WAYNE, N.J., April 26, 2011 /PRNewswire/ -- Valley National Bancorp (NYSE: VLY), the holding company for Valley National Bank, today reported net income for the first quarter of 2011 of $36.6 million, or $0.22 per diluted common share, as compared to the first quarter of 2010 earnings of $27.4 million, or $0.16 per diluted common share.  See the “Performance Highlights” section below for more details.

All common share data presented in this press release, including the earnings per diluted common share data above, was adjusted for a five percent stock dividend declared April 13, 2011, payable May 20, 2011 to shareholders of record on May 6, 2011.

Gerald H. Lipkin, Chairman, President and CEO commented that, “We recorded solid first quarter earnings and an increase in our net interest margin despite the prolonged low level of interest rates. Earnings continued to reflect our solid credit metrics which also improved during the period. Our very successful one price mortgage refinancing program and an increase in commercial borrower loan demand contributed to loan growth of almost eight percent on an annualized basis during the quarter.”  

Performance Highlights

• Loan Growth: Total loans increased by $180.4 million, or 7.7 percent on an annualized basis, to $9.5 billion at March 31, 2011 from December 31, 2010.  Our residential mortgage portfolio grew by over $122 million during the first quarter of 2011 as we originated over $320 million in new and refinanced residential mortgage loans during the period and held over 70 percent of these loans in our loan portfolio at March 31, 2011.  Our residential volumes continued to be strong during the quarter due to the low level of interest rates and our successful one price refinancing program with total closing costs as low as $499 including title insurance fees. During the quarter, we also experienced stronger loan demand from new and existing commercial borrowers.  As a result, commercial real estate and commercial loans increased by 9.4 percent and 7.6 percent, respectively, on an annualized basis at March 31, 2011 as compared to December 31, 2010.    

• Net Interest Income and Margin: Net interest income increased $3.8 million to $116.9 million for the quarter ended March 31, 2011 as compared to $113.1 million for the quarter ended December 31, 2010.  On a tax equivalent basis, our net interest margin increased to 3.71 percent in the first quarter of 2011 versus 3.63 percent in the fourth quarter of 2010 and 3.65 percent in the first quarter of 2010. See the “Net Interest Income and Margin” section below for more details.

• Asset Quality: Total loans past due 30 days or more were 1.70 percent of the loan portfolio at March 31, 2011 compared to 1.77 percent at December 31, 2010.  Total non-accrual loans declined $3.8 million from December 31, 2010 to $101.3 million, or 1.06 percent of our entire loan portfolio of $9.5 billion, at March 31, 2011. Total non-performing assets as a percentage of loans and non-performing assets was 1.17 percent at March 31, 2011, a decline of 0.07 percent from December 31, 2010. The residential mortgage and home equity loan portfolios totaling nearly 22,000 individual loans had only 249 loans past due 30 days or more at March 31, 2011.  At March 31, 2011, residential mortgage and home equity loans delinquent 30 days or more totaled $45.5 million, or 1.79 percent of $2.5 billion in total loans within these categories. 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 (i.e., loans which are not subject to our loss-sharing agreements with the FDIC) and unfunded letters of credit declined to $5.3 million for the first quarter of 2011 as compared to $8.7 million for the fourth quarter of 2010 and $12.6 million for the first quarter of 2010. Net loan charge-offs on non-covered loans also declined to $3.8 million for the three months ended March 31, 2011 compared to $4.3 million for the fourth quarter of 2010 and $11.0 million for the first quarter of 2010. At March 31, 2011, our allowance for losses on non-covered loans and unfunded letters of credit was 1.32 percent of non-covered loans as compared to 1.33 percent at December 31, 2010 and 1.15 percent at March 31, 2010.

• Provision for Losses on Covered Loans:  We recorded an $18.9 million provision for losses on covered loans (i.e., loans subject to our loss-sharing agreements with the FDIC) during the first quarter of 2011 as compared to $6.4 million in the fourth quarter of 2010 due to additional declines in the expected cash flows caused by credit impairment within certain pools of covered loans acquired in March 2010.  The $18.9 million provision was largely offset by the FDIC sharing in these additional covered loan losses which mainly resulted in non-interest income of $16.2 million and a corresponding increase in our FDIC loss-share receivable during the first quarter of 2011.  Our allowance for losses on covered loans totaled $20.1 million at March 31, 2011 and was reduced by loan charge-offs totaling $5.1 million during the first quarter of 2011.      

• Investments: We recognized $2.7 million in net gains on securities transactions during the first quarter of 2011 primarily due to the sale of $239.0 million in residential mortgage-backed securities issued by government agencies that were classified as available for sale. Credit impairment charges totaling $825 thousand were recognized in earnings during the first quarter of 2011 due to additional estimated credit losses on one previously impaired pooled trust preferred security classified as available for sale.  After all credit impairment charges, the security had an adjusted amortized cost of $2.6 million and a fair value of $1.2 million at March 31, 2011.  

• Trading Mark to Market Impact on Earnings: Net income for the first quarter of 2011 included net trading gains totaling $3.4 million ($0.01 per common share).  These trading gains consisted of $2.9 million and $493 thousand in non-cash mark to market gains on our junior subordinated (“trust preferred”) debentures carried at fair value and the fair value of our trading securities portfolio, respectively. Conversely, the first quarter of 2010 included net trading losses of $3.0 million ($0.01 per common share) mainly due to a change in market value of the trust preferred debentures.

Net Interest Income and Margin

Net interest income on a tax equivalent basis was $118.2 million for the first quarter of 2011, a $3.8 million increase from the fourth quarter of 2010 and an increase of $2.0 million from the first quarter of 2010. The linked quarter increase was mainly driven by higher average balances of taxable investment securities due to additional purchases of over $440 million in mortgage-backed securities issued by Ginnie Mae during the first quarter, as well as the maturity of $116 million in long-term FHLB borrowings with a weighted average interest rate of 4.91 percent during January and March 2011.  The funding from the FHLB borrowings was mostly replaced with lower cost deposits, consisting of 3 to 5 year-term brokered certificates of deposit.

The net interest margin on a tax equivalent basis was 3.71 percent for the first quarter of 2011, an increase of 8 basis points from 3.63 percent for the linked fourth quarter of 2010, and an increase of 6 basis points from 3.65 percent for the quarter ended March 31, 2010. The yield on average interest earning assets increased by three basis points on a linked quarter basis mainly as a result of slightly higher yields on average loans and tax-exempt investment securities. However, the yield on our taxable investments declined four basis points from the linked fourth quarter of 2010 as principal paydowns and funds obtained through brokered deposit sources were invested in lower yielding securities during the period. The cost of average interest bearing liabilities declined six basis points from the fourth quarter of 2010 mainly due to a five basis point decrease in the cost of average long-term borrowings due to the maturity of higher cost FHLB borrowings and a four basis point decline in the cost of average time deposits caused by the continued run-off of higher cost deposits.  Our cost of total deposits was 0.71 percent for the first quarter of 2011 compared to 0.72 percent for the three months ended December 31, 2010.  

Credit Quality

Total loan delinquencies as a percentage of total loans were 1.70 percent at March 31, 2011 as compared to 1.77 percent at December 31, 2010 and 1.68 percent at March 31, 2010.  With a loan portfolio totaling approximately $9.5 billion, net loan charge-offs on non-covered loans for the first quarter of 2011 declined to $3.8 million compared to $4.3 million for the fourth quarter of 2010, and $11.0 million for the first quarter of 2010.  Charge-offs on loans in impaired covered loan pools totaled $5.1 million for the first quarter of 2011 and 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 March 31, 2011, December 31, 2010 and March 31, 2010:

Total non-performing assets (“NPAs”), consisting of non-accrual loans, other real estate owned (OREO) and other repossessed assets, totaled $113.2 million, or 1.17 percent of loans and NPAs at March 31, 2011 compared to $117.3 million, or 1.24 percent of loans and NPAs at December 31, 2010. The $4.1 million decrease in non-performing assets was mainly due to a $5.9 million decline in non-accrual construction loans.  The decline was mostly due to one $2.9 million loan relationship which is now performing, and another $3.2 million loan relationship that paid off during the first quarter of 2011.

Non-accrual loans decreased to $101.3 million at March 31, 2011 as compared to $105.1 million at December 31, 2010 mainly due to the aforementioned decline in non-accrual construction loans.  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 $152.0 million at March 31, 2011 and had $15.7 million in related specific reserves included in our total allowance for loan losses. OREO and other repossessed assets, excluding OREO subject to loss-sharing agreements with the FDIC, totaled a combined $11.9 million at March 31, 2011 as compared to $12.2 million at December 31, 2010.  

Loans past due 90 days or more and still accruing decreased to $1.8 million, or 0.02 percent of total loans at March 31, 2011 compared to $2.5 million, or 0.03 percent at December 31, 2010 primarily due to moderate declines in construction, residential mortgage, and consumer loans within this delinquency category.  

Performing troubled debt restructured loans (“restructured loans”) with modified terms and not reported as loans 90 days or more past due and still accruing or as non-accrual loans, are performing restructured loans to customers experiencing financial difficulties where a concession has been granted.  Our performing restructured loan balances totaled $91.7 million at March 31, 2011 and consisted of 43 loans (primarily in the commercial and industrial loan and commercial real estate portfolios) as compared to 44 loans totaling $89.7 million at December 31, 2010.  On an aggregate basis, the $91.7 million in performing restructured loans at March 31, 2011 had a weighted average modified interest rate of approximately 5.17 percent as compared to a yield of 5.65 percent on the entire loan portfolio for the first quarter of 2011.

Loans and Deposits

Overall, total loans increased $180.4 million, or 7.7 percent on an annualized basis to approximately $9.5 billion at March 31, 2011 as compared to December 31, 2010.  See discussion below for a complete analysis of the change in mix between each loan category.

Non-Covered Loans. Non-covered loans are loans not subject to loss-sharing agreements with the FDIC.  Non-covered loans increased $200.5 million, or 8.9 percent on an annualized basis, to approximately $9.2 billion at March 31, 2011 from December 31, 2010.  The linked quarter increase was mainly comprised of increases in residential mortgage, commercial real estate, and commercial loans of $122.5 million, $79.5 million, and $34.6 million, respectively, partially offset by decreases of $23.3 million and $20.4 million in automobile and home equity loans, respectively.  Residential mortgage loans increased due to the success of our $499 refinance program, including our television and radio ad campaigns during the first quarter, and the current low level of market interest rates. Our decision to retain mortgage originations is based on the composition of our interest earning assets and interest bearing liabilities and our ability to manage the interest rate risk associated with certain levels of these instruments. Commercial real estate loans increased during the quarter partly due to our increased emphasis on co-op and multifamily loan lending in our markets.  We also experienced a somewhat stronger demand from new and existing commercial customers during the first quarter of 2011. Automobile loan balances have continued to decline due to several factors, including our high credit standards, acceptable loan to collateral value levels, and high unemployment levels.  Additionally, in an attempt to build market share, some large competitors have continued to offer rates and terms that are less than Valley’s profitability thresholds.  These factors may continue to constrain the levels of our auto loan originations for the remainder of 2011.  Home equity loans also continued to decline during the quarter, in part, due to customer paydowns made in conjunction with first mortgage refinance activity.

Covered Loans. 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 the first quarter of 2010.  Our covered loans consist primarily of commercial real estate loans and commercial and industrial loans and totaled $336.6 million at March 31, 2011 as compared to $356.7 million at December 31, 2010.  These loans are accounted for on a pool basis.  During the first quarter of 2011, we recognized $18.9 million of credit impairment through a provision to our allowance for losses on covered loans that was attributable to worse than expected cash flows on certain of the acquired loan pools compared to cash flows that were expected at the acquisition dates.  In conjunction with the credit impairment, Valley recorded $17.7 million of non-interest income as the FDIC loss-share receivable was increased to reflect the FDIC’s share of the potential credit impairment losses.  Although we recognized credit impairment during the quarter on certain of the acquired loan pools, on an aggregate basis the acquired pools of covered loans are performing better than originally expected, and based on our current estimates, we expect to receive more future aggregate cash flows than originally modeled at the acquisition dates.  For those pools with better than expected cash flows, the forecasted increase is recorded as a prospective adjustment to our interest income on loans over future periods.  Additionally, as the future projected cash flows materialize, we will reduce the FDIC loss-share receivable by the guaranteed portion of the amount received.  During the first quarter of 2011, we reduced our FDIC loss-share receivable by $2.4 million due to the receipt of these additional cash flows from pooled loans with a corresponding reduction in non-interest income for the period.  

Deposits.  Total deposits increased $358.8 million to approximately $9.7 billion at March 31, 2011 from December 31, 2010.  Savings, NOW and money market deposits increased $285.1 million to $4.4 billion at March 31, 2011 as compared to December 31, 2010 largely due to $220.0 million in brokered money market funds with variable interest rates based on the U.S. dollar one month LIBOR rate plus five basis points (approximately 0.31 percent during the first quarter of 2011) used by management to partially fund investment security purchases during the first quarter of 2011.  Management will likely repay this funding source from normal principal paydowns and interest from its investment securities portfolio during the remainder of 2011 based on the level of interest rates and other funding sources available for its asset/liability management strategies. Time deposits increased $59.4 million during the first quarter mainly due to new three and five-year term brokered certificates of deposit totaling $102.3 million, partially offset by the maturity of higher cost retail time deposits.  The brokered deposits were primarily purchased to replace the funding from higher cost, long-term FHLB borrowings that matured during the first quarter of 2011.  Non-interest bearing deposits also increased $14.2 million as compared to December 31, 2010 mainly due to general increases in both commercial and retail deposits.  

Non-Interest Income

First quarter of 2011 compared with first quarter of 2010

Non-interest income for the first quarter of 2011 increased $29.1 million to $44.8 million as compared to $15.7 million for the same period of 2010. The change in the FDIC loss-share receivable, principally due to additional estimated credit losses on covered loan pools, resulted in an increase of $16.2 million in non-interest income as compared to first quarter of 2010.  Net trading gains increased $6.4 million to $3.4 million for the first quarter of 2011 as compared to a net trading loss of $3.0 million for the first quarter of 2010 mainly due to non-cash mark to market gains on our trust preferred debentures carried at fair value.  Net gains on securities transactions increased $1.8 million to $2.7 million for the three months ended March 31, 2011 mainly due to gains on the sale of residential mortgage-backed securities classified as available for sale in the 2011 period.  Insurance commissions increased $1.2 million as compared to the 2010 period mainly due to additional commissions generated from our insurance subsidiary’s agency asset acquisition during December 2010.  Additionally, net impairment losses on securities declined $1.8 million as compared to the same period in 2010.  

First quarter of 2011 compared with fourth quarter of 2010

Non-interest income for the first quarter of 2011 increased $8.9 million from $35.8 million for the quarter ended December 31, 2010.  Non-interest income recognized due to the change in the FDIC loss-share receivable increased by $10.0 million from approximately $6.3 million in the fourth quarter of 2010 mainly due to additional estimated credit losses on covered loan pools. Net trading gains increased $5.5 million from a net trading loss of $2.1 million for the fourth quarter of 2010 mainly due to non-cash mark to market gains in the 2011 period on our trust preferred debentures carried at fair value.  Insurance commissions increased $1.5 million as compared to the 2010 period primarily due to the December 2010 asset acquisition by our insurance subsidiary, as well as quarterly bonus commissions received from insurance carriers in the first quarter.  However, net gains on securities transactions decreased $4.3 million from $7.0 million during the fourth quarter of 2010. The fourth quarter gains primarily resulted from the sale of $46 million in certain residential mortgage-backed securities, as well as gains realized on $15 million in trust preferred securities that were called for early redemption.  Net gains on sales of loans also decreased $3.9 million as compared to the fourth quarter of 2010 mainly due to lower sales volumes during the 2011 period as we held most of our new residential mortgage loan originations for investment.

Non-Interest Expense

First quarter of 2011 compared with first quarter of 2010

Non-interest expense increased $5.4 million to $83.8 million for the three months ended March 31, 2011 from $78.4 million for the same period of 2010. Other non-interest expense increased by $2.0 million to $12.0 million for the first quarter of 2011 mainly due to additional expenses relating to the two FDIC-assisted transactions completed in March 2010 and a $479 thousand write down of a previously repossessed aircraft based upon our periodic valuation.  Professional and legal fees also increased $1.7 million from the same period in 2010 primarily due to general increases caused by the FDIC-assisted transactions and other corporate matters.  Occupancy and equipment expense increased $1.2 million to $17.2 million for the first quarter of 2011 due to higher seasonal maintenance and an increase in building repair expenses.  

First quarter of 2011 compared with fourth quarter of 2010

Non-interest expense increased by $3.4 million from $80.4 million for the linked quarter ended December 31, 2010.  Net occupancy and equipment expense increased by $2.7 million from $14.5 million for the fourth quarter of 2010 mainly due to seasonal maintenance expenses.  Amortization of other intangible assets increased $988 thousand to $2.0 million in the first quarter of 2011 mainly due to an $893 thousand decline in recoveries of impairment charges on loan servicing rights as compared to the fourth quarter of 2010. Professional and legal expense also increased $828 thousand from $2.9 million for the three months ended December 31, 2010 due to higher expenses related to covered assets acquired in the FDIC-assisted transactions. However, salary and employee benefit expense decreased $1.2 million from $45.3 million for the fourth quarter of 2010 mainly due to decreases in stock-based compensation expense (mostly related to immediate expensing of stock awards to retirement eligible employees in the fourth quarter of 2010), medical insurance, and cash incentive compensation accruals, partially offset by higher payroll taxes and pension expense in the first quarter of 2011.  

Income Tax Expense

Income tax expense was $17.1 million and $12.2 million for the first quarters of 2011 and 2010, respectively.  Our effective tax rate increased 1.1 percent to 31.9 percent for the three months ended March 31, 2011 as compared to 30.8 percent for the same period one year ago. The increase in the effective tax rate from the 2010 period mainly reflects an increase in our marginal rate pre-tax income.  

For the remainder of 2011, we anticipate that our effective tax rate will approximate 31 percent.  

About Valley

Valley is a regional bank holding company with over $14 billion in assets, headquartered in Wayne, New Jersey. Its principal subsidiary, Valley National Bank, currently operates 198 branches in 134 communities serving 14 counties throughout northern and central New Jersey, Manhattan, Brooklyn and Queens. Valley National Bank is the largest commercial bank 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. Valley National Bank offers a wide range of deposit products, mortgage loans and cash management services to consumers and businesses including products tailored for the medical, insurance and leasing business. Valley National Bank’s comprehensive delivery channels enable customers to bank in person, by telephone or online.

For more information about Valley National Bank and its products and services, please visit www.valleynationalbank.com or call Customer Service 24/7 at 1-800-522-4100.

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 continued weakness or unexpected decline in the U.S. economy, in particular in New Jersey and the New York Metropolitan area;
• 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;
• a continued or unexpected decline in real estate values within our market areas;
• declines in value in our investment portfolio;
• 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 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 possibility that the expected benefits of acquisitions will not be fully realized, including lower than expected cash flows from covered loan pools acquired in FDIC-assisted transactions; and
• other unexpected material adverse changes in our operations or earnings.

A detailed discussion of these and other factors that could affect our results is included in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2010.  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.