), VNB's mortgage servicing subsidiary, after eliminating in consolidation mortgage servicing fees earned by MSI on loans serviced for VNB. MSI serviced a total of $1.69 billion and $1.20 billion of loans as of December 31, 1995 and 1994, respectively, of which $816.5 and $536.6 million, respectively, are serviced for VNB. The increase in the servicing portfolio was due to the acquisition of several portfolios totalling approximately $305.7 million, the new origination of loans by VNB of $82.4 million and the addition of loans from Lakeland of approximately $259.1 million, less principal paydowns and prepayments totaling $154.3 million. Amortization expense on servicing rights increased during 1995 to $1.8 million from $1.6 million in 1994, reflecting the increase in the size of the serviced portfolio. An analysis is completed quarterly to determine amortization expense, based on all expected future cash flows. Gains on the sales of loans were $846 thousand for 1995 compared to $539 thousand for 1994. The gains recorded in 1995 are primarily from the sale of SBA loans. In 1994 Valley stopped selling its newly originated residential mortgage loans in order to maintain its loan growth. Net gains on securities transactions in 1995 and 1994 amounted to $1.5 million and $6.0 million, respectively. The gains recorded in 1995 were the result of the sale of securities due to rising interest rates beginning in early 1994 and Valley's decision to take advantage of the increased yields available. Valley began offering investment banking services to middle market companies in 1995 through its recently chartered investment banking subsidiary, Halidon Hill & Co., which provides a full range of merger and acquisition advisory services, private placement of debt and equity, strategic planning services, and also offers advice to middle market firms with respect to management buyouts, capital formation strategies and recapitalizations. Operations began in the latter part of 1995 and had no material impact on the financial results of Valley. NON-INTEREST EXPENSE The following table presents the components of non-interest expense for the years ended December 31, 1995, 1994 and 1993. NON-INTEREST EXPENSE
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (IN THOUSANDS) Salary expense................................ $35,030 $34,098 $31,636 Employee benefit expense...................... 8,145 9,266 7,923 FDIC insurance premiums....................... 5,884 8,473 8,180 Net occupancy expense......................... 8,191 7,757 6,933 Furniture and equipment expense............... 5,661 5,646 5,161 Amortization of intangible assets............. 2,812 3,147 5,527 Other......................................... 24,480 22,207 20,311 ------- ------- ------- Total............................... $90,203 $90,594 $85,671 ======= ======= =======
Non-interest expense totalled $90.2 million for 1995, relatively unchanged from the 1994 level. The largest component of non-interest expense is salaries and employee benefit expense which totalled $43.2 million in 1995 compared to $43.4 million in 1994. At December 31, 1995, full-time equivalent staff was 1,304, compared to 1,294 at the end of 1994. 13 16 Insurance premiums assessed by the Federal Deposit Insurance Corporation ("FDIC") decreased by $2.6 million, or 30.6% to $5.9 million in 1995. This reduction reflects the refund received from the FDIC and the decrease in premium rate from $0.23 to $0.04 per hundred on bank insurance fund ("BIF") deposits. It is expected that the savings insurance fund ("SAIF") will be recapitalized during 1996 and that Valley will be required to pay a one-time special assessment. After this payment, it is anticipated that future premiums on these deposits will also be reduced from $0.23 to the legal minimum of $2,000. The one-time payment to the FDIC and the anticipated future reduction in premiums are based upon the legislative process for which Valley has no control over the effective date or final payments or reduction of premiums. (See Part I, Item 1 -- BIF Premiums and Recapture of SAIF). Net occupancy expense increased to $8.2 million in 1995 from $7.8 million in 1994. The increase of $434 thousand represents additional rent, utilities, tax and maintenance expense on facilities utilized by Valley. During the first quarter of 1996 Valley acquired an 80,000 square foot building located across the street from its current administrative headquarters in Wayne, New Jersey in order to continue consolidating its operations. Renovations are currently being made to prepare the building for Valley's use during 1996. Amortization of intangible assets decreased to $2.8 million in 1995 from $3.1 million in 1994, representing a decrease of $335 thousand or 10.6%. The majority of this decrease resulted from the reduction of amortization of core deposit intangibles, offset by an increase in amortization of purchased mortgage servicing rights totaling $1.8 million during 1995, compared with $1.6 million for 1994. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), which applies prospectively to financial statements for fiscal years beginning after December 31, 1995. SFAS 122 amends SFAS 65, "Accounting for Certain Mortgage Banking Activities". SFAS 122 requires that a mortgage banking enterprise recognize, as separate assets, rights to service mortgage loans, however those servicing rights are acquired. SFAS 122 eliminates the previously existing accounting distinction between servicing rights acquired through purchase transactions and those acquired through loan originations. SFAS 122 also requires that a mortgage banking entity assess its capitalized mortgage servicing rights ("MSRs") periodically for impairment, based on the fair value of those rights. Valley has determined that there will be no material impact expected on the financial position or results of operations of Valley as a result of adopting this statement prospectively during 1996. Other expenses were $24.5 million in 1995 compared to $22.2 million in 1994. Advertising and marketing expense increased $427 thousand to $2.9 million, data processing expense increased $395 thousand to $1.8 million, other real estate owned expense decreased $153 thousand to $1.2 million, stationary expense increased $88 thousand to $1.2 million, postage and delivery expense increased $247 thousand to $1.8 million, legal expense increased $158 thousand to $1.4 million, and telecommunication expense increased $218 thousand to $1.4 million. 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 as of December 31, 1995 is 43.6%, one of the lowest in the industry, compared with an efficiency ratio for 1994 and 1993 of 43.2% and 43.9%, respectively. Valley strives to control its efficiency ratio and expenses as a means of producing increased earnings for its shareholders. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective beginning in 1996. SFAS 123 allows companies either to continue to account for stock-based employee compensation plans under existing accounting standards or adopt a fair value based method of accounting as defined in the new standard. Valley will continue to follow the existing accounting standards for these plans. As a result, the new standard is not expected to have an impact on Valley. 14 17 INCOME TAXES Income tax expense as a percentage of pre-tax income increased to 38.3% in 1995 compared to 37.5% in 1994. This increase was attributable to a decrease in tax-exempt interest income and an increase in state tax expense. Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," was issued by the Financial Accounting Standards Board in February 1992. Valley adopted SFAS No. 109 prospectively as of January 1, 1993. The cumulative effect of this change in accounting for income taxes reduced net income by $402 thousand and is reported separately in the consolidated statement of income for the year ended December 31, 1993. 15 18 ASSET/LIABILITY MANAGEMENT INTEREST RATE SENSITIVITY The following table illustrates Valley's interest rate gap position as of December 31, 1995 on a 90 day, between 90 and 365 days and after 365 day basis. INTEREST RATE SENSITIVITY ANALYSIS
NON-INTEREST RATE REPRICING SENSITIVE AFTER TOTAL OR REPRICING 90 BUT REPRICING REPRICING WITHIN WITHIN WITHIN AFTER 90 DAYS 365 DAYS 365 DAYS 365 DAYS TOTAL ---------- --------- ---------- ---------- ---------- (IN THOUSANDS) Earning assets Federal funds sold............. $ 108,500 $ -- $ 108,500 $ -- $ 108,500 Investments held to maturity... 5,256 90,908 96,164 170,190 266,354 Investments available for sale........................ 1,146,285 -- 1,146,285 -- 1,146,285 Loans.......................... 1,139,821 93,379 1,233,200 1,559,975 2,793,175 ---------- -------- ---------- ---------- ---------- Total earning assets........ $2,399,862 $ 184,287 $2,584,149 $1,730,165 $4,314,314 ---------- -------- ---------- ---------- ---------- Percentage of total earning assets.................... 55.6% 4.3% 59.9% 40.1% 100.0% ---------- -------- ---------- ---------- ---------- Sources of funds Non-interest bearing deposits.................... $ 325,337 $ -- $ 325,337 $ 216,892 $ 542,229 Savings deposits............... 611,145 -- 611,145 1,088,726 1,699,871 Time deposits.................. 675,961 590,554 1,266,515 575,258 1,841,773 Federal funds purchased and securities sold under repurchase agreements....... 26,921 -- 26,921 -- 26,921 Other short term borrowings.... 10,524 -- 10,524 -- 10,524 Other borrowings............... -- 14,002 14,002 14,677 28,679 Non-interest bearing sources... -- -- -- 164,317 164,317 ---------- -------- ---------- ---------- ---------- Total sources of funds...... $1,649,888 $ 604,556 $2,254,444 $2,059,870 $4,314,314 ---------- -------- ---------- ---------- ---------- Percentage of total sources of funds.................. 38.2% 14.0% 52.2% 47.8% 100.0% ---------- -------- ---------- ---------- ---------- Interest sensitivity gap......... $ 749,974 $(420,269) $ 329,705 $ (329,705) $ -- ---------- -------- ---------- ---------- ---------- Cumulative interest sensitivity gap............................ $ 749,974 $ 329,705 $ 329,705 $ -- $ -- ---------- -------- ---------- ---------- ---------- Ratio of earning assets to sources of funds............... 1.46:1 .30:1 1.15:1 .84:1 1:1 ---------- -------- ---------- ---------- ---------- Cumulative ratio of earning assets to sources of funds..... 1.46:1 1.15:1 1.15:1 1:1 1:1 ---------- -------- ---------- ---------- ----------
Managing net interest margin continues to be one of the most important factors in maximizing earnings. Through its Asset/Liability Policy, Valley strives to maintain a consistent net interest rate differential by managing the sensitivity and repricing of its assets and liabilities to interest rate fluctuations. Valley seeks to achieve a sufficient level of rate sensitive assets to equal its rate sensitive liabilities, and analyzes the maturity and repricing of earning assets and sources of funds at various intervals. The level by which repricing earning assets exceed or are exceeded by repricing sources of funds is expressed as a ratio and dollar value (interest sensitivity gap) and is used as a measure of interest rate risk. 16 19 At December 31, 1995, rate sensitive assets exceeded rate sensitive liabilities at the 90 day interval and resulted in a positive gap of $750.0 million or a ratio of 1.46:1. Rate sensitive liabilities exceeded rate sensitive assets at the 91 to 365 day interval by $420.3 million or a ratio of .30:1 and resulted in a negative gap. The total positive gap repricing within 365 days as of December 31, 1995 is $329.7 million or 1.15:1. 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. The above gap results take into account repricing and maturities of assets and liabilities, but fail 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 resulted in an impact on future net interest income which is consistent with target levels contained in Valley's Asset/Liability Policy. 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 December 31, 1995, liquid assets amounted to $1.5 billion, as compared to $950.0 million at December 31, 1994. This represents 34.1% and 22.9% of earning assets, and 32.1% and 21.5% of total assets at December 31, 1995 and year-end 1994, 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 $3.05 billion and $3.14 billion at December 31, 1995 and year-end 1994, respectively, representing 70.6% and 76.3% 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 $105.3 million, and proceeds of $265.8 million were generated from investment maturities. Purchases of investment securities were $200.0 million. Short term borrowings and certificates of deposit over $100 thousand amounted to $465.8 million and $377.7 million, on average, for the year ending December 31, 1995 and 1994, respectively. Lakeland had advances outstanding with the Federal Home Loan Bank of New York ("FHLB") which were assigned to VNB as part of the merger. During early 1996, VNB was approved as a member of the FHLB. VNB intends to utilize borrowings from the FHLB as a source of funds for its asset growth and asset/liability management. These advances are collateralized by pledges of FHLB stock and a blanket assignment of qualifying mortgage loans. As of December 31, 1995, Valley had outstanding advances of $28.5 million. The following table lists, by maturity, all certificates of deposit of $100,000 and over at December 31, 1995. These certificates of deposit are generated primarily from core deposit customers and are not brokered funds.
(IN THOUSANDS) Less than three months....................................... $353,975 Three to six months.......................................... 67,000 Six to twelve months......................................... 30,082 More than twelve months...................................... 49,882 -------- $500,939 ========
17 20 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 MATURITY DISTRIBUTION OF INVESTMENT SECURITIES HELD TO MATURITY AT DECEMBER 31, 1995
US TREASURY SECURITIES AND OTHER GOVERNMENT OBLIGATIONS OF STATES AND AND AGENCIES POLITICAL MORTGAGE-BACKED OTHER DEBT AND CORPORATIONS SUBDIVISIONS SECURITIES SECURITIES TOTAL(4) ----------------- ----------------- ------------------- ----------------- ----------------- AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD COST(1) (2) COST(1) (2)(3) COST(1) (2) COST(1) (2) COST(1) (2) --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- (IN THOUSANDS) 0-1 years........... $ -- -- % $ 39,717 5.03 % $ 26,981 5.35 % $ 10 5.50 % $ 66,708 5.16 % 1-5 years........... 115 8.63 60,636 6.96 94,148 7.38 444 6.93 155,343 7.22 5-10 years.......... -- -- 5,368 8.76 21,592 7.73 25 5.50 26,985 7.93 Over 10 years....... 6,627 8.54 1,027 8.90 1,921 6.87 -- -- 9,575 8.24 ------ ---- -------- ---- -------- ---- ---- ---- ------ ---- Total securities.... $ 6,742 8.54 % $106,748 6.35 % $144,642 7.05 % $ 479 6.83 % $258,611 6.80 % ====== ==== ======== ==== ======== ==== ==== ==== ====== ====
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, 1995
US TREASURY SECURITIES AND OTHER GOVERNMENT OBLIGATIONS OF STATES AND AGENCIES POLITICAL MORTGAGE-BACKED AND CORPORATIONS SUBDIVISIONS SECURITIES TOTAL(4) ----------------- ----------------- ----------------- ------------------ AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD COST(1) (2) COST(1) (2)(3) COST(1) (2) COST(1) (2) --------- ----- --------- ----- --------- ----- ---------- ----- (IN THOUSANDS) 0-1 years...................... $ 68,267 4.93 % $ 33,895 6.24% $ 11,978 6.88 % $ 114,140 5.52 % 1-5 years...................... 107,723 5.38 141,597 6.58 305,442 6.68 554,762 6.40 5-10 years..................... -- -- 22,207 7.29 433,036 6.45 455,243 6.49 Over 10 years.................. -- -- 3,951 11.19 4,891 6.40 8,842 8.54 -------- ---- -------- ---- -------- ---- --------- ---- Total securities........... $175,990 5.21 % $201,650 6.69% $755,347 6.55 % $1,132,987 6.37 % ======== ==== ======== ==== ======== ===== ========= ====
- --------------- (1) Maturities are stated at cost less principal reductions, if any, and adjusted for accretion of discounts and amortization of premiums. (2) Average yields are calculated on a yield-to-maturity basis. (3) Average yields on obligations of states and political subdivisions are generally tax-exempt and calculated on a tax-equivalent basis using a statutory federal income tax rate of 35%. (4) Excludes equity securities which have indefinite maturities. Valley's investment portfolio is comprised of U.S. government and federal agency securities, tax-exempt issues of states and municipalities, mortgage backed securities and equity and other securities. There were no securities in the name of any one issuer exceeding 10% of shareholders' equity, except for securities issued by the United States and its political subdivisions and agencies. The portfolio generates substantial interest income which serves as a source of liquidity. The decision to purchase or sell securities is based upon the current assessment of long and short term economic and financial conditions, including the interest rate environment and other statement of financial condition components. 18 21 As of December 31, 1995 Valley has $1.1 billion of securities available for sale compared with $696.4 million at December 31, 1994. Those securities are recorded at their fair value on an aggregate basis. If the aggregate fair value of these securities should decline below cost, then the value would be written down to market. As of December 31, 1995 the investment securities available for sale had an unrealized gain of $3.7 million, net of deferred taxes, compared to an unrealized loss of $17.8 million, net of deferred taxes, at December 31, 1994. This change was primarily due to an increase in prices, resulting from a decreasing interest rate environment. 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. Pursuant to the provisions and implementation guidance contained within the special report "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities", on December 29, 1995 Valley reassessed the classification of all securities within its portfolio and transferred $516.9 million from its held to maturity investment portfolio to its available for sale portfolio. These securities had a market value of $521.9 million which resulted in Valley recording an unrealized gain on securities available for sale, net of tax, within shareholders' equity of $3.0 million. LOAN PORTFOLIO The following table reflects the composition of the loan portfolio for the five years ended December 31, 1995. LOAN PORTFOLIO
1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Commercial........................... $ 351,885 $ 298,337 $ 240,412 $ 238,860 $ 260,402 Construction......................... 73,664 70,192 81,584 74,735 92,042 Commercial mortgage.................. 619,326 571,596 472,073 381,588 352,901 Residential mortgage................. 1,017,453 1,004,203 880,553 741,688 598,297 Installment.......................... 731,772 650,329 599,729 500,890 459,904 -------- -------- -------- -------- 2,794,100 2,594,657 2,274,351 1,937,761 1,763,546 Less: unearned income................ (925) (1,901) (2,360) (1,783) (2,060) --------- --------- --------- --------- --------- Total loans........................ $2,793,175 $2,592,756 $2,271,991 $1,935,978 $1,761,486 ========= ========= ========= ========= =========
The composition of Valley's loan portfolio continues to change due to the local economy and loan demand. Commercial lending increased by the largest percentage during both 1995 and 1994, and installment loans and commercial mortgage loans have continued their steady increase. Residential loans increased steadily throughout 1994, but slowed considerably as interest rates began to rise in 1994. The increase in installment loans is reflective of Valley's increased market penetration in automobile lending. There is no guarantee that the level of lending will continue at this brisk pace during 1996. Residential mortgage loans represent 36.4% of the loan portfolio. Installment loans, including predominantly automobile and credit card loans, totalled $731.8 million at December 31, 1995, increasing by $81.4 million over 1994 or 12.5% and representing 26.2% of the loan portfolio. Commercial mortgages increased 8.4% or $47.7 million from December 1994 to December 1995, and commercial loans increased 17.9% or $53.5 million from December 1994 to December 1995. Valley has continued to offer various types of fixed rate residential mortgage loans and is also offering a large array of adjustable rate loans. During 1993 Valley periodically sold some of its 15 year fixed rate loans into the secondary market, allowing Valley to keep its portfolio mixed between fixed rate and variable rate loans, as well as maintaining a shorter maturity of its portfolio. Beginning in 1994 and continuing into 1995 19 22 Valley decided to keep its residential mortgage loans being originated so that the portfolio could grow as demand by Valley for loans increased. Installment loans outstanding at year end include automobile loans referred to VNB by a major insurance company, which are subject to Valley's underwriting criteria. Approximately 52% of the automobile loan portfolio and 12% of the total loan portfolio outstanding at December 31, 1995 represent loans originated by VNB through this referral program. Over the last several years the amount of loans referred through this program has grown. VNB intends to extend this program, as all approvals were received in late 1995 to establish a finance company in Toronto, Canada. The new finance company will make consumer loans, primarily auto loans, in several provinces in Canada. VNB anticipates that the Canadian finance company will become operational in the first quarter of 1996. VNB is a credit card issuer and has initiated several successful affinity programs during 1994 and 1995, primarily with local municipalities in New Jersey. In late 1995, VNB signed a letter of intent with a proposed partner for a substantial co-branding credit card program. VNB anticipates this program, if it occurs, could add a significant number of credit card accounts to VNB within two years. The program is subject to the execution of a definitive agreement and if the parties reach a definitive agreement, VNB anticipates this program will begin in the second quarter of 1996. Management can offer no assurance that VNB and its proposed partner will enter into a definitive agreement. Much of Valley's lending is in Northern New Jersey. However, efforts are made to maintain a diversified portfolio as to type of borrower and loan to guard against a downward turn in any one economic sector. There were no loan concentrations at December 31, 1995 other than those disclosed above. The following table reflects the maturity distribution of the commercial and construction loan portfolio as of December 31, 1995:
OVER 1 1 YR. TO 5 OVER OR LESS YRS. 5 YRS. TOTAL ------- -------- -------- -------- (IN THOUSANDS) Commercial -- fixed rate............................... $10,302 $ 49,762 $ 34,497 $ 94,561 Commercial -- adjustable rate.......................... 11,277 34,552 211,495 257,324 Real estate construction -- fixed rate................. 1,464 174 1,102 2,740 Real estate construction -- adjustable rate............ 24,699 41,746 4,479 70,924 ------ ------- ------- ------- $47,742 $126,234 $251,573 $425,549 ====== ======= ======= =======
Prior to maturity of each loan, Valley generally conducts a review which normally includes an analysis of the borrower's financial condition and, if applicable, a review of the adequacy of collateral. A rollover of the loan at maturity may require a principal paydown. As part of the acquisition of Rock Bank during 1994, VNB became a preferred Small Business Administration ("SBA") lender with authority to make loans without the prior approval of the SBA. Approximately 70% of each loan is guaranteed by the SBA and may be sold into the secondary market, with the balance retained in VNB's portfolio. VNB intends to expand this area of lending as it provides a solid source of fee income and loans with floating interest rates tied to the prime lending rate. During 1995, VNB originated approximately $13.8 million of SBA loans and sold $4.5 million. At December 31, 1995, $28.7 million of SBA loans were held in VNB's portfolio and VNB serviced approximately $38.7 million of SBA loans at December 31, 1995. It is not known if the trend of increased lending will continue. VNB continues to take advantage of loan demand in those sectors of the economy where it is most prevalent. 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 20 23 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 continued to decrease, and totalled $18.8 million at December 31, 1995 compared with $30.3 million at December 31, 1994, a decrease of $11.5 million, or 37.8%. Non-performing assets at December 31, 1995 and 1994, respectively, amounted to 0.67% and 1.16% of loans and other real estate owned. 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
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (IN THOUSANDS) Loans past due in excess of 90 days and still accruing......................... $ 8,117 $ 8,695 $ 8,718 $11,192 $13,956 ------- ------- ------- ------- ------- Non-performing loans..................... $11,795 $22,622 $27,542 $34,667 $40,210 Other real estate owned.................. 7,015 7,638 6,628 7,020 6,828 ------- ------- ------- ------- ------- Total non-performing assets......... $18,810 $30,260 $34,170 $41,687 $47,038 ======= ======= ======= ======= ======= Troubled debt restructured loans......... $ 5,209 $ -- $ -- $ 5,900 $ -- ------- ------- ------- ------- ------- Non-performing loans as a % of loans..... 0.42% 0.87% 1.21% 1.79% 2.28% ------- ------- ------- ------- ------- Non-performing assets as a % of loans plus other real estate owned........... 0.67% 1.16% 1.50% 2.15% 2.66% ------- ------- ------- ------- ------- Allowance as a % of loans................ 1.42% 1.62% 1.82% 1.80% 1.47% ------- ------- ------- ------- ------- Allowance as a % of non-performing assets................................. 210.90% 138.88% 121.00% 83.60% 55.07% ------- ------- ------- ------- -------
During 1995, lost interest on non-accrual loans amounted to $806 thousand, compared with $1.7 million in 1994. ASSET QUALITY AND RISK ELEMENTS Lending is one of the most important functions performed by Valley, and by its very nature, lending is also the most complicated, risky and profitable part of Valley's business. A separate credit department is responsible for risk assessment, credit file maintenance and periodically evaluating overall creditworthiness of a borrower. Additionally, efforts are made to limit concentrations of credit within the loan portfolio so as to minimize the impact of a downturn in any one economic sector. Valley's portfolio, in total, is diversified as to type of borrower and loan. Most of Valley's portfolio is in northern New Jersey, presenting a geographical and credit risk if there were a significant downturn of the economy within New Jersey. Management realizes that some degree of risk must be expected in the normal course of lending activities. Reserves are maintained to absorb such potential loan and off-balance sheet credit losses. The allowance for loan losses and related provision are an expression of management's evaluation of the credit portfolio and economic climate. 21 24 The following table sets forth the relationship among loans, loans charged-off and loan recoveries, the provision for loan losses and the allowance for loan losses for the past five years:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Average loans outstanding....... $2,721,443 $2,433,167 $2,110,804 $1,832,367 $1,773,870 ---------- ---------- ---------- ---------- ---------- Beginning balance -- Allowance for loan losses............... $ 42,024 $ 41,344 $ 34,852 $ 25,904 $ 18,718 ---------- ---------- ---------- ---------- ---------- Balance from acquisition........ -- -- 4,466 -- -- ---------- ---------- ---------- ---------- ---------- Loans charged-off: Commercial.................... 1,212 1,805 2,899 5,797 3,001 Construction.................. 2,498 835 441 813 300 Mortgage-Commercial........... 646 1,359 1,136 -- -- Mortgage-Residential.......... 499 76 366 802 307 Installment................... 2,787 2,645 2,510 3,696 4,239 ---------- ---------- ---------- ---------- ---------- 7,642 6,720 7,352 11,108 7,847 ---------- ---------- ---------- ---------- ---------- Charge-off loans recovered: Commercial.................... 1,321 595 454 267 511 Construction.................. -- 603 -- -- -- Mortgage-Commercial........... 83 61 -- -- -- Mortgage-Residential.......... 23 12 83 -- 2 Installment................... 1,192 932 875 934 969 ---------- ---------- ---------- ---------- ---------- 2,619 2,203 1,412 1,201 1,482 ---------- ---------- ---------- ---------- ---------- Net charge-offs................. 5,023 4,517 5,940 9,907 6,365 Provision charged to operations.................... 2,669 5,197 7,966 18,855 13,551 ---------- ---------- ---------- ---------- ---------- Ending Balance -- Allowance for loan losses................... $ 39,670 $ 42,024 $ 41,344 $ 34,852 $ 25,904 ---------- ---------- ---------- ---------- ---------- Ratio of net charge offs during the period to average loans outstanding during the period........................ .18% .19% .28% .54% .36%
The allowance for possible loan losses is maintained at a level necessary to absorb potential loan losses and other credit risk related charge-offs. It is the result of an analysis which relates outstanding balances to expected reserve levels required to absorb future credit losses. Current economic problems are addressed through management's assessment of anticipated changes in the regional economic climate, changes in composition and volume of the loan portfolio and variances in levels of classified loans, non-performing assets and other past due amounts. Additional factors include consideration of exposure to loss including size of credit, existence and nature of collateral, credit record, profitability and general economic conditions. During the year, 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 current economic conditions and applied that information to changes in the composition of the loan portfolio. The decline in non-performing assets, coupled with the continued recovery of the economy, among other things, was responsible for the decision to decrease the provision from $5.2 million in 1994 to $2.7 million in 1995. 22 25 The following table summarizes the allocation of the allowance for loan losses to specific loan categories for the past five years:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 --------------------- --------------------- --------------------- --------------------- --------------------- PERCENT PERCENT PERCENT PERCENT PERCENT OF LOAN OF LOAN OF LOAN OF LOAN OF LOAN CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS ---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- (IN THOUSANDS) Loan category: Commercial... $ 12,593 12.6% $ 10,717 11.5% $ 11,257 10.6% $ 9,167 12.3% $ 10,254 14.8% Real estate... 8,664 61.2 10,667 63.4 9,490 63.0 9,067 61.8 7,168 59.1 Consumer... 7,084 26.2 7,441 25.1 7,604 26.4 5,378 25.9 4,203 26.1 Unallocated... 11,329 N/A 13,199 N/A 12,993 N/A 11,240 N/A 4,279 N/A ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- $ 39,670 100.0% $ 42,024 100.0% $ 41,344 100.0% $ 34,852 100.0% $ 25,904 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
At December 31, 1995 the allowance for loan losses amounted to $39.7 million or 1.42% of loans, net of unearned income, as compared to $42.0 million or 1.62% at year-end 1994. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. Net loan charge-offs were $5.0 million for the year ended December 31, 1995 compared with $4.5 million for the year ended December 31, 1994. Charge-offs from the Lakeland merger added approximately $2.7 million to total net charge-offs during 1995. The ratio of net charge-offs to average loans amounted to 0.18% for 1995 compared with 0.19% for 1994. Although substantially all risk elements at December 31, 1995 have been disclosed in the categories presented above, Management believes that the current economic conditions may affect the ability of certain borrowers to comply with the contractual repayment terms on certain real estate and commercial loans. As part of the analysis of the loan portfolio by management, it has been determined that there are approximately $5.5 million in potential problem loans at December 31, 1995 which have not been classified as non-accrual, past due or restructured. Potential problem loans are defined as performing loans for which management has serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in a nonperforming loan. Approximately $1.3 million has been provided for in the allowance for loan losses for these potential problem loans. There can be no assurance that Valley has identified all of its problem loans. At December 31, 1994, Valley had identified approximately $8.0 million of problem loans. In May of 1993, FASB issued Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan" and Statement of Financial Accounting Standard No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure" which applies to financial statements for fiscal years beginning after December 15, 1994. These Statements require 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. There was no material impact on the financial position or results of operations as a result of Valley adopting these statements during 1995. 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 December 31, 1995, shareholders' equity totalled $400.2 million or 8.7% of total assets, compared with $350.6 million or 7.9% at year-end 1994. 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 less disallowed intangibles, while Total risk-based 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. 23 26 The following table details Valley's capital components and ratios as of December 31, 1995, 1994 and 1993. CAPITAL ANALYSIS
1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS) Total shareholders' equity (excluding fair value adjustment)(1)................. $ 396,504 $ 368,458 $ 333,240 Less: Disallowed intangible assets..................... 4,386 4,459 5,806 ---------- ---------- ---------- Tier 1 capital......................................... 392,118 363,999 327,434 Allowance for loan losses(2)........................... 35,310 32,592 28,126 ---------- ---------- ---------- Total risk-based capital............................... $ 427,428 $ 396,591 $ 355,560 ========== ========== ========== Risk-adjusted assets................................... $2,823,703 $2,607,355 $2,250,072 ---------- ---------- ---------- Adjusted average assets................................ $4,663,308 $4,421,239 $4,250,438 ---------- ---------- ----------
- --------------- (1) During 1994, the regulatory agencies determined that the FASB 115 fair value adjustment does not enter into the calculation of capital ratios. (2) Limited to 1.25% of risk-adjusted assets, with the excess deducted from risk-adjusted assets. CAPITAL RATIOS
"WELL CAPITALIZED" REQUIREMENTS 1995 1994 1993 ------------ ---- ---- ---- Tier 1 capital/risk-adjusted assets..................... 6.0% 13.9% 14.0% 14.6% Total risk-based capital/risk-adjusted assets........... 10.0% 15.1% 15.2% 15.8% Tier 1 capital/quarterly average assets less disallowed intangibles (leverage ratio).......................... 5.0% 8.4% 8.2% 7.7% Shareholders equity/total assets........................ -- 8.7% 7.9% 7.8%
Valley's capital position at December 31, 1995 under risk-based capital guidelines was $392.1 million, or 13.9% of risk-weighted assets, for Tier 1 capital and $427.4 million, or 15.1% for Total risked-based capital. The comparable ratios at December 31, 1994 were 14.0.% for Tier 1 capital and 15.2.% for Total risk-based capital. Valley's ratios at December 31, 1995 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 December 31, 1995 and 1994, Valley was in compliance with the leverage requirement having a Tier 1 leverage ratio of 8.4% and 8.2%, respectively. 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 43.5% at December 31, 1995, compared to 50.7% at December 31, 1994. Cash dividends declared amounted to $.99 per share, equivalent to a dividend payout ratio of 56.5%, up from the 49.3% for the year 1994. The current quarterly dividend rate of $.25 per share provides for an annual rate of $1.00 per share. 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. 24 27 RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993 Valley reported net income for 1994 of $64.6 million, or $1.83 per share, compared to the $65.0 million, or $1.87 per share earned in 1993 (the per share amounts have been restated to give effect to a 5% stock dividend in 1995, a 10% stock dividend in 1994 and a five for four stock split in 1993). Net interest income on a tax equivalent basis rose $9.5 million, or 5.4% to $183.9 million in 1994. The increase in 1994 was due primarily to the movement of funds from taxable investments to higher yielding interest earning loans. Average loan balances increased $322.4 million, earning an average rate of 8.07%, while taxable investments which earned an average of 6.20%, decreased $173.6 million. The net interest margin remained unchanged for 1994 at 4.48% compared to 4.49% for 1993. The provision for loan losses totaled $5.2 million in 1994 compared with $8.0 million in 1993. The decline in nonperforming assets coupled with the continued recovery of the economy among other things was responsible for the decrease. Non-interest income in 1994 amounted to $24.0 million, a decrease of $4.0 million, or 14.4% compared with 1993. Excluding securities gains of $6.0 million in 1994 and $7.5 million in 1993, total non-interest income totaled $18.0 in 1994 compared with $20.5 in 1993. The decrease in non-interest income resulted primarily from a decrease in gains on the sale of loans of $3.0 million and a decline in mortgage servicing fees by MSI of $500 thousand. These decreases were partially offset by a $500 thousand increase in service charges on deposit accounts. Non-interest expense totalled $90.6 million in 1994, an increase of $4.9 million, or 5.7% compared with 1993. Excluding merger expenses of $4.7 million included in 1994 for the acquisition of Lakeland First Financial Group (see Notes to Consolidated Financial Statements -- Acquisitions, Note 2), total non-interest expense remained unchanged in 1994 compared to 1993. Salaries and employee benefit expense increased $3.8 million or 9.6%. FDIC insurance premiums increased $293 thousand or 3.6% during 1994 and was attributable to the growth of deposits in 1994. Net occupancy expense, and furniture and equipment expense increased $1.3 million, or 10.8%, which is indicative of the growth of operations during 1994. Amortization of intangible assets decreased $2.4 million or 43.1% representing the decrease in amortization of purchased mortgage servicing rights. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements which are not historical facts contained in this Management's Discussion and Analysis are forward looking statements that involve risks and uncertainties including, but not limited to, the impact of economic conditions (both generally and more specifically in the markets in which Valley operates), the impact of competition for Valley's customers from other providers of financial services, the impact of government legislation and regulation (which changes from time to time and over which Valley has no control), and other risks detailed in this Annual Report on Form 10-K and in Valley's other Securities and Exchange Commission filings. 25 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) INTEREST INCOME Interest and fees on loans (Note 5)........................ $225,346 $195,398 $173,328 Interest and dividends on investment securities Taxable.................................................. 74,779 79,858 92,579 Tax-exempt............................................... 13,939 14,677 12,788 Dividends................................................ 691 700 642 Interest on federal funds sold and other short term investments.............................................. 1,895 1,950 1,356 -------- -------- -------- Total interest income............................ 316,650 292,583 280,693 -------- -------- -------- INTEREST EXPENSE Interest on deposits: Savings deposits......................................... 45,975 48,646 49,028 Time deposits (Note 10).................................. 91,986 63,411 60,662 Interest on federal funds purchased and securities sold under repurchase agreements.............................. 2,833 3,114 1,560 Interest on other short term borrowings.................... 698 227 161 Interest on other borrowings............................... 1,779 2,067 2,610 -------- -------- -------- Total interest expense........................... 143,271 117,465 114,021 -------- -------- -------- NET INTEREST INCOME........................................ 173,379 175,118 166,672 Provision for possible loan losses (Note 6)................ 2,669 5,197 7,966 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES................................................... 170,710 169,921 158,706 -------- -------- -------- NON-INTEREST INCOME Trust income............................................... 950 805 665 Service charges on deposit accounts........................ 7,957 7,303 6,805 Gains on securities transactions, net (Note 4)............. 1,471 5,974 7,494 Fees from mortgage servicing (Note 7)...................... 3,776 3,320 3,812 Gains on sales of loans.................................... 846 539 3,505 Other...................................................... 5,968 6,026 5,709 -------- -------- -------- Total non-interest income........................ 20,968 23,967 27,990 -------- -------- -------- NON-INTEREST EXPENSE Salary expense (Note 12)................................... 35,030 34,098 31,636 Employee benefit expense (Note 12)......................... 8,145 9,266 7,923 FDIC insurance premiums.................................... 5,884 8,473 8,180 Net occupancy expense (Notes 8 and 14)..................... 8,191 7,757 6,933 Furniture and equipment expense (Note 8)................... 5,661 5,646 5,161 Amortization of intangible assets (Note 7)................. 2,812 3,147 5,527 Other...................................................... 24,480 22,207 20,311 -------- -------- -------- Total non-interest expense....................... 90,203 90,594 85,671 -------- -------- -------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE........................................ 101,475 103,294 101,025 Income tax expense (Note 13)............................... 38,879 38,723 35,638 -------- -------- -------- Income before cumulative effect of accounting change....... 62,596 64,571 65,387 Cumulative effect of accounting change..................... -- -- (402) -------- -------- -------- NET INCOME................................................. $ 62,596 $ 64,571 $ 64,985 ======== ======== ======== PER SHARE DATA: Income before cumulative effect of accounting change..... $ 1.76 $ 1.83 $ 1.88 Net income............................................... $ 1.76 $ 1.83 $ 1.87 Weighted average number of shares outstanding.............. 35,615,339 35,302,341 34,736,301
See accompanying notes to consolidated financial statements. 26 29 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ------------------------- 1995 1994 ---------- ---------- (IN THOUSANDS) ASSETS Cash and due from banks (Note 14)................................... $ 167,349 $ 168,072 Federal funds sold.................................................. 108,500 -- Investment securities held to maturity, fair value of $270,622 and $817,660 in 1995 and 1994, respectively (Note 3).................. 266,354 853,983 Investment securities available for sale (Note 4)................... 1,146,285 696,438 Loans, net of unearned income (Note 5).............................. 2,793,175 2,592,756 Less: Allowance for possible loan losses (Note 6)................. (39,670) (42,024) ---------- ---------- Net loans................................................. 2,753,505 2,550,732 ---------- ---------- Premises and equipment (Note 8)..................................... 58,053 51,123 Due from customers on acceptances outstanding....................... 838 1,498 Accrued interest receivable......................................... 30,450 29,545 Other assets (Notes 7, 9 and 13).................................... 54,477 67,195 ---------- ---------- Total assets.............................................. $4,585,811 $4,418,586 ========== ========== LIABILITIES Deposits (Note 10): Non-interest bearing.............................................. $ 542,229 $ 509,457 Interest bearing: Savings........................................................ 1,699,871 1,833,326 Time........................................................... 1,841,773 1,537,219 ---------- ---------- Total deposits............................................ 4,083,873 3,880,002 ---------- ---------- Federal funds purchased and securities sold under repurchase agreements (Note 3)............................................... 26,921 102,804 Treasury tax and loan account and other short term borrowings (Note 3)................................................................ 10,524 15,549 Other borrowings (Note 11).......................................... 28,679 35,567 Bank acceptances outstanding........................................ 838 1,498 Accrued expenses and other liabilities.............................. 34,739 32,550 ---------- ---------- Total liabilities......................................... 4,185,574 4,067,970 ---------- ---------- Commitments and Contingencies (Note 14) SHAREHOLDERS' EQUITY (Notes 2, 12 and 15) Common stock, no par value, authorized 39,414,375 shares; issued 35,889,721 shares in 1995 and 33,848,875 shares in 1994........... 20,025 18,869 Surplus............................................................. 216,377 172,321 Retained earnings................................................... 162,012 179,432 Unrealized gain (loss) on investment securities available for sale, net of tax........................................................ 3,733 (17,842) ---------- ---------- 402,147 352,780 Treasury stock, at cost (107,413 shares in 1995 and 121,696 shares in 1994).......................................................... (1,910) (2,164) ---------- ---------- Total shareholders' equity................................ 400,237 350,616 ---------- ---------- Total liabilities and shareholders' equity................ $4,585,811 $4,418,586 ========== ==========
See accompanying notes to consolidated financial statements. 27 30 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES TOTAL COMMON RETAINED AVAILABLE TREASURY SHAREHOLDERS' STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY ------- -------- --------- -------- -------------- ------------- (IN THOUSANDS) BALANCE -- DECEMBER 31, 1992............... $10,529 $ 76,879 $ 194,351 $ -- $ (1,384) $ 280,375 Net income................................. -- -- 64,985 -- -- 64,985 Cash dividends............................. -- -- (25,221) -- -- (25,221) Warrants exercised......................... 315 1,624 -- -- -- 1,939 Effect of stock incentive plan, net........ 128 852 -- -- -- 980 Stock dividend............................. 162 4,480 (4,642) -- -- -- Purchase of treasury stock................. -- -- -- -- (780) (780) Shares issued pursuant to merger........... 1,054 9,908 -- -- -- 10,962 ------- -------- -------- -------- -------- -------- BALANCE -- DECEMBER 31, 1993............... 12,188 93,743 229,473 -- (2,164) 333,240 Net income................................. -- -- 64,571 -- -- 64,571 Cash dividends............................. -- -- (33,535) -- -- (33,535) Warrants exercised......................... 396 2,178 -- -- -- 2,574 Effect of stock incentive plan, net........ 156 1,452 -- -- -- 1,608 Stock dividend............................. 6,129 74,948 (81,077) -- -- -- Unrealized gain on investment securities available for sale as of January 1, 1994..................................... -- -- -- 4,100 -- 4,100 Net change in unrealized gain (loss)on investment securities available for sale..................................... -- -- -- (21,942) -- (21,942) ------- -------- -------- -------- -------- -------- BALANCE -- DECEMBER 31, 1994............... 18,869 172,321 179,432 (17,842) (2,164) 350,616 Net income................................. -- -- 62,596 -- -- 62,596 Cash dividends............................. -- -- (35,324) -- -- (35,324) Warrants exercised......................... 33 771 (5,506) -- 11,944 7,242 Effect of stock incentive plan, net 30 327 (1,149) -- 1,980 1,188 Stock dividend............................. 949 37,802 (38,831) -- -- (80) Purchase of treasury stock................. -- -- -- -- (13,670) (13,670) Acquisition of American Union.............. 154 5,345 (1,076) -- -- 4,423 Tax benefit from exercise of stock options.................................. -- 508 -- -- -- 508 Adjustment for the pooling of a company with a different fiscal year end......... (10 ) (697) 1,870 -- -- 1,163 Net change in unrealized gain (loss) on investment securities available for sale..................................... -- -- -- 21,575 -- 21,575 ------- -------- -------- -------- -------- -------- BALANCE -- DECEMBER 31, 1995............... $20,025 $216,377 $ 162,012 $ 3,733 $ (1,910) $ 400,237 ======= ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 28 31 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................... $ 62,596 $ 64,571 $ 64,985 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangible assets.................... 8,039 8,699 10,395 Amortization of compensation costs pursuant to long term stock incentive plan....................................................... 322 254 232 Provision for possible loan losses.................................... 2,669 5,197 7,966 Net amortization of premiums and discounts............................ 5,095 6,907 9,193 Net deferred income tax expense (benefit)............................. 1,549 (492) (2,370) Net gains on securities transactions.................................. (1,471) (5,974) (7,494) Gain on sale of loans................................................. (846) (539) (3,505) Proceeds from recoveries on previously charged-off loans.............. 2,619 2,203 1,412 Net (increase) decrease in accrued interest receivables and other assets............................................................... (3,789) (3,964) 8,665 Net increase (decrease) in accrued expenses and other liabilities..... 991 6,814 (7,681) Net increase in shareholders' equity due to acquisition of American Union Bank........................................................... 4,423 -- -- Adjustment for the pooling of a company with a different fiscal year end.................................................................. 1,163 -- -- --------- --------- --------- Net cash provided by operating activities............................. 83,360 83,676 81,798 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash received pursuant to acquisitions................................... -- -- 7,566 Purchases of mortgage servicing rights................................... (3,902) (1,390) (249) Proceeds from sales of investment securities available for sale.......... 105,336 190,472 336,745 Proceeds from maturing investment securities available for sale.......... 119,475 86,170 25,082 Purchases of investment securities available for sale.................... (115,348) (267,581) (277,510) Purchases of investment securities held to maturity...................... (84,675) (169,676) (454,017) Proceeds from maturing investment securities held to maturity............ 146,284 286,188 442,481 Net (increase) decrease in federal funds sold and other short term investments........................................................... (108,500) 95,182 (6,413) Net increase in loans made to customers.................................. (207,215) (324,794) (199,176) Purchases of premises and equipment, net of sales........................ (12,353) (6,588) (9,014) Net (increase) decrease in acceptances................................... 660 (306) (369) --------- --------- --------- Net cash used in investing activities.................................... (160,238) (112,323) (134,874) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits................................................. 203,871 107,746 32,433 Net increase (decrease) in federal funds purchased and other short term borrowings............................................................ (80,908) 41,812 23,016 Advances of other borrowings............................................. -- -- 17,000 Repayments of other borrowings........................................... (6,888) (9,344) (14,101) Net (decrease) increase in acceptances................................... (660) 306 369 Dividends paid to common shareholders.................................... (33,618) (31,695) (24,614) Addition of common shares to treasury.................................... (13,670) -- (780) Common stock issued, net of cancellations................................ 8,028 3,925 2,688 --------- --------- --------- Net cash provided by financing activities................................ 76,155 112,750 36,011 --------- --------- --------- Net increase (decrease) in cash and cash equivalents..................... (723) 84,103 (17,065) Cash and cash equivalents at beginning of year........................... 168,072 83,969 101,034 --------- --------- --------- Cash and cash equivalents at end of year................................. $ 167,349 $ 168,072 $ 83,969 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest on deposits and other borrowings............................. $ 139,178 $ 116,123 $ 116,824 Federal and state income taxes........................................ 38,021 37,291 38,972 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for acquisition...................................... $ -- $ -- $ 10,962 Assets acquired in acquisition, net of cash received..................... -- -- 215,683 Transfer of investment securities held to maturity to investment securities available for sale......................................... 516,854 23,577 176,321 Transfer of loans to loans held for sale................................. -- -- 23,190
See accompanying notes to consolidated financial statements. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1) Basis of Presentation The consolidated financial statements of Valley National Bancorp and its wholly-owned subsidiary ("Valley") include the accounts of its principal commercial bank subsidiary, Valley National Bank ("VNB") and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. The financial statements of prior years have been restated to include Lakeland First Financial Group ("LFG"), which was acquired on June 30, 1995 in a transaction accounted for as a pooling of interest. Certain reclassifications have been made in the consolidated financial statements for 1994 and 1993 to conform to the classifications presented for 1995. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of condition and results of operations for the periods indicated. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for possible loan losses and the valuation of other real estate owned. In connection with the determination of these allowances, management generally obtains independent appraisals. Statement of Cash Flows The Consolidated Statements of Cash Flows are presented using the indirect method. Cash and cash equivalents are defined as cash and due from banks. Investment Securities Valley adopted prospectively on January 1, 1994 Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investment in Debt and Equity Securities". Under the provisions of SFAS 115, investments will be classified into three categories: held to maturity, available for sale and trading. Investment securities held to maturity, except for equity securities, are carried at cost and adjusted for amortization of premiums and accretion of discounts by using the interest method over the term of the investment. Management has identified those investment securities which may be sold prior to maturity. These investment securities are classified as available for sale on the accompanying consolidated statements of financial condition and are recorded at fair value on an aggregate basis and unrealized holding gains and losses (net of related tax effects) on such securities are excluded from earnings, but are included as a separate component of shareholders' equity, net of deferred tax. Transfers of securities between investment categories are at fair value as of the transfer date with the accounting treatment of unrealized gains and losses determined by the category into which the security is transferred. Realized gains or losses on the sale of investment securities are recognized by the specific identification method and shown as a separate component of non-interest income. Loans and Loan Fees Loans are stated net of unearned income. Unearned income on discounted loans is recognized based upon methods which approximate a level yield. Loan origination and commitment fees, net of related costs, are deferred and amortized as an adjustment of loan yield over the estimated lives of the loans approximating the effective interest method. 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On January 1, 1995, Valley adopted Statement of Financial Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," ("SFAS 118"). Valley has chosen to maintain its existing income recognition policies with respect to non-accrual loans. Interest income is not accrued on loans where interest or principal is 90 days or more past due or if in management's judgement the ultimate collectibility of the interest is doubtful. Exceptions may be made if the loan is sufficiently collateralized and in the process of collection. When a loan is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection and all past due amounts have been collected. On January 1, 1995, Valley adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114 requires that the value of an impaired loan be measured based upon the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. Valley has defined the population of impaired loans to be all non-accrual loans, consisting primarily of commercial real estate loans. The impaired loan portfolio is primarily collateral dependent, as defined by SFAS 114. Impaired loans are individually assessed to determine that each loan's carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. Valley originates loans guaranteed by the Small Business Administration("SBA"). The principal amount of these loans is guaranteed up to 70% by the SBA. Valley may sell the guaranteed portions of these loans and retain the unguaranteed portions as well as the rights to service the loans. Gains are recorded on loan sales based on premiums paid by the purchasers. Allowance for Possible Loan Losses The allowance for possible loan losses ("allowance") is increased through provisions charged against current earnings and additionally by crediting amounts of recoveries received, if any, on previously charged-off loans. The allowance is reduced by charge-offs on loans which are determined to be a loss, in accordance with established policies when all efforts of collection have been exhausted. The allowance is maintained at a level necessary to absorb potential loan losses and other credit risk related charge-offs. It is the result of an analysis which relates outstanding balances to expected reserve levels required to absorb future credit losses. Current and economic problems are addressed through management's assessment of anticipated changes in the regional economic climate, changes in composition and volume of the loan portfolio and variances in levels of classified loans, non-performing loans and other past due amounts. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are stated at cost less accumulated amortization computed on a straight-line basis over the term of the lease or estimated useful life of the asset, whichever is shorter. Major improvements are capitalized, while repairs and maintenance costs are charged to operations as incurred. Upon retirement or disposition, any gain or loss is credited or charged to operations. 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Other Real Estate Owned Real estate formally acquired in partial or full satisfaction of loans is classified as other real estate owned. These assets are recorded at the lower of cost or fair value at the time of acquisition, with any excess charged to the allowance for loan losses. Subsequently, other real estate owned is carried at the lower of fair value, less estimated costs to sell, or cost. An allowance for other real estate owned has been established to maintain these properties at the lower of cost or fair value less estimated cost to sell. Other real estate owned is shown net of the allowance. The allowance is established through charges to other real estate owned expense. Intangible Assets Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and core deposit intangibles. Goodwill, which was recorded prior to 1987, is being amortized on a straight-line basis over 25 years. Core deposit intangibles are amortized on accelerated methods over the estimated lives of the assets. Goodwill and core deposit intangibles are included in other assets. Mortgage Servicing Servicing fee income, representing reimbursement for loan administrative services performed on contractually serviced mortgages, are credited to income as earned. Purchased mortgage servicing rights are capitalized and amortized over the estimated lives of related loans and approximate the amount by which the present value of estimated future servicing revenues exceeds the present value of expected servicing costs. Income Taxes Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", required a change from the deferred method under APB Opinion 11 to the asset and liability method of SFAS 109. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Effective January 1, 1993, Valley adopted SFAS 109 prospectively and has reported the cumulative effect of that change in method of accounting for income taxes in the 1993 consolidated statement of income. Earnings Per Share Earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during each period. All share and per share amounts have been restated to reflect the five percent stock dividend on May 2, 1995, the ten percent stock dividend on May 3, 1994 and the five for four stock split on April 16, 1993. Shares issuable upon exercise of options and warrants are not included in the calculation of earnings per share since their effect is not material. Treasury Stock Treasury stock is recorded using the cost method and accordingly is presented as an unallocated reduction of shareholders' equity. 32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACQUISITIONS (NOTE 2) On June 30, 1995, Valley acquired by merger the $671 million asset Lakeland First Financial Group, Inc. ("LFG"), based in Succasunna, New Jersey and its sixteen branch subsidiary, Lakeland Savings Bank ("Lakeland"). Each share of LFG common stock outstanding was converted into 1.286 shares of Valley common stock, resulting in the issuance by Valley of 5,136,446 shares of Valley common stock. The acquisition has been accounted for as a pooling of interests. Prior to the merger, Lakeland's fiscal year ended on June 30th. In recording the pooling of interests combination, LFG's statement of financial condition as of June 30, 1995 was combined with Valley's statement of financial condition as of December 31, 1994. LFG's statements of income for the years ended June 30, 1995 and 1994, were combined with Valley's statements of income for the years ended December 31, 1994 and 1993, respectively. An adjustment has been made to shareholders' equity to eliminate the effect of including LFG's results of operations for the six months ended June 30, 1995 in both the year ended December 31, 1995 and the year ended December 31, 1994. The consolidated financial statements of Valley include the accounts of LFG for all periods presented. Separate results of the combining companies are as follows:
SIX MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 31, 1995 1994 1993 ---------- ------------ ------------ (IN THOUSANDS) Net interest income after provision for possible loan losses: Valley....................................... $ 72,677 $145,561 $137,675 LFG.......................................... 12,560 24,360 21,031 ------- ------- ------- $ 85,237 $169,921 $158,706 ======= ======= ======= Net income: Valley....................................... $ 27,341 $ 59,044 $ 56,444 LFG.......................................... 605 5,527 8,541 ------- ------- ------- $ 27,946 $ 64,571 $ 64,985 ======= ======= =======
On February 28, 1995, Valley acquired American Union Bank ("American"), headquartered in Union, New Jersey, with two branches and approximately $58 million in assets. The transaction resulted in the issuance of 288,734 shares of Valley common stock and was accounted for using the pooling of interests method of accounting. The financial statements for Valley have not been restated as they would not have been materially different from those presented. American's financial statements are included in Valley's consolidated financial statements as of January 1, 1995. Each share of common stock of American was exchanged for 0.50 shares of Valley common stock. On November 30, 1994, Valley acquired approximately $190 million in assets of Rock Financial Corporation ("RFC"), based in North Plainfield, New Jersey and its five branch subsidiary, Rock Bank ("Rock"). Each share of RFC common stock outstanding was converted into 1.85 shares of Valley common stock for a total of approximately 1.7 million shares. The acquisition has been accounted for as a pooling of interests and the consolidated financial statements of Valley include the accounts of RFC for all periods presented. On June 18, 1993, Valley issued approximately 421,000 shares of its common stock at a cost of $10,962,000 in exchange for approximately 661,000 shares of common stock of Peoples Bancorp ("Peoples") of Fairfield, New Jersey, a New Jersey corporation and a registered bank holding company of Peoples Bank, National Association, a banking association. The merger was accounted for under the purchase method of accounting, and as such, the consolidated financial statements include the results of operations and assets and liabilities of Peoples from June 18, 1993 forward. The proforma results of operations for the period January 1 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) to June 18, 1993, assuming Peoples had been acquired as of January 1, 1993, would not have been significantly different from those presented in the Consolidated Statements of Income. INVESTMENT SECURITIES HELD TO MATURITY(NOTE 3) The amortized cost, fair value and unrealized gains and losses of securities held to maturity at December 31, 1995 and 1994 were as follows:
DECEMBER 31, 1995 ----------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- -------- (IN THOUSANDS) U.S. Treasury securities and other government agencies and corporations.................................... $ 6,742 $ 44 $ (18) $ 6,768 Obligations of states and political subdivisions...... 106,748 1,425 (132) 108,041 Mortgage-backed securities............................ 144,642 3,301 (360) 147,583 Other debt securities................................. 479 8 -- 487 -------- ------- ----- ------- Total debt securities............................ 258,611 4,778 (510) 262,879 Equity securities..................................... 6,936 -- -- 6,936 Other securities...................................... 807 -- -- 807 -------- ------- ----- ------- Total investment securities held to maturity........ $266,354 $4,778 $ (510) $270,622 ======== ======= ===== =======
DECEMBER 31, 1994 ----------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- -------- (IN THOUSANDS) U.S. Treasury securities and other government agencies and corporations.................................... $ 16,288 $ 38 $ (1,186) $ 15,140 Obligations of states and political subdivisions...... 328,659 1,270 (7,394) 322,535 Mortgage-backed securities............................ 501,120 144 (29,195) 472,069 Other debt securities................................. 779 -- -- 779 -------- ----- -------- -------- Total debt securities............................ 846,846 1,452 (37,775) 810,523 Equity securities..................................... 6,539 -- -- 6,539 Other securities...................................... 598 -- -- 598 -------- ----- -------- -------- Total investment securities held to maturity..... $853,983 $1,452 $ (37,775) $817,660 ======== ===== ======== ========
34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The contractual maturities of investments in debt securities held to maturity at December 31, 1995 are set forth in the following table:
AMORTIZED COST FAIR VALUE -------------- ----------- (IN THOUSANDS) Due in one year................................... $ 39,727 $ 39,806 Due after one year thru five years................ 61,196 62,056 Due after five years thru ten years............... 5,393 5,691 Due after ten years............................... 7,653 7,743 -------- -------- 113,969 115,296 Mortgage-backed securities........................ 144,642 147,583 -------- -------- Total debt securities........................ 258,611 262,879 Equity securities................................. 6,936 6,936 Other securities.................................. 807 807 -------- -------- Total investment securities held to maturity................................... $266,354 $ 270,622 ======== ========
Actual maturities of debt securities may differ from those presented above as certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. Equity and other securities do not have contractual maturities. The amortized cost of securities pledged to secure public deposits, treasury tax and loan deposits, repurchase agreements and for other purposes required by law approximated $123,297,000 and $140,261,000 at December 31, 1995 and 1994, respectively. INVESTMENT SECURITIES AVAILABLE FOR SALE (NOTE 4) The amortized cost, fair value and unrealized gains and losses of securities available for sale at December 31, 1995 and 1994 were as follows:
DECEMBER 31, 1995 -------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ----------- ----------- (IN THOUSANDS) U.S. Treasury securities and other government agencies and corporations...... $ 175,990 $ 547 $ (175) $ 176,362 Obligations of states and political subdivisions.............................. 201,650 2,687 (344) 203,993 Mortgage-backed securities.................. 755,347 7,286 (4,499) 758,134 ---------- ------- ------- -------- Total debt securities.................. 1,132,987 10,520 (5,018) 1,138,489 Equity securities........................... 6,624 1,176 (4) 7,796 ---------- ------- ------- -------- Total investment securities available for sale............................. $1,139,611 $ 11,696 $ (5,022) $ 1,146,285 ========== ======= ======= ========
35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 -------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ----------- ----------- (IN THOUSANDS) U.S. Treasury securities and other government agencies and corporations...... $ 194,889 $ -- $ (9,868) $ 185,021 Mortgage-backed securities.................. 526,974 861 (21,898) 505,937 ---------- ------- ------- ---------- Total debt securities.................. 721,863 861 (31,766) 690,958 Equity securities........................... 4,792 768 (80) 5,480 ---------- ------- ------- ---------- Total investment securities available for sale............................. $ 726,655 $ 1,629 $ (31,846) $ 696,438 ========== ======= ======= ==========
The contractual maturities of investments in debt securities available for sale at December 31, 1995 are set forth in the following table:
AMORTIZED COST FAIR VALUE -------------- ----------- (IN THOUSANDS) Due in one year................................... $ 102,162 $ 102,305 Due after one year thru five years................ 249,318 251,057 Due after five years thru ten years............... 22,207 22,599 Due after ten years............................... 3,953 4,394 -------- -------- 377,640 380,355 Mortgage-backed securities........................ 755,347 758,134 -------- -------- Total debt securities........................ 1,132,987 1,138,489 Equity securities................................. 6,624 7,796 -------- -------- Total investment securities available for sale....................................... $1,139,611 $ 1,146,285 ======== ========
Actual maturities on debt securities may differ from those presented above as certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. Equity securities do not have contractual maturities. Gross gains(losses) realized on sales, maturities and other securities transactions for the years ended December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993 ------ ------ ------ (IN THOUSANDS) Sales transactions: Gross gains.................................... $1,674 $6,081 $7,764 Gross losses................................... (209) (185) (297) ------ ------ ------ 1,465 5,896 7,467 ------ ------ ------ Maturities and other securities transactions: Gross gains.................................... 6 78 27 Gross losses................................... -- -- -- ------ ------ ------ 6 78 27 ------ ------ ------ Net gains on securities transactions........... $1,471 $5,974 $7,494 ====== ====== ======
Cash proceeds from sales transactions approximated $105,336,000, $190,472,000 and $336,745,000 for the years ended 1995, 1994 and 1993, respectively. 36 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) LOANS (NOTE 5) The detail of the loan portfolio as of December 31, 1995 and 1994 was as follows:
1995 1994 ---------- ---------- (IN THOUSANDS) Commercial.......................................... $ 351,885 $ 298,337 Construction........................................ 73,664 70,192 Commercial mortgage................................. 619,326 571,596 Residential mortgage................................ 1,017,453 1,004,203 Installment......................................... 731,772 650,329 ---------- ---------- 2,794,100 2,594,657 Less: Unearned income............................... (925) (1,901) ---------- ---------- Loans, net of unearned income....................... $2,793,175 $2,592,756 ========== ==========
VNB grants loans in the ordinary course of business to their directors, executive officers and their affiliates, on the same terms and under the same risk conditions as those prevailing for comparable transactions with outside borrowers. The following table summarizes the change in the total amounts of loans and advances to directors, executive officers, and their affiliates during the year 1995:
(IN THOUSANDS) -------------- Outstanding at beginning of year............................... $ 29,692 New loans and advances......................................... 10,211 Repayments..................................................... (12,855) -------- Outstanding at end of year..................................... $ 27,048 ========
Non-performing assets include non-accrual loans and other real estate owned. The outstanding balances of accruing loans which are 90 days or more past due as to principal or interest payments and non-performing assets at December 31, 1995 and 1994 were as follows:
1995 1994 ------- ------- (IN THOUSANDS) Loans past due in excess of 90 days and still accruing... $ 8,117 $ 8,695 ======= ======= Non-accrual loans........................................ $11,795 $22,622 Other real estate owned.................................. 7,015 7,638 ------- ------- Total non-performing assets.................... $18,810 $30,260 ======= ======= Troubled debt restructured loans......................... $ 5,209 $ -- ======= =======
The amount of interest income that would have been recorded on non-accrual loans in 1995, 1994 and 1993 had payments remained in accordance with the original contractual terms approximated $1,569,000, $2,742,000 and $3,558,000 while the actual amount of interest income recorded on these types of assets in 1995, 1994 and 1993 totalled $763,000, $996,000 and $960,000, resulting in lost interest income of $806,000, $1,746,000 and $2,598,000, respectively. At December 31, 1995 there were two loans which were restructured at below market interest rates and accounted for as troubled debt restructured loans amounting to 5,209,000. At December 31, 1995, there were no commitments to lend additional funds to borrowers whose loans were non-accrual or contractually past due in excess of 90 days and still accruing interest. SFAS 114 and SFAS 118 were adopted prospectively on January 1, 1995. The adoption of these statements did not affect the level of the overall allowance or operating results of Valley. Income recognition and charge-off policies were not changed as a result of these statements. At December 31, 1995, the impaired loan portfolio was primarily collateral dependent as defined under SFAS 114 and totaled $24.4 million for 37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) which general and specific allocations to the allowance for loan losses of $7.0 million were identified. The average balance of impaired loans during 1995 was approximately $30.2 million. The amount of cash basis interest income that was recognized on impaired loans during 1995 was $2.1 million. ALLOWANCE FOR POSSIBLE LOAN LOSSES (NOTE 6) Transactions in the allowance for possible loan losses during 1995, 1994 and 1993 were as follows:
1995 1994 1993 ------- ------- -------- (IN THOUSANDS) Balance at beginning of year................. $42,024 $41,344 $ 34,852 Balance from acquisition..................... -- -- 4,466 Provision charged to operating expense....... 2,669 5,197 7,966 ------- ------- ------- 44,693 46,541 47,284 Less net loan charge-offs Loans charged-off.......................... (7,642) (6,720) (7,352) Less recoveries on loan charge-offs........ 2,619 2,203 1,412 ------- ------- ------- Net loan charge-offs......................... (5,023) (4,517) (5,940) ------- ------- ------- Balance at end of year....................... $39,670 $42,024 $ 41,344 ======= ======= =======
MORTGAGE SERVICING (NOTE 7) VNB Mortgage Services, Inc. ("MSI"), a subsidiary of VNB, is a servicer of residential mortgage loan portfolios. MSI purchases the rights to service these portfolios in the secondary market and is compensated for loan administrative services performed. The aggregate principal balances of mortgage loans serviced by MSI approximated $1,690,080,000, $1,204,980,000 and $1,174,939,000 at December 31, 1995, 1994 and 1993, respectively. These amounts included $816,513,000, $536,601,000 and $467,003,000 as of December 31, 1995, 1994 and 1993, respectively, of loans serviced on behalf of VNB. The outstanding balance of loans serviced for others is not included in the consolidated statement of financial condition. The costs associated with acquiring mortgage servicing rights are included in other assets in the consolidated financial statements and are being amortized over the estimated periods which the related loans are expected to generate income. The remaining unamortized costs at December 31, 1995, 1994 and 1993, amounted to $8,094,000, $5,998,000 and $6,193,000, respectively. Amortization expense for 1995, 1994 and 1993 amounted to $1,806,000, $1,585,000 and $3,715,000, respectively, and is included in amortization of intangible assets. 38 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PREMISES AND EQUIPMENT (NOTE 8) At December 31, 1995 and 1994, premises and equipment consisted of:
1995 1994 -------- -------- (IN THOUSANDS) Land................................................... $ 14,144 $ 13,734 Buildings.............................................. 36,130 33,354 Leasehold improvements................................. 5,717 5,087 Furniture and equipment................................ 39,462 30,561 -------- ------- 95,453 82,736 Less accumulated depreciation and amortization......... (37,400) (31,613) -------- ------- Net premises and equipment................... $ 58,053 $ 51,123 ======== =======
Depreciation and amortization included in non-interest expense for the years ended December 31, 1995, 1994 and 1993 amounted to approximately $5,695,000, $5,551,000 and $4,890,000, respectively. OTHER ASSETS (NOTE 9) At December 31, 1995 and 1994, other assets consisted of the following:
1995 1994 ------- ------- (IN THOUSANDS) Mortgage servicing rights................................ $ 8,094 $ 5,998 Goodwill................................................. 3,420 3,668 Core deposits............................................ 3,146 3,578 Other real estate owned.................................. 7,015 7,638 Deferred tax asset....................................... 13,292 29,708 Other.................................................... 19,510 16,605 ------- ------- Total other assets............................. $54,477 $67,195 ======= =======
DEPOSITS (NOTE 10) The carrying value of deposits at December 31, 1995 and 1994 were as follows:
1995 1994 ---------- ---------- (IN THOUSANDS) Non-interest bearing demand deposits................ $ 542,229 $ 509,457 Savings accounts.................................... 1,699,871 1,833,326 Certificates of deposit of $100,000 or more......... 500,939 277,476 Other time deposits................................. 1,340,834 1,259,743 ---------- ---------- Total deposits............................ $4,083,873 $3,880,002 ========== ==========
Interest expense on certificates of deposit of $100,000 or more totaled approximately $20,157,000, $14,881,000 and $5,042,000 in 1995, 1994 and 1993, respectively. 39 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OTHER BORROWINGS (NOTE 11) At December 31, 1995 and 1994, other borrowings consisted of the following:
1995 1994 ------- ------- (IN THOUSANDS) FHLB advances............................................ $28,500 $33,000 Mortgage note............................................ 179 183 Capitalized lease obligation............................. -- 2,384 -------- -------- $28,679 $35,567 ======== ========
The Federal Home Loan Bank (FHLB) advances have a weighted average interest rate of 5.11% at December 31, 1995 and 5.03% at December 31, 1994. These advances are secured by pledges of FHLB stock and a blanket assignment of qualifying mortgage loans. The advances are scheduled for repayment as follows:
($ IN THOUSANDS) Within one year............................................... $ 14,000 From one to three years....................................... 14,500 ------- $ 28,500 =======
BENEFIT PLANS (NOTE 12) Pension Plan VNB has a non-contributory benefit plan covering substantially all of its employees. The benefits are based upon years of credited service, primary social security benefits and the employee's highest average compensation as defined. It is VNB's funding policy to contribute annually the maximum amount that can be deducted for federal income tax purposes. In 1995, 1994 and 1993, contributions totaling $502,000, $1,363,000 and $1,160,000 were made. In addition, VNB has a supplemental non-qualified, non-funded retirement plan which is designed to supplement the pension plan for key employees. The following table sets forth the funded status of the plans and amounts recognized in Valley's financial statements at December 31, 1995 and 1994:
1995 1994 ------- ------- (IN THOUSANDS) Plan assets at fair value, primarily government and corporate bonds, corporate stocks, certificates of deposit and other miscellaneous assets................................................................... $15,074 $12,935 Actuarial present value of benefit obligations: Accumulated benefit obligation for service rendered to date, including vested benefits of $11,469 in 1995 and $10,042 in 1994................ 12,521 10,684 Additional future benefits based on estimated salary levels.............. 3,684 3,608 ------- ------- Projected benefit obligations.............................................. $16,205 $14,292 ------- ------- Deficiency of plan assets over projected benefit obligations............... $(1,131) $(1,357) Unrecognized net (gain)loss from past experience different from that assumed and effects of changes in assumptions............................ (1,688) (808) Unrecognized net asset at January 1, being recognized over an average of 15.6 years............................................................... 7 (253) Prior service cost not yet recognized in net periodic pension cost......... 681 854 ------- ------- Accrued pension cost included in other liabilities......................... $(2,131) $(1,564) ======= =======
40 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Net periodic pension expense for 1995, 1994 and 1993 included the following components:
1995 1994 1993 ------- ------ ----- (IN THOUSANDS) Service cost-benefits earned during the period................... $ 1,221 $1,253 $ 983 Interest cost on projected benefit obligations................... 1,048 969 836 Actual return on plan assets..................................... (2,866) (804) (692) Net amortization and deferral.................................... 1,810 (78) (212) ----- ----- ----- Total net periodic pension expense..................... $ 1,213 $1,340 $ 915 ===== ===== =====
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of benefit obligations for the plan were 7.00% and 5.00%, respectively, for 1995 and 8.00% and 6.00% for 1994. The expected long term rate of return on assets was 9.00% for both 1995 and 1994 and the weighted average discount rate used in computing pension cost was 8.00% and 7.50% for 1995 and 1994, respectively. Bonus Plan VNB and its subsidiaries award incentive and merit bonuses to its officers and employees based upon a percentage of the covered employees compensation and determined by the achievement of certain performance objectives. Amounts charged to salaries expense during 1995, 1994 and 1993 were $1,265,000, $1,495,000 and $1,439,000, respectively. Savings Plan VNB maintains a contribution matching 401K Savings and Investment Plan. This plan covers eligible employees of VNB and its subsidiaries. The 401K plan allows employees to contribute from 1% to 12% of their salary with VNB matching a certain percentage out of its current years earnings with the distribution of VNB's contributions subject to a vesting schedule. 401K expense for 1995, 1994 and 1993 amounts to $396,000, $586,000 and $663,000, respectively. Stock Incentive Plan Valley maintains a stock incentive plan pursuant to which 1,847,030 shares of common stock have been authorized for issuance to certain key employees in the form of stock options, stock appreciation rights and restricted stock awards. Shares of Valley's common stock may be purchased under qualified and non-qualified stock options at 100 percent and 80 percent, respectively, of the fair market value of such shares on the date of the grant. The options granted under this plan are, in general, exercisable not earlier than one year after the date of grant, and expire not more than ten years after the date of the grant, and are subject to a vesting schedule. Changes in total options outstanding during 1995, 1994 and 1993 are as follows:
1995 1994 1993 ----------------------- ------------------------ ------------------------ PER SHARE PER SHARE PER SHARE QUALIFIED STOCK OPTIONS SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE - ----------------------- ------- ------------- -------- ------------- -------- ------------- Options outstanding at beginning of year.... 511,335 $ 4.14-$24.78 680,651 $ 4.14-$22.08 666,944 $ 4.14-$19.74 Options granted........ 87,927 $24.00-$24.88 89,959 $23.57-$24.78 157,741 $12.72-$22.08 Options cancelled...... (15,156) $ 6.92-$24.75 (14,535) $ 4.14-$22.08 (6,889) $ 6.92-$19.74 Options exercised...... (84,242) $ 6.92-$22.07 (244,740) $ 4.14-$22.08 (137,145) $ 4.14-$19.74 ------- --------------- -------- --------------- -------- --------------- Options outstanding at end of year.......... 499,864 $ 4.14-$24.88 511,335 $ 4.14-$24.78 680,651 $ 4.14-$22.08 ======= =============== ======== =============== ======== ================
41 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1995, 1994 and 1993, 217,959, 188,601 and 331,638 options were exercisable under the Plan's vesting schedule. There are 15,902 stock appreciation rights outstanding as of December 31, 1995. These were granted in tandem with qualified stock options.
1995 1994 1993 --------------------- -------------------- -------------------- PER SHARE PER SHARE PER SHARE NON-QUALIFIED STOCK OPTIONS SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE - ------------------------------------ ------ ------------ ------ ----------- ------ ----------- Options outstanding at beginning of year........................... 11,694 $ 9.42 11,694 $9.42 11,694 $9.42 Options granted..................... 19,795 24.88 -- -- -- -- ------ ----------- ------ ----- ------ ----- Options outstanding at end of year.............................. 31,489 $9.42-$24.88 11,694 $9.42 11,694 $9.42 ====== =========== ====== ===== ====== =====
At December 31, 1995, 1994 and 1993, 11,694, 11,694 and 9,355 options were exercisable under the Plan's vesting schedule. During 1995, 8,749 stock appreciation rights were granted in tandem with non-qualified stock options. Restricted stock is awarded to key employees providing for the immediate award of Valley's common stock subject to certain vesting and restrictions. The awards are recorded at fair market value and amortized into salaries expense over the vesting period. The following table sets forth the changes in restricted stock awards outstanding at December 31, 1995, 1994 and 1993.
RESTRICTED STOCK 1995 1994 1993 ---------------------------------------------------- ------- ------- ------- Awards outstanding at beginning of year............. 53,494 52,387 44,389 Awards granted...................................... 30,300 18,534 21,382 Awards vested....................................... (15,471) (17,138) (12,763) Awards forfeited.................................... (1,003) (289) (621) ------- ------- ------- Awards outstanding at end of year................... 67,320 53,494 52,387 ======= ======= =======
The amount of compensation costs included in salaries expense in 1995, 1994 and 1993 amounted to $322,000, $254,000 and $232,000, respectively. INCOME TAXES (NOTE 13) As discussed in Note 1, Valley adopted SFAS No. 109 as of January 1, 1993. The cumulative effect of this change in accounting for income taxes of $402 thousand is determined as of January 1, 1993 and is reported separately in the consolidated statement of income for year ended December 31, 1993. Income tax expense(benefit) included in the financial statements consisted of the following:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS) Income tax from operations: Current: Federal........................................ $31,230 $32,131 $30,680 State.......................................... 6,100 7,084 7,328 ------- ------- ------ 37,330 39,215 38,008 Deferred: Federal & State................................ 1,549 (492) (2,370) ------- ------- ------ Total income tax from operations............... $38,879 $38,723 $35,638 ======= ======= ======
42 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The tax effects of temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 1995 and 1994 are as follows:
1995 1994 ------- ------- (IN THOUSANDS) Deferred tax assets: Allowance for possible loan losses........................... $16,205 $16,397 State privilege year taxes................................... 1,738 1,471 Non-accrual loan interest.................................... 927 637 Investment securities available for sale..................... -- 12,375 Other........................................................ 1,644 4,239 ------- ------- Total deferred tax assets................................. 20,514 35,119 Deferred tax liabilities: Tax over book depreciation................................... 2,753 1,905 Purchase accounting adjustments.............................. 888 1,176 Unearned discount on investments............................. 701 646 Investment securities available for sale..................... 2,492 -- Other........................................................ 388 1,684 ------- ------- Total deferred tax liabilities............................ 7,222 5,411 Net deferred tax assets...................................... $13,292 $29,708 ======= =======
Also included in shareholders' equity are income tax expense and benefits attributable to net unrealized gains and (losses) on investment securities available for sale in the amounts of $2,492,000 and ($12,375,000) for the years ended December 31, 1995 and 1994, respectively. A reconciliation between the reported income tax expense from operations and the amount computed by multiplying income before taxes by the statutory federal income tax rate is as follows:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS) Tax at statutory federal income tax rate............ $35,516 $36,153 $35,359 Increases(decreases) resulted from: Tax-exempt interest, net of interest incurred to carry tax-exempts.................................... (4,921) (5,241) (4,666) State income tax, net of federal tax benefit...... 4,187 3,860 4,856 Provision for recapture of bad debt deduction upon merger......................................... 3,115 3,115 -- Other, net........................................ 982 836 89 ------- ------- ------- Income tax expense................................ $38,879 $38,723 $35,638 ======= ======= =======
COMMITMENTS AND CONTINGENCIES (NOTE 14) Cash Reserves At December 31, 1995, cash reserves maintained in accordance with Federal Reserve regulations amounted to $47,783,000. Lease Commitments Certain bank facilities are occupied under non-cancelable long term operating leases which expire at various dates through 2027. Certain lease agreements provide for renewal options and increases in rental 43 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) payments based upon increases in the consumer price index or the lessor's cost of operating the facility. Minimum aggregate lease payments for the remainder of the lease terms are as follows:
(IN THOUSANDS) 1996........................................................... $ 2,706 1997........................................................... 2,448 1998........................................................... 2,260 1999........................................................... 2,115 2000........................................................... 1,142 2001-2027...................................................... 4,363 ------- Total lease commitments.............................. $ 15,034 =======
Net occupancy expense for 1995, 1994 and 1993 includes approximately $2,163,000, $2,053,000 and $2,502,000, respectively, of rental expenses for bank facilities. Financial Instruments With Off-Balance Sheet Risk In the ordinary course of business of meeting the financial needs of its customers, Valley, through its subsidiary VNB, is a party to various financial instruments which are properly not reflected in the consolidated financial statements. These financial instruments include standby and commercial letters of credit, unused portions of lines of credit and commitments to extend various types of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated financial statements. The commitment or contract amount of these instruments is an indicator of VNB's level of involvement in each type of instrument as well as the exposure to credit loss in the event of non-performance by the other party to the financial instrument. VNB seeks to limit any exposure of credit loss by applying the same credit underwriting standards, including credit review, interest rates and collateral requirements or personal guarantees, as for on-balance sheet lending facilities. The following table provides a summary of financial instruments with off-balance sheet risk at December 31, 1995 and 1994:
1995 1994 -------- -------- (IN THOUSANDS) Standby and commercial letters of credit....................... $ 29,210 $ 26,233 Commitments under unused lines of credit....................... 427,000 405,910 Outstanding loan commitments................................... 182,874 159,467 -------- -------- Total financial instruments with off-balance sheet risk............................................... $639,084 $591,610 ======== ========
Standby letters of credit represent the guarantee by VNB of the obligations or performance of a customer in the event the customer is unable to meet or perform its obligations to a third party. Obligations to advance funds under commitments to extend credit, including commitments under unused lines of credit, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have specified expiration dates, which may be extended upon request, or other termination clauses and generally require payment of a fee. The amounts set forth above do not necessarily represent future cash requirements as it is anticipated that many of these commitments will expire without being fully drawn upon. Most of VNB's lending activity is to customers within the state of New Jersey. 44 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Litigation In the normal course of business, Valley may be a party to various outstanding legal proceedings and claims. In the opinion of management, the consolidated financial position or results of operations of Valley will not be materially affected by the outcome of such legal proceedings and claims. SHAREHOLDERS' EQUITY (NOTE 15) Dividend Restrictions VNB, a national banking association, is subject to a limitation in the amount of dividends it may pay to Valley, VNB's only shareholder. Prior approval by the Comptroller of the Currency ("OCC") is required to the extent the total of all dividends to be declared by VNB in any calendar year exceeds net profits, as defined, for that year combined with its retained net profits from the preceding two calendar years, less any transfers to capital surplus. Under this limitation, VNB could declare dividends in 1996 without prior approval of the OCC of up to $59,540,000 plus an amount equal to VNB's net profits for 1996 to the date of such dividend declaration. Treasury Stock During 1995 the Board of Directors authorized the repurchase of up to one million shares of Valley's common stock. As of December 31, 1995 the company has purchased 563,160 shares, all of which have been reissued under the company's stock option plan and expired warrant program. Warrants for Purchase of Common Stock Pursuant to the Merger Agreement between Valley and Mayflower Financial Corp. ("Mayflower") during 1990, Valley issued 449,883 warrants valued at approximately $225,000 in exchange for all issued and outstanding common shares of Mayflower. The warrants, which became exercisable on June 30, 1991 and expired on December 31, 1995, provided the warrant holder the right to acquire 2.1656 shares of Valley's common stock at a price of $27.50 per warrant. As of December 31, 1995 approximately 430,000 warrants were exchanged for approximately 931,000 shares of Valley common stock and approximately 20,000 warrants expired without being exercised. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (NOTE 16)
QUARTERS ENDED 1995 ----------------------------------------------------- MARCH 31 JUNE 30 SEPT 30 DEC 31 ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Interest income............................. $ 78,647 $ 79,711 $ 79,204 $ 79,088 Interest expense............................ 34,590 37,056 35,844 35,781 Net interest income......................... 44,057 42,655 43,360 43,307 Provision for possible loan losses.......... 826 650 600 593 Non-interest income......................... 5,103 4,737 5,935 5,193 Non-interest expense........................ 22,238 24,702 20,898 22,365 Income before income taxes.................. 26,096 22,040 27,797 25,542 Income tax expense.......................... 8,731 11,459 9,687 9,002 Net income.................................. 17,365 10,581 18,110 16,540 Net income per share........................ 0.49 0.30 0.51 0.46 Cash dividends per share.................... 0.24 0.25 0.25 0.25 Average shares outstanding.................. 35,688,763 35,770,240 35,738,452 35,706,386
45 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTERS ENDED 1994 ----------------------------------------------------- MARCH 31 JUNE 30 SEPT 30 DEC 31 ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Interest income............................. $ 70,143 $ 71,561 $ 74,178 $ 76,701 Interest expense............................ 26,546 28,045 30,593 32,281 Net interest income......................... 43,597 43,516 43,585 44,420 Provision for possible loan losses.......... 1,692 1,547 1,267 691 Non-interest income......................... 7,919 4,917 5,826 5,305 Non-interest expense........................ 21,960 22,097 22,092 24,445 Income before income taxes.................. 27,864 24,789 26,052 24,589 Income tax expense.......................... 9,530 8,304 8,694 12,195 Net income.................................. 18,334 16,485 17,358 12,394 Net income per share........................ .52 .47 .49 .35 Cash dividends per share.................... .22 .24 .24 .24 Average shares outstanding.................. 35,142,050 35,228,586 35,297,581 35,390,180
PARENT COMPANY INFORMATION (NOTE 17) Condensed Statements of Income
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- ------- (IN THOUSANDS) Income Dividends from subsidiary................................... $36,000 $31,800 $26,325 Interest from subsidiary.................................... 1,398 647 155 Gains on securities transactions, net....................... 1,374 2,111 134 Other interests and dividends............................... 153 715 1,256 ------- ------- ------- 38,925 35,273 27,870 Expenses...................................................... 2,334 2,778 2,714 ------- ------- ------- Income before income taxes and equity in undistributed earnings of subsidiary...................................... 36,591 32,495 25,156 Income tax expense............................................ 672 790 187 ------- ------- ------- Income before equity in undistributed earnings of subsidiary.................................................. 35,919 31,705 24,969 Equity in undistributed earnings of subsidiary................ 26,677 32,866 39,992 ------- ------- ------- Net income before cumulative effect of accounting change...... 62,596 64,571 64,961 Cumulative effect of accounting change........................ -- -- 24 ------- ------- ------- Net income.................................................... $62,596 $64,571 $64,985 ======= ======= =======
46 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Condensed Statements of Financial Condition
DECEMBER 31, --------------------- 1995 1994 -------- -------- (IN THOUSANDS) Assets Cash................................................................. $ 4,228 $ 942 Interest bearing deposits with banks................................. 26,500 32,655 Investment securities available for sale............................. 7,796 4,747 Investment in subsidiary............................................. 366,380 314,096 Other assets......................................................... 5,276 5,802 -------- -------- Total assets...................................................... $410,180 $358,242 ======== ======== Liabilities Dividends payable to shareholders.................................... $ 8,946 $ 7,207 Other liabilities.................................................... 997 419 -------- -------- Total liabilities................................................. 9,943 7,626 -------- -------- Shareholders' Equity Common stock......................................................... 20,025 18,869 Surplus.............................................................. 216,377 172,321 Retained earnings.................................................... 162,012 179,432 Unrealized gain (loss) on investment securities available for sale, net of tax........................................................ 3,733 (17,842) -------- -------- 402,147 352,780 Treasury stock at cost............................................... (1,910) (2,164) -------- -------- Total shareholders' equity........................................ 400,237 350,616 -------- -------- Total liabilities and shareholders' equity........................ $410,180 $358,242 ======== ========
47 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Condensed Statements of Cash Flows
YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income............................................... $ 62,596 $ 64,571 $ 64,985 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiary........ (26,677) (32,866) (39,992) Depreciation and amortization of intangible assets.... 460 920 1,078 Amortization of compensation costs on non-qualified stock options and restricted stock awards........... 322 254 232 Net deferred income tax benefit....................... 51 73 (28) Net amortization of premiums and discounts............ -- 35 101 Net gains on securities transactions.................. (1,374) (2,111) (134) Restricted stock issued............................... -- -- 114 Net decrease in other assets.......................... 65 402 241 Net increase(decrease) in other liabilities........... 357 (169) (182) Other................................................. 1,798 -- -- ------- ------- ------- Net cash provided by operating activities............. 37,598 31,109 26,415 ------- ------- ------- Cash flows from investing activities: Cash paid to retire preferred stock of Peoples Bancorp... -- -- (2,514) Cash received pursuant to acquisitions and mergers....... -- -- 341 Proceeds from maturing investment securities............. -- 12,000 -- Proceeds from sales of investment securities............. 3,796 9,613 5,248 Purchases of investment securities....................... (5,003) (4,478) (5,220) Net decrease (increase) in short term investments........ 6,155 (19,794) (1,446) ------- ------- ------- Net cash provided by (used in) investment activities.......................................... 4,948 (2,659) (3,591) ------- ------- ------- Cash flows from financing activities: Purchases of common shares added to treasury............. (13,670) -- (780) Dividends paid to shareholders........................... (33,618) (31,694) (24,614) Common stock issued...................................... 8,028 3,925 2,582 ------- ------- ------- Net cash used in financing activities................. (39,260) (27,769) (22,812) ------- ------- ------- Net increase in cash....................................... 3,286 681 12 Cash at beginning of year.................................. 942 261 249 ------- ------- ------- Cash at end of year........................................ $ 4,228 $ 942 $ 261 ======= ======= =======
FAIR VALUES OF FINANCIAL INSTRUMENTS (NOTE 18) Limitations: The fair value estimates made at December 31, 1995 and 1994 were based on pertinent market data and relevant information on the financial instrument at that time. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portion of the financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 48 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g. its mortgage servicing operation and trust department) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and short-term investments: For such short-term investments, the carrying amount is considered to be a reasonable estimate of fair value. Investment securities held to maturity and investment securities available for sale: Fair values are based on quoted market prices. Loans: Fair values were estimated by obtaining quoted market prices, when available. The fair value of other loans were estimated by discounting the future cash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. Deposit liabilities: Current carrying amounts approximate estimated fair value of demand deposits and savings accounts. The fair value of time deposits was based on the discounted value of contractual cash flows using estimated rates currently offered for deposits of similar remaining maturity. Short term liabilities: Current carrying amounts approximate estimated fair value. Other borrowings: The fair value was estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity. The carrying amounts and estimated fair values of financial instruments were as follows at December 31, 1995 and 1994:
1995 1994 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Financial assets: Cash and due from banks........... $ 167,349 $ 167,349 $ 168,072 $ 168,072 Federal funds sold................ 108,500 108,500 -- -- Investment securities held to maturity....................... 266,354 270,622 853,983 817,660 Investment securities available for sale....................... 1,146,285 1,146,285 696,438 696,438 Net loans......................... 2,753,505 2,761,926 2,550,732 2,469,118 Due from customers on acceptances outstanding.................... 838 838 1,498 1,498 Financial liabilities: Deposits with no stated maturity....................... 2,242,100 2,242,100 2,342,783 2,342,783 Deposits with stated maturities... 1,841,773 1,963,170 1,537,219 1,524,611 Short-term borrowings............. 37,445 37,445 118,353 118,353 Other borrowings.................. 28,679 28,565 35,567 34,941 Bank acceptances outstanding...... 838 838 1,498 1,498
The estimated fair value of financial instruments with off-balance sheet risk, consisting of unamortized fee income at December 31, 1995 and 1994 is not material. 49 52 INDEPENDENT AUDITORS' REPORT [KPMG Peat Marwick LLP LOGO] KPMG Peat Marwick LLP Certified Public Accountants New Jersey Headquarters 150 John F. Kennedy Parkway Short Hills, NJ 07078 The Board of Directors and Shareholders Valley National Bancorp: We have audited the accompanying consolidated statements of financial condition of Valley National Bancorp and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated statement of income of Lakeland First Financial Group for the year ended December 31, 1993 which statement reflects total net interest income constituting 13% of the related consolidated total. That statement was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lakeland First Financial Group, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Valley National Bancorp and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, Valley National Bancorp and subsidiaries adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 1994 and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993. January 17, 1996 /S/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP LOGO 50 53 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information which will be set forth under the caption "Director Information" in the 1996 Proxy Statement is incorporated herein by reference. Certain information on Executive Officers of the registrant is included in Part I, Item 4A of this report, which is also incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information which will be set forth under the caption "Executive Compensation" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information which will be set forth under the caption "Stock Ownership of Management and Principal Shareholders" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information which will be set forth under the captions "Certain Transactions with Management" and "Personnel and Compensation Committee Interlocks and Insider Participation" in the 1996 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules: The financial statements listed on the index of this Annual Report on Form 10-K are filed as part of this Annual Report. All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. (b) Current Reports on Form 8-K during the quarter ended December 31, 1995: (1) Filed November 30, 1995 to report the authorization to purchase up to 500,000 shares of its outstanding common stock to be used for the exercise of employee stock options and the exercise of outstanding warrants. (2) Filed December 12, 1995 to report approval by the Office of the Supervision of Financial Institutions, the Canadian Banking and Financial Institution Regulator, for Valley National Bank to establish a finance company in Toronto, Canada; and to report that Valley National Bank had signed a letter of intent with an undisclosed partner for a substantial co-branding credit card program. (c) Exhibits (numbered in accordance with Item 601 of Regulation S-K): (3) Articles of Incorporation and Bylaws: *** A. Restated Certificate of Incorporation of the Registrant dated March 22, 1994. *** B. By-Laws of the Registrant adopted as of March 14, 1989 and amended March 19, 1991.
51 54 (10) Material Contracts: * A. "Change in Control Agreements" dated January 1, 1995 between Valley, VNB and Gerald H. Lipkin, Peter Southway, Sam P. Pinyuh, Peter Crocitto, Alan Eskow, Robert Farrell, Richard Garber, Robert Mulligan and Peter John Southway. ** B. "The Valley National Bancorp Long-term Stock Incentive Plan" dated January 18, 1994. **** C. "Severance Agreements" dated August 17, 1994 between Valley, VNB and Gerald H. Lipkin, Peter Southway, and Sam P. Pinyuh. ***** D. "Stock Option Agreement" dated April 1, 1992 between Valley National Bancorp and Michael Guilfoile. E. "Split-Dollar Agreement" dated July 7, 1995 between Valley National Bancorp, Valley National Bank as Trustee, and Gerald H. Lipkin.
- --------------- * This document is incorporated herein by reference from the Registrant's Form 10-K Annual Report for period ending December 31, 1994. ** This document is incorporated herein by reference from the Registrant's Notice of Annual Meeting of Shareholders and Proxy dated March 1, 1994. *** This document is incorporated herein by reference from the Registrant's Form 10-K Annual Report for the fiscal period ending December 31, 1993. **** This document is incorporated by reference to Registrant's Registration Statement on Form S-4 (No. 33-55765) filed with the Securities and Exchange Commission on October 4, 1994. ***** This document is incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (21) List of Subsidiaries: (a) Subsidiary of Valley:
PERCENTAGE OF VOTING JURISDICTION OF SECURITIES OWNED BY NAME INCORPORATION THE PARENT --------------------------------------------- --------------- -------------------- Valley National Bank (VNB) United States 100% (b) Subsidiaries of VNB: VNB Mortgage Services, Inc. New Jersey 100% BNV Realty Incorporated New Jersey 100% VN Investment, Inc. New Jersey 100% VNB Financial Advisors, Inc. New Jersey 100% VNB International Services, Inc. (ISI) New Jersey 100% (c) Subsidiary of ISI: VNB Financial Services, Inc. Canada 100%
(23) Consents of Experts and Counsel Consent of KPMG Peat Marwick LLP. (27) Financial Data Schedule 52 55 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VALLEY NATIONAL BANCORP By: /s/ GERALD H. LIPKIN --------------------------------------- Gerald H. Lipkin, Chairman of the Board and Chief Executive Officer Dated: February 27, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 27, 1996. The directors of Valley National Bancorp(including Peter Southway in his capacities as of Director and Principal Financial Officer) and Alan D. Eskow in his capacity as Principal Accounting Officer executed a power of attorney appointing Gerald H. Lipkin as their attorney-in-fact, empowering him to sign this report on his behalf. Gerald H. Lipkin Peter Southway Alan D. Eskow Andrew Abramson Pamela Bronander Joseph Coccia, Jr. Austin C. Drukker Michael Francis Willard L. Hedden Thomas P. Infusino Gerald Korde Robert L. Marcalus Joleen J. Martin Robert E. McEntee William McNear Sam P. Pinyuh Robert Rachesky Barnett Rukin Richard F. Tice Leonard Vorcheimer Joseph L. Vozza By: /s/ GERALD H. LIPKIN -------------------------------------------------------- Attorney-in-fact 53 56 Exhibit Index ------------- (3) Articles of Incorporation and Bylaws: *** A. Restated Certificate of Incorporation of the Registrant dated March 22, 1994. *** B. By-Laws of the Registrant adopted as of March 14, 1989 and amended March 19, 1991.
(10) Material Contracts: * A. "Change in Control Agreements" dated January 1, 1995 between Valley, VNB and Gerald H. Lipkin, Peter Southway, Sam P. Pinyuh, Peter Crocitto, Alan Eskow, Robert Farrell, Richard Garber, Robert Mulligan and Peter John Southway. ** B. "The Valley National Bancorp Long-term Stock Incentive Plan" dated January 18, 1994. **** C. "Severance Agreements" dated August 17, 1994 between Valley, VNB and Gerald H. Lipkin, Peter Southway, and Sam P. Pinyuh. ***** D. "Stock Option Agreement" dated April 1, 1992 between Valley National Bancorp and Michael Guilfoile. E. "Split-Dollar Agreement" dated July 7, 1995 between Valley National Bancorp, Valley National Bank as Trustee, and Gerald H. Lipkin.
- --------------- * This document is incorporated herein by reference from the Registrant's Form 10-K Annual Report for period ending December 31, 1994. ** This document is incorporated herein by reference from the Registrant's Notice of Annual Meeting of Shareholders and Proxy dated March 1, 1994. *** This document is incorporated herein by reference from the Registrant's Form 10-K Annual Report for the fiscal period ending December 31, 1993. **** This document is incorporated by reference to Registrant's Registration Statement on Form S-4 (No. 33-55765) filed with the Securities and Exchange Commission on October 4, 1994. ***** This document is incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (21) List of Subsidiaries: (a) Subsidiary of Valley:
PERCENTAGE OF VOTING JURISDICTION OF SECURITIES OWNED BY NAME INCORPORATION THE PARENT --------------------------------------------- --------------- -------------------- Valley National Bank (VNB) United States 100% (b) Subsidiaries of VNB: VNB Mortgage Services, Inc. New Jersey 100% BNV Realty Incorporated New Jersey 100% VN Investment, Inc. New Jersey 100% VNB Financial Advisors, Inc. New Jersey 100% VNB International Services, Inc. (ISI) New Jersey 100% (c) Subsidiary of ISI: VNB Financial Services, Inc. Canada 100%
(23) Consents of Experts and Counsel Consent of KPMG Peat Marwick LLP. (27) Financial Data Schedule EX-10.E 2 SPLIT-DOLLAR AGREEMENT DATED JULY 7, 1995 1 EXHIBIT (10)E SPLIT-DOLLAR AGREEMENT AGREEMENT made and entered as of the 7th day of July, 1995, by and between VALLEY NATIONAL BANCORPORATION, a New Jersey corporation, with principal offices and place of business in the State of New Jersey (the "Corporation"), VALLEY NATIONAL BANK AS TRUSTEE UNDER THE GERALD H. LIPKIN AND LINDA I. LIPKIN 1995 IRREVOCABLE TRUST AGREEMENT DATED JULY 7, 1995 (the "Trust"), GERALD H. LIPKIN, an individual residing at 3 Stonehedge, Montville, New Jersey (the "Employee") and LINDA LIPKIN, his wife ("Mrs. Lipkin"). W I T N E S S E T H : WHEREAS, the Employee is employed by the Corporation; and WHEREAS, the Employee wishes to provide second to die life insurance protection in the net amount of $1,000,000 for his estate in the event of the death of Employee and his wife, which is described in Exhibit A attached hereto and by this reference made a part hereof (the "Policy"), and which was issued by The Guardian Life Insurance Company of America (the "Insurer"); and WHEREAS, the Corporation is willing to pay the annual premiums due on the Policy until it is fully paid, in return for a waiver by the Employee of his coverage under the Corporation's group term policy, on the terms and conditions hereinafter set forth; and WHEREAS, the Policy was purchased by the Trust and the Trust is the owner of the Policy and, as such, possesses all incidents of ownership in and to the Policy; and WHEREAS, the Corporation wishes to have the Policy collaterally assigned to it by the Trust, in order to secure the repayment of the amounts which it will pay toward the premiums on the Policy. NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. Policy and Assignment. The Trust has purchased the Policy from the Insurer in the initial total face amount of $1,300,000. The parties hereto have taken all necessary action to cause the Insurer to issue the Policy, and shall take any further action which may be necessary to cause the Policy to conform to the provisions of this Agreement. The parties hereto agree that the 2 -2- Policy shall be subject to the terms and conditions of this Agreement and of the collateral assignment filed with the Insurer relating to the Policy, a copy of which is annexed hereto as Exhibit B (the "Assignment"). 2. Trust Is Owner of Policy. The Trust shall be the sole and absolute owner of the Policy, and may exercise all ownership rights granted to the owner thereof by the terms of the Policy, except as may otherwise be provided herein and in the Assignment. 3. Obligations. (a) Corporation's Payment Obligations. On or before the due date of each Policy premium, or within the grace period provided therein, the Corporation shall pay the entire premium due to the Insurer, and shall, upon request, promptly furnish the Employee evidence of timely payment of such premium. The Corporation shall annually furnish the Employee a statement of the amount of income reportable by the Employee for federal and state income tax purposes, if any, as a result of its payment of such sum. The obligation of the Corporation to pay the Policy premiums shall cease at the earlier of (the "Payment Period") (i) the death of both the Employee and Mrs. Lipkin, or (ii) the payment of Policy premiums for a number of years, such that the Policy is fully paid (i.e., no further premiums are due thereunder to maintain a $1,000,000 death benefit), the Corporation is repaid from the Policy all of the Policy premiums it paid (without interest) and the Policy will pay a death benefit to the beneficiaries of $1,000,000 (the "Fully Paid Period"). The Policy illustrations show the Fully Paid Period to be eleven (11) years with a repayment to the Corporation in year 15. The parties recognize that the Fully Paid Period may be more or less than that shown in the illustrations. All the Policy premiums paid by the Corporation hereunder are referred to as the "Aggregate Policy Premiums". The Corporation shall pay the Policy premiums hereunder, regardless of whether the Employee continues to be employed by the Corporation, dies or the Corporation has any other offset to the payment; provided, however, the Corporation may cease making the payments if the Employee is terminated by the Corporation for "Cause", as defined in the Change-in-Control Agreement (as hereafter defined in Section 11). (b) Maintenance of Policy Until Repayment. The Trust, the Employee and Mrs. Lipkin agree to maintain the Policy until the Corporation is repaid from the Policy in full (without interest) the Aggregate Policy Premiums. 4. Collateral Assignment of Policy to Corporation. To secure the repayment to the Corporation of the amounts payable to it hereunder, the Trust has, contemporaneously herewith, assigned the Policy to the Corporation as collateral, a copy of which is 3 -3- annexed hereto as Exhibit B. The parties hereto agree to take all action necessary to cause the Assignment to conform to the provisions of this Agreement and the forms used by the Insurer. 5. Rights of Parties in Policy. (a) Except as otherwise provided herein, the Trust may not sell, assign, transfer, borrow against, surrender, cancel or dispose of the Policy, nor make any election in respect thereof, without the express written consent of the Corporation, and any such act shall be deemed to be null and void. (b) The Employee and Mrs. Lipkin have exercised the right to absolutely and irrevocably give to the Trust all of their right, title and interest in and to the Policy, subject to the Assignment. The Corporation shall treat the Trust as the sole owner of all of the Employee's right, title and interest in and to the Policy, subject to this Agreement and the Corporation's rights under the Assignment. The Employee and Mrs. Lipkin have no right, title or interest in and to the Policy, all such rights being vested in and exercisable only by the Trust. The Trust shall have no further right to give or otherwise transfer any interest in the Policy. (c) During the term of this Agreement, except as expressly provided herein, the Corporation agrees that it shall not be entitled either to withdraw any of the cash surrender value ("Cash Value") from the Policy, or borrow such funds, using the Policy as security therefor. 6. Death Benefits. (a) Collection of Death Benefits. Upon the death of the Employee and Mrs. Lipkin, the Corporation shall promptly take all action necessary to obtain the death benefit (the "Death Benefit") provided under the Policy. (b) Repayment to the Corporation from Death Benefits. The Corporation shall be entitled to receive that amount of the Death Benefit equal to (the "Corporation Death Benefit Amount") the greater of (i) the excess of the Death Benefit over $1,000,000, or (ii) the Aggregate Policy Premiums (without interest). The balance of the Death Benefit, if any, shall be paid directly to the beneficiary or beneficiaries ("Beneficiary") in the manner and in the amount or amounts provided in the beneficiary designation provision of the Policy. In no event shall the amount payable to the Corporation exceed the Death Benefit. No amount shall be paid from the Death Benefit to the Beneficiary until the Corporation has been paid the Corporation Death Benefit Amount. The parties hereto agree that the beneficiary designation provision of the Policy shall conform to the provisions hereof. 4 -4- 7. Termination. This Agreement shall terminate upon the earliest of the following event: (a) Repayment to the Corporation from the Policy of the Aggregate Policy Premiums at the end of the Fully Paid Period from the Cash Value, or paid up Policy additions or a Policy loan or otherwise; or (b) Repayment to the Corporation of the Corporation Death Benefit Amount from the Death Benefit; or (c) Mutual agreement of the Trust and the Corporation, with the consent of the Employee (or Mrs. Lipkin if the Employee has died). 8. Repayment to Corporation at End of Fully Paid Period. If the Policy continues without the payment of the Death Benefit through the Fully Paid Period, the Corporation shall be entitled to be repaid from the Policy as soon as possible upon the occurrence of a Fully Paid Period, the Aggregate Policy Premiums by means of the surrender of a portion of the Cash Value or paid-up Policy additions or a Policy loan or otherwise. The parties hereto agree to cause the Corporation to be so repaid as soon as possible after the Fully Paid Period. 9. Insurer Rights. The Insurer shall be fully discharged from its obligations under the Policy by payment of the Death Benefit to the Beneficiary, subject to the terms and conditions of the Policy. In no event shall the Insurer be considered a party to this Agreement, or any modification or amendment hereof. No provision of this Agreement, nor of any modification or amendment hereof, shall in any way be construed as enlarging, changing, varying, or in any other way affecting the obligations of the Insurer as expressly provided in the Policy, except insofar as the provisions hereof are made a part of the Policy by the Collateral Assignment executed by the Employee and filed with the Insurer in connection herewith. 10. Procedures. (a) Valley National Bank is hereby designated the "Named Fiduciary" under this Agreement. (b) The Named Fiduciary shall control and manage the Policy. Such responsibilities may be allocated to other persons, named in a written instrument spelling out to whom and which responsibilities have been delegated. The following claims procedure are available for this Policy: 5 -5- (1) Claims Procedure. The Trust or the Beneficiary and Corporation shall make claim and execute such forms as required under the Policy and to be sent to the Insurer as required under the Policy. Should the Insurer deny the claim, the parties may request the Insurer to review the decision under the Insurer's standard review procedures. (2) Notification and Content of Decision. Notice of the decision to deny the claim in whole or in part shall be furnished to the claimant by the Insurer within a reasonable period of time after the claim has been filed. The notification shall set forth the reason for the denial, reference to the pertinent part of the policy or plan provisions on which the denial is based. The Claimant may request a description of information necessary to perfect the claim and an explanation of claim review procedures. (3) Review Procedure. There is no independent review procedure. The purpose of the review procedure set forth herein is to provide a means to contest a claim denial under the terms of the Policy. The Corporation, Trust or the Beneficiary may: (A) Request a review upon written application to the Insurer; (B) Request a description of information necessary to perfect the claim; and (C) May submit issues and comments in writing. 11. Employee Waiver of Other Insurance Rights. Subject to the terms hereof, the Employee hereby waives any and all rights Employee has to have the Corporation (or its subsidiaries) provide life insurance on the life of the Employee during his employment with the Corporation (or its subsidiaries) or thereafter, and any successor in interest to the Corporation, including, but not limited to, any rights under a policy or employment manual, under the Change-in-Control Agreement (the "Change-in-Control Agreement") between the Corporation and the Employee dated January 1, 1995 (and any amendment or supplement thereto) under the Severance Agreement (the "Severance Agreement"), dated August 17, 1994, between the Corporation and the Employee and any other claims arising out of such agreements due to the lack of such group life insurance. 12. Taxes. The Employee recognizes that he or the Trust may be required to pay federal, state and local income taxes on the value of the benefits conveyed to him or the Trust hereunder, and the Corporation is not liable to the Employee or the Trust for such taxes. 6 -6- 13. Trust Agreement. The Corporation has agreed to cause its attorneys to draft a trust agreement to create the Trust to which the Employee has transferred the Policy, the preparation of the Trust to be at the cost and expense of the Corporation. The Employee hereby assigns its rights to have the Corporation pay the premiums on the Policy to the Trust. 14. Entire Agreement; Amendments. This Agreement and the Assignment constitutes the entire agreement of the parties with respect to the matters covered hereby and revokes any prior agreements or understandings whether oral or written, with respect to the matters covered hereby. This Agreement may not be amended, altered or modified, except by a written instrument signed by the Trust, the Corporation and the Employee (except after the death of the Employee, the consent of Mrs. Lipkin is required), or their respective successors or assigns, and may not be otherwise terminated except as provided herein. 15. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Corporation and its successors and assigns, and the Employee, his successors, assigns, heirs, executors, administrators and beneficiaries. 16. Notices. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States certified mail, postage prepaid, addressed to such party's last known address as shown on the records of the Corporation. The date of such mailing shall be deemed the date of notice, consent or demand. 17. Governing Law. This Agreement, and the rights of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of New Jersey. 7 -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in duplicate, as of the day and year first above written. VALLEY NATIONAL BANCORPORATION By: /s/ ROBERT MCENTEE --------------------------- Robert McEntee, Chairman of Compensation Committee VALLEY NATIONAL BANK, AS TRUSTEE UNDER THE GERALD H. LIPKIN AND LINDA I. LIPKIN 1995 IRREVOCABLE TRUST AGREEMENT DATED JULY 7, 1995 By: /s/ STEPHEN P. COSGROVE --------------------------- Stephen P. Cosgrove -- Senior Vice President /s/ GERALD H. LIPKIN ------------------------------ Gerald H. Lipkin /s/ LINDA LIPKIN ------------------------------ Linda Lipkin EX-23 3 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT (23) INDEPENDENT AUDITORS' CONSENT The Board of Directors Valley National Bancorp: We consent to incorporation by reference in the Registration Statements No. 33-52809 and No. 33-56933 on Forms S-8 and the Registration Statement No. 33-36585 on Form S-3 of Valley National Bancorp of our report dated January 17, 1996, relating to the consolidated statements of financial condition of Valley National Bancorp and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 Annual Report on Form 10-K of Valley National Bancorp. Our report refers to a change in accounting for investments in debt and equity securities in 1994 and accounting for income taxes in 1993. KPMG Peat Marwick LLP Short Hills, New Jersey February 27, 1996 EX-27 4 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 167,349 0 108,500 0 1,146,285 266,354 270,622 2,793,175 39,670 4,585,811 4,083,873 37,445 35,578 28,679 0 0 20,025 380,212 4,585,811 225,346 89,409 1,895 316,650 137,961 143,271 173,379 2,669 1,471 90,203 101,475 101,475 0 0 62,596 1.76 1.76 4.28 11,795 8,117 5,209 5,500 42,024 7,642 2,619 39,670 28,341 0 11,329
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