Valley National Bancorp Reports Increase in Second Quarter Earnings, Net Interest Margin Growth and Stable Asset Quality

WAYNE, N.J., July 22 /PRNewswire-FirstCall/ -- Valley National Bancorp (NYSE: VLY), the holding company for Valley National Bank, today reported net income for the second quarter of 2010 of $33.0 million, $0.21 per diluted common share, as compared to second quarter of 2009 earnings of $15.0 million, $0.06 per diluted common share after $5.8 million in dividends and accretion on Valley preferred stock.

Second Quarter 2010 Performance Highlights

• Increased Net Interest Margin: Net interest margin on a tax equivalent basis was 3.72 percent in the second quarter of 2010 versus 3.65 percent in the first quarter of 2010 and 3.52 percent in the second quarter of 2009.

• Stable Asset Quality: Total loans past due 30 days or more on our entire loan portfolio of $9.4 billion were 1.71 percent at June 30, 2010 compared to 1.68 percent at March 31, 2010. Our commercial real estate loan portfolio had loans past due 30 days or more totaling 1.12 percent at June 30, 2010 as compared to 1.18 percent at March 31, 2010. The residential mortgage and home equity loan portfolios totaling over 22,000 individual loans had only 240 loans past due 30 days or more at June 30, 2010. The residential mortgage and home equity loan delinquencies totaled $38.7 million, or 1.58 percent of $2.5 billion in total loans within these categories at June 30, 2010. See "Credit Quality" section below for more details.

• Decline in Net Charge-offs: Net loan charge-offs declined $5.8 million from the first quarter of 2010 and were $7.2 million lower than the provision for credit losses during the second quarter of 2010.  The provision for credit losses totaled $12.4 million for the second quarter of 2010 as compared to $12.6 million for the first quarter of 2010 and $13.1 million for the second quarter of 2009. At June 30, 2010, our allowance for credit losses as a percentage of non-covered loans was 1.24 percent as compared to 1.15 percent as of March 31, 2010.

• Some Targeted Loan Growth in a Difficult Lending Environment: Residential mortgage loans grew by $18.2 million, or 3.84 percent on an annualized basis during the second quarter of 2010 from the first quarter of 2010 due to an increase in portfolio retention of new and refinanced mortgage loans based on certain acceptable combined ranges of loan to value and interest rates. Overall, total loans decreased $138.7 million to $9.4 billion at June 30, 2010 compared to March 31, 2010 mainly due to a continued decline in our automobile and commercial real estate portfolios.  

• Investment Securities Gains and Impairment: We recognized $3.7 million ($0.01 per common share) in gains on securities transactions during the second quarter of 2010 mainly due to the sale of $73.9 million of U.S. Treasury securities that were classified as available for sale. The sale proceeds were reinvested in residential mortgage-backed securities issued by Ginnie Mae of a comparable duration. Diluted earnings per common share were reduced by net impairment losses on securities totaling $2.0 million ($0.01 per common share) for the second quarter of 2010. The impairment charges in the second quarter of 2010 relate to three previously impaired private label mortgage-backed securities with a combined amortized cost and fair value of $42.7 million and $40.1 million, respectively, after all impairment charges.  

• Limited Trading Mark to Market Impact on Earnings: We did not engage in actual trading activity during the second quarter of 2010; however, net income included net trading gains totaling $839 thousand (less than $0.01 per common share) for the second quarter of 2010 which consists of $1.4 million in non-cash mark to market gains on our junior subordinated ("trust preferred") debentures carried at fair value, partially offset by $580 thousand in non-cash mark to market losses on the fair value of our trading securities portfolio. The second quarter of 2009 included net trading losses of $18.6 million ($0.08 per common share).

Chairman's Comments

Gerald H. Lipkin, Chairman, President and CEO commented that, "The slow economic recovery, low loan demand and low interest rates continue to present a challenging operating environment.  Despite these challenges, our sound business practices produced strong second quarter 2010 earnings results, fueled, in part, by a continued positive quarterly trend in our net interest margin, while improving other key performance indicators, such as our allowance of credit losses as a percentage of loans. Our employees have worked diligently during the second quarter of 2010 to integrate the acquired assets and assumed liabilities of Manhattan-based LibertyPointe Bank and The Park Avenue Bank, which were purchased in FDIC-assisted transactions in March 2010, into Valley National Bank. These transactions were immediately accretive to our first and second quarter 2010 earnings and are expected to continue to be accretive in future quarters.  Additional operating cost saves are expected to be realized in the third quarter of 2010 mostly due to the closing of five of the seven acquired branch locations during the second quarter of 2010.  Customer service for these locations was transferred to existing Valley branches within very close proximity of each location.  We remain excited about other potential FDIC-assisted transactions and will pursue them if made available in our New Jersey and New York metropolitan markets.    

Valley's credit quality remains both stable and better than many of our competitors. Delinquencies remain well controlled mainly due to our underwriting standards which typically require a combination of strong cash flow, substantial equity on the part of the borrower, and personal guarantees."  

Net Interest Income and Margin

Net interest income on a tax equivalent basis was $118.4 million for the second quarter of 2010, a $2.2 million increase from the first quarter of 2010 and an increase of $4.0 million from the second quarter of 2009. The linked quarter increase was primarily due to a full quarter of interest income on loans acquired in the FDIC-assisted transactions and lower interest expense caused by maturing high cost time deposits and continued redemptions of certificates of deposit assumed in the FDIC-assisted transactions.

The net interest margin on a tax equivalent basis was 3.72 percent for the second quarter of 2010, an increase of 20 basis points from the second quarter of 2009, and an increase of 7 basis points from 3.65 percent for the linked quarter ended March 31, 2010. The yield on average interest earning assets increased by four basis points on a linked quarter basis mainly due to a change in the asset mix to higher yielding loans (acquired in FDIC-assisted transactions) and taxable investments from lower yielding short-term U.S. Treasury securities and interest bearing deposits held at the Federal Reserve. The cost of average interest bearing liabilities declined two basis points from the first quarter of 2010 mainly due to a five basis point decrease in the cost of average time deposits due to a combination of lower rate certificates assumed in the FDIC-assisted transactions and run-off of higher cost deposits, and a two basis point decline in the cost of average savings, NOW, and money market accounts caused by a reduction in our product interest rates during the prior linked quarter. Our cost of total deposits was 0.81 percent for the second quarter of 2010 compared to 0.86 percent for the three months ended March 31, 2010.  

Credit Quality

Total loan delinquencies as a percent of total loans has only modestly increased to 1.71 percent at June 30, 2010 as compared to 1.68 percent at March 31, 2010 and 1.49 percent at June 30, 2009.  With a loan portfolio totaling approximately $9.4 billion, net loan charge-offs for the second quarter of 2010 were $5.2 million compared to $11.0 million (which was net of a $2.0 million recovery on one fully charged off commercial loan) for the first quarter of 2010, and $8.2 million for the second quarter of 2009.

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:

Valley's allocated reserves for the commercial and industrial loan portfolio increased $5.7 million or 33 basis points as a percentage of the commercial and industrial loan portfolio at June 30, 2010 as compared to March 31, 2010 as a result of a 19 basis point increase in commercial and industrial loan delinquencies, higher specific reserves on certain impaired loans, and a continued weak economic outlook.

Total non-performing assets ("NPAs"), consisting of non-accrual loans, other real estate owned (OREO) and other repossessed assets, totaled $109.8 million, or 1.15 percent of loans and NPAs at June 30, 2010 compared to $98.7 million, or 1.02 percent of loans and NPAs at March 31, 2010.  Non-accrual loans increased to $103.5 million at June 30, 2010 as compared to $91.6 million at March 31, 2010. Although the timing of collection is uncertain, management believes 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 $113.6 million at June 30, 2010 and had $12.8 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 $6.3 million at June 30, 2010 as compared to $7.1 million at March 31, 2010.

Loans past due 90 days or more and still accruing increased to $6.1 million, or 0.06 percent of total loans at June 30, 2010 compared to $4.1 million, or 0.04 percent at March 31, 2010 primarily due to a $1.5 million increase in construction loans within this delinquency category.  

Troubled debt restructured loans, with modified terms and not reported as loans 90 days or more past due and still accruing or non-accrual totaled $48.0 million at June 30, 2010 as compared to $3.6 million at March 31, 2010. At June 30, 2010, total performing troubled debt restructured loans consisted of 17 loans primarily in the commercial and industrial loan portfolio.

Loans and Deposits

Total loans decreased $138.7 million to $9.4 billion at June 30, 2010 from March 31, 2010 mainly due to declines in the automobile and commercial real estate portfolios, and valuation adjustments to covered loans acquired in connection with the LibertyPointe Bank and The Park Avenue Bank transactions (see further discussion of covered loans below).

Non-Covered Loans. Non-covered loans are loans not subject to loss-sharing agreements with the FDIC.  Non-covered loans decreased $99.0 million to approximately $9.0 billion at June 30, 2010 from March 31, 2010.  The linked quarter decrease was mainly comprised of decreases in automobile, commercial real estate, and home equity loans of $67.8 million, $39.2 million, and $8.3 million, respectively, partially offset by an $18.2 million increase in residential mortgage loans. The residential mortgage loan portfolio increased by almost four percent on an annualized basis during the second quarter of 2010, as we reduced our secondary market sales of most refinanced loans and new loan originations. We may experience further declines in the loan portfolio during 2010 due to a slow economic recovery cycle, increased competition for quality borrowers, or a change in asset/liability management strategy.

Covered Loans. All of the loans acquired from LibertyPointe Bank and The Park Avenue Bank in March 2010 are recorded on our consolidated statement of condition as "covered loans". Covered loans are referred to as such because they are covered by loss-sharing agreements entered into with the FDIC in connection with these acquisitions. Our covered loans totaled $385.3 million and $425.0 million at June 30, 2010 and March 31, 2010, respectively, and consist primarily of commercial real estate loans and commercial loans that had evidence of deterioration in credit quality at the acquisition date. Fair value of the covered loans includes estimates of credit losses.  Our estimate of acquisition date credit losses increased during the second quarter as additional information became available to us, resulting in a large portion of the quarter over quarter decline in covered loans, as well as the increases in both the FDIC loss-share receivable and goodwill at June 30, 2010. These loans are accounted for on a pool basis, and the pools are considered to be performing loans.

Deposits. Total deposits decreased $359.2 million to approximately $9.4 billion at June 30, 2010 from March 31, 2010 as we continue to keep interest rates low on most interest bearing deposit products in response to the low level of loan demand caused by the economy.  A substantial source of the decline was the withdrawal of time deposits from LibertyPointe Bank and The Park Avenue Bank after we lowered customer rates to our standard Valley interest rates. During the quarter ended June 30, 2010, time deposits and savings, NOW, and money market deposits declined $365.7 million and $54.8 million, respectively, partially offset by a $61.3 million increase in non-interest bearing deposits. Non-interest bearing deposits increased mainly due to some seasonal increases in commercial customer account balances.

Non-Interest Income (Loss)

Second quarter of 2010 compared with second quarter of 2009

Non-interest income for the second quarter of 2010 increased $22.9 million to $22.5 million as compared to a non-interest loss of $389 thousand for the quarter ended June 30, 2009 mainly due to an increase in net trading gains caused by the change in the mark to market valuation of our junior subordinated debentures carried at fair value.  Net trading gains totaled $839 thousand in the second quarter of 2010 compared to net trading losses of $18.6 million in the second quarter of 2009. Net gains on securities transactions increased $3.4 million in the second quarter of 2010 from $288 thousand in the comparable quarter in 2009 primarily due to the gain recognized on the sale of $73.9 million in U.S. Treasury securities during the 2010 period. Net gains on sales of loans decreased $1.4 million to $1.0 million for the quarter ended June 30, 2010 mainly due to our decision to reduce our residential mortgage sales in the secondary market.

Second quarter of 2010 compared with first quarter of 2010

Non-interest income for the second quarter of 2010 increased $6.8 million compared to the linked quarter, partly due to an increase in net trading gains to $839 thousand from a net trading loss of $3.0 million in the first quarter of 2010.  The increase in net trading gains was mainly due to the positive impact of the change in the fair value of our junior subordinated debentures carried at fair value as compared to the linked quarter. Net gains on securities transactions also increased $2.8 million in the second quarter of 2010 from $863 thousand for the linked quarter mainly due to gains realized on the sale of certain U.S. Treasury securities. Other non-interest income increased $850 thousand as compared to the first quarter of 2010 mainly due to general increases, including additional income related to the FDIC-assisted transactions completed in March 2010. Net gains on sales of loans decreased $1.5 million to $1.0 million for the quarter ended June 30, 2010 as compared to the first quarter of 2010, mainly due to the aforementioned reduction in residential mortgage sales during the second quarter of 2010.

Non-Interest Expense

Second quarter of 2010 compared with second quarter of 2009

Non-interest expense increased $1.9 million to $80.0 million for the quarter ended June 30, 2010 from $78.1 million for the same quarter of 2009.  Salary and employee benefit expenses, and net occupancy and equipment expense increased $3.6 million and $1.7 million, respectively, in part, due to additional expenses related to the FDIC-assisted transactions in March 2010, as well as from de novo branch openings over the twelve month period ended June 30, 2010.  The impact of the FDIC-assisted transactions on these expense categories is expected to decline in the third quarter of 2010 as we closed five of the seven acquired branch locations during the second quarter of 2010. Amortization of other intangible assets increased $1.4 million as compared to the quarter ended June 30, 2009 mainly due to the recognition of a $631 thousand impairment charge on certain loan servicing rights in the first quarter of 2010 as compared to a $681 thousand net valuation allowance recovery on the fair value of previously impaired loan servicing rights during the second quarter of 2009.  Advertising expense increased $789 thousand mainly due to an increase in promotional campaigns as compared to the second quarter of 2009.  Our FDIC insurance assessment decreased $6.7 million in the second quarter of 2010 from $10.3 million in the same period last year as a result of a special assessment (imposed on all insured depository institutions) which totaled $6.5 million during the second quarter of 2009.  Other non-interest expense increased $570 thousand as compared to the second quarter of 2009 mainly due to the write-off of internally developed software costs.

Second quarter of 2010 compared with first quarter of 2010

Non-interest expense increased by $1.6 million from $78.4 million for the linked quarter ended March 31, 2010.  Other non-interest expense increased $1.3 million as compared to the prior linked quarter mainly due to the write-off of internally developed software costs and general increases related to the FDIC-assisted transactions.  Amortization of other intangible assets increased $745 thousand due to an increase in impairment charges on loan servicing rights in the second quarter of 2010 and amortization of core deposit intangibles acquired in the FDIC-assisted transactions in March 2010.  Professional and legal fees increased $494 thousand due to increases caused by the FDIC-assisted transactions and other general corporate matters.  The above increases during the second quarter of 2010 were partially offset by a combined decrease of $1.3 million in salary and employee benefits mainly caused by lower payroll taxes as maximum limits were reached on certain annual taxes, partially offset by higher salary expense due to additional staffing caused by the FDIC-assisted transactions.

Income Tax Expense

Income tax expense was $14.1 million and $6.6 million for the second quarters of 2010 and 2009, respectively.  However, the effective tax rate for both periods was relatively unchanged at 29.9 percent for the three months ended June 30, 2010 compared to 30.4 percent for the same period of 2009.

Income tax expense was $26.3 million and $22.8 million for the six months ended June 30, 2010 and 2009, respectively, reflecting an effective tax rate of 30.3 percent for both comparable periods.  For the remainder of 2010, we anticipate that our effective tax rate will approximate 30 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 200 branches in 135 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, relationships, opportunities, taxation, technology and market conditions.  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 or unexpected decline in the 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;
• a reduction in dividend payments, distributions and other payments from our banking subsidiary;
• possible reduction or elimination of the dividend on our common stock;
• further offerings of our equity securities may result in earnings or book value dilution of our common stock;
• potential acquisitions may disrupt our business and dilute shareholder value;
• legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Electronic Fund Transfer 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;
• we may be unable to 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;
• our failure or inability to raise additional capital, if it is necessary or advisable to do so;
• the possibility that the expected benefits of the LibertyPointe Bank and The Park Avenue Bank acquisitions will not be fully realized;
• expected cost synergies and other benefits from our acquisition  activities might not be realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters may arise; 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and our Annual Report on Form 10-K for the year ended December 31, 2009.  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. 

-Tables to Follow-

SOURCE Valley National Bank