UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the Period Ended September 30, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the transition period from __________ to __________.
Commission File Number 0-11179
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of incorporation or organization)
22-2477875
(I.R.S. Employer Identification No.)
1445 Valley Road, Wayne, New Jersey 07474-0558
(Address of principal executive offices) (Zip Code)
(201)305-8800
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES XXX NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock (No par value), of which 27,071,257 shares were
outstanding as of November 3, 1994.
VALLEY NATIONAL BANCORP
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
September 30, 1994 and December 31, 1993 (Unaudited)
Consolidated Statements of Income 4
Nine and Three Months Ended
September 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows 5
Nine Months Ended September 30, 1994 and 1993
(Unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7 - 12
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
-2-
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
($ in thousands) September 30, December 31,
1994 1993
Assets
Cash and due from banks $ 106441 $ 67455
Federal funds sold 36875 88050
Investment securities held to
maturity, fair value of $846,888
and $960,813 in 1994 and 1993,
respectively 869935 939993
Investment securites available
for sale, fair value of $448,818
in 1993 399669 441482
Loans, net of unearned income 2028649 1802000
Less: Allowance for possible loan
losses -35890 -35205
Loans, net 1992759 1766795
Premises and equipment, net 40893 40248
Due from customers on acceptances
outstanding 1642 1192
Accrued interest receivable 21120 23650
Other assets 56064 44637
Total assets $ 3525398 $ 3413502
Liabilities
Deposits:
Non-interest bearing deposits $ 409502 $ 408605
Interest bearing:
Savings deposits 1604491 1637381
Time deposits 1166742 1033771
Total deposits 3180735 3079757
Federal funds purchased and
securities sold under
repurchase agreements 31106 35110
Treasury tax and loan account 5950 7834
Bank acceptances outstanding 1642 1192
Accrued expenses and other liabilities 22949 22514
Other borrowings 2378 2667
Total liabilities 3244760 3149074
Shareholders' Equity
Common stock, no par value, authorized
37,537,500 shares, issued 27,177,567
shares in 1994 and 24,529,552 in 1993 15274 8660
Surplus 115821 46438
Retained earnings 161485 211296
Unrealized loss on investment
securities available for sale -9976 - -
282604 266394
Cost of shares in treasury (113,003
common shares in 1994 and 1993) -1966 -1966
Total shareholders' equity 280638 264428
Total liabilities and
shareholders' equity $ 3525398 $ 3413502
See accompanying notes to consolidated financial statements.
-3-
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($ in thousands except for per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1994 1993 1994 1993
Interest Income
Loans, including fees $111405 $100889 $ 39284 $ 35399
Loans held for sale 580 335 106 335
Investment securities
held to maturity
Taxable 28926 40199 8910 11999
Tax-exempt 10686 9258 3712 3169
Dividends 46 54 15 14
Investment securities
available for sale
Taxable 16425 16615 5547 6505
Dividends 89 28 46 9
Federal funds sold and
other short term
investments 1203 770 557 219
Total Interest Income 169360 168148 58177 57649
Interest Expense
Savings deposits 30020 30223 10623 10110
Time deposits 33847 35595 12467 11602
Federal funds purchased
and securities sold under
repurchase agreements 726 556 224 196
Other borrowings 150 681 50 262
Total Interest Expense 64743 67055 23364 22170
Net interest income 104617 101093 34813 35479
Provision for possible
loan losses 2700 5000 900 1500
Net interest income after
provision for possible
loan losses 101917 96093 33913 33979
Non-Interest Income
Fees from trust services 560 495 186 155
Service charges on
deposit accounts 4301 4037 1434 1569
Gains on securities
transactions, net 5212 6664 1248 1089
Fees from mortgage
servicing 2482 2891 785 928
Gains on sales of loans 240 2422 0 1647
Other 3827 3886 1450 1427
Total Non-Interest
Income 16622 20395 5103 6815
Non-Interest Expense
Salaries and other
compensation 20622 19296 7042 7028
Employee benefits expense 5504 4867 1881 1597
FDIC insurance premiums 5166 5005 1736 1667
Occupancy and equipment
expense 8346 7686 2810 3038
Amortization of intangible
assets 2108 3864 597 1481
Other 11950 11841 3844 4327
Total Non-Interest
Expense 53696 52559 17910 19138
Income before income
taxes 64843 63929 21106 21656
Income tax expense 21774 22676 7008 8124
Income before cumulative
effect of accounting
change 43069 41253 14098 13532
Cumulative effect of
accounting change - - -402 - - - -
Net Income $ 43069 $ 40851 $14098 $ 13532
Per share data:
Income before cumulative
effect of accounting
change $ 1.6 $ 1.55 $ 0.52 $ 0.51
Cumulative effect of
accounting change 0 -0.02 0 0
Net Income $ 1.6 $ 1.53 $ 0.52 $ 0.51
Weighted average shares
outstanding 26976466 26470457 27047818 26808256
See accompanying notes to consolidated financial statements.
-4-
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in thousands) Nine Months Ended
September 30,
1994 1993
Cash flows from operating activities:
Net income $ 43069 $ 40851
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
intangible assets 5547 6786
Amortization of compensation costs
pursuant to long term stock incentive
plan 222 178
Provision for possible loan losses 2700 5000
Net amortization(accretion) of premiums
and discounts 4907 4283
Net deferred income tax benefit -7035 -3424
Net gains on securities transactions -5212 -6664
Gain on sale of loans -240 -2442
Gain on sale of premises and equipment -213 - -
Net increase(decrease) in unearned
income 66 501
Proceeds from sale of loans held
for sale 0 90313
Proceeds from recoveries on charged-off
loans 1595 1018
Net increase in accrued interest
receivable and other assets 4147 9033
Net decrease in accrued expenses
and other liabilities -957 -6356
Net cash provided by operating
activities: 48596 139077
Cash flows from investing activities:
Proceeds from sales of investment
securities held for sale 178738 319336
Proceeds from maturing investment
securities held for sale 47327 12849
Purchases of investment securities
held for sale -197390 -242281
Proceeds from maturing investment
securities held to maturity 207700 243374
Proceeds from sales of investment
securities held to maturity 41084 - -
Purchases of investment securities
held to maturity -182278 -278915
Purchases of mortgage servicing rights -1099 -249
Net decrease in federal funds sold 51175 63700
Net increase in loans made to customers -230085 -189688
Purchases of premises and equipment,
net of sales -3870 -6816
Net (increase) decrease in due from
customers on acceptances outstanding -450 292
Net cash used in investing activities: -89148 -70832
Cash flows from financing activities:
Net increase (decrease) in deposits 100978 -36174
Net increase (decrease) in federal
funds purchased and other short term
borrowings -5888 348
Net increase (decrease) in bank
acceptances outstanding 450 -292
Dividends paid to common shareholders -18248 -15399
Addition of common shares to treasury - - -780
Common stock issued, net of cancellations 2535 1897
Repayments of other borrowings -289 47
Net cash provided by(used in) financing
activities 79538 -50353
Net increase in cash and due from banks 38986 17892
Cash and due from banks at January 1 67455 89695
Cash and due from banks at September 30 $ 106441 $ 107587
Cash paid during the period for:
Interest on deposits and other
borrowings $ 63892 $ 68302
Federal and state income taxes 23208 25493
See accompanying notes to consolidated financial statements
-5-
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of September
30, 1994, the Consolidated Statements of Income for the nine and
three month periods ended September 30, 1994 and 1993 and the
Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 1994 and 1993 have been prepared by Valley
National Bancorp ("Valley"), without audit. In the opinion of
management, all adjustments (which included only normal recurring
adjustments) necessary to present fairly Valley's financial
position, results of operations, and cash flows at September 30,
1994 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These consolidated
financial statements are to be read in conjunction with the
financial statements and notes thereto included in Valley's
December 31, 1993 Annual Report to Shareholders.
2. Earnings Per Share
All share and per share amounts have been restated to reflect the
10% stock dividend declared March 22, 1994 to shareholders of
record on April 15, 1994 and payable May 3, 1994.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Earnings Summary
Valley National Bancorp's (Valley) net income for the three and
nine month period ending September 30, 1994 was $14.1
million and $43.1 million, or $0.52 and $1.60 per share. This
compares with $13.5 million and $40.9 million or $0.51
and $1.53 per share for the same periods in 1993 (the 1993 per
share amounts have been restated to give effect to a 10%
stock dividend declared March 22, 1994 to shareholders of record
April 15, 1994 and payable May 3, 1994). The
increase in net income for the nine month period ending September
30, 1994 is largely attributable to an increase in net
interest income of $3.5 million or 3.5% over the same periods in
1993. A reduction in the provision for possible loan
losses of $600 thousand and $2.3 million for the three and nine
month periods ending September 30, 1994 as compared
to the same periods in 1993, was substantially offset by decreases
in securities gains and decreases in gains from the sale
of mortgage loans. The annualized return on average assets
decreased to 1.64% from 1.67% while the annualized return
on average equity decreased to 20.71% from 22.65%, for the nine
months ended September 30, 1994 as compared to
the same period in 1993. Book value per share increased to $10.37
at September 30, 1994 compared with $9.55 per
share at September 30, 1993.
Merger Activity
On October 17, 1994, Valley entered into a letter of intent to
acquire American Union Bank, a $55 million, two-office
bank headquartered in Union, New Jersey. A definitive merger
agreement was signed November 9, 1994, and the merger
is expected to take place by March 31, 1995.
On July 5, 1994, Valley entered into a letter of intent to acquire
Rock Financial Corporation, holding company of Rock
Bank. Rock Bank, a commercial bank headquartered in North
Plainfield, New Jersey, with total assets at $190 million
and five branches, is a preferred SBA lender, which will introduce
a new line of business to Valley. A definitive merger
agreement was signed August 26, 1994 and the merger is expected to
take place by the end of 1994 or early 1995.
Net Interest Income
Net interest income on a fully tax equivalent basis ("FTE")
decreased by $500 thousand or 1.4%, for the quarter ended
September 30, 1994, and increased $4.2 million or 4.0% for the nine
months ended September 30, 1994 compared to
the same periods in 1993. The increase in net interest income for
the nine months ended September 30, 1994 was the
result of an increase in the volume of interest earning assets and
a decrease in interest rates on deposit liabilities, partially
offset by decreased rates on interest earning assets. The decrease
in net interest income for the three months ended
September 30, 1994 over the same quarter in 1993 was due to a
decrease in interest rates on interest earning assets and
an increase in rates on interest bearing liabilities. This was
partially offset by the increased volume of interest earning
assets.
Average interest earning assets increased $212.6 million during the
nine months ended September 30, 1994, or 6.9% over
the 1993 amount for the same period, which includes average assets
from Peoples Bank, N.A. ("Peoples") for the nine
months of 1994 versus only three months in 1993. The average
balance of all investment securities for the nine month
period ended September 30, 1994, including those available for sale
totalled $1.32 billion. This amount decreased by
$99.0 million or 7.5% over the 1993 average balance and the
decrease was used to fund new loans. Loan demand
continued to increase, especially commercial mortgage loans and
various types of consumer loans causing the average
balance of all loans to increase by $298.7 million or 18.3% at
September 30 1994 compared to September 30 1993. The
yield on loans decreased 55 basis points from September 30, 1993 to
September 30, 1994, offsetting the increase in
volume of new loans.
Average interest-bearing liabilities grew 5.1% or $136.4 million
during the nine months ended September 30, 1994 over
the prior year, which includes average liabilities from Peoples for
the nine monthns of 1994 versus only three months
in 1993. Average savings deposit balances increased $116.0 million
or 7.7% during the nine months ended September
30, 1994 over September 30, 1993, while average time deposits
increased $19.1 million or 1.8% during the same period.
Average demand deposits during 1994 continued to grow and increased
by $62.2 million or 17.7% over the 1993 nine
month average balance.
-7-
The net interest margin decreased to 4.44% and 4.49% for the third
quarter and nine month period ended September 30,
1994 from 4.67% and 4.63% for the same period in 1993 and was
mainly the result of changes in market interest rates.
The yield on average earning assets declined 18 basis points from
7.43% for the three months ended September 30, 1993
to 7.25% for the three months ended September 30, 1994, while the
cost of interest-bearing liabilities increased 7 basis
points, from 3.24% to 3.31% for the same periods. For the nine
month period ended September 30, 1994 the yield on
average earning assets declined 42 basis points from 7.53% to 7.11%
over 1993, while the cost of interest bearing
liabilities dropped 28 basis points from 3.38% to 3.10% during the
same period. The decrease in the net interest margin
of 14 basis points for the nine months ended September 30, 1994 was
offset by the increased amount of average earning
assets over average interest-bearing liabilities causing net
interest income to increase. Neither Valley nor its subsidiary
Valley National Bank ("VNB") attempted to hedge their interest
positions through the use of derivative transactions. The
net interest margin declined during the last two quarters ending
June 30, 1994 and September 30, 1994 by ten basis points
and seven basis points, respectively, to 4.51% and 4.44% from 4.61%
at March 31, 1994. Since September 30, 1993
the net interest margin declined twenty-three basis points from
4.67% to the current 4.44% at September 30, 1994. This
decline is the result of interest costs on deposit liabilities
rising faster than the interest income on interest earning assets.
If interest rates continue to increase, this downward trend in net
interest margin may continue.
Non-Interest Income
Non-interest income continues to represent a considerable source of
income for Valley. Excluding gains on securities
transactions, total non-interest income amounted to $3.9 and $11.4
million for the quarter and nine months ended
September 30, 1994 compared with $5.7 and $13.7 million for the
same period in 1993.
Service charges on deposit accounts decreased $135 thousand or 8.6%
for the quarter ended September 30, 1994 and
increased $264 thousand or 6.5% for the nine months ended September
30, 1994 over the comparable periods in 1993.
The decrease in the third quarter is a result of modifying service
charges on deposit accounts. An expanded customer base
and the related volume of transactions generated most of the
increase to service charges for the nine months ended
September 30, 1994.
Fees from mortgage servicing decreased by $143 thousand or 15.4%
for the third quarter ending September 30, 1994
compared to 1993, while decreasing $409 thousand or 14.1% for the
nine months ended September 30, 1994 over the
same 1993 period. At September 30, 1994 VNB Mortgage Services,
Inc. ("MSI") serviced a total of $1.19 billion of
loans, of which $506.0 million are serviced for VNB. On average
the portfolio declined during 1994 as a result of
payments, which were partially offset by newly acquired servicing
and VNB's loan origination volume added to the
portfolio, causing the decline in mortgage servicing revenue.
Other income totalled $1.5 and $3.8 million, respectively, for the
quarter and nine month periods ended September 30,
1994 compared with $1.4 and $3.9 million for the same periods in
1993. The decrease of 1.7% for the nine month
period ended September 30, 1994 was mainly caused by the recording
of an unrealized loss on loans held for sale of $336
thousand.
There were no gains on the sale of loans and $240 thousand of gains
on sale of loans, during the quarter and nine months
ending September 30, 1994 as compared to $1.6 million and $2.4
million during the same period in 1993.
Net gains on securities transactions increased $159 thousand and
decreased $1.5 million for the quarter and nine months
ended September 30, 1994 to $1.2 million and $5.2 million,
respectively, compared with $1.1 million and $6.7 million,
respectively, for the same periods in 1993.
Non-Interest Expense
Non-interest expense totalled $17.9 and $53.7 million for the
quarter and nine months ending September 30, 1994, a
decrease $1.2 million or 6.4% and an increase of $1.1 million or
2.2% above the same periods in 1993. The largest
component of non-interest expense is salaries and employee benefit
expense which totalled $8.9 million and $26.1 million
for the quarter and nine months ended September 30, 1994 compared
to $8.6 million and $24.2 million in 1993, an
increase of $298 thousand or 3.5% and $2.0 million or 8.1% over the
same 1993 periods. This increase was attributable
to increased salaries mostly from expanded operations and the
increased cost of employee benefits.
-8-
Occupancy and equipment expense decreased by $228 thousand or 7.5%
and increased $660 thousand or 8.6% for the
quarter and nine months ended September 30, 1994 over the same
periods in 1993. The comparative quarterly decrease
is the result of additional rental income from buildings owned by
Valley. The increase for the nine month period
represents additional branches and related costs incurred as a
result of the merger with Peoples in 1993.
Amortization of intangible assets decreased by $884 thousand or
60.0% and $1.8 million or 45.4% for the quarter and
nine months ended September 30, 1994 over the same periods in 1993.
The majority of this decrease represents the
decreased amortization of purchased mortgage servicing rights due
to the change in the expected life of the servicing
portfolio.
Income Taxes
Income tax expense as a percentage of pre-tax income decreased to
33.6% for the nine months ending September 30, 1994
compared to 35.5% for the same period in 1993. During the third
quarter of 1994 income tax expense as a percentage
of pre-tax income decreased to 33.2% from 37.5%. These decrease
are the result of a lower tax rate on a new investment
subsidiary and the elimination in the State of New Jersey corporate
income tax surcharge of .375%.
FUNDS MANAGEMENT
Interest Rate Sensitivity
Managing net interest margin continues to be the single most
important factor 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.
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.
At September 30, 1994, rate sensitive liabilities exceeded rate
sensitive assets at the 90 day interval and resulted in a
negative gap of $107.4 million or a ratio of .91:1. Rate sensitive
liabilities exceeded rate sensitive assets at the 91 to 365
day interval by $246.5 million or a ratio of .41:1 and resulted in
a negative gap. The total negative gap repricing within
365 days as of September 30, 1994 is $353.9 million or .77:1.
The above gap results take into account repricing and maturities of
assets and liabilities, but fails to consider the interest
rate sensitivities of those asset and liability accounts.
Management has prepared for its use an income simulation
technique 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 or a decrease of 100 basis points had a
negative impact of approximately 3.6% and 1.5%, respectively on
Valley's net interest income over a twelve month
period. Management cannot provide any assurance about the actual
effects 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, investment securities
maturing in one year or less and securities available for sale. At
September 30, 1994, liquid assets amounted to $635.3
million as compared to $751.7 million at December 31, 1993. This
represents 19.0% and 23.0% of earning assets and
18.0% and 22.0% of total assets at September 30, 1994 and year end
1993, respectively.
-9-
On the liability side, the primary source of funds available to
meet liquidity needs is Valley's core deposit base, which
generally excludes certificates of deposit over $100 thousand.
Core deposits averaged $2.53 billion and $2.45 billion
at September 30, 1994 and year end 1993, respectively, representing
76.8% and 78.9% of average earning assets. Short
term borrowings and large dollar certificates of deposit, generally
those over $100 thousand, are used as supplemental
funding sources during periods when growth in the core deposit base
does not keep pace with that of earning assets.
Additional liquidity is derived from scheduled loan and investment
payments of principal and interest, as well as
prepayments received. During the quarter ended September 30, 1994,
proceeds from the sales of investment securities
available for sale were $20.9 million, and proceeds of $75.2
million were generated from investment maturities from the
portfolio and available for sale categories. Purchases of
investment securities available for sale were $10.0 million and
purchases for the portfolio were $53.0 million during the same
quarter of 1994. Short term borrowings and certificates
of deposit over $100 thousand amounted to $243.9 million and $178.4
million, on average, at September 30, 1994 and
December 31, 1993, respectively.
The parent company's cash requirements consist primarily of
dividends to shareholders. This cash need is routinely
satisfied by dividends collected from its subsidiary bank.
Projected cash flows from this source is expected to be adequate
to pay dividends, given the current strong capital levels and
current profitable operations of its subsidiary.
Investment Securities
Effective January 1, 1994, Valley adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investment in Debt and Equity Securities".
The financial impact of adoption represented an
addition to Shareholders' Equity of $4.5 million, net of taxes. At
September 30, 1994, the unrealized loss, net of
deferred taxes, resulted in a decrease to Shareholders' Equity of
$10.0 million. As of September 30, 1994 Valley had
$399.7 million of securities available for sale compared with
$441.5 million at December 31, 1993. Available for sale
securities are recorded at fair value with unrealized gains or
losses reported as a separate component of shareholder's
equity.
Total investment securities, including securities classified as
held to maturity and available for sale, decreased $111.8
million from year-end 1993 to the third quarter of 1994 to $1.27
billion. This decrease was used to fund the increase
in new loans.
Loan Portfolio
Residential mortgage and home equity loans, including residential
mortgages held for sale increased by 5.1% or $31.5
million to a total of $645.9 million at September 30, 1994 since
December 31, 1993 and represents 31.8% of the loan
portfolio. The volume of residential mortgage loan applications
continued to decline during the quarter as interest rates
increased. Installment loans, including predominantly automobile
and credit card loans, totalled $612.7 million at
September 30, 1994, increasing by $84.1 million over the balance at
December 31, 1993 or 15.9% and representing
30.2% of the loan portfolio. Commercial mortgages increased 20.9%
or $81.0 million from December 31, 1993 to
September 30, 1994, partially as a result of new business.
It is expected that the increase in volume of installment and
commercial mortgage loans will continue into the fourth
quarter of 1994, while residential mortgage loan volume declines
due to higher interest rates causing the recent slow-down
in refinancing activity.
Non-Performing Assets
Non-performing assets include non-accrual loans and other real
estate owned (OREO). Non-performing assets were $23.0
million or 1.1% of loans, net of unearned income at September 30,
1994, compared with $21.7 million, or 1.20% of
loans net of unearned income at December 31, 1993 and $27.0
million, or 1.5% of loans at September 30, 1993. Loans
past due in excess of 90 days and still accruing interst, were $3.9
million at September 30, 1994, compared with $8.5
million at December 31, 1993 and $11.7 million at September 30,
1993.
-10-
In May of 1993, FASB issued Statement of Financial Accounting
Standard No. 114, "Accounting by Creditors for
Impairment of a Loan" which applied to financial statements for
fiscal years beginning after December 15, 1994. This
Statement requires that impaired loans be measured based on the
present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or at the fair value
of the collateral if the loan is collateral dependent. Valley has
not yet determined the impact of this statement.
Asset Quality and Risk Elements
The level of the allowance is the result of an ongoing analysis by
management and Valley's Board of Directors. This
analysis attempts to take into account various data so as to assess
the level of the allowance. Emphasis is placed on the
current economic climate and the condition of the real estate
market in the Northern New Jersey area. Management
addressed these current economic conditions and applied that
information to changes in the composition of the loan
portfolio. The level of non-performing assets as well as the level
of the allowance, coupled with the continued recovery
of the economy was responsible for the decision to decrease the
provision from $5.0 million during the first nine months
of 1993 to $2.7 million in the first nine months of 1994.
Valley's loan loss allowance has increased by $685 thousand since
year end 1993. At September 30, 1994 the allowance
for loan losses amounted to $35.9 million or 1.8% of loans,
including loans held for sale, net of unearned income, as
compared to $35.2 million or 1.9% at year end 1993 and was 156.0%
of non-performing assets at September 30, 1994.
The allowance is adjusted by provisions charged against income and
loans charged-off, net of recoveries. The provision
for possible loan losses amounted to $900 thousand and $2.7 million
for the quarter and nine months ended September
30, 1994 compared to $1.5 million and $5.0 million for the same
periods in 1993. Net loan charge-offs were $2.0
million for the nine months ended September 30, 1994 compared with
$2.6 million for the same period in 1993. The
ratio of net charge-offs to average loans amounted to 0.14% and
0.21%, respectively, at September 30, 1994 and 1993.
Capital Adequacy
A significant measure of the strength of a financial institution is
a strong capital base which can expand in close
proportion to asset growth. It is the capital base which provides
the primary risk insurance to depositors. Also, it is an
important consideration to federal regulators, analysts of Valley's
common stock, as well as others in the marketplace.
At September 30, 1994, shareholders' equity totalled $280.6 million
or 7.96% of total assets, compared with $264.4
million or 7.75% at year-end 1993. Valley has achieved steady
internal capital generation throughout the past five years.
Risk-based guidelines define a two-tier capital framework. Tier 1
capital consists of common shareholders' equity
excluding SFAS 115 net unrealized gains or losses less disallowed
intangibles, while total Tier 1 and Tier 2 capital
consists of Tier 1 capital and the allowance for loan losses up to
1.25% of risk-adjusted assets. Risk-adjusted assets are
determined by assigning various levels of risk to different
categories of assets and off-balance sheet activities.
Valley's capital position at September 30, 1994 under risk-based
capital guidelines was $286.1 million, or 13.29% of risk-
weighted assets, for Tier 1 capital and $313.1 million, or 14.55%
for total Tier 1 and Tier 2 capital. The comparable
ratios at December 31, 1993 were 13.93% for Tier 1 capital 15.18%
for total Tier 1 and Tier 2 capital. Valley's ratios
at September 30, 1994 are above the risk-based capital standards,
which require all bank holding companies to have Tier
1 capital of at least 4% and total Tier 1 and Tier 2 capital of 8%.
The Federal Reserve Board requires each bank holding company to
maintain a minimum leverage ratio of 3.0% (Tier
1 capital to average total assets). The minimum 3.0% leverage
requirement applies only to top-rated banking
organizations without any operating, financial or supervisory
deficiencies. Other organizations will be expected to hold
an additional capital cushion of at least 100 to 200 basis points
of Tier 1 capital. In all cases, banking organizations
should hold capital commensurate with the level and nature of all
the risks to which they are exposed. At September 30,
1994 and December 31, 1993, Valley was in compliance with the
leverage requirement having a Tier 1 leverage ratio
of 8.09% and 7.62%, respectively.
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VNB is also subject to similar but separate capital adequacy
guidelines. VNB is subject to risk-based capital rules and
leverage rules issued by the Comptroller of the Currency. As of
September 30, 1994, VNB's total Tier 1 and Tier 2
capital ratio was 13.13% and its leverage ratio was 7.22%.
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 54.4% for the
nine months ended September 30, 1994 compared to
62.3% for the nine months ended September 30, 1993. Cash dividends
for the first nine months of 1994 amounted to
$.73 per share, equivalent to a dividend payout ratio of 45.6%, up
from the 37.7% for the same period in 1993. 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.
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PART II
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(10) Material Contracts
"Stock Option Agreement" dated April 1, 1992
between Valley National Bancorp and Michael
Guilfoile.
b) Reports on Form 8-K
(1) On July 5, 1994 to report letter of intent to
acquire Rock Financial Corporation.
(2) On August 29, 1994 to report signing of
definitive agreement to acquire Rock Financial
Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VALLEY NATIONAL BANCORP
(Registrant)
Date: November 10, 1994 /s/Peter Southway
PETER SOUTHWAY
PRESIDENT AND CHIEF
OPERATING OFFICER
Date: November 10, 1994 /s/Alan D. Eskow
ALAN D. ESKOW
SENIOR VICE PRESIDENT
FINANCIAL ADMINISTRATION
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EXHIBIT INDEX
Number Description
10 Stock Option Agreement, dated April 1, 1992
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EXHIBIT 10
VALLEY NATIONAL BANCORP
STOCK OPTION AGREEMENT
VALLEY NATIONAL BANCORP, a New Jersey corporation (the
"Company"), this 1st day of April, 1992, (the "Option Date") hereby
grants to MICHAEL GUILFOILE, residing at 369 Rowayton Avenue,
Rowayton, Connecticut 06853 ("Guilfoile") an option to purchase
shares of the Common Stock, no par value, of the Company ("Common
Stock") in the amount and on the terms and conditions hereinafter
set forth.
1. Grant of Option. The Company hereby grants to
Guilfoile the option (the "Option") to purchase all or any part of
an aggregate of 5000 shares of Common Stock ("Shares") on the terms
and conditions herein set forth.
2. Purchase Price. The purchase price of the
shares of Common Stock subject to the Option shall be $26.00 per
share subject to adjustment as provided in Section (8) below.
3. Final Termination. This Option shall be
exercisable from the date hereof until November 18, 2001 or such
shorter as is prescribed in this Agreement.
4. Restrictions. This Option is subject to all the
following conditions:
a. This Option is not assignable or
transferable by Guilfoile;
b. This Option may be exercised only by the
legal representative of Guilfoile in the event of his death or
mentaldisability.
5. Exercise. This Option shall be exercised by
notice to the Company, accompanied by full payment in cash or
check.
6. Securities Law Restrictions. The Company is
under no obligation to file a registration statement under the
Securities Act of 1933 with respect to the Shares to be received
upon exercise of the Option. Unless a registration statement under
the Act has been filed and remains effective with respect to the
Shares, the Company shall require that the offer and sale of such
Shares be exempt from the registration provisions of the Act. As
a condition of such exemption, the Company shall require a
representation and undertaking, in form and substance satisfactory
to counsel for the Company, that the optionee is acquiring the
Shares for his own account for investment and not with a view to
the distribution or resale thereof and shall otherwise require such
representations and impose such conditions as shall establish to
the Company's satisfaction that the offer and sale of the Shares
issuable upon the exercise of the Option will not constitute a
violation of the Act or any similar state act affecting the offer
and sale. If the shares are issued in an exempt transaction, the
Shares shall bear the following restrictive legend:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO
SALE OR TRANSFER OF THE SHARES MAY BE AFFECTED
WITHOUT AN OPINION OF COUNSEL TO THE COMPANY
STATING THAT THE TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR THAT THE SALE OR
TRANSFER OF THE SHARES IS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT
TO THE SHARES.
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7. Restrictions on Transfer. This Option shall not
be transferred, assigned, pledged or hypothecated by Guilfoile and
shall not be subject to execution, attachment or similar process.
In the event the terms of this paragraph are not complied with by
Guilfoile, or if the Option is subject to execution, attachment or
similar process, this Option shall immediately become null and
void.
8. Anti-Dilution Provisions. If prior to
expiration of the Option there shall occur any change in the
outstanding Common Stock of the Company by reason of any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation, recapitalization, reorganization, liquidation,
subscription rights offering, or the like, and as often as the same
shall occur, then the kind and number of shares subject to the
Option, or the purchase price per share of Common Stock, or both,
shall be adjusted by the Board of Directors in such manner as it
may deem equitable, the determination of which shall be binding and
conclusive. Failure of the Board to provide for any such
adjustment shall be conclusive evidence that no adjustment is
required. The Company shall notify Guilfoile of any change.
9. Acceleration of Option Period. Notwithstanding
anything to the contrary specified herein, if there is a Change-in-
Control of the Company as defined in the Company's Long-Term Stock
Incentive Plan (the "Incentive Plan"), the Company, upon prior
written notice to Guilfoile, may terminate the Option 60 days after
giving Guilfoile notice of the Change-in-Control and the earlier
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termination date. During any sixty (60) day period following a
Change-in-Control, Guilfoile may (i) exercise the Option, to the
extent not previously exercised, or (ii) surrender this Option for
cancellation and receive, to the extent the Option was not
previously exercised, a cash payment equal to the Adjusted Fair
Market Value (as defined in the Incentive Plan) of the Shares
subject to the Option or portion thereof surrendered, over the
aggregate purchase price for such Shares under this Option. This
provision is intended to, and shall be interpreted to, give
Guilfoile the same treatment as optionees under the Incentive Plan.
10. Acceptance of Provisions. The execution of
this Agreement by Guilfoile shall constitute Guilfoile's acceptance
of and agreement to all of the terms and conditions of this
Agreement.
11. Notices. All notices and other communications
required or permitted under this Agreement shall be in writing and
shall be given either by (i) personal delivery or regular mail, in
each case against receipt, or (ii) first class registered or
certified mail, return receipt requested. Any such communication
shall be deemed to have been given (i) on the date of receipt in
the cases referred to in clause (i) of the preceding sentence and
(ii) on the second day after the date of mailing in the cases
referred to in clause (ii) of the preceding sentence. All such
communications to the Company shall be addressed to it, to the
attention of its Secretary or Treasurer, at its then principal
office and to Guilfoile at his last address appearing on the
records of the Company or, in each case, to such other person or
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address as may be designated by like notice hereunder.
12. Miscellaneous. This Agreement contains a
complete statement of all the arrangements between the parties with
respect to their subject matter, and this Agreement cannot be
changed except by a writing executed by both parties. This
Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey applicable to agreements made and
to be performed exclusively in New Jersey. The headings in this
Agreement are solely for convenience of reference and shall not
affect its meaning or interpretation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
VALLEY NATIONAL BANCORP
By:
Michael Guilfoile
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