Valley National Bancorp's Mortgage Refinance Program Propels Solid Third Quarter Earnings

WAYNE, N.J., Oct. 25, 2012 /PRNewswire/ -- Valley National Bancorp (NYSE: VLY), the holding company for Valley National Bank, today reported net income for the third quarter of 2012 of $39.4 million, or $0.20 per diluted common share as compared to the third quarter of 2011 earnings of $35.4 million, or $0.20 per diluted common share and second quarter of 2012 earnings of $32.8 million, or $0.17 per diluted common share.  All common share data presented in this press release, including the earnings per diluted common share data above, were adjusted for a five percent stock dividend issued on May 25, 2012.

Key highlights for the third quarter:

  • Mortgage Banking Activities:  Residential mortgage loan origination volumes remained strong during the period due to the historically low market interest rates and the continued success of Valley's low fixed-price refinance programs.  Valley shifted the majority of its residential mortgage production to an "originate and sell" model during the third quarter of 2012. As a result, Valley's gains on sales of residential mortgage loans (originated for sale) totaled $25.1 million for the third quarter of 2012 as compared to $3.1 million for the second quarter of 2012 and $2.9 million for the third quarter of 2011.  See the "Loans and Deposits" section below for more details.
  • Asset Quality: Non-performing assets declined 5.2 percent from the second quarter of 2012 as total non-accrual loans decreased to $121.4 million, or 1.09 percent of our entire loan portfolio of $11.1 billion, at September 30, 2012, compared to $126.2 million, or 1.10 percent, at June 30, 2012.  At September 30, 2012, our non-performing assets included 27 performing residential mortgage and home equity loans totaling $3.0 million that were reclassified to non-accrual status due to the implementation of newly issued Office of the Comptroller of the Currency (OCC) guidance.  Loan charge-offs related to the reclassified loans were immaterial for the third quarter of 2012. At September 30, 2012, residential mortgage and home equity loans delinquent 30 days or more totaled $52.9 million, or 1.77 percent of approximately $3.0 billion in total loans within these categories. Commercial real estate (excluding construction) loans delinquent 30 days or more decreased to 1.46 percent of the loan portfolio at September 30, 2012 as compared to 1.65 percent at June 30, 2012. See "Credit Quality" section below for more details.
  • Provision for Losses on Non-Covered Loans and Unfunded Letters of Credit: The provision for losses on non-covered loans and unfunded letters of credit was $7.3 million for the third quarter of 2012 as compared to $7.4 million for the second quarter of 2012 and $7.8 million for the third quarter of 2011. Net loan charge-offs on non-covered loans decreased to $5.9 million for the third quarter of 2012 compared to $8.7 million for the second quarter of 2012 and increased from $4.8 million for the third quarter of 2011.  At September 30, 2012, our allowance for losses on non-covered loans and unfunded letters of credit totaled $122.1 million and was 1.12 percent of non-covered loans, as compared to 1.08 percent and 1.34 percent at June 30, 2012 and September 30, 2011, respectively. 
  • Provision for Losses on Covered Loans:  We recorded no provision for losses on covered loans (i.e., loans subject to our loss-sharing agreements with the FDIC) related to additional credit impairment of the loan pools during the third quarter of 2012, second quarter of 2012 and third quarter of 2011.  Net charge-offs of covered loans totaled $2.3 million, $1.8 million and $6.1 million for the third quarter of 2012, second quarter of 2012 and third quarter of 2011, respectively.  Our allowance for losses on covered loans totaled $9.5 million, $11.8 million, and $12.6 million at September 30, 2012, June 30, 2012 and September 30, 2011, respectively.
  • Net Interest Income and Margin: Net interest income totaling $121.8 million for the three months ended September 30, 2012 remained relatively unchanged as compared to both the second quarter of 2012 and the third quarter of 2011.  On a tax equivalent basis, our net interest margin decreased 6 basis points to 3.46 percent in the third quarter of 2012 as compared to 3.52 percent for the second quarter of 2012, and decreased 40 basis points from 3.86 percent for the third quarter of 2011.  The decrease in margin as compared to the linked second quarter of 2012 was mainly due to lower yields on new investment securities and loans caused by the current low level of market interest rates, partially offset by higher accretion recognized on purchased credit impaired (PCI) loans during the third quarter of 2012. See the "Net Interest Income and Margin" section below for more details.
  • Loans: Total non-covered loans (i.e., loans which are not subject to our loss-sharing agreements with the FDIC) decreased by $255.9 million, or 9.1 percent on an annualized basis, to $10.9 billion at September 30, 2012 from June 30, 2012 largely due to our decision to sell the majority of our new and refinanced residential mortgage loans, some large repayments within the commercial loan portfolios, as well as continued strong competition for high quality commercial borrowers.  However, our commercial real estate (including construction) loans and automobile loan portfolios experienced organic growth of $28.6 million and $11.1 million, or 2.4 percent and 5.7 percent on an annualized basis, respectively, during the third quarter of 2012. Total covered loans (i.e., loans subject to our loss-sharing agreements with the FDIC) decreased to $207.5 million, or 1.9 percent of our total loans, at September 30, 2012 as compared to $226.5 million at June 30, 2012, mainly due to normal payment activity.
  • Investments: Other-than-temporary impairment charges recognized in earnings totaled $4.7 million ($2.7 million after taxes, or $0.01 per common share) during the third quarter of 2012 and related to previously impaired trust preferred securities issued by one bank holding company and one previously impaired private label mortgage-backed security. We recorded net gains on securities transactions totaling $1.5 million ($937 thousand after taxes, or less than $0.01 per common share) in the third quarter of 2012 as compared to $1.2 million ($754 thousand after taxes, or less than $0.01 per common share) and $863 thousand ($541 thousand after taxes, or less than $0.01 per common share) during the second quarter of 2012 and third quarter of 2011, respectively.  The net gains in the third quarter of 2012 mainly relate to the gains on sales of $100.2 million in U.S. government and agency mortgage-backed securities and $19.4 million of corporate debt securities classified as available for sale, as well as net gains recognized due to the early issuer redemption of $75.7 million in trust preferred securities.
  • Trading Mark to Market: Net trading gains and losses mainly represent non-cash mark to market gains and losses on our junior subordinated debentures carried at fair value. Net trading gains recognized for the third quarter of 2012 were immaterial and decreased $1.6 million and $770 thousand from the second quarter of 2012 and the third quarter of 2011, respectively.
  • Income Tax Expense:  Our effective tax rate increased to 36.2 percent for the third quarter of 2012 as compared to 30.4 percent for the second quarter of 2012, and 27.9 percent for the third quarter of 2011.  The increase from these prior periods was largely due to the increase in pre-tax income for the third quarter of 2012 and its impact on the projected income and tax rate for the full year of 2012.
  • Capital Strength: Our regulatory capital ratios continue to reflect Valley's strong capital position. The Company's total risk-based capital, Tier 1 capital, and leverage capital were 12.36 percent, 10.87 percent, and 8.07 percent, respectively, at September 30, 2012.

Gerald H. Lipkin, Chairman, President and CEO commented that "We are pleased to report the solid earnings growth for the third quarter of 2012, which was led by the strength of our residential mortgage refinance program, as well as the overall credit quality of our balance sheet.  Our mortgage banking business continues to experience significant application inflows mainly through our low fixed-price refinance programs. Widening loan spreads and the current Federal Reserve monetary policies contributed to our increased focus on mortgage banking revenues during the quarter, while still maintaining the acceptable interest rate risk and mix of the loan categories within our $11.1 billion loan portfolio. During the fourth quarter of 2012 and into 2013, we expect the application pipeline and sales of new and refinanced mortgage loans to continue at a brisk pace as long as interest rates remain at current levels." Mr. Lipkin added, "We have the operating capacity and a knowledgeable team in place to continue to take full advantage of the mortgage origination opportunities within our markets." 

Net Interest Income and Margin

Net interest income on a tax equivalent basis was $123.7 million for the third quarter of 2012 and remained relatively unchanged as compared to the second quarter of 2012 and the third quarter of 2011. Interest income on a tax equivalent basis increased $493 thousand from the second quarter of 2012 mainly due to a $121.3 million increase in average loans and higher accretion on PCI loans, partially offset by a $246.2 million decline in average taxable investment securities.  The increase in interest income was more than offset by a $621 thousand increase in interest expense, which was mostly driven by a 3 basis point increase in the cost of average savings, NOW, and money market deposits and a $74.4 million increase in average time deposits.

The net interest margin on a tax equivalent basis was 3.46 percent for the third quarter of 2012, a decrease of 6 basis points from 3.52 percent in the linked second quarter of 2012, and a 40 basis point decline from 3.86 percent for the quarter ended September 30, 2011. The yield on average interest earning assets decreased by five basis points on a linked quarter basis mainly as a result of lower yields on average investment securities caused by the current low market yields on new securities, and calls and sales of higher yielding securities. The yield on average loans increased 3 basis points to 5.12 percent for the three months ended September 30, 2012 from the second quarter of 2012.  However, interest income on loans included $2.1 million in accelerated interest accretion recognized on certain PCI loan pools that were fully repaid during the third quarter of 2012.  Additionally, the repayment volume of higher yielding non-PCI loans remained elevated for the third quarter of 2012 and negatively impacted the overall yield on average loans. The cost of average interest bearing liabilities declined only one basis point from 1.63 percent in the second quarter of 2012 mainly due to a 4 basis point decline in the cost of average time deposits mainly resulting from the run-off of maturing higher rate certificates of deposit.  The matured time deposits were largely replaced by lower rate retail certificates of deposit obtained through promotional campaigns in the third quarter.  The cost of average savings, NOW and money market deposits increased 3 basis points from 0.37 percent in the second quarter of 2012 due, in part, to additional interest expense related to interest rate swaps hedging certain prime rate money market deposits. The swaps, with payments commencing in July 2012, require pay fixed/receive variable-rate amounts and have an aggregate notional amount of $100 million. The cost of short-term borrowings also increased 5 basis points to 0.44 percent for the third quarter of 2012 primarily due to the slightly higher costs of average short-term FHLB advances as compared to the second quarter of 2012. Our cost of total deposits was 0.52 percent for the third quarter of 2012 compared to 0.51 percent for the three months ended June 30, 2012. 

We believe our margin may continue to face the risk of compression into the foreseeable future due to the current low level of interest rates on most interest earning asset alternatives.  However, we continue to tightly manage our balance sheet and our cost of funds to optimize our returns. 

Credit Quality

Total loan delinquencies (including loans past due 30 days or more and non-accrual loans) as a percentage of total loans were 1.53 percent at September 30, 2012 as compared to 1.38 percent at June 30, 2012 and 1.73 percent at September 30, 2011. Our past due loans and non-accrual loans discussed below exclude PCI loans.  Valley's PCI loans consist of loans that were acquired as part of FDIC-assisted transactions (the "covered loans") in 2010 and loans subsequently acquired or purchased by Valley, primarily consisting of loans acquired from State Bancorp on January 1, 2012.  Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are accounted for on a pool basis and are not subject to delinquency classification in the same manner as loans originated by Valley.

Loans past due 30 to 89 days increased $17.1 million to $47.1 million at September 30, 2012 compared to June 30, 2012 mainly due to higher delinquencies within commercial and industrial loans and residential mortgage loans. Within this past due category, commercial and industrial loans increased $15.2 million to $17.5 million at September 30, 2012 due, in part, to an $8.9 million impaired loan with $3.7 million in related specific reserves included in our total allowance for loan losses and a $4.6 million matured performing loan in the normal process of renewal.  Residential mortgage loans past due 30 to 89 days also increased $7.0 million to $17.1 million at September 30, 2012. Valley believes the mortgage loans in this past due category are well secured, in the process of collection and do not represent a material negative trend within the residential mortgage portfolio.

Loans past due 90 days or more and still accruing increased $1.0 million to $2.5 million, or 0.02 percent of total loans, at September 30, 2012 compared to $1.5 million, or 0.01 percent at June 30, 2012.  The increase was mainly due to one matured performing construction loan in the normal process of renewal that totaled approximately $1.0 million at September 30, 2012.

Total non-performing assets ("NPAs"), consisting of non-accrual loans, other real estate owned (OREO), other repossessed assets and non-accrual debt securities, totaled $185.3 million at September 30, 2012 compared to $195.4 million at June 30, 2012. The $10.1 million decrease in NPAs from June 30, 2012 was largely due to a $4.8 million decline in non-accrual loans, mainly within the commercial real estate and construction loan categories caused, in part, by several full payoffs of impaired loans, as well as a $5.1 million decrease in the estimated fair value of non-accrual debt securities (consisting of other-than-temporarily impaired trust preferred securities classified as available for sale) totaling $40.8 million at September 30, 2012.  The non-accrual debt securities had total combined unrealized losses (non-credit impairment) of $6.4 million and $5.8 million at September 30, 2012 and June 30, 2012, respectively.  Of the $4.7 million in other-than-temporary impairment charges recognized in earnings during the third quarter of 2012, $4.5 million related to trust preferred securities within the non-accrual debt securities category.

Non-accrual loans decreased $4.8 million to $121.4 million at September 30, 2012 as compared to $126.2 million at June 30, 2012 mainly due to the aforementioned declines in the commercial real estate and construction loan categories, and despite the addition of $3.0 million of reclassified performing residential and home equity loans to non-accrual status due to the implementation of new OCC guidance during the third quarter of 2012. Although the timing of collection is uncertain, management believes that most of the non-accrual loans are well secured and largely collectible based on, in part, our quarterly review of impaired loans. Our impaired loans, mainly consisting of non-accrual and troubled debt restructured commercial and commercial real estate loans, totaled $200.3 million at September 30, 2012 and had $23.9 million in related specific reserves included in our total allowance for loan losses. OREO (which consists of 27 commercial and residential properties) and other repossessed assets, excluding OREO subject to loss-sharing agreements with the FDIC, totaled $15.4 million and $7.7 million, respectively, at September 30, 2012 as compared to $14.7 million and $8.5 million, respectively, at June 30, 2012.  Loan foreclosure transfers to OREO totaled approximately $2.6 million (net of partial charge-offs to the allowance for loan losses totaling $494 thousand) during the third quarter of 2012.

Troubled debt restructured loans ("TDRs") represent loan modifications for customers experiencing financial difficulties where a concession has been granted.  Performing TDRs (i.e., TDRs not reported as loans 90 days or more past due and still accruing or as non-accrual loans) totaled $109.3 million at September 30, 2012 and consisted of 84 loans (primarily in the commercial and industrial loan and commercial real estate portfolios) as compared to 85 loans totaling $113.6 million at June 30, 2012.  On an aggregate basis, the $109.3 million in performing TDRs at September 30, 2012 had a modified weighted average interest rate of approximately 4.85 percent as compared to a pre-modification weighted average interest rate of 5.64 percent.

With a non-covered loan portfolio totaling $10.9 billion, net loan charge-offs on non-covered loans for the third quarter of 2012 totaled $5.9 million as compared to $8.7 million for the second quarter of 2012 and $4.8 million for the third quarter of 2011.  The decrease from the second quarter of 2012 was largely due to a decline in the partial charge-offs related to collateral valuations of impaired loans.  There were $2.3 million in charge-offs on loans in our impaired covered loan pools for the third quarter of 2012 as compared to $1.8 million and $6.1 million of charge-offs in the second quarter of 2012 and the third quarter of 2011, respectively.  Charge-offs on impaired covered loan pools are substantially covered by loss-sharing agreements with the FDIC.

The following table summarizes the allocation of the allowance for credit losses to specific loan categories and the allocation as a percentage of each loan category at September 30, 2012, June 30, 2012 and September 30, 2011:



September 30, 2012


June 30, 2012


 

September 30, 2011





Allocation




Allocation




Allocation





as a % of




as a % of




as a % of



Allowance


Loan


Allowance


Loan


Allowance


Loan



Allocation


Category


Allocation


Category


Allocation


Category

Loan Category:












Commercial and Industrial loans*

$60,463


2.85%


$63,521


2.93%


$62,717


3.44%

Commercial real estate loans:













Commercial real estate

25,872


0.58%


20,900


0.47%


20,079


0.58%


Construction

13,373


3.07%


12,632


3.07%


14,614


3.53%

Total commercial real estate loans

39,245


0.80%


33,532


0.69%


34,693


0.89%














Residential mortgage loans

9,795


0.39%


10,678


0.39%


10,158


0.47%














Consumer loans:













Home equity

1,666


0.34%


1,872


0.37%


2,794


0.58%


Auto and other consumer

3,997


0.42%


3,937


0.42%


7,297


0.79%

Total consumer loans

5,663


0.39%


5,809


0.41%


10,091


0.72%

Unallocated

6,939


-


7,225


-


7,455


-

Allowance for non-covered loans













and unfunded letters of credit

122,105


1.12%


120,765


1.08%


125,114


1.34%

Allowance for covered loans

9,492


4.57%


11,771


5.20%


12,587


4.08%

Total allowance for credit losses

$131,597


1.18%


$132,536


1.16%


$137,701


1.44%














* Includes the reserve for unfunded letters of credit.








The allowance for non-covered loans and unfunded letters of credit as a percentage of total non-covered loans was 1.12 percent at September 30, 2012 as compared to 1.08 percent and 1.34 percent at June 30, 2012 and September 30, 2011, respectively.  The allocation percentages for the commercial and industrial loan category shown in the table above declined from the second quarter of 2012 as loss experience and the outlook for the portfolio improved during the third quarter of 2012, while allocations for commercial real estate loans increased mainly due to higher charge-off activity. The allocation percentage in both the commercial and commercial real estate loan categories decreased from September 30, 2011 largely due to non-covered PCI loans acquired from State Bancorp on January 1, 2012 and commercial real estate loans purchased from another financial institution in March 2012. The PCI loans were recorded at fair value upon acquisition based on an initial estimate of expected cash flows, including a reduction for estimated credit losses and, in the case of State Bancorp, without carryover of the loan portfolio's historical allowance for loan losses. The PCI loans are accounted for on a pool basis and were initially recorded net of fair valuation discounts related to credit which may be used to absorb potential future losses on such loans before any allowance for loan losses is recognized subsequent to acquisition. The remaining credit discount that may be used for future losses totaled $52.9 million for non-covered PCI loans with carrying amounts of $1.1 billion at September 30, 2012. Additionally, the allocated reserves for auto and other consumer loans declined from September 30, 2011 as loss experience and the outlook for the automobile portfolio continued to improve throughout 2012. Our allowance for non-covered loans and unfunded letters of credit as a percentage of total non-covered loans (excluding non-covered PCI loans with carrying values totaling approximately $1.1 billion) was 1.24 percent at September 30, 2012 as compared to 1.20 percent at June 30, 2012.

Loans and Deposits

Non-Covered Loans. Non-covered loans are loans not subject to loss-sharing agreements with the FDIC.  Non-covered loans decreased $255.9 million to approximately $10.9 billion at September 30, 2012 from June 30, 2012 mainly due to refinance activity within the residential mortgage loan portfolio. Residential mortgage loans decreased $245.5 million from June 30, 2012 mostly due to a large amount of refinance activity within our loans held for investment portfolio during the third quarter, of which many of the new loans were either sold in the secondary market or held for sale at September 30, 2012. Loans held for sale carried at fair value increased to $149.1 million (with $141.4 million in unpaid contractual balances) at September 30, 2012 as compared to $30.0 million (with $28.7 million in unpaid contractual balances) at June 30, 2012.  Our residential origination mortgage pipeline has remained very robust mainly due to the continued success of our low fixed-price refinance programs and the current low level of market interest rates.  During the third quarter of 2012, we originated over $451 million in new and refinanced residential mortgage loans and only retained approximately 18 percent of these loans in our loan portfolio at September 30, 2012.  Loan servicing rights recognized for the retained servicing of the loans sold during the third quarter totaled $4.4 million at September 30, 2012.  We expect to continue an "originate and sell" model for a large portion of our mortgage loan originations during the fourth quarter and into 2013 assuming that market conditions do not adversely change.  During the early part of the fourth quarter of 2012, application volume continues to be very strong.  Our residential mortgage refinance activity in New York is beginning to take hold and we are optimistic that the refinance volume should remain strong at least into the foreseeable future.  Commercial and industrial loans decreased $46.8 million from June 30, 2012 mainly due to soft loan demand, full loan repayments from a few large borrowers, including loans which were internally criticized, as well as the continued impact of strong market competition for quality credits on our ability to achieve growth in this loan category. Home equity loans declined $7.4 million from June 30, 2012 as origination volumes continued to be outpaced by normal loan payments and prepayments. Commercial real estate loans (including construction loans) increased $28.6 million, or 2.4 percent on an annualized basis, from June 30, 2012 to $4.9 billion at September 30, 2012.  The quarter over quarter growth in this loan category is largely a product of improved single-family housing and apartment building construction loan demand within certain areas of our New Jersey market.  Automobile loans also increased by $11.1 million, or 5.7 percent on an annualized basis, to $789.2 million at September 30, 2012 as compared to June 30, 2012 due, in part, to $12.4 million in purchased loans during the third quarter.  From time to time, the Bank purchases automobile loans originated by, and sometimes serviced by, other financial institutions based on several factors, including current loan origination volumes, market interest rates, excess liquidity and other asset/liability management strategies.  All of the purchased automobile loans are selected using Valley's normal underwriting criteria at the time of purchase.

Covered Loans. PCI loans for which Valley National Bank will share losses with the FDIC are referred to as "covered loans," and consist of loans acquired from LibertyPointe Bank and The Park Avenue Bank as a part of FDIC-assisted transactions during 2010.  Our covered loans consist primarily of commercial real estate loans and commercial and industrial loans and totaled $207.5 million at September 30, 2012 as compared to $226.5 million at June 30, 2012.  Consistent with our PCI loans acquired and purchased during the first quarter of 2012, all of our covered loans are PCI loans accounted for on a pool basis.  For loan pools with better than originally expected cash flows, the forecasted increase in cash flows is recorded as a prospective adjustment to our interest income on loans over future periods.  Additionally, on a prospective basis, we reduce the FDIC loss-share receivable by the guaranteed portion of the additional cash flows expected to be received from borrowers on those loan pools.  During the third quarter of 2012, we reduced our FDIC loss-share receivable by $2.1 million due to the prospective recognition of the effect of additional cash flows from pooled loans with a corresponding reduction in non-interest income for the period, as compared to $2.2 million during the second quarter of 2012.  

Deposits. Total deposits increased $49.1 million to approximately $10.9 billion at September 30, 2012 from June 30, 2012 mostly due to higher time deposit balances.  Valley's time deposits totaling $2.7 billion at September 30, 2012 increased $73.6 million as compared to June 30, 2012 largely due to the success of retail promotional campaigns for short-term certificates of deposit, partially offset by the continued run-off of maturing higher cost certificates of deposit. Valley's non-interest bearing deposits totaling $3.2 billion at September 30, 2012 moderately declined by $25.4 million from June 30, 2012 partly due to the better short-term time deposit rates offered by Valley. Savings, NOW and money market accounts remained relatively unchanged at September 30, 2012 as compared to June 30, 2012.

Non-Interest Income

Non-interest income for the third quarter of 2012 increased $16.5 million from $24.0 million for the linked quarter ended June 30, 2012 largely due to a $21.9 million increase in net gains on sales of residential mortgage loans. The increase was primarily due to a higher level of loan originations for sale, resulting strong mortgage loan demand due to the current low level of interest rates, our success with low fixed-price refinance programs, and our shift to an "originate and sell" model during the third quarter of 2012.  See "Loans and Deposits" section above for more details. The reduction in non-interest income attributable to the change in the FDIC loss-share receivable was $390 thousand compared to $7.0 million for the second quarter of 2012. The smaller reduction in non-interest income was primarily due to the reversal of the FDIC loss-share receivable related to the expiration of unused lines of credit covered under loss-sharing agreements during the second quarter of 2012. Other non-interest income decreased $7.0 million from $11.3 million for the three months ended June 30, 2012 largely due to the reversal of $7.4 million in liabilities related to these same expired and unused lines of credit assumed in FDIC-assisted transactions during the second quarter of 2012. Partially offsetting these increases in non-interest income, net impairment losses on securities increased $4.1 million from $550 thousand in the second quarter of 2012 and net trading gains decreased $1.6 million to $6 thousand for the third quarter of 2012 compared to the second quarter of 2012.

Non-Interest Expense

Non-interest expense increased by $1.7 million from $91.5 million for the linked quarter ended June 30, 2012 mainly due to a $2.2 million increase in other non-interest expense caused, in part, by higher OREO expenses during the third quarter of 2012, as well as increases in several general expense categories.  The FDIC insurance assessment and net occupancy and equipment expenses also increased $707 thousand and $563 thousand, respectively, as compared to the linked quarter. Partially offsetting the increases to non-interest expense, salary and employee benefit expense decreased $1.9 million from $51.2 million for the second quarter of 2012 mainly due to lower payroll taxes and cash incentive compensation accruals.

Income Tax Expense

Income tax expense was $22.4 million and $13.7 million for the three months ended September 30, 2012 and 2011, respectively.  The effective tax rate increased by 8.3 percent to 36.2 percent for the third quarter of 2012 as compared to 27.9 percent for the third quarter of 2011 largely due to the significant increase in pre-tax income during the third quarter of 2012 and its impact on the projected income and tax rate for the full year of 2012.

Income tax expense was $52.0 million and $56.0 million for the nine months ended September 30, 2012 and 2011, respectively.  The effective tax rate decreased by 1.2 percent to 32.8 percent for the nine months ended September 30, 2012 as compared to 34.0 percent for the same period of 2011 mainly due to an $8.5 million incremental tax provision in 2011 related to a change in state tax law, partially offset by the aforementioned increase in pre-tax income during the third quarter of 2012.

For the fourth quarter of 2012, we anticipate that our effective tax rate will approximate 33 percent.      

About Valley

Valley National Bancorp is a regional bank holding company headquartered in Wayne, New Jersey with approximately $15.8 billion in assets. Its principal subsidiary, Valley National Bank, currently operates 210 branches in 147 communities serving 16 counties throughout northern and central New Jersey, Manhattan, Brooklyn, Queens and Long Island. Valley National Bank is one of the largest commercial banks headquartered in New Jersey and is committed to providing the most convenient service, the latest in product innovations and an experienced and knowledgeable staff with a high priority on friendly customer service 24 hours a day, 7 days a week. For more information about Valley National Bank and its products and services, please visit www.valleynationalbank.com or call Customer Service, 24/7 at 800-522-4100.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as "should," "expect," "believe," "view," "opportunity," "allow," "continues," "reflects," "typically," "usually," "anticipate," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

  • a severe decline in the general economic conditions of New Jersey and the New York Metropolitan area;
  • declines in value in our investment portfolio, including additional other-than-temporary impairment charges on our investment securities;
  • unanticipated deterioration in our loan portfolio;
  • an unanticipated reduction in our "originate and sell" residential mortgage strategy or a slowdown in residential mortgage loan refinance activity;
  • Valley's inability to pay dividends at current levels, or at all, because of inadequate future earnings, regulatory restrictions or limitations, and changes in the composition of qualifying regulatory capital and minimum capital requirements (including those resulting from the U.S. implementation of Basel III requirements);
  • higher than expected increases in our allowance for loan losses;
  • higher than expected increases in loan losses or in the level of nonperforming loans;
  • unexpected changes in interest rates;
  • higher than expected tax rates, including increases resulting from changes in tax laws, regulations and case law;
  • an unexpected decline in real estate values within our market areas;
  • charges against earnings related to the change in fair value of our junior subordinated debentures;
  • higher than expected FDIC insurance assessments;
  • the failure of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships;
  • lack of liquidity to fund our various cash obligations;
  • unanticipated reduction in our deposit base; 
  • potential acquisitions that may disrupt our business;
  • government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve;
  • legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model;
  • changes in accounting policies or accounting standards;
  • our inability to promptly adapt to technological changes;
  • our internal controls and procedures may not be adequate to prevent losses;
  • claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters;
  • the inability to realize expected cost savings and revenue synergies from the merger of State Bancorp with Valley in the amounts or in the timeframe anticipated;
  • inability to retain State Bancorp's customers and employees;
  • lower than expected cash flows from purchased credit impaired loans; and
  • other unexpected material adverse changes in our operations or earnings.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2011. 

We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 

 

VALLEY NATIONAL BANCORP


CONSOLIDATED FINANCIAL HIGHLIGHTS


SELECTED FINANCIAL DATA














Three Months Ended


Nine Months Ended





September 30,


June 30,


September 30,


September 30,


($ in thousands, except for share data)

2012


2012


2011


2012


2011


FINANCIAL DATA:











Net interest income

$ 121,822


$ 122,071


$ 121,935


$ 371,352


$ 356,497


Net interest income - FTE (4)

123,706


123,834


123,611


376,689


360,833


Non-interest income (2)

40,496


24,030


20,203


87,121


98,525


Non-interest expense

93,219


91,510


85,302


279,277


252,211


Income tax expense

22,402


14,366


13,696


52,046


56,004


Net income

39,447


32,820


35,357


106,798


108,836


Weighted average number of common shares outstanding: (5)











    Basic

197,437,988


197,246,322


178,507,769


197,205,865


178,333,952


    Diluted

197,437,988


197,250,168


178,508,382


197,206,303


178,338,310


Per common share data: (5)











    Basic earnings

$ 0.20


$ 0.17


$ 0.20


$ 0.54


$ 0.61


    Diluted earnings

0.20


0.17


0.20


0.54


0.61


    Cash dividends declared

0.16


0.16


0.16


0.49


0.49


Book value

7.67


7.62


7.32


7.67


7.32


Tangible book value (1)

5.39


5.35


5.42


5.39


5.42


Tangible common equity to tangible assets (1)

6.94

%

6.78

%

6.96

%

6.94

%

6.96

%

Closing stock price - high

$ 10.93


$ 12.44


$ 13.42


$ 12.59


$ 13.52


Closing stock price - low

9.17


10.28


9.42


9.17


9.42


CORE ADJUSTED FINANCIAL DATA: (1)











Net income, as adjusted

$ 42,171


$ 33,139


$ 35,357


$ 109,841


$ 109,353


Basic earnings per share, as adjusted

0.21


0.17


0.20


0.56


0.61


Diluted earnings per share, as adjusted

0.21


0.17


0.20


0.56


0.61


FINANCIAL RATIOS:









`


Net interest margin

3.41

%

3.47

%

3.80

%

3.51

%

3.71

%

Net interest margin - FTE (4)

3.46


3.52


3.86


3.56


3.76


Annualized return on average assets

0.99


0.83


0.99


0.90


1.02


Annualized return on average shareholders' equity

10.45


8.75


10.74


9.52


11.07


Annualized return on average tangible











    shareholders' equity (1)

14.86


12.49


14.52


13.60


14.99


Efficiency ratio (6)

57.43


62.63


60.01


60.91


55.43


CORE ADJUSTED FINANCIAL RATIOS: (1)











Annualized return on average assets, as adjusted

1.05

%

0.84

%

0.99

%

0.92

%

1.02

%

Annualized return on average shareholders'











    equity as adjusted

11.18


8.84


10.74


9.79


11.12


Annualized return on average tangible











    shareholders' equity, as adjusted

15.89


12.61


14.52


13.98


15.07


Efficiency ratio, as adjusted

55.81


62.40


60.01


60.23


55.33


AVERAGE BALANCE SHEET ITEMS:











Assets

$ 15,994,973


$ 15,791,048


$ 14,283,783


$ 15,833,646


$ 14,258,029


Interest earning assets

14,283,862


14,078,025


12,821,312


14,107,866


12,803,553


Loans

11,419,251


11,297,942


9,642,366


11,225,330


9,574,183


Interest bearing liabilities

11,213,688


11,018,929


10,295,144


11,091,621


10,331,193


Deposits

11,028,027


10,930,351


9,788,550


10,985,273


9,705,926


Shareholders' equity

1,509,403


1,499,516


1,316,733


1,495,734


1,310,750


 


As Of



September 30,


June 30,


December 31,


September 30,


($ in thousands)

2012


2012


2011


2011


BALANCE SHEET ITEMS:









Assets

$   15,771,134


$    16,018,244


$   14,244,507


$   14,231,155


Total loans

11,148,938


11,423,852


9,799,641


9,600,087


Non-covered loans

10,941,405


11,197,315


9,527,797


9,317,691


Deposits

10,920,800


10,871,679


9,673,102


9,620,339


Shareholders' equity

1,513,323


1,503,073


1,266,248


1,307,102











CAPITAL RATIOS:









Tier 1 leverage ratio

8.07

%

8.10

%

8.07

%

8.10

%

Risk-based capital - Tier 1

10.87


10.53


10.92


10.82


Risk-based capital - Total Capital

12.36


12.16


12.75


12.65











 




Three Months Ended


Nine Months Ended





September 30,


June 30,


September 30,


September 30,


($ in thousands)

2012


2012


2011


2012


2011


ALLOWANCE FOR CREDIT LOSSES:











Beginning balance - Allowance for credit losses

$        132,536


$         135,576


$        140,893


$        136,185


$        126,504


Loans charged-off: (3)












Commercial and industrial

(3,649)


(5,406)


(9,297)


(13,862)


(19,025)



Commercial real estate

(3,214)


(4,895)


(719)


(8,679)


(5,173)



Construction

(522)


(484)


(520)


(1,516)


(520)



Residential mortgage

(870)


(583)


(269)


(2,629)


(1,495)



Consumer

(1,111)


(1,015)


(1,251)


(3,609)


(4,364)




Total loans charged-off

(9,366)


(12,383)


(12,056)


(30,295)


(30,577)


Charged-off loans recovered:












Commercial and industrial

601


1,304


559


2,910


1,748



Commercial real estate

16


66


2


202


28



Construction

-


50


-


50


197



Residential mortgage

13


111


16


638


106



Consumer

547


407


504


1,555


1,724




Total loans recovered

1,177


1,938


1,081


5,355


3,803


Net charge-offs

(8,189)


(10,445)


(10,975)


(24,940)


(26,774)


Provision charged for credit losses

7,250


7,405


7,783


20,352


37,971


Ending balance - Allowance for credit losses

$        131,597


$         132,536


$        137,701


$        131,597


$        137,701


Components of allowance for credit losses:












Allowance for non-covered loans

$        119,755


$         118,083


$        122,775


$        119,755


$        122,775



Allowance for covered loans

9,492


11,771


12,587


9,492


12,587




Allowance for loan losses

129,247


129,854


135,362


129,247


135,362



Allowance for unfunded letters of credit

2,350


2,682


2,339


2,350


2,339


Allowance for credit losses

$        131,597


$         132,536


$        137,701


$        131,597


$        137,701


Components of provision for credit losses:












Provision for losses on non-covered loans

$            7,582


$             7,429


$            7,711


$          20,385


$          19,338



Provision for losses on covered loans

-


-


-


-


18,094



Provision for unfunded letters of credit

(332)


(24)


72


(33)


539


Provision for credit losses

$            7,250


$             7,405


$            7,783


$          20,352


$          37,971


Annualized ratio of net charge-offs of












non-covered loans to average loans

0.21

%

0.31

%

0.20

%

0.25

%

0.21

%

Annualized ratio of total net charge-offs












to average loans

0.29


0.37


0.46


0.30


0.37


Allowance for non-covered loan losses as












a % of non-covered loans

1.09


1.05


1.32


1.09


1.32


Allowance for credit losses as












a % of total loans

1.18


1.16


1.43


1.18


1.43















 




As Of


($ in thousands)


September 30,


June 30,


December 31,


September 30,


ASSET QUALITY: (7)


2012


2012


2011


2011


Accruing past due loans:










30 to 89 days past due:











Commercial and industrial


$           17,459


$     2,275


$            4,347


$             9,866



Commercial real estate


6,236


11,483


13,115


22,220



Construction


-


270


2,652


-



Residential mortgage


16,961


10,148


8,496


12,556



Consumer


6,463


5,872


8,975


9,456


Total 30 to 89 days past due


47,119


30,048


37,585


54,098


90 or more days past due:











Commercial and industrial


-


512


657


164



Commercial real estate


221


-


422


268



Construction


1,024


-


1,823


2,216



Residential mortgage


1,051


727


763


721



Consumer


197


246


351


483


Total 90 or more days past due


2,493


1,485


4,016


3,852


Total accruing past due loans


$           49,612


$   31,533


$          41,601


$           57,950


Non-accrual loans:











Commercial and industrial


$           12,296


$   12,652


$          26,648


$           16,737



Commercial real estate


58,541


61,864


42,186


41,453



Construction


15,139


16,502


19,874


14,449



Residential mortgage


31,564


32,045


31,646


31,401



Consumer


3,831


3,165


3,910


3,645


Total non-accrual loans


121,371


126,228


124,264


107,685


Other real estate owned (8)


15,403


14,724


15,227


14,091


Other repossessed assets


7,733


8,548


796


822


Non-accrual debt securities (9)


40,779


45,921


27,151


-


Total non-performing assets ("NPAs")


$         185,286


$ 195,421


$        167,438


$         122,598


Performing troubled debt restructured loans


$         109,282


$ 113,610


$        100,992


$         103,690


Total non-accrual loans as a % of loans


1.09

%

1.10

%

1.27

%

1.12

%

Total accruing past due and non-accrual loans










as a % of loans

1.53


1.38


1.69


1.73


Allowance for losses on non-covered loans as a % of











non-accrual loans


98.67


93.55


96.79


114.01


Non-performing purchased credit-impaired loans: (10)











Non-covered loans


$           19,124


$   19,827


$                    -


$                     -



Covered loans


59,526


66,571


76,701


83,676













 

NOTES TO SELECTED FINANCIAL DATA

(1)

This press release contains certain supplemental financial information, described in Notes (1) - (4), which has been determined by methods other than U.S. Generally Accepted Accounting Principles ("GAAP") that management uses in its analysis of Valley's performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding Valley's financial results. Specifically, Valley provides measures based on what it believes are its operating earnings on a consistent basis and excludes non-core operating items which affect the GAAP reporting of results of operations. Management utilizes these measures for internal planning and forecasting purposes. Management believes that Valley's presentation and discussion, together with the accompanying reconciliations, provides a complete understanding of factors and trends affecting Valley's business and allows investors to view performance in a manner similar to management. These non-GAAP measures should not be considered Valley's business and allows investors to view performance in a manner similar to management. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results and Valley strongly encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.







Three Months Ended


Nine Months Ended





September 30,


June 30,


September 30,


September 30,



($ in thousands, except for share data)

2012


2012


2011


2012


2011



Tangible book value per common share:












Common shares outstanding

197,429,718


197,259,926


178,526,632


197,429,718


178,526,632



Shareholders' equity 

$        1,513,323


$     1,503,073


$    1,307,102


$     1,513,323


$     1,307,102



Less: Goodwill and other intangible assets

(449,315)


(447,260)


(339,850)


(449,315)


(339,850)



Tangible shareholders' equity

$        1,064,008


$     1,055,813


$       967,252


$     1,064,008


$        967,252



    Tangible book value

$5.39


$5.35


$5.42


$5.39


$5.42



Tangible common equity to tangible assets:












Tangible shareholders' equity

$        1,064,008


$     1,055,813


$       967,252


$     1,064,008


$        967,252



Total assets

15,771,134


16,018,244


14,231,155


15,771,134


14,231,155



Less: Goodwill and other intangible assets

(449,315)


(447,260)


(339,850)


(449,315)


(339,850)



Tangible assets

$      15,321,819


$   15,570,984


$  13,891,305


$   15,321,819


$   13,891,305




Tangible common equity to tangible assets

6.94%


6.78%


6.96%


6.94%


6.96%



Annualized return on average tangible equity:












Net income 

$             39,447


$          32,820


$         35,357


$        106,798


$        108,836



Average shareholders' equity

1,509,403


1,499,516


1,316,733


1,495,734


1,310,750



Less: Average goodwill and other intangible assets

(447,622)


(448,451)


(342,506)


(448,449)


(342,996)




Average tangible shareholders' equity

$        1,061,781


$     1,051,065


$       974,227


$     1,047,285


$        967,754




Annualized return on average tangible  shareholders' equity

14.86%


12.49%


14.52%


13.60%


14.99%



Adjusted net income available to common stockholders:












Net income, as reported

$             39,447


$          32,820


$         35,357


$        106,798


$        108,836



Net impairment losses on securities recognized in earnings (net of tax)

2,724


319


-


3,043


517



Net income, as adjusted

42,171


33,139


35,357


109,841


109,353



Adjusted per common share data:












Net income, as adjusted

$             42,171


$          33,139


$         35,357


$        109,841


$        109,353



Average number of basic shares outstanding

197,437,988


197,246,322


178,507,769


197,205,865


178,333,952




Basic earnings, as adjusted

$                 0.21


$              0.17


$             0.20


$              0.56


$              0.61



Average number of diluted shares outstanding

197,437,988


197,250,168


178,508,382


197,206,303


178,338,310




Diluted earnings, as adjusted

$                 0.21


$              0.17


$             0.20


$              0.56


$              0.61



Adjusted annualized return on average assets:












Net income, as adjusted

$             42,171


$          33,139


$         35,357


$        109,841


$        109,353



Average assets

15,994,973


15,791,048


14,283,783


15,833,646


14,258,029




Annualized return on average assets, as adjusted

1.05%


0.84%


0.99%


0.92%


1.02%



Adjusted annualized return on average shareholders' equity:












Net income, as adjusted

$             42,171


$          33,139


$         35,357


$        109,841


$        109,353



Average shareholders' equity

1,509,403


1,499,516


1,316,733


1,495,734


1,310,750




Annualized return on average shareholders'  equity, as adjusted

11.18%


8.84%


10.74%


9.79%


11.12%



Adjusted annualized return on average tangible shareholders' equity:












Net income, as adjusted

$             42,171


$          33,139


$         35,357


$        109,841


$        109,353



Average tangible shareholders' equity

1,061,781


1,051,065


974,227


1,047,285


967,754




Annualized return on average tangible shareholders'  equity, as adjusted

15.89%


12.61%


14.52%


13.98%


15.07%



Adjusted efficiency ratio:












Non-interest expense

$             93,219


$          91,510


$         85,302


$        279,277


$        252,211



Net interest income

121,822


122,071


121,935


371,352


356,497



Non-interest income

40,496


24,030


20,203


87,121


98,525



Add: Net impairment losses on securities recognized in earnings

4,697


550


-


5,247


825




Gross operating income, as adjusted

$           167,015


$        146,651


$       142,138


$        463,720


$        455,847




Efficiency ratio, as adjusted

55.81%


62.40%


60.01%


60.23%


55.33%















(2)

Non-interest income includes net trading gains (losses):













Trading securities

$                    65


$              (151)


$              136


$               166


$               523




Junior subordinated debentures

(59)


1,760


640


461


2,587




   Total trading gains (losses), net

$                      6


$            1,609


$              776


$               627


$            3,110















(3)

Total loans charged-off includes the following covered loan charge-offs:












Commercial and industrial

$             (2,278)


$           (1,273)


$         (6,131)


$           (3,551)


$         (11,736)



Commercial real estate

-


-


-


-


(38)



Construction

-


(484)


-


(484)


-



Residential mortgage

-


-


-


-


(110)




   Total covered loans charged-off

$             (2,278)


$           (1,757)


$         (6,131)


$           (4,035)


$         (11,884)















(4)

Net interest income and net interest margin are presented on a tax equivalent basis using a 35 percent federal tax rate.  Valley believes that this




presentation provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent





with industry practice and SEC rules.











(5)

Share data reflects the five percent common stock dividend issued on May 25, 2012.





(6)

The efficiency ratio measures Valley's total non-interest expense as a percentage of net interest income plus total non-interest income.





(7)

Past due loans and non-accrual loans exclude loans that were acquired as part of FDIC-assisted transactions (covered loans) and acquired or purchased loans during 2012. These loans are accounted for on a pool basis under U.S. GAAP and are not subject to 






delinquency classification in the same manner as loans originated by Valley.





(8)

Excludes OREO properties related to FDIC-assisted transactions totaling $11.2 million at September 30, 2012 and June 30, 2012, and $6.4 million and $6.2 million at December 31, 2011 and September 30, 2011, respectively.  These assets are covered by the loss-sharing agreements with the FDIC. 





(9)

Includes other-than-temporarily impaired trust preferred securities classified as available for sale, which are presented at carrying value (net of

unrealized losses totaling $6.4 million, $5.8 million, and $24.6 million) at September 30, 2012, June 30, 2012, and December 31, 2011, respectively, after recognition of all credit impairments. 










(10)

Represent acquired and purchased loans meeting Valley's definition of non-performing loan (i.e., non-accrual loans), but are not subject to such classification under U.S. GAAP because the loans are accounted for on a pooled basis and are excluded from the non-accrual loans in the table above.





SHAREHOLDER RELATIONS





Requests for copies of reports and/or other inquiries should be directed to Dianne Grenz, Director of Shareholder and Public Relations, Valley National Bancorp,




1455 Valley Road, Wayne, New Jersey, 07470, by telephone at (973) 305-3380, by fax at (973) 696-2044 or by e-mail at dgrenz@valleynationalbank.com.

















 

VALLEY NATIONAL BANCORP





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)





(in thousands, except for share data)








September 30,


December 31,






2012


2011

Assets





Cash and due from banks


$        412,895


$        372,566

Interest bearing deposits with banks


192,364


6,483

Investment securities:






Held to maturity, fair value of $1,689,413 at September 30, 2012 and $2,027,197 at December 31, 2011


1,624,575


1,958,916


Available for sale


673,911


566,520


Trading securities


22,104


21,938




Total investment securities


2,320,590


2,547,374

Loans held for sale, at fair value


149,067


25,169

Non-covered loans


10,941,405


9,527,797

Covered loans


207,533


271,844


Less: Allowance for loan losses


(129,247)


(133,802)




Net loans


11,019,691


9,665,839

Premises and equipment, net


276,071


265,475

Bank owned life insurance


338,286


303,867

Accrued interest receivable


55,548


52,527

Due from customers on acceptances outstanding


4,474


5,903

FDIC loss-share receivable


51,938


74,390

Goodwill


420,443


317,962

Other intangible assets, net


28,872


20,818

Other assets


500,895


586,134




Total Assets


$   15,771,134


$   14,244,507









Liabilities 





Deposits:






Non-interest bearing


$     3,206,283


$     2,781,597


Interest bearing:







Savings, NOW and money market


4,992,748


4,390,121



Time


2,721,769


2,501,384




Total deposits


10,920,800


9,673,102

Short-term borrowings


288,865


212,849

Long-term borrowings 


2,698,403


2,726,099

Junior subordinated debentures issued to capital trusts (includes fair value of $149,708






at September 30, 2012 and $160,478 at December 31, 2011 for VNB Capital Trust I)


190,594


185,598

Bank acceptances outstanding


4,474


5,903

Accrued expenses and other liabilities


154,675


174,708




Total Liabilities


14,257,811


12,978,259

Shareholders' Equity*





Preferred stock, no par value, authorized 30,000,000 shares; none issued 


-


-

Common stock, no par value, authorized 232,023,233 shares; issued 197,446,137 shares 






  at September 30, 2012 and 178,717,806 shares at December 31, 2011


69,402


59,955

Surplus


1,387,895


1,179,135

Retained earnings


100,253


90,011

Accumulated other comprehensive loss


(44,063)


(62,441)

Treasury stock, at cost (16,419 common shares at September 30, 2012 and 34,776






common shares at December 31, 2011)


(164)


(412)




Total Shareholders' Equity


1,513,323


1,266,248




Total Liabilities and Shareholders' Equity


$   15,771,134


$   14,244,507

____________





 Share data reflects the five percent common stock dividend issued on May 25, 2012.




 

VALLEY NATIONAL BANCORP








CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


Three Months Ended


Nine Months Ended

(in thousands, except for share data)


September 30,

June 30,

September 30,


September 30,






2012

2012

2011


2012

2011

Interest Income








Interest and fees on loans


$           146,011

$           143,812

$           140,303


$           438,283

$           409,010

Interest and dividends on investment securities:








     Taxable



15,733

18,114

26,552


54,598

84,734

     Tax-exempt



3,424

3,227

3,109


9,770

8,043

     Dividends



1,866

1,674

1,565


5,291

5,212

Interest on federal funds sold and other short-term investments


196

31

110


282

253

     Total interest income



167,230

166,858

171,639


508,224

507,252

Interest Expense








Interest on deposits:








     Savings, NOW and money market



5,051

4,690

4,961


15,095

14,722

     Time



9,226

9,276

12,424


28,687

37,206

Interest on short-term borrowings


556

369

293


1,178

910

Interest on long-term borrowings and junior subordinated debentures


30,575

30,452

32,026


91,912

97,917

     Total interest expense



45,408

44,787

49,704


136,872

150,755

Net Interest Income


121,822

122,071

121,935


371,352

356,497

Provision for losses on non-covered loans and unfunded letters of credit


7,250

7,405

7,783


20,352

19,877

Provision for losses on covered loans


-

-

-


-

18,094

Net Interest Income After Provision for Credit Losses


114,572

114,666

114,152


351,000

318,526

Non-Interest Income








Trust and investment services


1,947

1,984

1,769


5,705

5,744

Insurance commissions


3,228

3,283

3,416


11,947

11,496

Service charges on deposit accounts


6,513

6,086

5,616


18,545

16,908

Gains on securities transactions, net


1,496

1,204

863


2,543

20,034

Other-than-temporary impairment losses on securities


-

-

-


-

-

     Portion recognized in other comprehensive income (before taxes)


(4,697)

(550)

-


(5,247)

(825)

     Net impairment losses on securities recognized in earnings


(4,697)

(550)

-


(5,247)

(825)

Trading gains, net


6

1,609

776


627

3,110

Fees from loan servicing


1,173

1,149

989


3,481

3,356

Gains on sales of loans, net


25,055

3,141

2,890


31,362

8,060

Gains on sales of assets, net


195

256

179


483

382

Bank owned life insurance


1,674

1,632

1,989


5,265

5,575

Change in FDIC loss-share receivable


(390)

(7,022)

(1,577)


(7,502)

11,989

Other


4,296

11,258

3,293


19,912

12,696

     Total non-interest income



40,496

24,030

20,203


87,121

98,525

Non-Interest Expense








Salary and employee benefits expense


49,267

51,214

45,125


151,507

133,359

Net occupancy and equipment expense


17,466

16,903

15,656


51,731

48,309

FDIC insurance assessment


3,915

3,208

2,993


10,742

9,624

Amortization of other intangible assets


2,696

2,532

3,351


7,186

7,109

Professional and legal fees


3,471

3,345

3,666


10,440

10,459

Advertising


1,723

1,841

2,185


5,252

6,370

Other


14,681

12,467

12,326


42,419

36,981

    Total non-interest expense



93,219

91,510

85,302


279,277

252,211

Income Before Income Taxes


61,849

47,186

49,053


158,844

164,840

Income tax expense 


22,402

14,366

13,696


52,046

56,004

Net Income


$             39,447

$             32,820

$             35,357


$           106,798

$           108,836

Earnings Per Common Share*:








     Basic



$                 0.20

$                 0.17

$                 0.20


$                 0.54

$                 0.61

     Diluted



0.20

0.17

0.20


0.54

0.61

Cash Dividends Declared per Common Share*


0.16

0.16

0.16


0.49

0.49

Weighted Average Number of Common Shares Outstanding*:








     Basic



197,437,988

197,246,322

178,507,769


197,205,865

178,333,952

     Diluted



197,437,988

197,250,168

178,508,382


197,206,303

178,338,310

____________








Share data reflects the five percent common stock dividend issued on May 25, 2012.





 

VALLEY NATIONAL BANCORP

LOAN PORTFOLIO

(in thousands)



9/30/2012


6/30/2012


3/31/2012


12/31/2011


09/30/2011

Non-covered Loans










Commercial and industrial

$   2,118,870


$   2,165,656


$   2,170,378


$   1,878,387


$   1,833,211

Commercial real estate:











Commercial real estate

4,445,338


4,441,026


4,347,542


3,574,089


3,524,891


Construction

435,939


411,639


430,906


411,003


401,166

 Total commercial real estate 

4,881,277


4,852,665


4,778,448


3,985,092


3,926,057

Residential mortgage

2,499,554


2,745,101


2,531,166


2,285,590


2,172,601

Consumer:











Home equity

492,338


499,749


507,560


469,604


477,517


Automobile

789,248


778,181


764,082


772,490


785,443


Other consumer

160,118


155,963


145,703


136,634


122,862

 Total consumer loans 

1,441,704


1,433,893


1,417,345


1,378,728


1,385,822

Total non-covered loans

$ 10,941,405


$ 11,197,315


$ 10,897,337


$   9,527,797


$   9,317,691

Covered loans*

207,533


226,537


252,185


271,844


282,396

Total loans

$ 11,148,938


$ 11,423,852


$ 11,149,522


$   9,799,641


$   9,600,087

____________










*

Loans that Valley National Bank will share losses with the FDIC are referred to as "covered loans".

 



Quarterly Analysis of Average Assets, Liabilities and Shareholders' Equity and



Net Interest Income on a Tax Equivalent Basis



Quarter End - 09/30/2012


Quarter End - 6/30/2012


Quarter End - 3/31/2012


Quarter End - 12/31/2011


Quarter End - 09/30/2011



 Average 




Avg.


 Average 




Avg.


 Average 




Avg.


 Average 




Avg.


 Average 




Avg.

($ in thousands)

 Balance 


 Interest 


Rate


 Balance 


 Interest 


Rate


 Balance 


 Interest 


Rate


 Balance 


 Interest 


Rate


 Balance 


 Interest 


Rate

Assets






























Interest earning assets






























Loans (1)(2)

$    11,419,251


$ 146,051


5.12%


$    11,297,942


$ 143,837


5.09%


$    10,956,666


$ 148,470


5.42%


$      9,710,251


$ 138,356


5.70%


$      9,642,366


$ 140,305


5.82%

Taxable investments (3)

2,016,878


17,599


3.49%


2,263,054


19,788


3.50%


2,469,057


22,502


3.65%


2,406,927


24,838


4.13%


2,537,173


28,117


4.43%

Tax-exempt investments (1)(3)

505,010


5,268


4.17%


464,681


4,965


4.27%


439,927


4,799


4.36%


477,841


4,970


4.16%


464,873


4,783


4.12%

Federal funds sold and other































interest bearing deposits

342,723


196


0.23%


52,348


31


0.24%


94,127


55


0.23%


250,912


149


0.24%


176,900


110


0.25%

Total interest earning assets