UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarter Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Period Ended September 30, 1995
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.
Commission File Number 0-11179
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of
incorporation or organization)
22-2477875
(I.R.S. Employer Identification No.)
1455 Valley Road, Wayne, New Jersey 07474-0558
(Address of principal executive offices) (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 35,717,621
shares were outstanding as of November 1, 1995.
VALLEY NATIONAL BANCORP
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
September 30, 1995 and December 31, 1994
(Unaudited)
Consolidated Statements of Income 4
Nine and Three Months Ended September 30, 1995
and 1994 (Unaudited)
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and
1994 (Unaudited) 5
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
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VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Unaudited)
($ in thousands)
September 30, December 31,
1995 1994
Assets
Cash and due from banks................. $ 157,828 $ 168,071
Federal funds sold...................... 10,000 --
Investment securities held to maturity, fair value of
$784,391 and $812,143 in 1995 and 1994, respectively.....
782,461 848,465
Investment securities available for sale. 654,611 701,956
Loans, net of unearned income............ 2,701,196 2,592,756
Less: Allowance for possible loan losses (40,205) (42,024)
Loans, net............................... 2,660,991 2,550,732
Premises and equipment, net.............. 57,958 51,123
Due from customers on acceptances outstanding......
628 1,498
Accrued interest receivable.............. 28,661 29,545
Other assets............................. 63,904 63,826
Total assets...........................$4,417,042 $4,415,216
Liabilities
Deposits:
Non-interest bearing deposits..........$ 496,727 $ 509,457
Interest bearing:
Savings.............................. 1,690,488 1,833,326
Time................................. 1,706,654 1,537,219
Total deposits..................... 3,893,869 3,880,002
Federal funds purchased and securities sold under
repurchase agreements.................. 49,281 102,804
Treasury tax and loan account............ 18,397 15,549
Other borrowings......................... 31,529 35,567
Bank acceptances outstanding............. 628 1,498
Accrued expenses and other liabilities... 33,228 29,180
Total liabilities...................... 4,026,932 4,064,600
Shareholders' Equity
Common stock, no par value, authorized 39,414,375 shares,
issued 35,906,402 shares in 1995 and 33,842,750 in 1994..
20,036 18,869
Surplus.................................. 216,541 172,321
Retained earnings........................ 159,215 179,432
Unrealized loss on investment securities available
for sale, net of tax................... (3,057) (17,842)
392,735 352,780
Treasury stock, at cost (141,296 common shares in
1995 and 121,696 common shares in 1994) (2,625) (2,164)
Total shareholders' equity............. 390,110 350,616
Total liabilities and shareholders' equity...
$4,417,042 $4,415,216
See accompanying notes to consolidated financial statements.
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VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME(Unaudited)
($ in thousands, except for per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
Interest Income
Interest and fees on loans.......
$ 167,797 $ 142,702 $ 56,890 $ 49,972
Interest and dividends on
investment securities:
Taxable........................
57,345 60,347 18,235 19,591
Tax-exempt.....................
10,491 10,946 3,373 3,800
Dividends......................
484 519 140 202
Interest on federal funds sold
and other short term
investments....................
1,446 1,367 566 612
Total Interest Income..........
237,563 215,881 79,204 74,177
Interest Expense
Interest on deposits:
Savings........................
34,973 36,264 10,766 12,569
Time...........................
68,202 45,074 23,880 16,742
Interest on federal funds
purchased and securities sold
under repurchase agreements....
2,337 2,108 581 711
Interest on other short-term
borrowings.....................
575 153 412 520
Interest on other borrowings.....
1,404 1,585 205 51
Total Interest Expense.........
107,491 85,184 35,844 30,593
Net interest income..............
130,072 130,697 43,360 43,584
Provision for possible loan
losses.........................
2,069 4,507 600 1,267
Net interest income after
provision for possible
loan losses....................
128,003 126,190 42,760 42,317
Non-Interest Income
Trust income.....................
660 560 220 186
Service charges on deposit
accounts.......................
5,949 5,487 1,970 1,848
Gains on securities transactions
net............................
1,471 5,130 920 1,242
Fees from mortgage servicing.....
2,802 2,481 1,116 785
Other............................
4,894 5,005 1,709 1,765
Total Non-Interest Income......
15,776 18,663 5,935 5,826
Non-Interest Expense
Salaries expense.................
25,436 25,230 8,391 8,587
Employee benefit expense.........
6,715 6,809 1,991 2,268
FDIC insurance premiums..........
4,917 6,344 530 2,129
Occupancy and equipment expense..
10,264 9,848 3,542 3,347
Amortization of intangible
assets.........................
2,007 2,483 804 713
Other............................
18,506 15,434 5,640 5,047
Total Non-Interest Expense.....
67,845 66,148 20,898 22,091
Income before income taxes.......
75,934 78,705 27,797 26,052
Income tax expense...............
29,877 26,528 9,687 8,694
Net Income.......................
$ 46,057 $ 52,177 $ 18,110 $ 17,358
Net income per share.............
$ 1.29 $ 1.48 $ 0.51 $ 0.49
Weighted average shares
outstanding....................
35,584,656 35,216,212 35,738,452 35,297,581
See accompanying notes to consolidated financial statements.
- - 4 -
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)
($ in thousands)
Nine Months Ended
September 30,
1995 1994
Cash flows from operating activities:
Net income............................ $ 46,057 $ 52,177
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
intangible assets................... 5,854 6,476
Amortization of compensation costs pursuant to
long term stock incentive plan.... 240 222
Provision for possible loan losses.. 2,069 4,507
Net amortization of premiums........ 3,784 5,787
Net gains on securities transactions (1,471) (5,130)
Net deferred income tax
benefit(expense).................. 2,935 (7,035)
Gains on sales of loans............. -- (720)
Proceeds from recoveries on
charged-off loans................. 2,059 1,606
Proceeds from sale of loans......... -- 11,647
Net decrease in accrued interest receivable
and other assets.................. (10,599) 3,551
Net increase in accrued expenses and
other liabilities................. 2,291 (1,397)
Net increase in shareholders' equity due to
acquisition of American Union Bank 4,425 --
Adjustment for the pooling of a company with a
different fiscal year end......... (741) --
Net cash provided by operating activities:
56,903 71,691
Cash flows from investing activities:
Proceeds from maturing investment securities held
to maturity.......................... 115,512 242,099
Purchases of investment securities held
to maturity.......................... (48,535) (214,346)
Proceeds from sales of investment securities
available for sale................... 74,376 224,905
Proceeds from maturing investment securities
available for sale................... 58,628 47,327
Purchases of investment securities
available for sale................... (63,547) (210,376)
Purchases of mortgage servicing rights. (3,902) (1,099)
Net decrease(increase) in federal funds sold and other
short term investments............... (10,000) 55,141
Net increase in loans made to customers (114,470) (268,874)
Purchases of premises and equipment,
net of sales......................... (10,875) (4,441)
Net decrease(increase) in due from customers on
acceptances outstanding.............. 870 (450)
Net cash used in investing activities:
(1,943) (130,114)
Cash flows from financing activities:
Net increase in deposits............... 13,867 124,944
Net decrease in federal funds purchased and other
short term borrowings................ (50,675) (6,666)
Repayments of other borrowings......... (4,038) (4,795)
Net increase(decrease) in bank
acceptances outstanding.............. (870) 450
Dividends paid to common shareholders.. (22,161) (23,029)
Purchase of treasury stock............. (4,005) --
Common stock issued, net of
cancellations........................ 2,679 2,951
Net cash provided by (used in) financing activities:
(65,203) 93,855
Net increase(decrease) in cash and due
from banks............................. (10,243) 35,432
Cash and due from banks at beginning of
period................................. 168,071 88,856
Cash and due from banks at end of period.$ 157,828 $ 124,288
Cash paid during the period for:
Interest on deposits and other
borrowings...........................$ 103,465 $ 84,231
Federal and state income taxes.........$ 38,214 $ 28,977
See accompanying notes to consolidated financial statements.
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VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of
September 30, 1995 and December 31, 1994, the Consolidated
Statements of Income for the nine and three month periods
ended September 30, 1995 and 1994 and the Consolidated
Statements of Cash Flows for the nine month periods ended
September 30, 1995 and 1994 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, 1995 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, 1994 Annual Report to
Shareholders.
2. Acquisition
On June 30, 1995, Valley acquired by merger the $671 million
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 for June 30, 1995, Lakeland's financial
statements were combined with Valley's for the same periods.
Valley's December 31, 1994 statement of financial condition
was combined with Lakeland's June 30, 1995 statement of
financial condition. Valley's statement of income for the six
month period ended June 30, 1994 was combined with Lakeland's
statement of income for the six month period ended December
31, 1994. An adjustment has been make to stockholders' equity
to eliminate the effect of Lakeland's results of operations
for the six month period ended June 30, 1995 included in both
the December 31, 1994 and June 30, 1995 financial statements.
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
June 30, 1995
(in thousands)
Net interest income after
provision for possible loan losses:
Valley $ 72,677
LFG 12,560
$ 85,237
Net income
Valley $ 27,341
LFG 605
$ 27,946
3. All share and per share amounts have been restated to reflect
the 5% stock dividend declared March 23, 1995 to shareholders
of record on April 14, 1995 and payable May 2, 1995.
- - 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Recent Acquisitions
On February 28, 1995, Valley acquired American Union Bank
("American"), headquartered in Union, New Jersey, with
approximately $58 million in assets and two branches. The
transaction resulted in the issuance of 288,734 shares and was
accounted for using the pooling of interests method of accounting.
The 1994 financial statements for Valley have not been restated as
they would not have been materially different from those presented.
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 Lakeland
First Financial Group, Inc. ("LFG"), the holding company for
Lakeland Savings Bank ("Lakeland"), a state chartered saving 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 common stock of Valley common stock.
Earnings Summary
Net income for the three and nine month period ending
September 30, 1995 was $18.1 million and $46.1 million, or $0.51
and $1.29 per share, respectively. This compares with $17.4
million and $52.2 million or $0.49 and $1.48 per share for the same
periods in 1994 (all amounts have been restated for the Lakeland
First Financial Group, Inc. merger and per share amounts have been
restated to give effect to a 5% stock dividend in 1995). Net
income before non-recurring merger expenses of $5.4 million or
$0.15 per share during the second quarter, was $51.5 million for
the nine months September 30, 1995 as compared to $52.2 million for
the first nine months of 1994, a 1.4% decrease. The first nine
months of 1994 was positively impacted by securities gains of $5.1
million, compared to only $1.5 million of securities gains in the
first nine months of 1995. The annualized return on average assets
(ROA) before one-time merger expenses decreased to 1.54% from
1.61%, and the annualized return on average equity (ROE) also
decreased to 18.34% from 19.99% for the nine months ended September
30, 1995 and 1994, respectively. After one-time merger expenses
the ROA decreased to 1.38% from 1.61% and ROE decreased to 16.41%
from 19.99%. Book value per share amounted to $10.91 at Septmeber
30, 1995 compared with $10.01 per share at September 30, 1994.
Net Interest Income
Net interest income on a fully tax equivalent basis decreased
by $826 thousand and $428 thousand or 0.60% and 0.93%,
respectively, for the nine months and quarter ended September 30,
1995 as compared to the same periods in 1994. The net interest
margin decreased 14 and 6 basis points to 4.33% and 4.35% for the
nine month period and quarter ended September 30, 1995 compared to
4.47% and 4.41% for the same periods in 1994.
The decrease in net interest margin was caused substantially
by 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, leading to a
decline in the net interest margin into 1995.
- - 7 -
Average interest earning assets increased $114.7 million
during the nine months ended September 30, 1995, or 2.8% over the
same period in 1994. This increase was mainly the result of
increased automobile loan and commercial mortgage loan volume.
Average loans increased by $267.3 million or 11.2% over the 1994
nine months. Approximately $33.9 million of the increase was the
result of the American Union merger of February 28, 1995 accounted
for as a pooling of interests. The average rate on loans increased
46 basis points and combined with the increase in average loan
volume, interest income on loans for the first nine months of 1995
increased by $25.1 million over the same period in 1994. The
average balance of investment securities for the nine months ended
September 30, 1995 decreased by $134.9 million or 8.2% from the
amount in the portfolio for the same period in 1994, net of the
amount from American Union of $23.3 million. The average balance
of taxable investment securities decreased by $122.8 million or
9.3% over the 1994 average balance. Tax-exempt investments
remained almost unchanged for the nine month period in 1995 over
the same period in 1994.
Average interest-bearing liabilities for the nine months ended
September 30, 1995 as compared to September 30, 1994 grew 2.3% or
$81.8 million of which $43.5 million was due to the acquisition of
American Union Bank. Time deposits increased by $294.5 million or
20.7%, while savings deposits decreased by $195.4 million or 10.1%.
Non-Interest Income
The following table presents the components of non-interest
income for the nine and three months ended September 30, 1995 and
1994.
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
(in thousands)
Trust income....... $ 660 $ 560 $ 220 $ 186
Service charges on
deposit accounts... 5,949 5,487 1,970 1,848
Gains on securities
transactions, net.. 1,471 5,130 920 1,242
Fees from mortgage
servicing.......... 2,802 2,481 1,116 785
Other.............. 4,894 5,005 1,709 1,765
Total....... $ 15,776 $ 18,663 $ 5,935 $ 5,826
Non-interest income continues to represent a considerable
source of income for Valley. Excluding gains on securities
transactions, total non-interest income increased $772 thousand and
$431 thousand to $14.3 and $5.0 million for the nine and three
months ended September 30, 1995 and 1994.
Service charges on deposit accounts increased $462 thousand or
8.4% and $122 thousand or 6.6% for the nine month and three month
periods ended September 30, 1995. A majority of this increase is
due to the expansion of account volume and increased fees charged
on deposit accounts.
Net gains on securities transactions for the nine months ended
September 30, 1995 was $1.5 million compared to $5.1 million at
September 30, 1994.
Other income decreased $111 thousand for the nine months ended
September 30, 1995 over the same period in 1994. This was the
result of decreased credit card fees and decreased application fees
for residential mortgages in 1995, and a one-time gain of $212
thousand recorded in 1994 on the termination of a lease.
During the quarter Valley began offering investment banking
services to middle market companies through its recently chartered
investment banking subsidiary, Halidon Hill & Co., which provides
a full range of merger and acquisition advisory services, private
placement of debt and equity, and strategic planning services and
also advises middle market firms with respect to management
buyouts, capital formation strategies and recapitalizations.
- - 8 -
Non-Interest Expense
The following table presents the components of non-interest
expense for the nine and three months ended September 30, 1995 and
1994.
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
(in thousands)
Salary expense......$ 25,436 $ 25,230 $ 8,391 $ 8,587
Employee benefit
expense............. 6,715 6,809 1,991 2,268
FDIC insurance
premiums............ 4,917 6,344 530 2,129
Occupany and equipment
expense............. 10,264 9,848 3,542 3,347
Amortization of
intangible assets... 2,007 2,483 804 713
Other...............* 18,506 15,434 5,640 5,047
Total........$ 67,845 $ 66,148 $ 20,898 $ 22,091
*Includes $2.4 million of one-time merger expenses.
Non-interest expense before one-time merger expense of $2.4
million totalled $65.4 million for the nine months ended September
30, 1995 compared to $66.1 million for the nine month period ended
September 30, 1994. The largest component of non-interest expense
is salaries and employee benefit expense which totalled $32.2
million for the nine months ended September 30, 1995. At September
30, 1995, full-time equivalent staff was 1,251 compared to 1,268 at
September 30, 1994.
FDIC insurance expense was $530 thousand for the quarter ended
September 30, 1995 as compared to $2.1 million for the same period
in 1994. 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 approximately $0.63 per
hundred of SAIF deposits from previous thrift mergers. Valley
estimates that it will have to pay approximately $7.0 million on a
pre-tax basis. After this payment, it is anticipated that future
premiums on these deposits will also be reduced from $0.23 to $0.04
per hundred.
Amortization of intangible assets decreased to $2.0 million
for the nine months ended September 30, 1995 from $2.5 million for
the same period in 1994, representing a decrease of $476 thousand,
or 19.2%. The majority of this decrease resulted from the
reduction of amortization of purchased mortgage servicing rights
and core deposit intangibles.
Income Taxes
Income tax expense before the one-time merger-related tax
expense of $3.0 million as a percentage of pre-tax income increased
to 35.4% for the nine months ended September 30, 1995 compared to
33.7% in 1994. This increase was attributable to an increase in
state tax expense and a decrease in tax-exempt interest income.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
At September 30, 1995, rate sensitive assets exceeded rate
sensitive liabilities at the 90 day interval and resulted in a
positive gap of $403 million or a ratio of 1.28:1. Rate sensitive
liabilities exceeded rate sensitive assets at the 91 to 365 day
interval by $414 million or a ratio of .33:1 and resulted in a
negative gap. The total negative gap repricing within 365 days as
of September 30, 1995 is $10 million or 0.99:1. 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 fails to consider the
interest rate sensitivities of those asset and liability accounts.
Management has prepared for its use an income simulation model to
project future net interest income streams in light of the current
gap position. Management has also prepared for its use alternative
scenarios to measure levels of net interest income associated with
various factors including changes in interest rates. According to
this computer model, an interest rate increase of 300 basis points
and a decrease of 100 basis
- - 9 -
points resulted in an impact on future net interest income which is
not material. 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 September 30, 1995, liquid assets amounted to
$996.1 million, as compared to $950.0 million at December 31, 1994.
This represents 24.0% of earning assets and 22.6% of total assets
at September 30, 1995.
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 $3.1 billion at September 30,
1995 and December 31, 1994, respectively, representing 75.2% 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 were $74.4 million, and proceeds of $174.1 million were
generated from investment maturities and prepayments. Purchases of
investment securities during the same period were $112.1 million.
Short term borrowings and certificates of deposit over $100
thousand amounted to $413.4 million and $337.7 million, on average,
at September 30, 1995 and December 31, 1994, 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 are expected to be adequate to pay
dividends, given the current capital levels and current profitable
operations of its subsidiary.
Investment Securities
The securities portfolio on September 30, 1995 consisted of
securities held to maturity totaling $782.5 million and securities
available for sale totaling $654.6 million, compared to $848.5
million and $702.0 million, respectively, on December 31, 1994.
The balances at September 30, 1995 included approximately $22.0
million of investment securities from the acquisition of American
Union.
Unrealized loss on investment securities available for sale,
net of tax, reduced shareholders' equity by $3.1 million September
30, 1995 compared to a reduction of $17.8 million on December 31,
1994. This change was primarily due to an increase in prices and
a corresponding decline in interest rates.
Loan Portfolio
The following table reflects the composition of the loan
portfolio as of September 30, 1995 and December 31, 1994.
September 30, December 31,
1995 1994
(in thousands)
Commercial.................. $ 334,753 $ 298,337
Construction................. 72,434 70,192
Commercial mortgage......... 594,284 571,596
Residential mortgage........ 1,013,837 1,004,203
Installment................. 687,421 650,329
2,702,729 2,594,657
Less: Unearned income....... (1,533) (1,901)
Total loans............. $2,701,196 $2,592,756
- - 10 -
Total loans increased $108.4 million or 4.2% during the nine
month period ended Septmeber 30, 1995. Residential mortgage loans
represent 37.5% of the loan portfolio. Installment loans,
including predominantly automobile and credit card loans, totalled
$687.4 million at September 30, 1995, representing 25.4% of the
loan portfolio. Commercial mortgages increased 4.0% or $22.7
million from December 1994 to September 30, 1995.
Loan balances at September 30, 1995 included approximately $29
million of loans from the acquisition of American Union, which is
comprised of $8.6 million of residential mortgage loans, $8.2
million of commercial mortgage loans, $6.4 million of commercial
loans, and $5.9 million of installment loans.
Non-Performing Assets
Non-performing assets include non-accrual loans and other real
estate owned (OREO). Non-performing assets decreased $2.9 million
to $27.3 million at September 30, 1995 as compared to December 31,
1994.
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.
September 30, December 31,
1995 1994
(in thousands)
Loans past due in excess of
90 days and still accruing..... $ 5,794 $ 8,695
Non-performing loans............. $ 16,622 $ 22,554
Other real estate owned.......... 10,714 7,700
Total non-performing assets.... $ 27,336 $ 30,254
Non-performing loans as
a % of loans................... 0.62% 0.87%
Non-performing assets as a %
of loans plus other real
estate owned................... 1.01% 1.16%
Allowance as a % of loans........ 1.49% 1.62%
Allowance as a % of
non-performing loans........... 242% 186%
Asset Quality and Risk Elements
Valley's allowance for loan loss remained relatively stable
since December 31, 1994. At September 30, 1995 the allowance for
loan losses amounted to $40.2 million or 1.49% of loans, as
compared to $42.0 million or 1.62% at December 31, 1994.
The allowance is adjusted by provisions charged against income
and loans charged-off, net of recoveries. Net loan charge-offs
were $4.0 million for the nine months ended September 30, 1995,
which includes approximately $2.3 million from the recently
acquired Lakeland Savings Bank, compared with $3.1 million for the
nine months ended September 30, 1994. The ratio of net charge-offs
to average loans amounted to 0.20% for the nine months ended
September 30, 1995 compared with 0.17% for 1994.
Capital Adequacy
A significant measure of the strength of a financial
institution is its shareholders' equity, which must expand in close
proportion to asset growth. At September 30, 1995, shareholders'
equity totalled $390.1 million or 8.8% 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.
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Valley's capital position at September 30, 1995 under risk-
based capital guidelines was $388.7 million, or 14.4% of risk-
weighted assets, for Tier 1 capital and $422.5 million, or 15.6%
for Total risked-based capital. The comparable ratios at December
31, 1994 were 13.9% for Tier 1 capital and 15.1% for Total risk-
based capital. Valley's ratios at September 30, 1995 are above the
"well capitalized" requirements, which require Tier 1 capital of at
least 6% and Total risk-based capital of 10%. The Federal Reserve
Board requires each "well capitalized" holding company to maintain
a minimum leverage ratio of 5.0%. At September 30, 1995 and
December 31, 1994, Valley was in compliance with the leverage
requirement having a Tier 1 leverage ratio of 8.8% and 8.3%,
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 48.7% at September 30,
1995 before one-time merger expense of $5.4 million and 42.7% after
merger expenses, compared to 53.2% for the nine months ended
September 30, 1994. Cash dividends declared amounted to $0.74 per
share, equivalent to a dividend payout ratio of 47.6% before one-
time merger expenses, an increase from the 46.8% for the nine
months in 1994. Valley declared a 5% common stock dividend on
March 23, 1995 to shareholders of record on April 14, 1995, paid
May 2, 1995. Valley maintained the cash dividend at $1.00 per
share per annum after the payment of the stock dividend. Valley's
Board of Directors continues to believe that cash dividends are an
important component of shareholder value and that at its current
level of performance and capital, Valley expects to continue its
current dividend policy of a quarterly distribution of earnings to
its shareholders.
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PART II
Item 6. Exhibits and Reports on Form 8-K
b) Reports on Form 8-K
1) Form 8-K filed July 11, 1995 to report the merger of
Lakeland First Financial Group into Valley National Bancorp
effective on June 30, 1995.
2) Form 8-K/A filed July 14, 1995 ammending the Form 8-K
filed July 11, 1995 to include as an exhibit the accountants
report.
3) Form 8-K/A filed September 8, 1995 amending the Form 8-K
filed July 11, 1995 to include pro forma financial information.
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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 14, 1995 /s/ Peter Southway
PETER SOUTHWAY
PRESIDENT AND CHIEF
OPERATING OFFICER
Date: November 14, 1995 /s/ Alan D. Eskow
ALAN D. ESKOW
SENIOR VICE PRESIDENT
FINANCIAL ADMINISTRATION
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