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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-11179
VALLEY NATIONAL BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW JERSEY 22-2477875
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1445 VALLEY ROAD 07474
WAYNE, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201-305-8800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, no par value New York Stock Exchange, Inc.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X No
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $735,389,000 on January 31, 1995.
There were 28,838,798 shares of Common Stock outstanding at January 31,
1995.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Definitive Proxy Statement for the 1995 Annual
Meeting of shareholders to be held March 23, 1995 are incorporated by reference
in Part III.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 5
Item 3. Legal Proceedings............................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders.......................... 5
Item 4A. Executive Officers of the Registrant......................................... 6
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters........ 6
Item 6. Selected Financial Data...................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 8
Item 8. Financial Statements and Supplementary Data:
Valley National Bancorp and Subsidiaries:
Consolidated Statements of Income....................................... 24
Consolidated Statements of Financial Condition.......................... 25
Consolidated Statements of Changes in Shareholders' Equity.............. 26
Consolidated Statements of Cash Flows................................... 27
Notes to Consolidated Financial Statements.............................. 28
Independent Auditors' Report............................................ 48
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 49
Item 11. Executive Compensation....................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 49
Item 13. Certain Relationships and Related Transactions............................... 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 49
Signatures.............................................................................. 51
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PART I
ITEM 1. BUSINESS
Valley National Bancorp ("Valley") is a New Jersey corporation incorporated
as a bank holding company under the Bank Holding Company Act of 1956. At
December 31, 1994, Valley had consolidated total assets of $3.7 billion, total
deposits of $3.3 billion, and total shareholders' equity of $300.2 million. Its
principal subsidiary is Valley National Bank ("VNB").
VNB is a national banking association chartered in 1927 under the laws of
the United States. VNB provides a full range of commercial and retail banking
services through 62 branch offices located in northern New Jersey. These
services include the acceptance of demand, savings and time deposits; extension
of consumer, real estate, Small Business Administration and other commercial
credits; and the offer of full personal and corporate trust services, as well as
pension and fiduciary services.
VNB has three New Jersey wholly-owned subsidiaries which include a mortgage
servicing company which services loans for VNB as well as others, a real estate
company which holds and disposes of real estate which VNB may acquire through
foreclosure, and an investment company which holds, maintains and manages
investment assets for VNB.
RECENT ACQUISITION
On November 30, 1994, Valley acquired Rock Financial Corporation ("RFC")
and its five branch subsidiary, Rock Bank ("Rock"), located in North Plainfield,
New Jersey. Valley issued approximately 1.7 million shares of its common stock
to the shareholders of RFC. Rock had assets of $186.3 million, deposits of
$165.7 million and shareholders' equity of $18.2 million. The merger was
accounted for using the pooling of interests method of accounting.
PENDING ACQUISITIONS
On November 9, 1994, Valley and VNB entered into an Agreement and Plan of
Merger providing for the merger of American Union Bank ("American"), with its
two branch offices located in Union and Roselle Park, New Jersey, with and into
VNB. American shareholders will receive 0.50 shares, subject to adjustment, of
Valley common stock for each share of American common stock. The merger has
received approval of the shareholders of American and the Office of the
Comptroller of the Currency ("OCC"), and is expected to close February 28, 1995.
American has approximately $56 million in assets, $52 million in deposits and $4
million in shareholders' equity.
On January 26, 1995, Valley and VNB entered into a letter of intent
providing for the acquisition by Valley of Lakeland First Financial Group, Inc.
("LFG") and its principal savings bank subsidiary, Lakeland Savings Bank
("Lakeland"), headquartered in Succasunna, New Jersey. LFG, with assets of $661
million, deposits of $521 million and equity of $51 million, is a bank holding
company which owns 100% of the outstanding stock of Lakeland, a state chartered
savings bank with sixteen branch offices located in Morris, Sussex and Warren
counties. The letter of intent provides for the taxfree exchange of 1.225 shares
of Valley common stock for each of the 3,881,398 shares outstanding of LFG
common stock and the conversion of LFG stock options into Valley stock options.
The merger is expected to be accounted for under the pooling of interests method
of accounting. In conjunction with the execution of the letter of intent, LFG
also granted an option to Valley, at $21 per share to acquire 1,250,000 shares
of LFG's authorized, but unissued common stock to be purchased by Valley in the
event another institution gains control of LFG. The parties are working towards
the execution of a definitive agreement which is expected by the end of
February, 1995. The transaction is subject to the approval of the shareholders
of LFG, the OCC, and the Federal Reserve Bank of New York. It is expected that
this transaction will close during the third quarter of 1995.
COMPETITION
The market for banking and bank related services is highly competitive.
Valley and its subsidiary compete with other providers of financial services
such as other bank holding companies, commercial and savings
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banks, savings and loan associations, credit unions, money market and mutual
funds, mortgage companies, and a growing list of other local, regional and
national institutions which offer financial services. Mergers between financial
institutions within New Jersey and in neighboring states have added competitive
pressure. Competition is expected to intensify as a consequence of interstate
banking laws now in effect or that may be in effect in the future. Valley and
its subsidiary compete by offering quality products and convenient services at
competitive prices. In order to maintain and enhance its competitive position,
Valley regularly reviews its products, locations and various acquisition
prospects and periodically engages in discussions regarding such possible
acquisitions.
Valley receives applications for automobile loans from customers referred
by a major insurance company. Over the last several years the amount of loans
referred through the program has grown and Valley is continuously working to
further expand the relationship. The insurance company has referred loans in
this manner for approximately 40 years.
EMPLOYEES
At year-end 1994, VNB and its subsidiaries employed 1,168 full-time
equivalent persons. Management considers relations with employees to be
satisfactory.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit the options
of its management to deploy assets and maximize income. The following discussion
is not intended to be a complete list of all the activities regulated by the
banking laws or of the impact of such laws and regulations on the bank. It is
intended only to briefly summarize some material provisions.
BANK HOLDING COMPANY REGULATION
Valley is a bank holding company within the meaning of the Bank Holding
Company Act of 1956. As a bank holding company, Valley is supervised by the
Board of Governors of the Federal Reserve System (the "FRB") and is required to
file reports with the FRB and provide such additional information as the FRB may
require.
The Bank Holding Company Act prohibits Valley, with certain exceptions,
from acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to subsidiary banks, except that it may, upon application,
engage in, and may own shares of companies engaged in, certain businesses found
by the FRB to be so closely related to banking "as to be a proper incident
thereto." The Bank Holding Company Act requires prior approval by the FRB of the
acquisition by Valley of more than five percent of the voting stock of any
additional bank. Under current law, a New Jersey based bank holding company,
like Valley, is permitted to acquire banks located in New Jersey and in certain
other states if the states had enacted laws specifically to permit acquisitions
of banks by out-of-state bank holding companies having the largest proportion of
their deposits in New Jersey. Satisfactory capital ratios and Community
Reinvestment Act ratings are generally prerequisites to obtaining federal
regulatory approval to make acquisitions. Acquisitions through Valley National
Bank require approval of the Comptroller of the Currency of the United States
("OCC"). Statewide branching is permitted in New Jersey. The Bank Holding
Company Act does not place territorial restrictions on the activities of
non-bank subsidiaries of bank holding companies.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking and Branching Act") passed by Congress and signed into
law on September 29, 1994, significantly changed interstate banking rules.
Pursuant to the Interstate Banking and Branching Act, a bank holding company
will be able to acquire banks in states other than its home state beginning
September 29, 1995, regardless of
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applicable state law. Until such provisions are effective, interstate
acquisitions by bank holding companies will continue to be subject to current
state law restrictions.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity either to "opt out"
of this provision, thereby prohibiting interstate branching in such states, or
to "opt in" at an earlier time, thereby allowing interstate branching within
that state prior to June 1, 1997. Furthermore, a state may "opt-in" with respect
to de novo branching, thereby permitting a bank to open new branches in a state
in which the bank does not already have a branch. Without de novo branching, an
out-of-state bank can enter the state only by acquiring an existing bank.
The New Jersey legislature is presently examining whether it will opt-in
with respect to earlier interstate banking and branching, as well as whether it
will authorize de novo branching and the entry into New Jersey of foreign banks.
New Jersey law presently prohibits foreign banks from entering New Jersey unless
the foreign bank first acquired a domestic bank in another state.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such changes
and the impact such changes might have on Valley cannot be determined at this
time.
The policy of the FRB provides that a bank holding company is expected to
act as a source of financial strength to its subsidiary bank and to commit
resources to support such subsidiary bank in circumstances in which it might not
do so absent such policy.
REGULATION OF BANK SUBSIDIARY
Valley National Bank ("VNB") is subject to the supervision of, and to
regular examination by, the OCC.
Various laws and the regulations thereunder applicable to Valley and its
bank subsidiary impose restrictions and requirements in many areas, including
capital requirements, the maintenance of reserves, establishment of new offices,
the making of loans and investments, consumer protection and other matters.
There are various legal limitations, including Sections 23A and 23B of the
Federal Reserve Act, on the extent to which a bank subsidiary may finance or
otherwise supply funds to its holding company or its non-bank subsidiaries.
Under federal law, no bank subsidiary may, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, its parent or non-bank subsidiaries of its parent (other than
direct subsidiaries of such bank) or, subject to broader exceptions, take their
securities as collateral for loans to any borrower. Each bank subsidiary is also
subject to collateral security requirements for any loans or extensions of
credit permitted by such exceptions.
DIVIDEND LIMITATIONS
Valley is a legal entity separate and distinct from its subsidiaries.
Valley's revenues (on a parent company only basis) result substantially from
dividends paid to Valley by its subsidiary. Payment of dividends to Valley by
VNB, without prior regulatory approval, is subject to regulatory limitations.
Under the National Bank Act, dividends may be declared only if, after payment
thereof, capital would be unimpaired and remaining surplus would equal 100
percent of capital. Moreover, a national bank may declare, in any one year,
dividends only in an amount aggregating not more than the sum of its net profits
for such year and its retained net profits for the preceding two years. At
December 31, 1994, under such requirements, VNB could have declared dividends in
an amount aggregating $65.2 million. In addition, the bank regulatory agencies
have the authority to prohibit a bank subsidiary from paying dividends or
otherwise supplying funds to Valley if the supervising agency determines that
such payment would constitute an unsafe or unsound banking practice.
FIRREA
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured
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depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservatory or receiver and "in
danger of default" is defined generally as the existence of certain conditions,
including a failure to meet minimum capital requirements, indicating that a
"default" is likely to occur in the absence of regulatory assistance. These
provisions have commonly been referred to as FIRREA's "cross guarantee"
provisions. Further, under FIRREA the failure to meet capital guidelines could
subject a banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of deposit insurance
by the FDIC.
FIRREA also imposed certain independent appraisal requirements upon a
bank's real estate lending activities and further imposed certain loan to value
restrictions on a bank's real estate lending activities. The bank regulators
have promulgated regulations in these areas.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which became law in December of 1991, required each federal banking
agency to revise its risk-based capital standards to ensure that those standards
take adequate account of interest rate risk, concentration of credit risk and
the risks of non-traditional activities. In addition, pursuant to FDICIA, each
federal banking agency has promulgated regulations, specifying the levels at
which a financial institution would be considered "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized",
or "critically undercapitalized", and to take certain mandatory and
discretionary supervisory actions based on the capital level of the institution.
The OCC's regulations implementing these provisions of FDICIA provide that
an institution will be classified as "well capitalized" if it (i) has a total
risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based
capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at
least 5.0 percent, and (iv) meets certain other requirements. An institution
will be classified as "adequately capitalized" if it (i) has a total risk-based
capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital
ratio of at least 4.0 percent, (iii) has Tier 1 leverage ratio of (a) at least
4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in its
most recent examination, and (iv) does not meet the definition of "well
capitalized". An institution will be classified as "undercapitalized" if it (i)
has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1
risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1
leverage ratio of (a) less than 4.0 percent or (b) less than 3.0 percent if the
institution was rated 1 in its most recent examination. An institution will be
classified as "significantly undercapitalized" if it (i) has a total risk-based
capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital
ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less
than 3.0 percent. An institution will be classified as "critically
undercapitalized" if it has a tangible equity to total assets ratio that is
equal to or less than 2.0 percent. An insured depository institution may be
deemed to be in a lower capitalization category if it receives an unsatisfactory
examination.
Insured institutions are generally prohibited from paying dividends or
management fees if after making such payments, the institution would be
"undercapitalized". An "undercapitalized" institution also is required to
develop and submit to the appropriate federal banking agency a capital
restoration plan, and each company controlling such institution must guarantee
the institution's compliance with such plan. The liability of a holding company
under any such guarantee is limited to the lesser of five percent of the
institution's total assets at the time it became undercapitalized or the amount
needed to comply with all applicable capital standards. The FDIC is accorded a
priority over the claims of unsecured creditors in any bankruptcy proceeding of
a holding company that has guaranteed an institution's compliance with a capital
restoration plan. Further, "undercapitalized", "significantly undercapitalized",
and "critically undercapitalized" institutions are subject to increasingly
extensive requirements and limitations, including mandatory sale of stock,
forced mergers, and ultimately receivership or conservatorship. A "critical
undercapitalized" institution, beginning 60 days after it becomes "critically
undercapitalized", generally is prohibited from making any payment of principal
or interest on the institution's subordinated debt.
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Under FDICIA, only "well capitalized" banks and those "adequately
capitalized" banks which have obtained waiver from the FDIC may accept brokered
deposits. Those "adequately capitalized" banks that are permitted to accept
brokered deposits may not pay rates that significantly exceed the rates paid on
deposits of similar maturity from the bank's normal market area or the national
rate on deposits of comparable maturity, as determined by the FDIC, for deposits
from outside the bank's normal market area.
FDICIA also required that the FDIC insurance assessments move from
flat-rate premiums to a system of risk-based premium assessments, in order to
recapitalize the Bank Insurance Fund ("BIF") at a reserve ratio specified in
FDICIA. Beginning in January, 1993, BIF members paid an annual assessment rate
of between 23 and 31 cents per $100 of domestic deposits, depending on the risk
classification assigned by the FDIC to the BIF member. The FDIC was also granted
authority under FDICIA to impose special assessments on insured depositary
institutions to repay FDIC borrowings from the United States Treasury or other
sources. In February, 1995, the FDIC announced that the risk based assessments
for BIF institutions would drop to as low as $.04 for the best managed and
well-capitalized institutions starting in late 1995. On the other hand, deposits
insured under the Savings Association Insurance Fund ("SAIF") must remain at
$.23 for at least two more years. Due to various acquisitions, Valley pays some
deposit premiums to SAIF.
FDICIA also contained the Truth in Savings Act, which requires certain
disclosures to be made in connection with deposit accounts offered to consumers.
The FRB has adopted regulations implementing the provisions of the Truth in
Savings Act.
In addition, significant provisions of FDICIA required federal banking
regulators to draft standards in a number of other important areas to assure
bank safety and soundness, including internal controls, information systems and
internal audit systems, credit underwriting, asset growth, compensation, loan
documentation and interest rate exposure. FDICIA also required the regulators to
establish maximum ratios of classified assets to capital, and minimum earnings
sufficient to absorb losses without impairing capital. The legislation also
contained other provisions which restricted the activities of state-chartered
banks, amended various consumer banking laws, limited the ability of
"undercapitalized" banks to borrow from the Federal Reserve's discount window,
and required federal banking regulators to perform annual on-site bank
examinations and set standards for real estate lending.
ITEM 2. PROPERTIES
The corporate headquarters and principal office of Valley are located in
leased facilities in Wayne, New Jersey. The operations and data processing
center for the bank is located in Passaic, New Jersey and retail lending is
located in Fairlawn, New Jersey, both of which are owned by VNB. During 1995, it
is planned that a consolidation of operations will commence with relocation to
Wayne of many departments to an owned building adjacent to our corporate
headquarters.
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings to which Valley, the
subsidiary bank or companies were a party, other than ordinary routine
litigations incidental to business and which had no material effect on the
presentation of the consolidated financial statements contained in this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT
DECEMBER 31, IN OFFICE
NAMES 1994 SINCE OFFICE
-------------------- ----------------- --------- -------------------------
Gerald H. Lipkin 53 1989 Chairman of the Board and
Chief Executive Officer
Peter Southway 60 1987 President and Chief
Operating Officer
Sam P. Pinyuh 62 1990 Executive Vice President
Peter Crocitto 37 1992 First Senior Vice President
Robert E. Farrell 48 1992 First Senior Vice President
Richard P. Garber 51 1992 First Senior Vice President
Alan D. Lipsky 50 1994 First Senior Vice President
Robert Mulligan 47 1993 First Senior Vice President
Peter John Southway 34 1992 First Senior Vice President
Jack M. Blackin 52 1993 Senior Vice President
Alan D. Eskow 46 1993 Senior Vice President
All officers serve at the pleasure of the Board of Directors.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Effective December 1, 1993, Valley National Bancorp common stock began
trading on the New York Stock Exchange (NYSE) under the symbol VLY. Prior to
December 1, 1993, Valley common stock was traded on the National Association of
Security Dealers Automated Quotations System (NASDAQ) under the symbol VNBP. The
following table sets forth for each quarter period indicated the high and low
prices for the common stock of Valley, which had been restated to give effect to
a 10% stock dividend in May 1994.
YEAR 1994 YEAR 1993
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HIGH LOW DIVIDEND HIGH LOW DIVIDEND
---- ---- -------- ---- ---- --------
First Quarter.................... $30 1/8 $21 1/4 $0.23 $27 3/8 $20 5/8 $0.18
Second Quarter................... $31 5/8 $26 1/8 $0.25 $25 1/4 $22 3/4 $0.20
Third Quarter.................... $27 1/2 $25 5/8 $0.25 $24 1/8 $22 1/4 $0.20
Fourth Quarter................... $27 1/8 $24 3/8 $0.25 $23 5/8 $21 1/8 $0.20
Federal laws and regulations contain restrictions on the ability of Valley
and VNB to pay dividends. For information regarding restrictions on dividends,
see Part I, Item I, "Business -- Supervision and Regulation" and Part II, Item
8, "Financial Statements and Supplementary Data -- Note 15 of the Notes to
Consolidated Financial Statements".
There were 4,852 shareholders of record as of December 31, 1994.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Valley National Bancorp's Consolidated Financial Statements and the accompanying
notes presented elsewhere herein. The data for years prior to 1994 have been
restated to include Rock Financial Corp. which was acquired on November 30, 1994
in a transaction accounted for as a pooling of interests.
YEARS ENDED DECEMBER 31,
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1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS:
Interest income (taxable
equivalent)........................ $ 251,677 $ 245,227 $ 243,985 $ 220,732 $ 197,183
Interest expense..................... 93,839 93,426 114,947 115,695 104,336
---------- ---------- ---------- ---------- ----------
Net interest income (taxable
equivalent)........................ 157,838 151,801 129,038 105,037 92,847
Less: tax equivalent adjustment...... 8,732 7,766 7,385 7,838 8,563
---------- ---------- ---------- ---------- ----------
Net interest income................ 149,106 144,035 121,653 97,199 84,284
Provision for possible loan losses... 3,545 6,360 16,320 12,268 12,795
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses........ 145,561 137,675 105,333 84,931 71,489
Gains on securities transactions..... 6,046 7,222 6,358 2,485 427
Non-interest income.................. 16,433 19,292 24,609 12,232 10,862
Non-interest expense................. 79,018 76,640 70,826 54,381 43,362
---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting
change............................. 89,022 87,549 65,474 45,267 39,416
Income taxes......................... 29,978 30,703 22,095 13,547 10,784
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change.................. 59,044 56,846 43,379 31,720 28,632
Cumulative effect of accounting
change, net of tax................. -- (402) -- -- --
---------- ---------- ---------- ---------- ----------
Net income......................... $ 59,044 $ 56,444 $ 43,379 $ 31,720 $ 28,632
========= ========= ========= ========= =========
PER COMMON SHARE:
Income before cumulative effect of
accounting change.................. $ 2.06 $ 2.01 $ 1.56 $ 1.14 $ 1.03
Cumulative effect of accounting
change............................. -- (0.01) -- -- --
Net income........................... 2.06 2.00 1.56 1.14 1.03
Dividends............................ 0.98 0.78 0.70 0.66 0.66
Book value........................... 10.41 9.88 8.43 7.58 7.02
Weighted average shares
outstanding........................ 28,729,424 28,260,888 27,873,723 27,853,268 27,859,680
RATIOS:
Return on average assets............. 1.60% 1.62% 1.36% 1.29% 1.44%
Return on average shareholders'
equity............................. 20.03 21.42 19.17 15.40 14.54
Average shareholders' equity to
average assets..................... 7.99 7.55 7.09 8.40 9.90
Dividend payout...................... 48.28 39.52 45.15 58.26 64.11
Risk-based capital:
Tier 1 capital..................... 13.74 14.13 13.52 11.91 12.27
Total capital...................... 15.00 15.39 14.77 13.23 13.35
Leverage ratio....................... 8.33 7.72 7.26 7.12 9.13
FINANCIAL CONDITION AT YEAR-END:
Assets............................... $3,743,943 $3,604,868 $3,357,405 $3,055,062 $2,149,062
Loans, net of allowance.............. 2,151,374 1,862,373 1,587,402 1,456,985 1,540,082
Deposits............................. 3,334,021 3,250,656 3,052,256 2,726,669 1,875,926
Shareholders' equity................. 300,191 282,451 235,550 211,398 196,184
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing Valley National Bancorp's ("Valley")
results of operations for each of the past three years and financial condition
for each of the past two years. In order to fully appreciate this analysis the
reader is encouraged to review the consolidated financial statements and
statistical data presented in this document.
RECENT ACQUISITION
On November 30, 1994 Valley acquired Rock Financial Corporation ("RFC") and
Rock Bank ("Rock"). Rock, a commercial bank, with five branches headquartered in
North Plainfield, New Jersey with total assets of $186.3 million. Each share of
common stock of RFC was converted into 1.85 common shares of Valley, for a total
of 1.7 million shares. The transaction was accounted for using the pooling of
interests method of accounting and, therefore, all of the financial data
presented has been restated to include the combined entities.
PENDING ACQUISITIONS
On November 9, 1994, Valley entered into a definitive merger agreement with
American Union Bank ("American"), headquartered in Union, New Jersey, with
approximately $56 million in assets and two branches. The transaction is
scheduled to close by the end of February, 1995 and will be accounted for using
the pooling of interests method of accounting. Each share of common stock of
American will be exchanged for 0.50 shares of Valley common stock.
On January 26, 1995 Valley entered into a letter of intent to acquire the
$661 million Lakeland First Financial Group, Inc. ("LFG"), the holding company
for Lakeland Savings Bank ("Lakeland"), a state chartered saving bank
headquartered in Succasunna, New Jersey, with sixteen branches in Morris, Sussex
and Warren counties, New Jersey. The letter of intent stipulates that 1.225
shares of common stock of Valley will be exchanged for each of the 3,881,398
shares of common stock of LFG. Valley and LFG also entered into a separate stock
option agreement which gives Valley the option to purchase 1.25 million shares
of authorized, but unissued common stock of LFG at an exercise price of $21.00
per share in the event that another party obtains control of LFG.
EARNINGS SUMMARY
Net income grew to $59.0 million, or $2.06 per share in 1994 compared with
$56.4 million or $2.00 per share in 1993 (all amounts have been restated for the
Rock Financial Corporation merger and the 1993 per share amounts have been
restated to give effect to a 10% stock dividend in 1994). This increase is
largely attributable to an increase in net interest income of $5.1 million or
3.5%, and a decrease in the provision for loan losses of $2.8 million or 44.2%.
This was offset by a decrease in other operating income of $4.0 million or 15.2%
and was further offset by increased operating expenses in most non-interest
expense categories. The return on average assets decreased in 1994 to 1.60% from
1.62% in 1993, while the return on average equity also decreased to 20.0% in
1994 from 21.4% at year-end 1993.
NET INTEREST INCOME
Net interest income is the largest source of Valley's operating income. Net
interest income on a tax equivalent basis increased to $157.8 million for 1994
as compared to $151.8 million for 1993. The increase in 1994 was due primarily
to the increase in total interest earning assets, partially offset by a decline
in rates on those assets of 21 basis points from 1993 and a smaller increase in
total interest bearing deposit liabilities, offset by a decline in rates on
those liabilities of 12 basis points. The net interest margin decreased 6 basis
points to 4.56% for 1994 compared to 4.62% for all of 1993.
The decrease in net interest margin was caused substantially by the upward
movement in interest rates during 1994. This increase in rates caused depositors
to shift funds from short term savings accounts to longer term certificates of
deposit. Deposit rates increased faster than loan rates in 1994, leading to a
decline in the net interest margin. The prime lending rate increased from 6.00%
to the most recent level of 9.00% on
8
11
February 3, 1995, one year later. If rates continue their movement upward there
may be a further decline in the net interest margin.
Average interest earning assets increased $180.0 million in 1994, or 5.5%
over the 1993 amount. This increase was mainly the result of increased
automobile loan and commercial mortgage loan volume, due to lower interest rates
during early 1994. Loans increased by $279.2 million or 15.9% over the 1993
amount. The average rate on loans decreased 29 basis points, but combined with
the increase in average loan volume, interest income on loans for 1994 increased
by $17.2 million over 1993. Offsetting this increase, was a decline in the
average amount of investment securities of $100.3 million or 6.8% from the
amount in the portfolio in 1993. The average balance of taxable investment
securities decreased by $168.9 million or 13.8% over the 1993 average balance.
Tax-exempt investments increased $68.6 million or 27.0% taking advantage of the
increased yield available over taxable investments.
Average interest-bearing liabilities grew 4.2% or $118.9 million due mainly
to internal deposit growth. Deposit growth, similar to the past few years, was
held to a small increase due to competitive factors and alternative investment
opportunities for consumers. Average demand deposits continued to grow and
increased by $46.8 million or 12.1% over 1993 balances. Savings deposits
increased by $89.4 million or 5.5%, while time deposits recorded a smaller
increase of $17.9 million or 1.6%.
The net interest margin decreased to 4.56% in 1994 from 4.62% in 1993, the
result of an increase in loan volume at a rate of 29 basis points less than the
prior year and offset by the effects of increased deposits rates, which
decreased only 12 basis points. The decrease in the net interest margin of 6
basis points, coupled with the increase in average earning assets over average
interest-bearing liabilities, was the basis for the increase in net interest
income.
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12
The following table reflects the components of net interest income for each
of the three years ended December 31, 1994.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AND NET INTEREST EARNINGS ON A TAX EQUIVALENT BASIS
1994 1993 1992
------------------------------- ------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(IN THOUSANDS)
ASSETS
Interest earning assets
Loans(1)(2)............... $2,040,191 $163,522 8.02% $1,760,978 $146,276 8.31% $1,541,892 $139,355 9.04%
Taxable investments....... 1,057,869 63,867 6.04 1,226,791 78,003 6.36 1,200,033 84,042 7.00
Tax-exempt
investments(1).......... 322,702 22,438 6.95 254,092 19,634 7.73 207,034 18,844 9.10
Federal funds sold and
other short term
investments(1).......... 43,569 1,850 4.25 42,503 1,314 3.09 45,956 1,744 3.83
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total interest earning
assets.................. 3,464,331 $251,677 7.26% 3,284,364 $245,227 7.47% 2,994,915 $243,985 8.15%
-------- ------- -------- ------ -------- -------
Allowance for possible
loan losses............. (37,870) (34,572) (29,385)
Cash and due from banks... 132,250 120,178 105,975
Other assets.............. 130,395 118,226 120,998
---------- ---------- ----------
Total assets.............. $3,689,106 $3,488,196 $3,192,503
========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing
liabilities
Savings deposits.......... $1,702,214 $ 42,346 2.49% $1,612,801 $ 42,352 2.63% $1,341,314 $ 48,571 3.62%
Time deposits............. 1,171,241 49,903 4.26 1,153,331 49,560 4.30 1,218,910 64,492 5.29
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total interest bearing
deposits................ 2,873,455 92,249 3.21 2,766,132 91,912 3.32 2,560,224 113,063 4.42
Federal funds purchased
and securities sold
under repurchase
agreements.............. 45,288 1,348 2.98 23,413 703 3.00 21,781 827 3.80
Other borrowings.......... 8,903 242 2.73 19,255 811 4.21 22,439 1,057 4.71
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total interest bearing
liabilities............. 2,927,646 93,839 3.21 2,808,800 93,426 3.33 2,604,444 114,947 4.41
-------- ------- -------- ------- -------- -------
Demand deposits........... 434,545 387,769 327,172
Other liabilities......... 32,152 28,119 34,553
Shareholders' equity...... 294,763 263,508 226,334
---------- ---------- ----------
Total liabilities and
shareholders' equity.... $3,689,106 $3,488,196 $3,192,503
---------- ---------- ----------
Net interest income (tax
equivalent basis)....... 157,838 151,801 129,038
Tax equivalent
adjustment.............. (8,732) (7,766) (7,385)
-------- -------- --------
Net interest income....... $149,106 $144,035 $121,653
-------- -------- --------
Net interest rate
differential............ 4.05% 4.14% 3.74%
------- ------- -------
Net interest margin(3).... 4.56% 4.62% 4.31%
------- ------- -------
- ---------------
(1) Interest income is presented on a tax equivalent basis using a 35% tax rate
for 1994 and 1993 and a 34% tax rate for 1992.
(2) Loans are stated net of unearned income.
(3) Net interest income on a tax equivalent basis as a percentage of earning
assets.
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The following table demonstrates the relative impact on net interest income
of changes in volume of earning assets and interest bearing liabilities and
changes in rates earned and paid by Valley on such assets and liabilities.
CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
1994 COMPARED TO 1993 1993 COMPARED TO 1992
------------------------------ -----------------------------
INCREASE(DECREASE)(2) INCREASE(DECREASE)(2)
------------------------------ -----------------------------
INTEREST VOLUME RATE INTEREST VOLUME RATE
-------- -------- -------- -------- ------- --------
(IN THOUSANDS)
Interest income:
Loans(1).......................... $ 17,246 $ (5,252) $ 22,498 $ 6,921 $18,639 $(11,718)
Taxable investments............... (14,136) (3,792) (10,344) (6,021) (4,675) (1,346)
Tax-exempt investments(1)......... 2,804 (2,109) 4,913 789 3,891 (3,102)
Federal funds sold and other short
term investments(1)............ 536 501 35 (447) (123) (324)
-------- -------- -------- -------- ------- --------
6,450 (10,652) 17,102 1,242 17,732 (16,490)
-------- -------- -------- -------- ------- --------
Interest expense:
Savings deposits.................. (6) (2,292) 2,286 (6,219) 8,729 (14,948)
Time deposits..................... 343 (421) 764 (14,932) (3,377) (11,555)
Federal funds purchased and
securities sold under
repurchase agreements.......... 645 (6) 651 (124) 53 (177)
Other short term borrowings....... 66 94 (28) (212) (104) (108)
Other borrowings.................. (635) -- (635) (34) (115) 81
-------- -------- -------- -------- ------- --------
413 (2,625) 3,038 (21,521) 5,186 (26,707)
-------- -------- -------- -------- ------- --------
Net interest income................. $ 6,037 $ (8,027) $ 14,064 $ 22,763 $12,546 $ 10,217
======== ======== ======== ======== ======= ========
- ---------------
(1) Interest income is adjusted to a tax equivalent basis using a 35% tax rate
for 1994 and 1993 and a 34% tax rate for 1992.
(2) Variances resulting from a combination of changes in volume and rates are
allocated to the categories in proportion to the absolute dollar amounts of
the change in each category.
NON-INTEREST INCOME
The following table presents the components of non-interest income for the
years ended December 31, 1994, 1993 and 1992.
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Trust income.................................. $ 805 $ 665 $ 605
Service charges on deposit accounts........... 6,314 5,984 4,568
Gains on securities transactions, net......... 6,046 7,222 6,358
Fees from mortgage servicing.................. 3,320 3,812 4,399
Gains on sales of loans....................... 544 3,505 8,569
Other......................................... 5,450 5,326 6,468
------- ------- -------
Total............................... $22,479 $26,514 $30,967
======= ======= =======
Non-interest income continues to represent a considerable source of income
for Valley. Excluding gains on securities transactions and the gain on the sale
of loans, total non-interest income amounted to $15.9 million in 1994 compared
with $15.8 million in 1993.
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14
Service charges on deposit accounts increased $330 thousand or 5.5% from
1993 to 1994. A majority of this increase is due to the expansion of account
volume and increased fees charged on deposit accounts.
Fees from mortgage servicing decreased by 12.9% from $3.8 million in 1993
to $3.3 million in 1994. These fees represent gross servicing fees and related
ancillary fees for servicing mortgage portfolios by VNB Mortgage Services, Inc.
("MSI"), VNB's mortgage servicing subsidiary. This decrease represents in part
the decline in the investor owned portfolio due to large prepayments during 1993
and continuing into early 1994. MSI serviced a total of $1.20 and $1.17 billion
of loans as of December 31, 1994 and 1993, respectively, of which $536.6 and
$467.0 million, respectively, are serviced for VNB. The portfolio remained
almost unchanged between year-end 1994 and 1993. This was due to the acquisition
of four small portfolios totalling approximately $111 million, the new
origination of loans by VNB, net of prepayments of $48 million and prepayments
of approximately $150 million of the portfolio serviced for outside investors.
Amortization expense decreased during 1994 to $1.6 million from $3.7 million in
1993, reflecting the slow down in prepayments. An analysis is completed
quarterly to determine amortization expense, based on all principal payments. At
the current higher interest rate levels, the expected life of the portfolio has
increased, causing amortization expense to decrease, which is in direct relation
to the portfolio size and the level of expected future cash flows and service
fees.
Gains on the sales of loans were $544 thousand for 1994 compared to $3.5
million for 1993. In 1994 Valley stopped selling its new originated loans in
order to maintain its loan growth. Loans awaiting sale are classified as loans
held for sale, and are recorded at lower of cost or market value on the
consolidated statement of financial condition at December 31, 1994 and 1993.
Net gains on securities transactions in 1994 and 1993 amounted to $6.0
million and $7.2 million, respectively. This was the result of the sale of
securities due to rising interest rates beginning in early 1994 and Valley's
decision to take advantage of the increased yields available.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the
years ended December 31, 1994, 1993 and 1992.
NON-INTEREST EXPENSE
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Salary expense................................ $31,100 $29,181 $26,841
Employee benefit expense...................... 7,970 6,851 6,371
FDIC insurance premiums....................... 7,288 7,071 6,042
Net occupancy expense......................... 6,984 6,192 5,761
Furniture and equipment expense............... 4,854 4,428 3,943
Amortization of intangible assets............. 2,703 5,032 4,142
Other......................................... 18,119 17,885 17,726
------- ------- -------
Total............................... $79,018 $76,640 $70,826
======= ======= =======
Non-interest expense totalled $79.0 million for 1994, $2.4 million, or 3.1%
above the 1993 level. The largest component of non-interest expense is salaries
and employee benefit expense which totalled $39.1 million in 1994 compared to
$36.0 million in 1993, an increase of $3.1 million or 8.4%. At December 31,
1994, full-time equivalent staff was 1,168, compared to 1,161 at the end of
1993.
Insurance premiums assessed by the Federal Deposit Insurance Corporation
("FDIC") increased by $217 thousand, or 3.1% to $7.3 million in 1994, from $7.1
million in 1993. This increase was reflective of the additional insurance
premium for growth in deposits during 1994. The current rate charged for
insurance by the FDIC with respect to Valley, is .23% of deposits and has been
at that level since September 1991. Overall,
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15
assessment rates can range from .23% for well capitalized institutions with no
supervisory concerns to .31% for undercapitalized institutions with substantial
supervisory concerns. There has been some discussion by the FDIC that premium
amounts may decrease during 1995, since the Bank Insurance Fund ("BIF") is
expected to be restored to levels required by FDICIA. Valley has $3.3 billion of
deposits of which approximately $2.6 billion are insured by BIF and
approximately $700 million are insured by the Savings Association Insurance Fund
("SAIF"). If there is a reduction in the BIF rate, Valley would benefit by a
decrease in FDIC insurance premium expense. SAIF rates are not expected to
decline at this time.
Net occupancy expense increased to $7.0 million in 1994 from $6.2 million
in 1993. The increase of $792 thousand represents additional rent, utilities,
tax and maintenance expense on facilities utilized by Valley. During the second
quarter of 1993 Valley acquired a 62,000 square foot building for $3.3 million
located adjacent to its current administrative headquarters in Wayne, New Jersey
in order to consolidate sections of its operations. This facility is currently
occupied by a small number of tenants and rental income is being collected to
partially offset the expense of this building. Renovations are currently being
made to prepare the building for Valley's use and during 1995 the relocation of
many departments will take place.
Furniture and equipment expense increased $426 thousand, or 9.6%, which is
indicative of the growth during 1994 of the operations. This includes
depreciation, maintenance and repairs.
Amortization of intangible assets decreased to $2.7 million in 1994 from
$5.0 million in 1993, representing a decrease of $2.3 million, or 46.3%. The
majority of this decrease, as discussed previously in relation to fees from
mortgage servicing, represents amortization of purchased mortgage servicing
rights of $1.6 million during 1994, compared with $3.7 million for 1993, a
decrease of $2.1 million, or 57.3%.
The efficiency ratio measures a bank's gross operating expense as a
percentage of fully-taxable equivalent net interest income and other
non-interest income without taking into account security gains and losses and
other non-recurring items. Valley's efficiency ratio as of December 31, 1994 is
45.4%, one of the lowest in the industry, compared with an efficiency ratio for
1993 and 1992 of 44.8% and 46.1%, respectively. Valley strives to control its
efficiency ratio and expenses as a means of producing increased earnings for its
shareholders.
INCOME TAXES
Income tax expense as a percentage of pre-tax income declined to 33.7% in
1994 compared to 35.1% in 1993. This decrease was attributable to a higher
amount of non-taxable income on investment securities, a lower state tax rate
for a new investment subsidiary which began operating in 1994, and the
elimination in the State of New Jersey corporate income tax surcharge of .375%.
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes," was issued by the Financial Accounting Standards
Board in February 1992. Valley adopted SFAS No. 109 prospectively as of January
1, 1993. The cumulative effect of this change in accounting for income taxes
reduced net income by $402 thousand and is reported separately in the
consolidated statement of income for the year ended December 31, 1993.
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16
ASSET/LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
The following table illustrates Valley's interest rate gap position as of
December 31, 1994 on a 90 day, between 90 and 365 days and after 365 day basis.
INTEREST RATE SENSITIVITY ANALYSIS
NON-INTEREST
RATE
REPRICING SENSITIVE
AFTER TOTAL OR
REPRICING 90 BUT REPRICING REPRICING
WITHIN WITHIN WITHIN AFTER
90 DAYS 365 DAYS 365 DAYS 365 DAYS TOTAL
---------- --------- ---------- ---------- ----------
(IN THOUSANDS)
Earning assets
Investments held to maturity... $ 22,152 $ 73,247 $ 95,399 $ 750,752 $ 846,151
Investments available for
sale........................ 458,223 -- 458,223 -- 458,223
Loans.......................... 617,423 80,980 698,403 1,484,831 2,183,234
Loans held for sale............ 4,574 -- 4,574 -- 4,574
---------- --------- ---------- ---------- ----------
Total earning assets........ $1,102,372 $ 154,227 $1,256,599 $2,235,583 $3,492,182
---------- --------- ---------- ---------- ----------
Percentage of total earning
assets.................... 31.6% 4.4% 36.0% 64.0% 100.0%
---------- --------- ---------- ---------- ----------
Sources of funds
Non-interest bearing
deposits.................... $ 287,966 $ -- $ 287,966 $ 191,978 $ 479,944
Savings deposits............... 602,698 -- 602,698 1,026,610 1,629,308
Time deposits.................. 403,366 369,296 772,662 452,107 1,224,769
Federal funds purchased and
securities sold under
repurchase agreements....... 63,804 -- 63,804 -- 63,804
Other short term borrowings.... 15,549 -- 15,549 -- 15,549
Other borrowings............... 92 2,239 2,331 -- 2,331
Non-interest bearing sources... -- -- -- 76,477 76,477
---------- --------- ---------- ---------- ----------
Total sources of funds...... $1,373,475 $ 371,535 $1,745,010 $1,747,172 $3,492,182
---------- --------- ---------- ---------- ----------
Percentage of total sources
of funds.................. 39.3% 10.7% 50.0% 50.0% 100.0%
---------- --------- ---------- ---------- ----------
Interest sensitivity gap......... $ (271,103) $(217,308) $ (488,411) $ 488,411 $ --
---------- --------- ---------- ---------- ----------
Cumulative interest sensitivity
gap............................ $ (271,103) $(488,411) $ (488,411) $ -- $ --
---------- --------- ---------- ---------- ----------
Ratio of earning assets to
sources of funds............... .80:1 .42:1 .72:1 1.29:1 1:1
---------- --------- ---------- ---------- ----------
Cumulative ratio of earning
assets to sources of funds..... .80:1 .72:1 .72:1 1:1 1:1
---------- --------- ---------- ---------- ----------
Managing net interest margin continues to be the single most important
factor in maximizing earnings. Through its Asset/Liability Policy, Valley
strives to maintain a consistent net interest rate differential by managing the
sensitivity and repricing of its assets and liabilities to interest rate
fluctuations.
Valley seeks to achieve a sufficient level of rate sensitive assets to
equal its rate sensitive liabilities, and analyzes the maturity and repricing of
earning assets and sources of funds at various intervals. The level by which
repricing earning assets exceed or are exceeded by repricing sources of funds is
expressed as a ratio and dollar value (interest sensitivity gap) and is used as
a measure of interest rate risk.
At December 31, 1994, rate sensitive liabilities exceeded rate sensitive
assets at the 90 day interval and resulted in a negative gap of $271 million or
a ratio of .80:1. Rate sensitive liabilities also exceeded rate sensitive assets
at the 91 to 365 day interval by $217 million or a ratio of .42:1 and resulted
in a negative gap.
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17
The total negative gap repricing within 365 days as of December 31, 1994 is
$488.4 million or .72:1. Valley has strived to reduce its negative gap in view
of the present climate of rising interest rates. Management is attempting to
reduce this negative gap, and does not view these amounts as presenting an
unusually high risk potential, although no assurances can be given that Valley
is not at risk from rate increases or decreases.
The above gap results take into account repricing and maturities of assets
and liabilities, but fails to consider the interest rate sensitivities of those
asset and liability accounts. Management has prepared for its use an income
simulation model to project future net interest income streams in light of the
current gap position. Management has also prepared for its use alternative
scenarios to measure levels of net interest income associated with various
factors including changes in interest rates. According to this computer model,
an interest rate increase of 300 basis points and a decrease of 100 basis points
resulted in an impact on future net interest income which is consistent with
target levels contained in Valley's Asset/Liability Policy. Management cannot
provide any assurance about the actual effect of changes in interest rates on
Valley's net interest income.
LIQUIDITY
Liquidity measures the ability to satisfy current and future cash flow
needs as they become due. Maintaining a level of liquid funds through
asset-liability management seeks to ensure that these needs are met at a
reasonable cost. On the asset side, liquid funds are maintained in the form of
cash and due from banks, federal funds sold, investments securities held to
maturity maturing within one year, securities available for sale and loans held
for sale. At December 31, 1994, liquid assets amounted to $671 million, as
compared to $1.13 billion at December 31, 1993. This represents 19.2% and 32.6%
of earning assets, and 17.9% and 33.9% of total assets at December 31, 1994 and
year-end 1993, respectively.
On the liability side, the primary source of funds available to meet
liquidity needs is Valley's core deposit base, which generally excludes
certificates of deposit over $100 thousand. Core deposits averaged approximately
$2.65 billion and $2.24 billion at December 31, 1994 and year-end 1993,
respectively, representing 76.6% and 68.2% of average earning assets. Short term
borrowings and large dollar certificates of deposit, generally those over $100
thousand, are used as supplemental funding sources during periods when growth in
the core deposit base does not keep pace with that of earning assets. Additional
liquidity is derived from scheduled loan and investment payments of principal
and interest, as well as prepayments received. Proceeds from the sales of
investment securities were $228.2 million, and proceeds of $298.6 million were
generated from investment maturities. Purchases of investment securities during
the same year were $406.2 million. Short term borrowings and certificates of
deposit over $100 thousand amounted to $271.5 million and $207.0 million, on
average, for the year ending December 31, 1994 and 1993, respectively.
The following table lists, by maturity, all certificates of deposit of
$100,000 and over at December 31, 1994. These certificates of deposit are
generated primarily from core deposit customers and are not brokered funds.
(IN THOUSANDS)
--------------
Less than three months......................... $ 178,670
Three to six months............................ 20,128
Six to twelve months........................... 19,491
More than twelve months........................ 28,521
---------
$ 246,810
=========
The parent company's cash requirements consist primarily of dividends to
shareholders. This cash need is routinely satisfied by dividends collected from
its subsidiary bank. Projected cash flows from this source are expected to be
adequate to pay dividends, given the current capital levels and current
profitable operations of its subsidiary.
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18
INVESTMENT SECURITIES
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES HELD TO MATURITY AT
DECEMBER 31, 1994
US TREASURY
SECURITIES AND OBLIGATIONS OF
OTHER GOVERNMENT STATES AND
AGENCIES POLITICAL MORTGAGE-BACKED OTHER DEBT
AND CORPORATIONS SUBDIVISIONS SECURITIES SECURITIES TOTAL(4)
----------------- ----------------- ----------------- ----------------- -----------------
AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD AMORTIZED YIELD
COST(1) (2) COST(1) (2)(3) COST(1) (2) COST(1) (2) COST(1) (2)
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(IN THOUSANDS)
0-1 years............. $ -- -- $ 69,689 7.27% $ 10,608 6.21% $ -- -- $ 80,297 7.13%
1-5 years............. 8,993 5.64% 214,972 6.62% 224,456 7.06% 130 5.50% 448,551 6.82%
5-10 years............ -- -- 36,134 7.29% 261,402 6.85% 25 5.50% 297,561 6.90%
Over 10 years......... 7,295 6.30% 5,549 11.00% 4,654 3.86% 625 9.75% 18,123 7.23%
--------- ----- --------- ----- -------- ----- ----- ----- --------- -----
Total securities.... $16,288 5.94% $326,344 6.91% $501,120 6.90% $ 780 8.91% $844,532 6.89%
======== ==== ======== ===== ======== ==== ===== ==== ======== ====
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE AT
DECEMBER 31, 1994
US TREASURY
SECURITIES AND OTHER
GOVERNMENT AGENCIES MORTGAGE-BACKED
AND CORPORATIONS SECURITIES TOTAL(4)
-------------------- -------------------- --------------------
AMORTIZED AMORTIZED AMORTIZED
COST(1) YIELD(2) COST(1) YIELD(2) COST(1) YIELD(2)
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
0-1 years............................................... $ -- -- $ -- -- $ -- --
1-5 years............................................... 188,889 5.46% 57,900 5.60% 241,789 5.49%
5-10 years.............................................. -- -- -- -- -- --
Over 10 years........................................... -- -- 234,783 5.63% 234,783 5.63%
--------- --- --------- --- --------- ---
Total securities...................................... $188,889 5.46% $292,683 5.62% $481,572 5.56%
======== ======= ======== ======= ======== =======
- ---------------
(1) Maturities are stated at cost less principal reductions, if any, and
adjusted for accretion of discounts and amortization of premiums.
(2) Average yields are calculated on a yield-to-maturity basis.
(3) Average yields on obligations of states and political subdivisions are
generally tax-exempt and calculated on a tax-equivalent basis using a
statutory federal income tax rate of 35%.
(4) Excludes equity securities which have indefinite maturities.
Valley's investment portfolio is comprised of U.S. government and federal
agency securities, tax-exempt issues of states and municipalities, mortgage
backed securities and equity and other securities. There were no securities in
the name of any one issuer exceeding 10% of shareholders' equity, except for
securities issued by the United States and its political subdivisions and
agencies. The portfolio generates substantial interest income which serves as a
source of liquidity. The decision to purchase or sell securities is based upon
the current assessment of long and short term economic and financial conditions,
including the interest rate environment and other statement of financial
condition components.
As of December 31, 1994 Valley has $458.2 million of securities available
for sale compared with $461.1 million at December 31, 1993. Those securities are
recorded at their fair value on an aggregate basis as of December 31, 1994.
These securities are not considered trading account securities, which may be
sold on a continuous basis, but rather securities which may be sold to meet the
various liquidity and interest rate requirements of Valley.
During 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity Securities." The statement is
effective for fiscal years beginning after December 15, 1993, applied prospec-
16
19
tively. SFAS 115 requires debt and equity securities classified as
available-for-sale securities to be reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
shareholders' equity, net of deferred tax. This SFAS may have a significant and
fluctuating impact on shareholders' equity, depending on changes in market
interest rates. Valley has adopted this statement prospectively on January 1,
1994, and has classified its investment portfolio into investments held to
maturity and available for sale on the consolidated statement of financial
condition at December 31, 1994. The financial impact represents the difference
between the amortized cost and fair value of those investments available for
sale. As of December 31, 1994 the investment securities available for sale had
an unrealized loss of $16.2 million, net of deferred taxes. Gains or losses are
realized from the portfolio for income purposes only when the securities
available for sale are sold.
Total investment securities, including securities classified as held to
maturity and available for sale, decreased $148.3 million during 1994 to $1.30
billion. U.S. Treasury securities decreased $123.3 million or 40.8%, tax-exempt
issues of states and municipalities increased $37.7 million or 13.1%, and
mortgage backed securities increased $16.6 million or 2.2%.
FASB issued SFAS 119 "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments" which applies to financial statements with
fiscal years ending after December 15, 1994. This statement requires disclosure
about derivative financial instruments of which Valley has none.
LOAN PORTFOLIO
The following table reflects the composition of the loan portfolio for the
five years ended December 31, 1994.
LOAN PORTFOLIO
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Commercial........................... $ 266,853 $ 218,502 $ 223,249 $ 255,707 $ 321,621
Construction......................... 64,836 64,326 58,435 76,576 90,917
Commercial mortgage.................. 522,696 437,072 356,254 337,083 301,486
Residential mortgage................. 684,629 619,084 533,209 403,719 412,437
Installment.......................... 645,719 544,034 446,855 408,804 432,222
---------- ---------- ---------- ---------- ----------
2,184,733 1,883,018 1,618,002 1,481,889 1,558,683
Less: Unearned income................ (1,499) (1,834) (1,065) (1,028) (1,339)
---------- ---------- ---------- ---------- ----------
Loans, net of unearned income........ 2,183,234 1,881,184 1,616,937 1,480,861 1,557,344
Loans held for sale.................. 4,574 17,757 455 2,899 --
---------- ---------- ---------- ---------- ----------
Total loans........................ $2,187,808 $1,898,941 $1,617,392 $1,483,760 $1,557,344
========== ========== ========== ========== ==========
The composition of Valley's loan portfolio continues to change due to the
local economy and loan demand. Commercial lending increased by the largest
percentage after slow growth during 1993 and automobile loans and commercial
mortgage loans have continued their steady increase. Residential loans were
increasing steadily throughout 1993 and slowed considerably since the early part
of 1994, as interest rates began to rise. The increase in automobile lending is
reflective of Valley's increased market penetration, and may be indicative of
greater consumer confidence in the economy during 1994. There is no guarantee
that the level of automobile lending will continue at the brisk pace of 1994,
especially in light of the increases in lending rates.
Automobile loans outstanding at year end include customer loans which were
referred to VNB by a major insurance company. Approximately 35% of the
automobile loan portfolio and 11% of the total loan portfolio outstanding at
December 31, 1994 represent loans originated by VNB thorugh this referral
program. Over the last several years the amount of loans referred through this
program has grown and VNB is continuously working to further expand the
relationship. The insurance company has referred loans in this manner for
approximately 40 years and current relations between the parties are excellent.
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20
Residential mortgage loans, including residential mortgages held for sale
increased by 8.2% or $52.3 million to a total of $689.2 million at December 31,
1994, and represent 31.5% of the loan portfolio. Valley, historically did not
have a large residential loan portfolio and, therefore, most of this growth came
from Valley's competition. Installment loans, including predominantly automobile
and credit card loans, totalled $645.7 million at December 31, 1994, increasing
by $101.7 million over 1993 or 18.7% and representing 29.5% of the loan
portfolio. Commercial mortgages increased 19.6% or $85.6 million from December
1993 to December 1994, also the result of refinancing activity.
It is not known if the trend of increased automobile and commercial
mortgage loans will be as predominant as the effects of rising interest rates
are felt throughout the economy. Valley continues to take advantage of loan
demand in those sectors of the economy where it is most prevalent.
Valley has continued to offer various types of fixed rate residential
mortgage loans and is also offering a large array of adjustable rate loans.
During 1993 Valley periodically sold some of its 15 year fixed loans into the
secondary market, allowing Valley to keep its portfolio mixed between fixed rate
and variable rate loans, as well as maintaining a shorter maturity of its
portfolio. During 1994 Valley decided to keep its residential mortgage loans
being originated so that the portfolio could grow as demand by Valley for loans
increased.
As part of the acquisition of Rock, Valley became a preferred Small
Business Administration ("SBA") lender with authority to make loans without the
prior approval of the SBA. Approximately 70% of each loan is guaranteed by the
SBA and is sold into the secondary market, with the balance retained in the
portfolio. Valley intends to expand this area of lending as it provides a solid
source of fee income and loans with floating interest rates tied to the prime
lending rate.
Efforts are made to maintain a diversified portfolio as to type of borrower
and loan. There were no loan concentrations at December 31, 1994 other than
those disclosed above.
The following table reflects the maturity distribution of the loan
portfolio as of December 31, 1994.
OVER 1
1 YEAR TO 5 OVER
OR LESS YEARS 5 YEARS TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
Commercial and financial-fixed rate.............. $ 10,187 $ 53,459 $ 20,680 $ 84,326
Commercial and financial-adjustable rate......... 74,420 28,045 80,062 182,527
Real estate construction-fixed rate.............. 7,109 -- -- 7,109
Real estate construction-adjustable rate......... 29,751 16,694 11,282 57,727
-------- -------- -------- --------
$121,467 $ 98,198 $112,024 $331,689
======== ======= ======== ========
The majority of payments due after 1 year represent loans with floating
interest rates.
Prior to maturity of each loan, Valley generally conducts a review which
normally includes an analysis of the borrower's financial condition and, if
applicable, a review of the adequacy of collateral. A rollover of the loan at
maturity may require a principal paydown.
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans and other real estate owned
(OREO). Loans are generally placed on a non-accrual status when they become past
due in excess of 90 days as to payment of principal and interest. Exceptions to
the non-accrual policy may be permitted if the loan is sufficiently
collateralized and in the process of collection. OREO is acquired through
foreclosure on loans secured by land or real estate. OREO is reported at the
lower of cost or fair value at the time of acquisition and at the lower of fair
value, less estimated costs to sell, or cost thereafter.
Non-performing assets decreased from 1993 to 1994 as the economy continued
its strength and recovery. Non-performing assets were $25.7 million at December
31, 1994 compared with $26.7 million at December 31, 1993 and decreased by $1.0
million, or 3.9%. Non-performing assets at December 31, 1994 and 1993,
respectively, amounted to 1.17% and 1.40% of loans and other real estate owned.
18
21
The following table sets forth non-performing assets and accruing loans
which are 90 days or more past due as to principal or interest payments on the
dates indicated, in conjunction with asset quality ratios for Valley.
LOAN QUALITY
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN THOUSANDS)
Loans past due in excess of 90 days and
still accruing......................... $ 5,416 $ 8,677 $11,096 $13,956 $ 9,235
======= ======= ======= ======= =======
Non-performing loans..................... $18,796 $22,983 $28,757 $28,495 $23,503
Other real estate owned.................. 6,865 3,710 2,709 3,190 2,032
------- ------- ------- ------- -------
Total non-performing assets......... $25,661 $26,693 $31,466 $31,685 $25,535
======= ======= ======= ======= =======
Non-performing loans as a % of loans..... 0.87% 1.21% 1.78% 1.92% 1.51%
------- ------- ------- ------- -------
Non-performing assets as a % of loans
plus other real estate owned........... 1.17% 1.40% 1.94% 2.14% 1.64%
------- ------- ------- ------- -------
Net loan charge-offs as a % of average
loans.................................. 0.19% 0.24% 0.63% 0.41% 0.39%
------- ------- ------- ------- -------
Allowance as a % of loans................ 1.67% 1.93% 1.85% 1.58% 1.11%
------- ------- ------- ------- -------
Allowance as a % of non-performing
assets................................. 141.98% 137.00% 95.31% 73.74% 67.60%
------- ------- ------- ------- -------
ASSET QUALITY AND RISK ELEMENTS
Lending is one of the most important functions performed by Valley, and by
its very nature, lending is also the most complicated, riskiest and profitable
part of Valley's business. A separate credit department is responsible for risk
assessment, credit file maintenance and periodically evaluating overall
creditworthiness of a borrower. Additionally, efforts are made to limit
concentrations of credit within the loan portfolio so as to minimize the impact
of a downturn in any one economic sector. Valley's portfolio, in total, is
diversified as to type of borrower and loan, even though much of its lending is
in New Jersey, thereby limiting its concentration of credit risk.
Management realizes that some degree of risk must be expected in the normal
course of lending activities. Reserves are maintained to absorb such potential
loan and off-balance sheet credit losses. The allowance for loan losses and
related provision are an expression of management's evaluation of the credit
portfolio and economic climate.
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22
The following table sets forth the relationship among loans, loans
charged-off and loan recoveries, the provision for loan losses and the allowance
for loan losses for the past five years:
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Average loans outstanding,........... $2,040,191 $1,760,978 $1,541,892 $1,508,838 $1,453,142
---------- ---------- ---------- ---------- ----------
Beginning balance-Allowance for loan
losses............................. $ 36,568 $ 29,990 $ 23,366 $ 17,262 $ 9,803
---------- ---------- ---------- ---------- ----------
Balance from acquisition............. -- 4,466 -- -- 355
---------- ---------- ---------- ---------- ----------
Loans charged-off:
Commercial......................... 1,715 1,464 5,788 3,001 3,396
Construction....................... 95 441 813 300 400
Mortgage-Commercial................ 1,338 784 -- -- --
Mortgage-Residential............... 76 366 588 105 4
Installment........................ 2,645 2,505 3,682 4,236 2,616
---------- ---------- ---------- ---------- ----------
5,869 5,560 10,871 7,642 6,416
---------- ---------- ---------- ---------- ----------
Charge-off loans recovered:
Commercial......................... 594 438 241 511 171
Construction....................... 603 -- -- -- --
Mortgage-Commercial................ 61 -- -- -- --
Mortgage-Residential............... -- 1 -- -- --
Installment........................ 932 873 934 967 554
---------- ---------- ---------- ---------- ----------
2,190 1,312 1,175 1,478 725
---------- ---------- ---------- ---------- ----------
Net charge-offs...................... 3,679 4,248 9,696 6,164 5,691
Provision charged to operations...... 3,545 6,360 16,320 12,268 12,795
---------- ---------- ---------- ---------- ----------
Ending balance-Allowance for loan
losses............................. $ 36,434 $ 36,568 $ 29,990 $ 23,366 $ 17,262
---------- ---------- ---------- ---------- ----------
Ratio of net charge offs during the
period to average loans outstanding
during the period.................. .18% .24% .63% .41% .39%
The allowance for possible loan losses is maintained at a level believed by
management to be appropriate to absorb potential loan losses and other credit
risk related charge-offs. It is the result of an analysis which relates
outstanding balances to expected reserve levels required to absorb future credit
losses. Current economic problems are addressed through management's assessment
of anticipated changes in the regional economic climate, changes in composition
and volume of the loan portfolio and variances in levels of classified loans,
non-performing assets and other past due amounts. Additional factors include
consideration of exposure to loss including size of credit, existence and nature
of collateral, credit record, profitability and general economic conditions.
During the year, continued emphasis was placed on the current economic
climate and the condition of the real estate market in the Northern New Jersey
area. Management addressed these current economic conditions and applied that
information to changes in the composition of the loan portfolio. The decline in
non-performing assets, coupled with the continued recovery of the economy among
other things was responsible for the decision to decrease the provision from
$6.4 million in 1993 to $3.5 million in 1994.
20
23
The following table summarizes the allocation of the allowance for loan
losses to specific loan categories for the past five years:
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1994 1993 1992
----------------------- ----------------------- -----------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
CATEGORY CATEGORY CATEGORY
ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL
ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS
---------- -------- ---------- -------- ---------- --------
(IN THOUSANDS)
Loan category:
Commercial
and financial... $ 9,958 15.2% $ 10,469 14.9% $ 8,468 17.4%
Real estate....... 6,669 55.2% 6,564 56.5% 5,324 55.0%
Consumer.......... 6,608 29.7% 6,602 28.6% 4,958 27.6%
Unallocated........ 13,199 N/A 12,933 N/A 11,240 N/A
-------- ----- -------- ----- -------- -----
$ 36,434 100.0% $ 36,568 100.0% $ 29,990 100.0%
======== ===== ======== ====== ======== =====
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1991 1990
----------------------- ---------------------
PERCENT PERCENT
OF LOAN OF LOAN
CATEGORY CATEGORY
ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL
ALLOCATION LOANS ALLOCATION LOANS
---------- -------- ---------- --------
(IN THOUSANDS)
Loan category:
Commercial
and financial... $ 10,232 22.4% $ 7,978 26.4%
Real estate....... 4,802 50.1% 3,860 45.8%
Consumer.......... 4,053 27.5% 2,796 27.8%
Unallocated........ 4,279 N/A 2,628 N/A
-------- ------- -------- ------
$ 23,366 100.0% $ 17,262 100.0%
======== ====== ======== ======
Net charge-offs decreased during 1994 as a result of improved current
economic conditions. The amount of anticipated charge-offs for 1995 is estimated
to be consistent with 1994, but there can be no assurance that changing economic
conditions will not cause charge-offs to increase.
Valley's allowance for loan loss stayed virtually unchanged from 1993 to
1994. At December 31, 1994 the allowance for loan losses amounted to $36.4
million or 1.67% of loans, including loans held for sale, net of unearned
income, as compared to $36.6 million or 1.9% at year-end 1993.
The allowance is adjusted by provisions charged against income and loans
charged-off, net of recoveries. Net loan charge-offs were $3.7 million for the
year ended December 31, 1994 compared with $4.2 million for the year ended
December 31, 1993. The ratio of net charge-offs to average loans amounted to
0.18% for 1994 compared with 0.24% for 1993.
Although substantially all risk elements at December 31, 1994 have been
disclosed, Management believes that the current economic conditions may affect
the ability of certain borrowers to comply with the contractual repayment terms
on certain real estate and commercial loans. As part of the analysis of the loan
portfolio by management, it has been determined that there are approximately
$8.0 million in potential problem loans at December 31, 1994 which have not been
classified as non-performing or past due. Potential problem loans are defined as
loans for which management believes that the borrower's ability to repay the
loan may be impaired. Approximately $2.3 million has been provided for in the
allowance for loan losses for these potential problem loans. There can be no
assurance that Valley has identified all of its problem loans.
FASB issued Statement of Financial Accounting Standard No. 114, "Accounting
by Creditors for Impairment of a Loan" and Statement of Financial Accounting
Standard No. 118 "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosure" which apply to financial statements for fiscal years
beginning after December 15, 1994. These Statements require that impaired loans
be measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or at the fair value of the collateral if the
loan is collateral dependent. Valley has reviewed its impaired loans and has
determined that there is no material impact expected on the financial position
or operations of Valley as a result of adopting these statements, prospectively,
during 1995.
CAPITAL ADEQUACY
A significant measure of the strength of a financial institution is its
shareholders' equity, which must expand in close proportion to asset growth. At
December 31, 1994, shareholders' equity totalled $300.2 million or 8.0% of total
assets, compared with $282.5 million or 7.8% at year-end 1993. Valley has
achieved steady internal capital generation throughout the past five years.
Risk-based guidelines define a two-tier capital framework. Tier 1 capital
consists of common shareholders' equity less disallowed intangibles, while Total
risk-based capital consists of Tier 1 capital and the
21
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allowance for loan losses up to 1.25% of risk-adjusted assets. Risk-adjusted
assets are determined by assigning various levels of risk to different
categories of assets and off-balance sheet activities.
The following tables detail Valley's capital components and ratios as of
December 31, 1994, 1993 and 1992.
CAPITAL ANALYSIS
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
Total shareholders' equity (excluding fair value
adjustment of $16.2 million for 1994)(1)............. $ 316,362 $ 282,451 $ 235,550
Less: Disallowed intangible assets..................... 4,459 5,806 4,166
---------- ---------- ----------
Tier 1 capital......................................... $ 311,903 $ 276,645 $ 231,384
Allowance for loan losses(2)........................... 28,468 24,549 21,390
---------- ---------- ----------
Tier 2 capital......................................... $ 28,468 $ 24,549 $ 21,390
---------- ---------- ----------
Total risk-based capital............................... $ 340,371 $ 301,194 $ 252,774
---------- ---------- ----------
Risk-adjusted assets................................... $2,269,492 $1,957,455 $1,710,939
---------- ---------- ----------
Adjusted average assets................................ $3,746,104 $3,607,169 $3,188,545
---------- ---------- ----------
- ---------------
(1) During 1994, the regulatory agencies determined that the FASB 115 adjustment
does not enter into the calculation of capital ratios.
(2) Limited to 1.25% of risk-weighted assets, with the excess deducted from
risk-weighted assets.
CAPITAL RATIOS
"WELL
CAPITALIZED"
REQUIREMENTS 1994 1993 1992
------------ ---- ---- ----
Tier 1 capital/risk-adjusted assets..................... 6.0% 13.7% 14.1% 13.5%
Total risk-based capital/risk-adjusted assets........... 10.0% 15.0% 15.4% 14.8%
Tier 1 capital/quarterly average assets less disallowed
intangibles (leverage ratio).......................... 5.0% 8.3% 7.7% 7.3%
Shareholders equity/total assets........................ -- 8.0% 7.8% 7.0%
Valley's capital position at December 31, 1994 under risk-based capital
guidelines was $311.9 million, or 13.7% of risk-weighted assets, for Tier 1
capital and $340.4 million, or 15.0% for Total risked-based capital. The
comparable ratios at December 31, 1993 were 14.1% for Tier 1 capital and 15.4%
for Total risk-based capital. Valley's ratios at December 31, 1994 are above the
"well capitalized" requirements, which require Tier 1 capital of at least 6% and
Total risk-based capital of 10%. The Federal Reserve Board requires "well
capitalized" bank holding companies to maintain a minimum leverage ratio of
5.0%. At December 31, 1994 and 1993, Valley was in compliance with the leverage
requirement having a Tier 1 leverage ratio of 8.3% and 7.7%, respectively.
The primary source of capital growth is through retention of earnings.
Valley's rate of earnings retention, derived by dividing undistributed earnings
by net income was 51.7% at December 31, 1994, compared to 60.5% at December 31,
1993. Cash dividends declared amounted to $.98 per share, equivalent to a
dividend payout ratio of 48.3%, up from the 39.5% for the year 1993. The current
quarterly dividend rate of $.25 per share provides for an annual rate of $1.00
per share. Valley's Board of Directors continues to believe that cash dividends
are an important component of shareholder value and that at its current level of
performance and capital, Valley expects to continue its current dividend policy
of a quarterly distribution of earnings to its shareholders.
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25
RESULTS OF OPERATIONS -- 1993 COMPARED TO 1992
Valley reported net income for 1993 of $56.4 million, or $2.00 per share,
30% above the $43.4 million, or $1.56 per share earned in 1992 (all amounts have
been restated for the RFC merger and the per share amounts have been restated to
give effect to a 10% stock dividend in 1994, a five for four stock split in 1993
and a three for two stock split in 1992).
Valley acquired the $223.2 million, seven branch Peoples Bank, N.A. on June
18, 1993. The merger was accounted for under the purchase method of accounting,
and as such, the consolidated financial statements include the results of
operations and assets and liabilities of Peoples from June 18, 1993 forward.
(See Note 2, Acquisitions in the Consolidated Financial Statements)
Net interest income on a tax equivalent basis rose $22.8 million, or 17.6%
to $151.8 million in 1993. The increase in 1993 was due primarily to the
significant decrease in interest rates on all liability accounts of 109 basis
points, which was greater than the decline of 70 basis points on all interest
earning assets. The net interest margin increased to 4.62% in 1993 from 4.31% in
1992, which was substantially the result of changes in market interest rates.
The increase in the net interest margin of 31 basis points, coupled with the
increase in average earning assets over average interest-bearing liabilities,
was the basis for the increase in net interest income.
A provision for loan losses was recorded totalling $6.4 million in 1993
compared with $16.3 million in 1992. The decline in non-performing assets,
coupled with the continued recovery of the economy was responsible for the
decision to decrease the provision.
Non-interest income in 1993 amounted to $26.5 million, a decrease of $4.5
million, or 14.4% compared with 1992. This decrease includes gains on securities
transactions of $7.2 million in 1993, an increase of $864 thousand compared to
1992. This resulted from restructuring the investment portfolio, to alter
maturities and to protect the portfolio from substantial and volatile
prepayments on mortgage backed securities due to declining interest rates and
heavy refinancing activity. The decrease in non-interest income is partially
from the decline in mortgage servicing fees by MSI. Mortgage servicing fees
totalled $3.8 million during 1993, a decrease of $587 thousand, or 13.3%
compared to 1992. These fees were the result of servicing a $1.17 billion loan
portfolio at December 31, 1993 which included $467.0 million serviced for VNB.
The decline in servicing fees was the result of large amounts of prepayments of
loans serviced causing the fee income to decline in proportion to the portfolio
decline. Service charges on deposit accounts increased $1.4 million, or 31.1%
during 1993 compared with 1992, which was due to increased volume due to the
Peoples seven branch acquisition increasing the number of deposit accounts and
increases to fees charged on transactions. Other non-interest income decreased
by $1.1 million primarily due to the reduction of transactions with the RTC from
the prior year.
Non-interest expense totalled $76.6 million in 1993, an increase of $5.8
million, or 8.2% compared with 1992. This increase was directly attributable to
the seven branches acquired during 1993 from Peoples Bank. Salaries and employee
benefit expense increased $2.8 million or 8.5%, and a result of number of the
full-time equivalent employees increasing from 973 at the end of 1992 to 1,081
at the end of 1993. FDIC insurance premiums increased $1.0 million or 17.0% and
was attributable to the deposits acquired in connection with the Peoples
acquisition. Net occupancy expense, and furniture and equipment expense
increased $950 thousand, or 16.5% as a result of the increased costs associated
with the acquisitions during 1993 and 1992. Amortization of intangible assets
increased $890 thousand or 21.5% representing the increased amortization due to
approximately $21.3 million of mortgage servicing acquired during 1993.
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26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER
SHARE DATA)
INTEREST INCOME
Interest and fees on loans (Note 5)........................ $162,643 $145,378 $138,395
Interest and dividends on investment securities
Taxable.................................................. 63,613 77,828 83,818
Tax-exempt............................................... 14,585 12,766 12,437
Dividends................................................ 254 175 206
Interest on federal funds sold and other short term
investments.............................................. 1,850 1,314 1,744
-------- -------- --------
Total interest income............................ 242,945 237,461 236,600
-------- -------- --------
INTEREST EXPENSE
Interest on deposits:
Savings deposits......................................... 42,346 42,352 48,571
Time deposits (Note 10).................................. 49,903 49,560 64,492
Interest on federal funds purchased and securities sold
under repurchase agreements.............................. 1,348 703 827
Interest on other short term borrowings.................... 227 161 373
Interest on other borrowings............................... 15 650 684
-------- -------- --------
Total interest expense........................... 93,839 93,426 114,947
-------- -------- --------
NET INTEREST INCOME........................................ 149,106 144,035 121,653
Provision for possible loan losses (Note 6)................ 3,545 6,360 16,320
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN
LOSSES................................................... 145,561 137,675 105,333
-------- -------- --------
NON-INTEREST INCOME
Trust income............................................... 805 665 605
Service charges on deposit accounts........................ 6,314 5,984 4,568
Gains on securities transactions, net (Notes 3 and 4)...... 6,046 7,222 6,358
Fees from mortgage servicing (Note 7)...................... 3,320 3,812 4,399
Gains on sales of loans.................................... 544 3,505 8,569
Other...................................................... 5,450 5,326 6,468
-------- -------- --------
Total non-interest income........................ 22,479 26,514 30,967
-------- -------- --------
NON-INTEREST EXPENSE
Salary expense (Note 12)................................... 31,100 29,181 26,841
Employee benefit expense (Note 12)......................... 7,970 6,851 6,371
FDIC insurance premiums.................................... 7,288 7,071 6,042
Net occupancy expense (Notes 8 and 14)..................... 6,984 6,192 5,761
Furniture and equipment expense (Note 8)................... 4,854 4,428 3,943
Amortization of intangible assets (Note 7)................. 2,703 5,032 4,142
Other...................................................... 18,119 17,885 17,726
-------- -------- --------
Total non-interest expense....................... 79,018 76,640 70,826
-------- -------- --------
INCOME BEFORE INCOME TAXES................................. 89,022 87,549 65,474
Income tax expense (Note 13)............................... 29,978 30,703 22,095
-------- -------- --------
Income before cumulative effect of accounting change....... 59,044 56,846 43,379
Cumulative effect of accounting change..................... -- (402) --
-------- -------- --------
NET INCOME................................................. $ 59,044 $ 56,444 $ 43,379
======== ======== ========
PER SHARE DATA:
Income before cumulative effect of accounting change..... $ 2.06 $ 2.01 $ 1.56
Net income............................................... $ 2.06 $ 2.00 $ 1.56
Weighted average number of shares outstanding.............. 28,729,424 28,260,888 27,873,723
See accompanying notes to consolidated financial statements.
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27
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
ASSETS
Cash and due from banks(Note 14).................................... $ 154,647 $ 75,927
Federal funds sold.................................................. -- 93,050
Other short-term investments........................................ -- 2,132
Investment securities held to maturity, fair value of $809,828 and
$1,013,629 in 1994 and 1993, respectively(Note 3)................. 846,151 991,573
Investment securities available for sale, fair value of $469,538 in
1993(Note 4)...................................................... 458,223 461,080
Loans, net of unearned income(Note 5)............................... 2,183,234 1,881,184
Loans held for sale (Note 5)........................................ 4,574 17,757
Less: Allowance for possible loan losses(Note 6).................. (36,434) (36,568)
---------- ----------
Net loans................................................. 2,151,374 1,862,373
---------- ----------
Premises and equipment(Note 8)...................................... 45,416 44,573
Due from customers on acceptances outstanding....................... 1,498 1,192
Accrued interest receivable......................................... 25,597 25,160
Other assets(Notes 7, 9 and 13)..................................... 61,037 47,808
---------- ----------
Total assets.............................................. $3,743,943 $3,604,868
========== ==========
LIABILITIES
Deposits(Note 10):
Non-interest bearing.............................................. $ 479,944 $ 432,948
Interest bearing:
Savings........................................................ 1,629,308 1,724,475
Time........................................................... 1,224,769 1,093,233
---------- ----------
Total deposits............................................ 3,334,021 3,250,656
---------- ----------
Federal funds purchased and securities sold under repurchase
agreements (Note 3)............................................... 63,804 35,248
Treasury tax and loan account and other short-term borrowings (Note
3)................................................................ 15,549 8,565
Other borrowings(Note 11)........................................... 2,331 2,667
Bank acceptances outstanding........................................ 1,498 1,192
Accrued expenses and other liabilities.............................. 26,549 24,089
---------- ----------
Total liabilities......................................... 3,443,752 3,322,417
---------- ----------
Commitments and Contingencies(Note 14)
SHAREHOLDERS' EQUITY (Notes 2, 12 and 15)
Common stock, no par value, authorized 37,537,500 shares; issued
28,950,100 shares in 1994 and 28,701,086 shares in 1993........... 16,276 9,642
Surplus............................................................. 133,190 63,211
Retained earnings................................................... 169,060 211,762
Unrealized loss on investment securities available for sale, net of
tax............................................................... (16,171) --
---------- ----------
302,355 284,615
Treasury stock, at cost (121,696 shares in 1994 and 1993)........... (2,164) (2,164)
---------- ----------
Total shareholders' equity................................ 300,191 282,451
---------- ----------
Total liabilities and shareholders' equity................ $3,743,943 $3,604,868
========== ==========
See accompanying notes to consolidated financial statements.
25
28
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNREALIZED
LOSS ON
INVESTMENT
SECURITIES
COMMON RETAINED TREASURY AVAILABLE
STOCK SURPLUS EARNINGS STOCK FOR SALE
------- -------- --------- -------- -----------
(IN THOUSANDS)
BALANCE -- DECEMBER 31, 1991.................. $ 7,770 $ 48,386 $ 156,417 $ (1,175) $ --
Net income.................................... -- -- 43,379 -- --
Cash dividends................................ -- -- (19,584) -- --
Warrants exercised............................ 22 136 -- -- --
Effect of stock incentive plan, net........... 75 295 -- -- --
Stock dividend................................ 138 897 (1,035) -- --
Purchase of treasury stock.................... -- -- -- (209) --
Net change in unrealized loss on equity
securities.................................. -- -- 38 -- --
------- -------- --------- -------- -----------
BALANCE -- DECEMBER 31, 1992.................. 8,005 49,714 179,215 (1,384) --
Net income.................................... -- -- 56,444 -- --
Cash dividends................................ -- -- (22,307) -- --
Warrants exercised............................ 315 1,624 -- -- --
Effect of stock incentive plan, net........... 123 520 -- -- --
Shares issued pursuant to merger.............. 1,054 9,908 -- -- --
Stock dividend................................ 145 1,445 (1,590) -- --
Purchase of treasury stock.................... -- -- -- (780) --
------- -------- --------- -------- -----------
BALANCE -- DECEMBER 31, 1993.................. 9,642 63,211 211,762 (2,164) --
Unrealized gain on investment securities
available for sale as of January 1, 1994.... -- -- -- -- 4,100
Net income.................................... -- -- 59,044 -- --
Cash dividends................................ -- -- (28,506) -- --
Warrants exercised............................ 397 2,178 -- -- --
Effect of stock incentive plan, net........... 108 690 -- -- --
Stock dividend................................ 6,129 67,111 (73,240) -- --
Net change in unrealized loss on investment
securities available for sale............... -- -- -- -- (20,271)
------- -------- --------- -------- -----------
BALANCE -- DECEMBER 31, 1994.................. $16,276 $133,190 $ 169,060 $ (2,164) $ (16,171)
======= ======== ========= ======== =========
See accompanying notes to consolidated financial statements.
26
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 59,044 $ 56,444 $ 43,379
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of intangible assets.................... 7,743 9,432 7,894
Amortization of compensation costs pursuant to long term stock
incentive plan....................................................... 254 232 131
Provision for possible loan losses.................................... 3,545 6,360 16,320
Net amortization (accretion) of premiums and discounts................ 6,422 7,058 5,748
Net deferred income tax benefit....................................... 75 (2,403) (2,232)
Net gains on securities transactions.................................. (6,046) (7,222) (6,358)
Gain on sale of loans................................................. (544) (3,505) (8,569)
Net (decrease) increase in unearned income............................ (335) 70 37
Proceeds from recoveries on previously charged-off loans.............. 2,189 1,312 1,175
Net (increase) decrease in accrued interest receivables and other
assets............................................................... (3,835) 9,464 36,210
Net increase (decrease) in accrued expenses and other liabilities..... 624 (9,861) (15,114)
--------- --------- ---------
Net cash provided by operating activities............................. 69,136 67,381 78,621
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received pursuant to acquisitions................................... -- 7,566 37,022
Purchases of mortgage servicing rights................................... (1,390) (249) (5,065)
Proceeds from sales of investment securities available for sale.......... 187,096 330,546 35,354
Proceeds from maturing investment securities available for sale.......... 53,454 25,082 --
Purchases of investment securities available for sale.................... (236,934) (277,510) --
Purchases of investment securities held to maturity...................... (169,293) (334,736) (866,463)
Proceeds from sales of investment securities held to maturity............ -- -- 231,261
Proceeds from maturing investment securities held to maturity............ 286,188 345,613 390,250
Net (increase) decrease in federal funds sold and other short term
investments........................................................... 95,182 (6,413) (60,535)
Net (increase) decrease in loans made to customers....................... (293,856) (144,481) (60,800)
Purchases of premises and equipment, net of sales........................ (5,882) (8,499) (10,935)
Net increase in acceptances outstanding.................................. (306) (369) (483)
--------- --------- ---------
Net cash used in investing activities.................................... (85,741) (63,450) (310,394)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits...................................... 83,365 (6,425) 286,000
Net increase (decrease) in federal funds purchased and other short term
borrowings............................................................ 35,540 12,516 (34,004)
Repayments of other borrowings........................................... (336) (12,093) (120)
Net increase in acceptances outstanding.................................. 306 369 483
Dividends paid to common shareholders.................................... (26,665) (21,701) (19,135)
Addition of common shares to treasury.................................... -- (780) (209)
Common stock issued, net of cancellations................................ 3,115 2,352 353
--------- --------- ---------
Net cash provided by (used in) financing activities...................... 95,325 (25,762) 233,368
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents..................... 78,720 (21,831) 1,595
Cash and cash equivalents at beginning of year........................... 75,927 97,758 96,163
--------- --------- ---------
Cash and cash equivalents at end of year................................. $ 154,647 $ 75,927 $ 97,758
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and other borrowings............................. $ 92,549 $ 95,826 $ 118,088
Federal and state income taxes........................................ 31,161 34,294 24,924
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:
Common stock issued for acquisition...................................... $ -- $ 10,962 $ --
Assets acquired in acquisition, net of cash received..................... -- 215,683 --
Transfer of investment securities held to maturity to investment
securities available for sale......................................... 23,577 176,321 27,628
Transfer of loans to loans held for sale................................. -- 23,190 --
See accompanying notes to consolidated financial statements.
27
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (NOTE 1)
Basis of Presentation
The consolidated financial statements of Valley National Bancorp and its
wholly-owned subsidiary ("Valley") include the accounts of its principal
commercial bank subsidiary, Valley National Bank ("VNB") and its wholly-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated. The financial statements of prior years have been restated to
include Rock Financial Corporation ("RFC"), which was acquired on November 30,
1994 in a transaction accounted for as a pooling of interest. Certain
reclassifications have been made in the consolidated financial statements for
1993 and 1992 to conform to the classifications presented for 1994.
Statement of Cash Flows
The Consolidated Statements of Cash Flows are presented using the indirect
method. Cash and cash equivalents are defined as cash and due from banks.
Investment Securities Held to Maturity and Available for Sale
Investment Securities held to maturity, except for equity securities, are
carried at cost and adjusted for amortization of premiums and accretion of
discounts by using the interest method over the term of the investment.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 115 ("SFAS 115"). "Accounting for Certain
Investments in Debt and Equity Securities," which requires debt and equity
securities classified as available-for-sale securities to be reported at fair
value, with unrealized gains and losses reported as a separate component of
shareholders' equity, net of deferred tax. Gains and losses are realized from
the portfolio for income purposes only when the securities available for sale
are sold. Valley has adopted this statement prospectively on January 1, 1994.
Management has identified those investment securities which may be sold
prior to maturity. These investment securities are classified as available for
sale on the accompanying consolidated statements of financial condition and are
recorded at fair value on an aggregate basis and unrealized holding gains and
losses (net of related tax effects) on such securities are excluded from
earnings, but are included as a separate component of shareholders' equity, net
of deferred tax.
Realized gains or losses on the sale of investment securities available for
sale are recognized by the specific identification method and shown as a
separate component of non-interest income.
Loans and Loan Fees
Loans are stated net of unearned income. Unearned income on discounted
loans is recognized based upon methods which approximate a level yield. Loan
origination and commitment fees, net of related costs, are deferred and
amortized as an adjustment of loan yield over the estimated lives of the loans
approximating the effective interest method.
Interest income is not accrued on loans where interest or principal is 90
days or more past due or if in management's judgement the ultimate
collectibility of the interest is doubtful. Exceptions may be made if the loan
is sufficiently collaterized and in the process of collection. When a loan is
placed on non-accrual, interest accruals cease and uncollected accrued interest
is reversed and charged against current income. Payments received on non-accrual
loans are applied against principal. A loan may only be restored to an accruing
basis when it again becomes well secured and in the process of collection or all
past due amounts have been collected.
Valley originates loans guaranteed by the Small Business
Administration("SBA"). These loans are guaranteed up to 70% by the SBA. Valley
sells the guaranteed portions of these loans and retains the unguaranteed
portions as well as the right to service the loans. Gains are recorded on loan
sales based on premiums paid by the purchasers. A portion of the gains are
deferred and recorded as income over the estimated average life of the loans.
28
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loans Held for Sale
Loans held for sale include residential mortgage loans originated with the
intent to sell. Loans held for sale are carried at the lower of aggregate cost
or fair value.
Allowance for Possible Loan Losses
The allowance for possible loan losses ("allowance") is increased through
provisions charged against current earnings and additionally by crediting
amounts of recoveries received, if any, on previously charged-off loans. The
allowance is reduced by charge-offs on loans which are determined to be a loss,
in accordance with established policies when all efforts of collection have been
exhausted.
The allowance is maintained at a level necessary to absorb potential loan
losses and other credit risk related charge-offs. It is the result of an
analysis which relates outstanding balances to expected reserve levels required
to absorb future credit losses. Current and economic problems are addressed
through management's assessment of anticipated changes in the regional economic
climate, changes in composition and volume of the loan portfolio and variances
in levels of classified loans, non-performing assets and other past due amounts.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are stated at cost less accumulated
amortization computed on a straight-line basis over the term of the lease or
estimated useful life of the asset, whichever is shorter. Major improvements are
capitalized, while repairs and maintenance costs are charged to operations as
incurred. Upon retirement or disposition, any gain or loss is credited or
charged to operations.
Other Real Estate Owned
Real estate formally acquired in partial or full satisfaction of loans is
classified as other real estate owned. These assets are recorded at the lower of
cost or fair value at the time of acquisition, with any excess charged to the
allowance for loan losses and at the lower of fair value, less estimated costs
to sell, or cost thereafter. Subsequent declines in value are charged to other
real estate expense.
Intangible Assets
Intangible assets resulting from acquisitions under the purchase method of
accounting consist of goodwill and core deposit intangibles. Goodwill recorded
prior to 1987 is being amortized on a straight-line basis over 25 years. Core
deposit intangibles are amortized on accelerated methods over the estimated
lives of the assets. Goodwill and core deposit intangibles included in other
assets at December 31, 1994.
Mortgage Servicing
Servicing fee income, representing reimbursement for loan administrative
services performed on contractually serviced mortgages, are credited to income
as earned.
Purchased mortgage servicing rights are capitalized and amortized over the
estimated lives of related loans and approximate the amount by which the present
value of estimated future servicing revenues exceeds the present value of
expected servicing costs.
Income Taxes
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes", required a change from the deferred method under
APB Opinion 11 to the asset and liability method of SFAS 109. Deferred income
taxes are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
29
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1993, Valley adopted SFAS 109 prospectively and has
reported the cumulative effect of that change in method of accounting for income
taxes in the 1993 consolidated statement of income.
Deferred income taxes have been provided in 1992 for timing differences
relating to items of income and expense recognized for financial reporting
purposes in a different period than for tax purposes.
Earnings Per Share
Earnings per share is calculated by dividing net income by the weighted
average number of shares outstanding during each period. All share and per share
amounts have been restated to reflect the ten percent stock dividend on May 3,
1994, five for four stock split on April 16, 1993 and the three for two stock
split on April 24, 1992. Shares issuable upon exercise of options and warrants
are not included in the calculation of earnings per share since their effect is
not material.
Treasury Stock
Treasury stock is recorded using the cost method and accordingly is
presented as an unallocated reduction of shareholders' equity.
ACQUISITIONS (NOTE 2)
On November 30, 1994, Valley acquired approximately $190 million in assets
of Rock Financial Corporation ("RFC"), based in North Plainfield, New Jersey and
its five branch subsidiary, Rock Bank ("Rock"). Each share of RFC common stock
outstanding was converted into 1.85 shares of Valley common stock for a total of
approximately 1.7 million shares. The acquisition has been accounted for as a
pooling of interests and the consolidated financial statements of Valley include
the accounts of RFC for all periods presented. Separate results of the combining
entities are as follows:
ELEVEN
MONTHS ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS)
Net interest income after provision
for possible loan losses:
Valley........................................ $125,418 $130,181 $ 98,858
RFC........................................... 7,808 7,494 6,475
-------- -------- --------
$133,226 $137,675 $105,333
======== ======== ========
Net income:
Valley........................................ $ 52,303 $ 54,243 $ 41,598
RFC........................................... 1,784 2,201 1,781
-------- -------- --------
$ 54,087 $ 56,444 $ 43,379
======== ======== ========
On June 18, 1993, Valley issued approximately 421,000 shares of its common
stock at a cost of $10,962,000 in exchange for approximately 661,000 shares of
common stock of Peoples Bancorp ("Peoples") of Fairfield, New Jersey, a New
Jersey Corporation and a registered bank holding company of Peoples Bank,
National Association, a banking association. The merger was accounted for under
the purchase method of accounting, and as such, the consolidated financial
statements include the results of operations and assets and liabilities of
Peoples from June 18, 1993 forward.
Under the purchase method of accounting the assets acquired and liabilities
assumed were recorded at their estimated fair value at the merger date, which
resulted in an inmaterial amount of negative goodwill, which was allocated to
bank premises.
The proforma results of operations for the period January 1 to June 18,
1993 and for the year ended December 31, 1992, assuming Peoples had been
acquired as of January 1, 1992, would not have been significantly different from
those presented in the Consolidated Statements of Income.
30
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquisition of Peoples resulted in the following statement of condition
increases as of the acquisition date:
Investment securities.......................................... $ 47,472,000
Loans, net of unearned income.................................. $138,459,000
Total deposits................................................. $204,825,000
INVESTMENT SECURITIES HELD TO MATURITY (NOTE 3)
The amortized cost, fair value and unrealized gains and losses of
securities held to maturity at December 31, 1994 and 1993 were as follows:
DECEMBER 31, 1994
--------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ----------- -----------
(IN THOUSANDS)
U.S. Treasury securities and other government
agencies and corporations.................. $ 16,288 $ 38 $ (1,186) $ 15,140
Obligations of states and political
subdivisions............................... 326,344 1,270 (7,394) 320,220
Mortgage-backed securities................... 501,120 144 (29,195) 472,069
Other debt securities........................ 780 -- -- 780
-------- ------ --------- ---------
Total debt securities...................... 844,532 1,452 (37,775) 808,209
Equity securities............................ 1,021 -- -- 1,021
Other securities............................. 598 -- -- 598
-------- ------- --------- ---------
Total investment securities held to
maturity................................ $846,151 $1,452 $ (37,775) $ 809,828
======== ====== ========= =========
DECEMBER 31, 1993
--------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ----------- -----------
(IN THOUSANDS)
U.S. Treasury securities and other government
agencies and corporations.................. $110,954 $ 1,939 $ (107) $ 112,786
Obligations of states and political
subdivisions............................... 288,530 7,944 (311) 296,163
Mortgage-backed securities................... 590,717 13,465 (874) 603,308
Other debt securities........................ 284 -- -- 284
-------- --------- -------- -----------
Total debt securities...................... 990,485 23,348 (1,292) 1,012,541
Equity securities............................ 1,021 -- -- 1,021
Other securities............................. 67 -- -- 67
-------- --------- -------- -----------
Total investment securities held to
maturity................................ $991,573 $ 23,348 $(1,292) $ 1,013,629
======== ======== ======== ===========
31
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The contractual maturities of investments in debt securities held to
maturity at December 31, 1994 are set forth in the following table:
AMORTIZED COST FAIR VALUE
-------------- -----------
(IN THOUSANDS)
Due in one year................................... $ 69,689 $ 69,927
Due after one year thru five years................ 224,095 218,058
Due after five years thru ten years............... 36,159 34,598
Due after ten years............................... 13,469 13,557
-------- ---------
343,412 336,140
Mortgage-backed securities........................ 501,120 472,069
-------- ---------
Total debt securities........................ 844,532 808,209
Equity securities................................. 1,021 1,021
Other securities.................................. 598 598
-------- ---------
Total investment securities held to
maturity................................... $846,151 $ 809,828
======== =========
Actual maturities of debt securities may differ from those presented above
as certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty. Equity and other
securities do not have contractual maturities.
The amortized cost of securities pledged to secure public deposits,
treasury tax and loan deposits, repurchase agreements and for other purposes
required by law approximated $126,834,000 and $71,728,000 at December 31, 1994
and 1993, respectively.
Gross gains (losses) realized on sales, maturities and other securities
transactions for the year ended December 31, 1992 were as follows:
1992
--------------
(IN THOUSANDS)
Sales transactions:
Gross gains.................................................. $6,380
Gross losses................................................. (49)
------
6,331
------
Maturities and other securities transactions:
Gross gains.................................................. 27
Gross losses................................................. --
------
27
------
Net gains on securities transactions......................... $6,358
======
Cash proceeds from sales transactions approximated $266,615,000 for the
year ended 1992.
32
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT SECURITIES AVAILABLE FOR SALE (NOTE 4)
The amortized cost, approximate fair value and unrealized gains and losses
of securities available for sale at December 31, 1994 and 1993 were as follows:
DECEMBER 31, 1994
------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- --------- ---------- ----------
(IN THOUSANDS)
U.S. Treasury securities and other government
agencies and corporations.................. $188,889 $ -- $ (9,815) $ 179,074
Mortgage-backed securities................... 292,683 -- (18,281) 274,402
-------- ------ --------- ----------
Total debt securities........................ 481,572 -- (28,096) 453,476
Equity securities............................ 4,042 768 (63) 4,747
-------- ----- --------- ---------
Total investment securities available for
sale.................................... $485,614 $ 768 $ (28,159) $ 458,223
======== ===== ========= =========
DECEMBER 31, 1993
------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- --------- ---------- ---------------
(IN THOUSANDS)
U.S. Treasury securities and other government
agencies and corporations.................. $201,565 $ 5,835 $ -- $ 207,400
Mortgage-backed securities................... 256,417 1,553 (1,258) 256,712
-------- ------- --------- ----------
Total debt securities...................... 457,982 7,388 (1,258) 464,112
Equity securities............................ 3,098 2,376 (48) 5,426
-------- ------- --------- ---------
Total investment securities available for
sale.................................... $461,080 $ 9,764 $ (1,306) $ 469,538
======== ======= ======== =========
The contractual maturities of investments in debt securities available for
sale at December 31, 1994 are set forth in the following table:
AMORTIZED COST FAIR VALUE
-------------- -----------
(IN THOUSANDS)
Due in one year................................... $ -- $ --
Due after one year thru five years................ 188,889 179,074
-------- ---------
188,889 179,074
Mortgage-backed securities........................ 292,683 274,402
-------- ---------
Total debt securities........................ 481,572 453,476
Equity securities................................. 4,042 4,747
-------- ---------
Total investment securities available for
sale....................................... $485,614 $ 458,223
======== =========
Actual maturities on debt securities may differ from those presented above
as certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty. Equity securities do not
have contractual maturities.
33
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Gross gains (losses) realized on sales, maturities and other securities
transactions for the years ended December 31, 1994 and 1993 were as follows:
1994 1993
------ ------
(IN THOUSANDS)
Sales transactions:
Gross gains.............................................. $6,067 $7,492
Gross losses............................................. (99) (297)
------ ------
5,968 7,195
------ ------
Maturities and other securities transactions:
Gross gains.............................................. 78 27
Gross losses............................................. -- --
------ ------
78 27
------ ------
Net gains on securities transactions..................... $6,046 $7,222
====== ======
Cash proceeds from sales transactions approximated $187,096,000 and
$330,546,000 for the years ended 1994 and 1993, respectively.
LOANS (NOTE 5)
The detail of the loan portfolio as of December 31, 1994 and 1993 was as
follows:
1994 1993
---------- ----------
(IN THOUSANDS)
Commercial.......................................... $ 266,853 $ 218,502
Construction........................................ 64,836 64,326
Commercial mortgage................................. 522,696 437,072
Residential mortgage................................ 684,629 619,084
Installment......................................... 645,719 544,034
---------- ----------
2,184,733 1,883,018
Less: Unearned income............................... (1,499) (1,834)
---------- ----------
Loans, net of unearned income....................... 2,183,234 1,881,184
Loans held for sale................................. 4,574 17,757
---------- ----------
Total loans.................................... $2,187,808 $1,898,941
========= =========
VNB grants loans in the ordinary course of business to their directors,
executive officers and their affiliates, on the same terms and under the same
risk conditions as those prevailing for comparable transactions with outside
borrowers.
The following table summarizes the change in the total amounts of loans and
advances to directors, executive officers, and their affiliates during the year
1994:
(IN THOUSANDS)
--------------
Outstanding at beginning of year............................... $ 24,816
New loans and advances......................................... 19,310
Repayments..................................................... (13,235)
--------
Outstanding at end of year..................................... $ 30,891
========
Non-performing assets include non-accrual loans and other real estate
owned.
34
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The outstanding balances of accruing loans which are 90 days or more past
due as to principal or interest payments and non-performing assets at December
31, 1994 and 1993 were as follows:
1994 1993
------- -------
(IN THOUSANDS)
Loans past due in excess of 90 days and still accruing... $ 5,416 $ 8,677
======= =======
Non-accrual loans........................................ $18,796 $22,983
Other real estate owned.................................. 6,865 3,710
------- -------
Total non-performing assets.................... $25,661 $26,693
======= =======
The amount of interest income that would have been recorded on non-accrual
loans in 1994, 1993 and 1992 had payments remained in accordance with the
original contractual terms approximated $2,433,000, $3,076,000 and $2,830,000
while the actual amount of interest income recorded on these types of assets in
1994, 1993 and 1992 totalled $901,000, $759,000 and $360,000, resulting in lost
interest income of $1,532,000, $2,317,000 and $2,470,000, respectively.
At December 31, 1994, there were no commitments to lend additional funds to
borrowers whose loans were non-accrual or contractually past due in excess of 90
days and still accruing interest.
ALLOWANCE FOR POSSIBLE LOAN LOSSES (NOTE 6)
Transactions in the allowance for possible loan losses during 1994, 1993
and 1992 were as follows:
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
Balance at beginning of year................. $36,568 $29,990 $ 23,366
Balance from acquisition..................... -- 4,466 --
Provision charged to operating expense....... 3,545 6,360 16,320
------- ------- --------
40,113 40,816 39,686
------- ------- --------
Less net loan charge-offs
Loans charged-off.......................... (5,869) (5,560) (10,871)
Less recoveries on loan charge-offs........ 2,190 1,312 1,175
------- ------- --------
Net loan charge-offs......................... (3,679) (4,248) (9,696)
------- ------- --------
Balance at end of year....................... $36,434 $36,568 $ 29,990
======= ======= ========
MORTGAGE SERVICING (NOTE 7)
VNB Mortgage Services, Inc. ("MSI"), a subsidiary of VNB, is a servicer of
residential mortgage loan portfolios. MSI purchases the rights to service these
portfolios in the secondary market and is compensated for loan administrative
services performed.
The aggregate principal balances of mortgage loans serviced by MSI
approximated $1,204,980,000, $1,174,939,000 and $1,228,710,000 at December 31,
1994, 1993 and 1992, respectively. These amounts included $536,601,000,
$467,003,000 and $395,716,000 as of December 31, 1994, 1993 and 1992,
respectively, of loans serviced on behalf of VNB. The outstanding balance of
loans serviced for others is not included in the consolidated statement of
financial condition.
The costs associated with acquiring mortgage servicing rights are included
in other assets in the consolidated financial statements and are being amortized
over the estimated periods which the related loans are expected to generate
income. The remaining unamortized costs at December 31, 1994, 1993 and 1992,
amounted to $5,998,000, $6,193,000 and $9,961,000, respectively. Amortization
expense for 1994, 1993 and 1992 amounted to $1,585,000, $3,715,000 and
$2,793,000, respectively, and is included in amortization of intangible assets.
35
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PREMISES AND EQUIPMENT (NOTE 8)
At December 31, 1994 and 1993, premises and equipment consisted of:
1994 1993
-------- --------
(IN THOUSANDS)
Land................................................... $ 12,354 $ 10,393
Buildings.............................................. 28,760 27,120
Leasehold improvements................................. 4,772 4,601
Furniture and equipment................................ 28,707 26,607
-------- --------
74,593 68,721
Less accumulated depreciation and amortization......... (29,177) (24,148)
-------- --------
Net premises and equipment................... $ 45,416 $ 44,573
======== ========
Depreciation and amortization included in non-interest expense for the
years ended December 31, 1994, 1993 and 1992 amounted to approximately
$5,039,000, $4,422,000 and $3,775,000, respectively.
OTHER ASSETS (NOTE 9)
At December 31, 1994 and 1993, other assets consisted of the following:
1994 1993
------- -------
(IN THOUSANDS)
Mortgage servicing rights................................ $ 5,998 $ 6,193
Goodwill................................................. 3,668 3,917
Core deposits............................................ 2,231 3,101
Other real estate owned.................................. 6,865 3,710
Deferred tax asset....................................... 25,658 14,513
Other.................................................... 16,617 16,374
------- -------
Total other assets............................. $61,037 $47,808
======= =======
DEPOSITS (NOTE 10)
The carrying value of deposits at December 31, 1994 and 1993 were as
follows:
1994 1993
---------- ----------
(IN THOUSANDS)
Non-interest bearing demand deposits................ $ 479,944 $ 432,948
Savings accounts.................................... 1,629,308 1,724,475
Certificates of deposit of $100,000 or more......... 246,810 141,588
Other time deposits................................. 977,959 951,645
---------- ----------
Total deposits............................ $3,334,021 $3,250,656
========= =========
Interest expense on certificates of deposits of $100,000 or more totaled
approximately $13,925,000, $4,227,000 and $8,883,000 in 1994, 1993 and 1992,
respectively.
OTHER BORROWINGS (NOTE 11)
At December 31, 1994 and 1993, other borrowings consisted of the following:
1994 1993
------ ------
(IN THOUSANDS)
Capitalized lease obligation............................... $2,331 $2,667
The capitalized lease obligation is due to be repaid in May of 1995.
36
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BENEFIT PLANS (NOTE 12)
Pension Plan
VNB has a non-contributory benefit plan covering substantially all of its
employees. The benefits are based upon years of credited service, primary social
security benefits and the employee's highest average compensation as defined. It
is VNB's funding policy to contribute annually the maximum amount that can be
deducted for federal income tax purposes. In 1994 and 1993, contributions
totaling $1,091,000 and $927,000 were made, while in 1992 no contributions were
made due to the full funding limitations of the Internal Revenue Code. In
addition, VNB has a supplemental non-qualified, non-funded retirement plan which
is designed to supplement the pension plan for key employees.
The following table sets forth the funded status of the plans and amounts
recognized in Valley's financial statements at December 31, 1994 and 1993:
1994 1993
------- -------
(IN THOUSANDS)
Plan assets at fair value, primarily government and
corporate bonds, corporate stocks, certificates of
deposit and other miscellaneous assets................. $11,931 $ 9,975
Actuarial present value of benefit obligations:
Accumulated benefit obligation for service rendered to
date, including vested benefits of $9,371 in 1994
and $8,292 in 1993.................................. 9,927 8,703
Additional future benefits based on estimated salary
levels.............................................. 2,759 2,347
------- -------
Projected benefit obligations............................ $12,686 $11,050
------- -------
Deficiency of plan assets over projected benefit
obligations............................................ $ (755) $(1,075)
Unrecognized net (gain) loss from past experience
different from that assumed and effects of changes in
assumptions............................................ (156) 576
Unrecognized net asset at January 1, being recognized
over an average of 15.7 years.......................... (791) (878)
Prior service cost not yet recognized in net periodic
pension cost........................................... 854 436
------- -------
Accrued pension cost included in other liabilities....... (848) (941)
Additional minimum liability............................. -- (116)
------- -------
Total.......................................... $ (848) $(1,057)
======= =======
Net periodic pension expense for 1994, 1993 and 1992 included the following
components:
1994 1993 1992
------ ----- -----
(IN THOUSANDS)
Service cost-benefits earned during the period.... $1,013 $ 802 $ 629
Interest cost on projected benefit obligations.... 893 777 687
Actual return on plan assets...................... (765) (679) (868)
Net amortization and deferral..................... (140) (195) 77
------ ----- -----
Total net periodic pension expense...... $1,001 $ 705 $ 525
====== ===== =====
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of benefit
obligations for the plan were 8.00% and 6.00%, respectively, for 1994, 7.50% and
6.00% for 1993 and 8.00% and 6.00% for 1992. The expected long term rate of
return on assets was 9.00% for 1994, 1993 and 1992, and the weighted average
discount rate used in computing pension cost was 7.50%, 8.00% and 8.00% for
1994, 1993, and 1992, respectively.
37
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Bonus Plan
VNB and its subsidiaries award incentive and merit bonuses to its officers
and employees based upon a percentage of the covered employees compensation and
determined by the achievement of certain performance objectives. Amounts charged
to salaries expense during 1994, 1993 and 1992 were $1,495,000, $1,439,000 and
$1,271,000, respectively.
Savings Plan
During the early part of 1992, VNB implemented a contribution matching 401K
Savings and Investment Plan. This plan, which replaced a defined contribution
profit sharing plan, covers eligible employees of VNB and its subsidiaries. The
401K plan allows employees to contribute from 1% to 12% of their salary with VNB
matching the first 3% out of its current years earnings with the distribution of
VNB's contributions subject to a vesting schedule. 401K and profit sharing
expense for 1994, 1993 and 1992 amount to $586,000, $663,000 and $502,000,
respectively.
STOCK INCENTIVE PLAN
Valley maintains a stock incentive plan pursuant to which 1,759,076 shares
of common stock have been authorized for issuance to certain key employees in
the form of stock options, stock appreciation rights and restricted stock
awards. Shares of Valley's common stock may be purchased under qualified and
non-qualified stock options at 100 percent and 80 percent, respectively, of the
fair market value of such shares on the date of the grant. The options granted
under this plan are, in general, exercisable not earlier than one year after the
date of grant, and expire not more than ten years after the date of the grant,
and are subject to a vesting schedule. Changes in total options outstanding
during 1994, 1993 and 1992 are as follows:
1994 1993 1992
----------------------- ----------------------- -----------------------
PER SHARE PER SHARE PER SHARE
QUALIFIED STOCK OPTIONS SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE
- ------------------------- ------- ------------- ------- ------------- ------- -------------
Options outstanding at
beginning of year...... 476,530 $ 7.27-$23.18 405,666 $ 7.27-$20.73 358,367 $ 7.27-$16.06
Options granted.......... 85,675 $24.75-$26.02 138,105 $20.54-$23.18 141,688 $13.51-$20.73
Options cancelled........ (9,532) $ 7.27-$23.18 (6,561) $ 7.27-$20.73 (54,234) $ 7.27-$13.52
Options exercised........ (67,049) $ 7.27-$23.18 (60,680) $ 7.27-$20.73 (40,155) $ 7.27-$13.98
------- ------------- ------- ------------- ------- -------------
Options outstanding at
end of year............ 485,624 $ 7.27-$26.02 476,530 $ 7.27-$23.18 405,666 $ 7.27-$20.73
------- ------------- ------- ------------- ------- -------------
Options exercisable under the Plan's vesting schedule at December 31, 1994,
1993 and 1992, were 178,258, 144,137 and 109,129 options, respectively.
1994 1993 1992
-------------------- -------------------- --------------------
PER SHARE PER SHARE PER SHARE
NON-QUALIFIED STOCK OPTIONS SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE
- -------------------------------------- ------ ----------- ------ ----------- ------ -----------
Options outstanding at beginning of
year................................ 11,137 $ 9.89 11,137 $ 9.89 14,850 $ 9.89
Options cancelled..................... -- $ 9.89 -- $ 9.89 (3,713) $ 9.89
------ ------- ------ ------- ------ -------
Options outstanding at end of year.... 11,137 $ 9.89 11,137 $ 9.89 11,137 $ 9.89
====== ======= ====== ======= ====== =======
Options exercisable under the Plan's vesting schedule at December 31, 1994,
1993 and 1992, were 11,137, 8,910 and 6,682 options, respectively.
38
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restricted stock is awarded to key employees providing for the immediate
award of Valley's common stock subject to certain vesting and restrictions. The
awards are recorded at fair market value and amortized into salaries expense
over the vesting period. The following table sets forth the changes in
restricted stock awards outstanding at December 31, 1994, 1993 and 1992.
1994 1993 1992
------- ------- ------
Awards outstanding at beginning of year........ 49,893 42,275 32,334
Awards granted................................. 17,650 20,364 20,487
Awards vested.................................. (16,322) (12,155) (8,711)
Awards forfeited............................... (275) (591) (1,835)
------- ------- ------
Awards outstanding at end of year.............. 50,946 49,893 42,275
======= ======= ======
The amount of compensation costs included in salaries expense in 1994, 1993
and 1992 amounted to $254,000, $232,000 and $131,000, respectively.
INCOME TAXES (NOTE 13)
As discussed in Note 1, Valley adopted SFAS No. 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of $402
thousand is determined as of January 1, 1993 and is reported separately in the
consolidated statement of income for the year ended December 31, 1993. Prior
years' financial statements have not been restated to apply the provision of
SFAS No. 109.
Income tax expense(benefit) included in the financial statements consisted
of the following:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Income tax from Operations:
Current:
Federal.................................. $23,687 $26,053 $20,823
State.................................... 6,216 7,053 3,504
------- ------- -------
29,903 33,106 24,327
Deferred:
Federal & State.......................... 75 (2,403) (2,232)
------- ------- -------
Total income tax from operations......... 29,978 30,703 22,095
Shareholders Equity:
Investment securities available for sale.... (11,220) -- --
------- ------- -------
$18,758 $30,703 $22,095
======= ======= =======
39
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of deferred income tax expense (benefit) for the
years ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
Allowance for possible loans losses.......... $ (673) $(2,061) $(2,113)
State privilege year taxes................... 1,012 (851) --
Non-accrual loan interest.................... 570 (123) (221)
Tax over book depreciation................... (192) 692 87
Purchase accounting adjustments.............. (538) 1,714 --
Recapture of thrift bad debt reserve......... -- (1,487) --
Other........................................ (104) (287) 15
-------- ------- -------
Deferred income tax benefit from
operations.............................. 75 (2,403) (2,232)
Shareholders' Equity:
Investment securities available for sale... (11,220) -- --
-------- ------- -------
Net deferred income tax benefit............ $(11,145) $(2,403) $(2,232)
======== ======= =======
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities as of December 31, 1994 and 1993 are as follows:
1994 1993
------- -------
(IN THOUSANDS)
Deferred tax assets:
Allowance for possible loan losses..................... $14,385 $13,712
State privilege year taxes............................. 1,471 2,483
Non-accrual loan interest.............................. 556 1,126
Investment securities available for sale............... 11,220 --
Other.................................................. 3,282 3,523
------- -------
Total deferred tax assets........................... 30,914 20,844
Deferred tax liabilities:
Tax over book depreciation............................. 1,841 2,033
Purchase accounting adjustments........................ 1,176 1,714
Unearned discount on investments....................... 646 642
Other.................................................. 1,593 1,942
------- -------
Total deferred tax liabilities...................... 5,256 6,331
Net deferred tax asset................................. $25,658 $14,513
======= =======
A reconciliation between the reported income tax expense from operations
and the amount computed by multiplying income before taxes by the statutory
federal income tax rate is as follows:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Tax at statutory federal income tax rate...... $31,158 $30,610 $22,261
Increases(decreases) resulted from:
Tax-exempt interest, net of interest
incurred to carry tax-exempts............ (5,213) (4,666) (4,479)
State income tax, net of federal tax
benefit................................ 3,376 4,584 2,312
Provision for recapture of bad debt
deduction upon merger.................... -- -- 1,670
Other, net.................................. 657 175 331
------- ------- -------
Income tax expense.......................... $29,978 $30,703 $22,095
======= ======= =======
40
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMITMENTS AND CONTINGENCIES (NOTE 14)
Cash Reserves
At December 31, 1994, cash reserves maintained in accordance with Federal
Reserve regulations amounted to $41,940,000.
Lease Commitments
Certain bank facilities are occupied under non-cancelable long term
operating leases which expire at various dates through 2005. Certain lease
agreements provide for renewal options and increases in rental payments based
upon increases in the consumer price index or the lessor's cost of operating the
facility. Minimum aggregate lease payments for the remainder of the lease terms
are as follows:
(IN THOUSANDS)
1995................................................... $1,937
1996................................................... 1,758
1997................................................... 1,607
1998................................................... 1,438
1999................................................... 1,306
2000-2005.............................................. 1,931
-----
Total lease commitments.............................. $9,977
======
Net occupancy and equipment expense for 1994, 1993 and 1992 includes
approximately $1,834,000, $2,318,000 and $1,730,000, respectively, of rental
expenses for bank facilities.
Financial Instruments With Off-Balance Sheet Risk
In the ordinary course of business of meeting the financial needs of its
customers, Valley, through its subsidiary VNB, is a party to various financial
instruments which are properly not reflected in the consolidated financial
statements. These financial instruments include standby and commercial letters
of credit, unused portions of lines of credit and commitments to extend various
types of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amounts recognized in the consolidated financial
statements. The commitment or contract amount of these instruments is an
indicator of VNB's level of involvement in each type of instrument as well as
the exposure to credit loss in the event of non-performance by the other party
to the financial instrument. VNB seeks to limit any exposure of credit loss by
applying the same credit underwriting standards, including credit review,
interest rates and collateral requirements or personal guarantees, as for
on-balance sheet lending facilities.
The following table provides a summary of the contract amount of financial
instruments with off-balance sheet risk at December 31, 1994.
1994 1993
-------------- --------------
(IN THOUSANDS)
Standby and commercial letters of credit........... $ 25,540 $ 26,179
Commitments under unused lines of credit........... 386,692 448,719
Outstanding loan commitments....................... 141,188 133,581
-------- --------
Total financial instruments with off-balance sheet
risk............................................. $553,420 $608,479
======== ========
Standby letters of credit represent the guarantee by VNB of the obligations
or performance of a customer in the event the customer is unable to meet or
perform its obligations to a third party. Obligations to advance funds under
commitments to extend credit, including commitments under unused lines of
credit, are agreements to lend to a customer as long as there is no violation of
any condition established in the contract.
41
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Commitments generally have specified expiration dates, which may be extended
upon request, or other termination clauses and generally require payment of a
fee.
The amounts set forth above do not necessarily represent future cash
requirements as it is anticipated that many of these commitments will expire
without being fully drawn upon. Most of VNB's lending activity is to customers
within the state of New Jersey.
Litigation
In the normal course of business, Valley may be a party to various
outstanding legal proceedings and claims. In the opinion of management, the
consolidated financial position of Valley will not be materially affected by the
outcome of such legal proceedings and claims.
Acquisition
On November 9, 1994, Valley entered into an Agreement and Plan of Merger to
acquire American Union Bank ("American"), a $55 million, two office bank
headquartered in Union, New Jersey. Shareholders of American will receive 0.50
shares of Valley common stock for each of the 549,970 outstanding shares of
common stock of American, resulting in the issuance by Valley of 274,985 shares
of Valley common stock.
STOCKHOLDERS' EQUITY (NOTE 15)
Dividend Restrictions
VNB, a national banking association, is subject to a limitation in the
amount of dividends it may pay to Valley, VNB's only shareholder. Prior approval
by the Comptroller of the Currency ("OCC") is required to the extent the total
of all dividends to be declared by VNB in any calendar year exceeds net profits,
as defined, for that year combined with its retained net profits from the
preceding two calendar years, less any transfers to capital surplus. Under this
limitation, VNB could declare dividends in 1995 without prior approval of the
OCC of up to $65,187,000 plus an amount equal to VNB's net profits for 1995 to
the date of such dividend declaration.
Warrants for Purchase of Common Stock
Pursuant to the Merger Agreement between Valley and Mayflower, Valley
issued 449,883 warrants valued at approximately $225,000 in exchange for all
issued and outstanding common shares of Mayflower. The warrants, which became
exercisable on June 30, 1991 and expire on December 31, 1995, provide the
warrant holder the right to acquire 2.0625 shares of Valley's common stock at a
price of $27.50. At December 31, 1994, 273,971 warrants remain exercisable which
provide the holders with the right to acquire 565,065 shares at a purchase price
of approximately $13.33 per share.
42
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (NOTE 16)
QUARTERS ENDED 1994
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Interest income............................. $ 58,269 $ 59,231 $ 61,577 $ 63,868
Interest expense............................ 21,133 22,341 24,496 25,869
Net interest income......................... 37,136 36,890 37,081 37,999
Provision for possible loan losses.......... 945 950 960 690
Non-interest income......................... 7,535 4,661 5,439 4,844
Non-interest expense........................ 19,377 19,585 19,557 20,499
Income before income taxes.................. 24,349 21,016 22,003 21,654
Income tax expense.......................... 8,326 7,005 7,293 7,354
Net income.................................. 16,023 14,011 14,710 14,300
Net income per share........................ 0.56 0.49 0.51 0.50
Cash dividends per share.................... 0.23 0.25 0.25 0.25
Average shares outstanding.................. 28,591,645 28,694,032 28,752,384 28,813,080
QUARTERS ENDED 1993
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Interest income............................. $ 58,477 $ 58,554 $ 60,893 $ 59,537
Interest expense............................ 24,239 23,428 23,532 22,227
Net interest income......................... 34,238 35,126 37,361 37,310
Provision for possible loan losses.......... 1,590 2,090 1,590 1,090
Non-interest income......................... 7,784 6,573 7,316 4,841
Non-interest expense........................ 17,602 18,827 20,542 19,669
Income before income taxes.................. 22,830 20,782 22,545 21,392
Income tax expense.......................... 7,695 7,295 8,407 7,306
Income before cumulative effect of
accounting change......................... 15,135 13,487 14,138 14,086
Cumulative effect of accounting change...... (402) -- -- --
Net income.................................. 14,733 13,487 14,138 14,086
Net income per share before cumulative
effect of accounting change............... .54 .48 .50 .49
Net income per share........................ .53 .48 .50 .49
Cash dividends per share.................... .18 .20 .20 .20
Average shares outstanding.................. 27,928,940 28,057,585 28,505,376 28,532,092
43
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PARENT COMPANY INFORMATION (NOTE 17)
Condensed Statements of Income
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Income
Dividends from subsidiary................................ $ 29,800 $ 21,800 $ 21,250
Interest from subsidiary................................. 543 114 119
Gains(losses) on securities transactions, net............ 2,111 134 (170)
Other interest and dividends............................. 715 1,256 1,154
Other income............................................. -- -- 111
-------- -------- --------
33,169 23,304 22,464
Expenses................................................... 2,694 2,628 2,004
-------- -------- --------
Income before income taxes and equity in undistributed
earnings of subsidiary................................... 30,475 20,676 20,460
Income tax expense......................................... 883 204 274
-------- -------- --------
Income before equity in undistributed earnings of
subsidiary............................................... 29,592 20,472 20,186
Equity in undistributed earnings of subsidiary............. 29,452 35,948 23,193
-------- -------- --------
Net income before cumulative effect of accounting change... 59,044 56,420 43,379
Cumulative effect of accounting change..................... -- 24 --
-------- -------- --------
Net income................................................. $ 59,044 $ 56,444 $ 43,379
======== ======== ========
Condensed Statements of Financial Condition
DECEMBER 31
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
Assets
Cash................................................. $ 914 $ 167
Interest bearing deposits with banks................. 32,000 10,211
Investment securities available for sale............. 4,747 19,101
Investment in subsidiary............................. 264,348 251,514
Other assets......................................... 5,805 7,068
-------- --------
Total assets...................................... $307,814 $288,061
-------- --------
Liabilities
Dividends payable to shareholders.................... $ 7,207 $ 5,370
Other liabilities.................................... 416 240
-------- --------
Total liabilities................................. 7,623 5,610
-------- --------
Shareholders' Equity
Common stock......................................... 16,276 9,642
Surplus.............................................. 133,190 63,211
Retained earnings.................................... 169,060 211,762
Unrealized loss on investment securities available
for sale,
net of tax........................................ (16,171) --
-------- --------
302,355 284,615
Treasury stock at cost............................... (2,164) (2,164)
-------- --------
Total shareholders' equity........................ 300,191 282,451
-------- --------
Total liabilities and shareholders' equity........ $307,814 $288,061
======== ========
44
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Statements of Cash Flows
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income............................................... $ 59,044 $ 56,444 $ 43,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary........ (29,452) (35,948) (23,193)
Depreciation and amortization of intangible assets.... 920 1,078 1,335
Amortization of compensation costs on non-qualified
stock options and restricted stock awards........... 254 232 131
Net deferred income tax benefit....................... 73 (28) (2)
Net amortization (accretion) of premiums and
discounts........................................... 35 101 (134)
Net losses(gains) on securities transactions.......... (2,111) (134) 170
Write-off of purchase accounting discount............. -- -- (111)
Restricted stock issued............................... -- 114 37
Net (increase)decrease in other assets................ 342 220 (56)
Net increase(decrease) in other liabilities........... (154) (144) 121
-------- -------- --------
Net cash provided by operating activities............. 28,951 21,935 21,677
-------- -------- --------
Cash flows from investing activities:
Cash paid to retire preferred stock of Peoples Bancorp... -- (2,514) --
Cash received pursuant to acquisitions and mergers....... -- 341 --
Proceeds from maturing investment securities............. 12,000 -- 6,000
Proceeds from sales of investment securities available
for sale.............................................. 9,613 5,248 174
Purchases of investment securities....................... (4,478) (5,220) (6,099)
Net increase(decrease) in short term investments......... (21,789) 476 (4,532)
-------- -------- --------
Net cash used in investment activities................ (4,654) (1,669) (4,457)
-------- -------- --------
Cash flows from financing activities:
Purchases of common shares added to treasury............. -- (780) (209)
Dividends paid to shareholders........................... (26,665) (21,701) (19,135)
Common stock issued...................................... 3,115 2,246 353
Decrease in loans and advances to subsidiary............. -- -- 1,822
-------- -------- --------
Net cash used in financing activities................. (23,550) (20,235) (17,169)
-------- -------- --------
Net increase in cash....................................... 747 31 51
Cash at beginning of year.................................. 167 136 85
-------- -------- --------
Cash at end of year........................................ $ 914 $ 167 $ 136
======== ======== ========
FAIR VALUES OF FINANCIAL INSTRUMENTS (NOTE 18)
Statement of Financial Accounting Standards No. 107 ("SFAS 107"),
"Disclosures about Fair Value of Financial Instruments", requires disclosure of
estimated fair values for financial instruments.
Limitations: The fair value estimates made at December 31, 1994 and 1993
were based on pertinent market data and relevant information on the financial
instrument at that time. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the entire portion of the
financial instruments. Because no market exists for a portion of the financial
instruments, fair value estimates may be based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve
45
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For instance, Valley has certain fee-generating business
lines (e.g. its mortgage servicing operation and trust department) that were not
considered in these estimates since these activities are not financial
instruments. In addition, the tax implications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in many of the estimates.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and short-term investments: For such short-term investments, the
carrying amount is considered to be a reasonable estimate of fair value.
Investment securities held to maturity and investment securities available
for sale: Fair values are based on quoted market prices.
Loans and loans held for sale: Fair values were estimated by obtaining
quoted market prices, when available. The fair value of other loans were
estimated by discounting the future cash flows using market discount rates that
reflect the credit and interest-rate risk inherent in the loan.
Deposit liabilities: Current carrying amounts approximate estimated fair
value of demand deposits and savings accounts. The fair value of time deposits
was based on the discounted value of contractual cash flows using estimated
rates currently offered for deposits of similar remaining maturity.
Short term liabilities: Current carrying amounts approximate estimated fair
value.
Other borrowings: The fair value was estimated by discounting future cash
flows based on rates currently available for debt with similar terms and
remaining maturity.
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49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying amounts and estimated fair values of financial instruments
were as follows at December 31, 1994 and 1993:
1994 1993
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
Financial assets:
Cash and due from banks...... $ 154,647 $ 154,647 $ 75,927 $ 75,927
Federal funds sold........... -- -- 93,050 93,050
Other short-term
investments................ -- -- 2,132 2,132
Investment securities held to
maturity................... 846,151 809,828 991,573 1,013,629
Investment securities
available for sale......... 458,223 458,223 461,080 469,538
Loans........................ 2,187,808 2,106,194 1,898,941 1,907,859
Due from customers on
acceptances outstanding.... 1,498 1,498 1,192 1,192
Financial liabilities:
Deposits with no stated
maturity................... 2,109,252 2,109,252 2,157,423 2,157,423
Deposits with stated
maturities................. 1,224,769 1,212,161 1,093,233 1,111,700
Short-term borrowings........ 79,353 79,353 43,813 43,813
Other borrowings............. 2,331 2,331 2,667 2,667
Bank acceptances
outstanding................ 1,498 1,498 1,192 1,192
The estimated fair value of financial instruments with off-balance sheet
risk, consisting of unamortized fee income at December 31, 1994 and 1993 is not
material.
SUBSEQUENT EVENT (UNAUDITED) (NOTE 19)
On January 26, 1995 Valley entered into a letter of intent to acquire the
$661 million Lakeland First Financial Group, Inc. ("LFG"), the holding company
for Lakeland Savings Bank ("Lakeland"), a state chartered savings bank
headquartered in Succasunna, New Jersey, with sixteen branches in Morris, Sussex
and Warren counties, New Jersey. The letter of intent stipulates that 1.225
shares of common stock of Valley will be exchanged for each of the 3,881,398
shares of common stock of LFG. Valley also entered into a separate stock option
agreement which gives Valley the option to purchase 1.25 million shares of
authorized, but unissued common stock of LFG at an exercise price of $21.00 per
share in the event that another party obtains control of LFG.
47
50
INDEPENDENT AUDITORS' REPORT
[K P M G Peat Marwick L O G O]
KPMG Peat Marwick LLP
Certified Public Accountants
New Jersey Headquarters
150 John F. Kennedy Parkway
Short Hills, NJ 07078
The Board of Directors and Shareholders
Valley National Bancorp:
We have audited the accompanying consolidated statements of financial condition
of Valley National Bancorp and subsidiaries as of December 31, 1994 and 1993 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Valley
National Bancorp and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, Valley
National Bancorp and subsidiaries adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" in 1994
and Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" in 1993.
January 25, 1995
/s/ K P M G Peat Marwick LLP
48
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the registrant are incorporated by
reference to the Proxy Statement for the Annual Meeting of Shareholders to be
held on March 23, 1995 except for certain information on Executive Officers of
the Registrant which is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the Proxy Statement for the Annual Meeting of Shareholders to be held March
23, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference in the Proxy Statement for the Annual
Meeting of Shareholders to be held March 23, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference in the Proxy Statement for the Annual Meeting of
Shareholders to be held March 23, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules:
The financial statements listed on the index of this Annual Report on Form
10-K are filed as part of this Annual Report.
All financial statement schedules are omitted because they are either
inapplicable or not required, or because the required information is
included in the Consolidated Financial Statements or notes thereto.
(b) Current Reports on Form 8-K during the quarter ended December 31, 1994:
(1) On October 19, 1994 to report the signing of a Letter of Intent to
effect a merger between Valley National Bancorp, Valley National Bank
and American Union Bank.
(2) On October 31, 1994 to report the quarterly release of earnings for
September 30, 1994 for Valley National Bancorp.
(3) On October 16, 1994 to report the signing of the Agreement and Plan of
Merger, dated November 9, 1994 by and among Valley National Bancorp,
Valley National Bank and American Union Bank.
(4) On December 5, 1994 to report the merger of Rock Financial Corporation
into Valley National Bancorp at the close of business on November 30,
1994.
(c) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
(2) Plan of Acquisition:
A. Agreement and Plan of Merger and Stock Option Agreement, dated
November 9, 1994, by and among Valley National Bancorp, Valley
National Bank and American Union Bank is incorporated by
reference to Registrant's Registration Statement on Form S-4
(No.33-55765) filed with the Securities and Exchange Commission
on October 4, 1994.
49
52
B. Letter of Intent and Stock Option Agreement, dated January 26,
1995, by and among Valley National Bancorp, Valley national Bank,
Lakeland First Financial Group, Inc., and Lakeland Savings Bank
is incorporated by reference to Registrant's Form 8-K filed with
the Securities and Exchange Commission on February 2, 1995.
(3) Articles of Incorporation and Bylaws:
A. Amendment to the Certificate of Incorporation of the Registrant dated
April 15,1994.
*** B. By-Laws of the Registrant adopted as of March 14, 1989 and amended March
19, 1991.
(10) Material Contracts:
A. "Change in Control Agreements" dated January 1, 1995 between Valley, VNB
and Gerald H. Lipkin, Peter Southway, Sam P. Pinyuh, Peter Crocitto, Alan
Eskow, Robert Farrell, Robert Mulligan and Peter John Southway.
** B. "The Valley National Bancorp Long-term Stock Incentive Plan" dated January
18, 1994.
* C. Warrant Agreement by and between Valley National Bancorp and Valley
National Bank, Trust Department governing the terms of 450,000 warrants to
purchase Valley National Bancorp common stock dated as of December 31,
1990.
D. "Severance Agreements" dated August 17, 1994 between Valley, VNB and Gerald
H. Lipkin, Peter Southway, and Sam P. Pinyuh is incorporated by reference
to Registrant's Registration Statement on Form S-4 (No. 33-55765) filed
with the Securities and Exchange Commission on October 4, 1994.
E. "Stock Option Agreement" dated April 1, 1992 between Valley National
Bancorp and Michael Guilfoile, is herein incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
- ---------------
* This document is incorporated herein by reference from the Registrant's Form
10-K Annual Report for the fiscal period ending December 31, 1990.
** This document is incorporated herein by reference from the Registrant's
Notice of Annual Meeting of Shareholders and Proxy dated March 1, 1994.
*** This document is incorporated herein by reference from the Registrant's Form
10-K Annual Report for the fiscal period ending December 31, 1993.
(21) List of Subsidiaries:
PERCENTAGE OF VOTING
JURISDICTION OF SECURITIES OWNED BY
NAME INCORPORATION THE PARENT
----------------------------------------------- ---------------- --------------------
(a) Subsidiary of Valley:
Valley National Bank (VNB) United States 100%
(b) Subsidiaries of VNB:
Valley Investment Corp. Delaware 100%
VNB Mortgage Services, Inc. New Jersey 100%
BNV Realty Incorporated New Jersey 100%
VN Investment, Inc. New Jersey 100%
(23) Consents of Experts and Counsel
Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedule
50
53
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VALLEY NATIONAL BANCORP
By: /s/ GERALD H. LIPKIN
---------------------------------
Gerald H. Lipkin, Chairman of the
Board
and Chief Executive Officer
Dated: February 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on February 24, 1995.
/s/ GERALD H. LIPKIN Chairman of the Board and Chief Executive
- -------------------------------------------- Officer and Director
Gerald H. Lipkin
/s/ PETER SOUTHWAY President and Chief Operating Officer
- -------------------------------------------- (Principal Financial Officer) and Director
Peter Southway
/s/ ALAN D. ESKOW Senior Vice President, Financial Administration
- -------------------------------------------- (Principal Accounting Officer) and Corporate
Alan D. Eskow Secretary
/s/ ANDREW ABRAMSON Director
- --------------------------------------------
Andrew Abramson
/s/ PAMELA BRONANDER Director
- --------------------------------------------
Pamela Bronander
/s/ JOSEPH COCCIA, JR. Director
- --------------------------------------------
Joseph Coccia, Jr.
/s/ AUSTIN C. DRUKKER Director
- --------------------------------------------
Austin C. Drukker
/s/ THOMAS P. INFUSINO Director
- --------------------------------------------
Thomas P. Infusino
/s/ GERALD KORDE Director
- --------------------------------------------
Gerald Korde
/s/ ROBERT L. MARCALUS Director
- --------------------------------------------
Robert L. Marcalus
51
54
/s/ ROBERT E. McENTEE Director
- ---------------------------------------------
Robert E. McEntee
/s/ SAM P. PINYUH Executive Vice President and Director
- ---------------------------------------------
Sam P. Pinyuh
/s/ RUBIN RABINOWITZ Director
- ---------------------------------------------
Rubin Rabinowitz
/s/ ROBERT RACHESKY Director
- ---------------------------------------------
Robert Rachesky
/s/ BARNETT RUKIN Director
- ---------------------------------------------
Barnett Rukin
/s/ RICHARD F. TICE Director
- ---------------------------------------------
Richard F. Tice
/s/ LEONARD VORCHEIMER Director
- ---------------------------------------------
Leonard Vorcheimer
/s/ JOSEPH L. VOZZA Director
- ---------------------------------------------
Joseph L. Vozza
52
55
EXHIBIT INDEX
(2) Plan of Acquisition:
A. Agreement and Plan of Merger and Stock Option Agreement, dated
November 9, 1994, by and among Valley National Bancorp, Valley
National Bank and American Union Bank is incorporated by
reference to Registrant's Registration Statement on Form S-4
(No.33-55765) filed with the Securities and Exchange Commission
on October 4, 1994.
B. Letter of Intent and Stock Option Agreement, dated January 26,
1995, by and among Valley National Bancorp, Valley national Bank,
Lakeland First Financial Group, Inc., and Lakeland Savings Bank
is incorporated by reference to Registrant's Form 8-K filed with
the Securities and Exchange Commission on February 2, 1995.
(3) Articles of Incorporation and Bylaws:
*** A. Restated Certificate of Incorporation of the Registrant dated March 22,
1994.
*** B. By-Laws of the Registrant adopted as of March 14, 1989 and amended March
19, 1991.
(10) Material Contracts:
A. "Change in Control Agreements" dated January 1, 1995 between Valley, VNB
and Gerald H. Lipkin, Peter Southway, Sam P. Pinyuh, Peter Crocitto, Alan
Eskow, Robert Farrell, Robert Mulligan and Peter John Southway.
** B. "The Valley National Bancorp Long-term Stock Incentive Plan" dated January
18, 1994.
* C. Warrant Agreement by and between Valley National Bancorp and Valley
National Bank, Trust Department governing the terms of 450,000 warrants to
purchase Valley National Bancorp common stock dated as of December 31,
1990.
D. "Severance Agreements" dated August 17, 1994 between Valley, VNB and Gerald
H. Lipkin, Peter Southway, and Sam P. Pinyuh is incorporated by reference
to Registrant's Registration Statement on Form S-4 (No. 33-55765) filed
with the Securities and Exchange Commission on October 4, 1994.
E. "Stock Option Agreement" dated April 1, 1992 between Valley National
Bancorp and Michael Guilfoile, is herein incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
- ---------------
* This document is incorporated herein by reference from the Registrant's Form
10-K Annual Report for the fiscal period ending December 31, 1990.
** This document is incorporated herein by reference from the Registrant's
Notice of Annual Meeting of Shareholders and Proxy dated March 1, 1994.
*** This document is incorporated herein by reference from the Registrant's Form
10-K Annual Report for the fiscal period ending December 31, 1993.
(21) List of Subsidiaries:
PERCENTAGE OF VOTING
JURISDICTION OF SECURITIES OWNED BY
NAME INCORPORATION THE PARENT
----------------------------------------------- ---------------- --------------------
(a) Subsidiary of Valley:
Valley National Bank (VNB) United States 100%
(b) Subsidiaries of VNB:
Valley Investment Corp. Delaware 100%
VNB Mortgage Services, Inc. New Jersey 100%
BNV Realty Incorporated New Jersey 100%
VN Investment, Inc. New Jersey 100%
(23) Consents of Experts and Counsel
Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedule