News Details

WAYNE, N.J., July 28, 2011 /PRNewswire/ -- Valley National Bancorp (NYSE:VLY), the holding company for Valley National Bank, today reported net income for the second quarter of 2011 of $36.9 million, or $0.22 per diluted common share, as compared to the second quarter of 2010 earnings of $33.0 million, or $0.20 per diluted common share.  See the "Performance Highlights" section below for more details.

All common share data presented in this press release, including the earnings per diluted common share data above, was adjusted for a five percent stock dividend issued on May 20, 2011.

Gerald H. Lipkin, Chairman, President and CEO commented that, "We continued to record solid earnings in the second quarter largely due to the performance of our net interest margin and our traditional focus on operating efficiently throughout the organization. Our very successful one price mortgage refinancing program and targeted growth in our commercial real estate portfolio contributed to real estate loan growth of more than eight percent on an annualized basis during the quarter.

In April 2011, we announced our entry into a merger agreement with State Bancorp, Inc. and its principal subsidiary, State Bank of Long Island with approximately $1.6 billion in assets. We are very excited about this opportunity to enter the Long Island market through the acquisition of a well-positioned and prudently managed institution. State Bank's 17 branch network, experienced staff and attractive demographic concentration and client base in Manhattan, Queens, Nassau and Suffolk counties provide a compelling reason for our expansion into this competitive market. We recently received regulatory approval from the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York, and the transaction closing is anticipated in the fourth quarter of 2011, subject to shareholder approval and other conditions."  

Performance Highlights

• Net Interest Income and Margin: Net interest income increased $778 thousand to $117.7 million for the quarter ended June 30, 2011 as compared to $116.9 million for the quarter ended March 31, 2011.  On a tax equivalent basis, our net interest margin was 3.71 percent in the second quarter of 2011 unchanged as compared to the first quarter of 2011, and 1 basis point lower than 3.72 percent for the second quarter of 2010. See the "Net Interest Income and Margin" section below for more details.

• Loan Growth: Total non-covered loans increased by $73.0 million to $9.3 billion at June 30, 2011 from March 31, 2011.  Our residential mortgage portfolio grew by $99.5 million, or 19.4 percent on an annualized basis, during the second quarter of 2011. We originated over $230 million in new and refinanced residential mortgage loans during the period and held over 77 percent of these loans in our loan portfolio at June 30, 2011.  However, we experienced an increase in commercial and industrial loan prepayments and a continued decline in our automobile loan portfolio, partially offsetting the growth in our real estate based portfolios.

• Asset Quality: Total loans past due 30 days or more were 1.66 percent of the loan portfolio at June 30, 2011 compared to 1.70 percent at March 31, 2011.  Total non-accrual loans were $113.8 million, or 1.19 percent of our entire loan portfolio of $9.6 billion, at June 30, 2011. The residential mortgage and home equity loan portfolios totaling over 22,500 individual loans had only 248 loans past due 30 days or more at June 30, 2011.  At June 30, 2011, residential mortgage and home equity loans delinquent 30 days or more totaled $47.3 million, or 1.80 percent of the $2.6 billion in total loans within these categories. See "Credit Quality" section below for more details.

• Provision for Losses on Non-Covered Loans and Unfunded Letters of Credit: The provision for losses on non-covered loans (i.e., loans which are not subject to our loss-sharing agreements with the FDIC) and unfunded letters of credit increased to $6.8 million for the second quarter of 2011 as compared to $5.3 million for the first quarter of 2011 and declined from $12.4 million for the second quarter of 2010. Net loan charge-offs on non-covered loans increased to $6.2 million for the three months ended June 30, 2011 compared to $3.8 million for the first quarter of 2011 and $5.2 million for the second quarter of 2010. At June 30, 2011, our allowance for losses on non-covered loans and unfunded letters of credit was 1.32 percent of non-covered loans, unchanged from March 31, 2011 and 0.08 percent higher than 1.24 percent at June 30, 2010.

• Provision for Losses on Covered Loans:  We recorded a $788 thousand reduction in our provision for losses on covered loans (i.e., loans subject to our loss-sharing agreements with the FDIC) during the second quarter of 2011, as compared to a provision of $18.9 million in the first quarter of 2011, due to the slightly lower level of estimated credit impairment within certain pools of covered loans.  Our allowance for losses on covered loans totaled $18.7 million at June 30, 2011 as compared to $20.1 million at March 31, 2011 and was reduced by loan charge-offs totaling $639 thousand during the second quarter of 2011.

• Change in FDIC Loss-Share Receivable:  We recognized a $2.7 million reduction in non-interest income during the second quarter of 2011 due to a decrease in our FDIC loss-share receivable primarily caused by a $2.9 million adjustment for increased cash flows from certain covered loan pools in excess of originally forecasted cash flows, which are recognized on a prospective basis over the life of the loan pools.

• Investments:We recognized net gains on securities transactions totaling $16.5 million ($0.06 per common share) during the second quarter of 2011 mainly due to the sale of $253.0 million in residential mortgage-backed securities issued by government agencies, preferred securities issued by Freddie Mac and Fannie Mae, and U.S. Treasury securities that were classified as available for sale. No impairment charges were recognized on securities in earnings during the second quarter of 2011, as compared to $825 thousand in the first quarter of 2011 and $2.0 million during the second quarter of 2010.

• Trading Mark to Market Impact on Earnings: Net income for the second quarter of 2011 included net trading losses totaling $1.0 million (less than $0.01 per common share) as compared to net trading gains of $838 thousand for the second quarter of 2010. Trading losses and gains mainly represent non-cash mark to market gains on our junior subordinated debentures carried at fair value.

• Income Tax Expense:  Our effective tax rate increased by 8.7 percent to 40.6 percent for the second quarter of 2011 as compared to 31.9 percent for the first quarter of 2011 largely due to an incremental tax provision of $8.5 million ($0.05 per common share). See the "Income Tax Expense" section below for more details.

Net Interest Income and Margin

Net interest income on a tax equivalent basis was $119.0 million for the second quarter of 2011, a $736 thousand increase from the first quarter of 2011 and an increase of $552 thousand from the second quarter of 2010. The linked quarter increase was mainly driven by higher average loan balances caused by residential and commercial real estate loan growth during the first and second quarters of 2011, as well as a decrease in our cost of funds in the second quarter of 2011 reflecting the maturity of high cost long-term FHLB borrowings in April, March, and January 2011. The funding from the FHLB borrowings was largely replaced with lower cost deposits, including three to five year-term brokered certificates of deposit purchased in the first quarter of 2011.

The net interest margin on a tax equivalent basis was 3.71 percent for the second quarter of 2011, unchanged from the linked first quarter of 2011, and a 1 basis point decline from 3.72 percent for the quarter ended June 30, 2010. The yield on average interest earning assets decreased by three basis points on a linked quarter basis mainly as a result of slightly lower yields on average loans, partially offset by an increase in yield on average non-taxable investments. However, the cost of average interest bearing liabilities declined three basis points from the first quarter of 2011 mainly due to a one basis point decrease in the cost of average long-term borrowings and a greater percentage of lower cost deposits to other borrowings, partially offset by a two basis point increase in the cost of average interest bearing deposits.  The increase in our cost of interest bearing deposits was caused, in part, by three and five-year term brokered certificates of deposit totaling $102.3 million purchased in March and February 2011 to replace the funding from maturing FHLB borrowings, as well as a modest increase in interest rates on our money market deposit accounts.  Our cost of total deposits was 0.72 percent for the second quarter of 2011 compared to 0.71 percent for the three months ended March 31, 2011.  

Credit Quality

Total loan delinquencies as a percentage of total loans were 1.66 percent at June 30, 2011 as compared to 1.70 percent at March 31, 2011 and 1.71 percent at June 30, 2010.  With a loan portfolio totaling approximately $9.6 billion, net loan charge-offs on non-covered loans for the second quarter of 2011 totaled $6.2 million as compared to $3.8 million for the first quarter of 2011 and $5.2 million for the second quarter of 2010.  Charge-offs on loans in our impaired covered loan pools totaled $639 thousand for the second quarter of 2011 and are substantially covered by loss-sharing agreements with the FDIC.

The following table summarizes the allocation of the allowance for credit losses to specific loan categories and the allocation as a percentage of each loan category at June 30, 2011, March 31, 2011 and June 30, 2010:

Total non-performing assets ("NPAs"), consisting of non-accrual loans, other real estate owned (OREO) and other repossessed assets, totaled $125.5 million, or 1.29 percent of loans and NPAs at June 30, 2011 compared to $113.2 million, or 1.17 percent of loans and NPAs at March 31, 2011. The $12.3 million increase in non-performing assets was mostly due to an $11.3 million increase in non-accrual commercial real estate loans to $43.0 million, or 1.23 percent of the commercial real estate loan portfolio at June 30, 2011.  The increase was mostly due to five additional non-performing relationships totaling $11.8 million (with $442 thousand in related specific reserves included in our total allowance for loan losses) at June 30, 2011.

Non-accrual loans increased to $113.8 million at June 30, 2011 as compared to $101.3 million at March 31, 2011 mainly due to the aforementioned increase in non-accrual commercial real estate loans.  Although the timing of collection is uncertain, management believes that most of the non-accrual loans are well secured and largely collectible based on, in part, our quarterly review of impaired loans. Our impaired loans, mainly consisting of non-accrual and troubled debt restructured commercial and commercial real estate loans, totaled $173.5 million at June 30, 2011 and had $17.9 million in related specific reserves included in our total allowance for loan losses. OREO (which consists of 12 commercial and residential properties) and other repossessed assets, excluding OREO subject to loss-sharing agreements with the FDIC, totaled a combined $11.7 million at June 30, 2011 as compared to $11.9 million at March 31, 2011.  

Loans past due 90 days or more and still accruing increased to $2.7 million, or 0.03 percent of total loans at June 30, 2011 compared to $1.8 million, or 0.02 percent at March 31, 2011 primarily due to the addition of one commercial real estate loan, partly offset by moderate declines in residential mortgage and consumer loans within this delinquency category.  

Performing troubled debt restructured loans ("restructured loans") with modified terms and not reported as loans 90 days or more past due and still accruing or as non-accrual loans, are performing restructured loans to customers experiencing financial difficulties where a concession has been granted.  Our performing restructured loan balances totaled $101.4 millionat June 30, 2011 and consisted of 50 loans (primarily in the commercial and industrial loan and commercial real estate portfolios) as compared to 43 loans totaling $91.7 million at March 31, 2011.  On an aggregate basis, the $101.4 million in performing restructured loans at June 30, 2011 had a weighted average modified interest rate of approximately 5.06 percent as compared to a yield of 5.62 percent on the entire loan portfolio for the second quarter of 2011.

Loans and Deposits

Overall, total loans increased $44.9 million, or 1.9 percent on an annualized basis to approximately $9.6 billion at June 30, 2011 as compared to March 31, 2011.  See discussion below for a complete analysis of the change in mix between each loan category.

Non-Covered Loans. Non-covered loans are loans not subject to loss-sharing agreements with the FDIC.  Non-covered loans increased $73.0 million, or 3.2 percent on an annualized basis, to approximately $9.3 billion at June 30, 2011 from March 31, 2011.  The linked quarter increase was mainly comprised of increases in residential mortgage and commercial real estate loans of $99.5 million and $28.8 million, respectively, partially offset by decreases of $33.8 million and $20.0 million in commercial and industrial loans and automobile loans, respectively.  Residential mortgage loans increased due to the continued success of our $499 refinance program, including our television and radio ad campaigns during the second quarter, and the current low level of market interest rates. Commercial real estate loans increased during the quarter as we increased our business emphasis on co-op and multifamily loan lending in our markets during the first half of 2011.  Several factors contributed to the decline in commercial and industrial loans, including a seasonal decline in line of credit usage within asset-based lending, somewhat softer loan demand coupled with strong competition for quality credits, and the $10.7 million payoff in full of a performing, but internally criticized loan. Automobile loan balances have continued to decline due to several factors, including our high credit standards, acceptable loan to collateral value levels, and high unemployment levels.  Additionally, in an attempt to build market share, some large competitors continue to offer rates and terms that are less than Valley's profitability thresholds.  These factors may continue to constrain the levels of our auto loan originations for the remainder of 2011.

Covered Loans. Loans for which Valley National Bank will share losses with the FDIC are referred to as "covered loans," and consist of loans acquired from LibertyPointe Bank and The Park Avenue Bank as a part of FDIC-assisted transactions during the first quarter of 2010.  Our covered loans consist primarily of commercial real estate loans and commercial and industrial loans and totaled $308.4 million at June 30, 2011 as compared to $336.6 million at March 31, 2011.  These loans are accounted for on a pool basis.  On an aggregate basis the acquired pools of covered loans are performing better than originally expected, and based on our current estimates, we expect to receive more future aggregate cash flows than originally modeled at the acquisition dates.  For those pools with better than expected cash flows, the forecasted increase is recorded as a prospective adjustment to our interest income on loans over future periods.  Additionally, on a prospective basis, we will reduce the FDIC loss-share receivable by the guaranteed portion of the amount expected to be received.  During the second quarter of 2011, we reduced our FDIC loss-share receivable by $2.9 million due to the receipt of additional cash flows from pooled loans with a corresponding reduction in non-interest income for the period, as compared to $2.4 million in the first quarter of 2011.  

Deposits. Total deposits decreased $15.9 million to approximately $9.7 billion at June 30, 2011 from March 31, 2011.  Savings, NOW and money market deposits decreased $74.9 million to $4.3 billion at June 30, 2011 as compared to March 31, 2011 largely due to the repayment of $117.0 million in brokered money market funds entered into and used by management to partially fund investment security purchases during the first quarter of 2011. Brokered money market funds with variable rates based on the U.S. dollar one month LIBOR rate plus 5 basis points totaled $102.9 million at June 30, 2011.  Management anticipates that it will repay the remainder of this funding source from normal principal paydowns and interest from its investment securities portfolio during the remainder of 2011 based on the level of interest rates and other funding sources available for its asset/liability management strategies. Time deposits increased $35.9 million during the second quarter mainly due to new retail three and five-year term certificates of deposit.  Non-interest bearing deposits also increased $23.0 million as compared to March 31, 2011 mainly due to general increases in both commercial and retail deposits.

Non-Interest Income

Second quarter of 2011 compared with second quarter of 2010

Non-interest income for the second quarter of 2011 increased $11.0 million to $33.5 million as compared to $22.5 million for the same period of 2010.  Net gains on securities transactions increased $12.8 million to $16.5 million ($0.06 per common share) for the three months ended June 30, 2011 mainly due to gains on the sale of $253.0 million in residential mortgage-backed securities, preferred securities, and U.S. Treasury securities classified as available for sale in the 2011 period as compared to $3.7 million in gains on the sale of $73.9 million in U.S. Treasury securities that were classified as available for sale in the second quarter of 2010.  There were no net impairment losses on securities for the second quarter of 2011 compared to $2.0 million for the same period in 2010.  Net trading gains decreased to a loss of $1.0 million for the second quarter of 2011 as compared to a net trading gain of $838 thousand for the second quarter of 2010 mainly due to non-cash mark to market losses on our trust preferred debentures carried at fair value.  Additionally, the change in the FDIC loss-share receivable resulted in a $2.7 million reduction in non-interest income as compared to the second quarter of 2010 due to the effect of better than originally expected cash flows on certain covered loan pools.

Second quarter of 2011 compared with first quarter of 2011

Non-interest income for the second quarter of 2011 decreased $11.3 million from $44.8 million for the quarter ended March 31, 2011.  Non-interest income recognized due to the change in the FDIC loss-share receivable declined by $18.9 million from approximately $16.2 million in the first quarter of 2011 mainly due to additional estimated credit losses on covered loan pools increasing the receivable at March 31, 2011. Net trading gains decreased $4.4 million from a net trading gain of $3.4 million for the first quarter of 2011 mainly due to non-cash mark to market losses in the second quarter on our trust preferred debentures carried at fair value.  Net gains on sales of loans also decreased $2.0 million to $1.6 million for the second quarter of 2011 as compared to the first quarter of 2011 mainly due to lower sales volumes as we held a higher percentage of our new residential mortgage loan originations for investment.  However, net gains on securities transactions increased $13.8 million from $2.7 million during the first quarter of 2011 to $16.5 million in the second quarter. The first quarter gains primarily resulted from the sale of $239.0 million in certain residential mortgage-backed securities issued by government agencies that were classified as available for sale.  

Non-Interest Expense

Second quarter of 2011 compared with second quarter of 2010

Non-interest expense increased $3.1 million to $83.1 million for the three months ended June 30, 2011 from $80.0 million for the same period of 2010. Advertising expense increased $1.6 million to $2.7 million in the second quarter of 2011 mainly due to an increase in promotional campaigns including television and radio. Other non-interest expense increased $1.4 million to $12.7 million largely due to an $838 thousand write down of an OREO commercial property (which is expected to be sold in the third quarter of 2011) to $2.4 million at June 30, 2011, as well as a general increase in OREO expenses. Salary and employee benefits expense increased $1.1 million, or 2.7 percent to $44.1 million for the three months ended June 30, 2011 mainly due to normal annual increases in salary expense.  Partially offsetting these increases, amortization of other intangible assets decreased $649 thousand from $2.4 million for the second quarter of 2010 mainly due to the recognition of a $631 thousand impairment charge on certain loan servicing rights in the 2010 period as compared to a $49 thousand net valuation allowance recovery on the fair value of previously impaired loan servicing rights during the second quarter of 2011.  Net occupancy and equipment expense also declined $621 thousand to $15.5 million for the second quarter of 2011 as compared to the second quarter of 2010 mainly due to expense reductions related to the closure of five of seven branches acquired in FDIC-assisted transactions in the second quarter of 2010.

Second quarter of 2011 compared with first quarter of 2011

Non-interest expense decreased by $749 thousand from $83.8 million for the linked quarter ended March 31, 2011.  Net occupancy and equipment expense decreased by $1.7 million to $15.5 million for the second quarter of 2011 mainly due to higher seasonal maintenance and building repair expenses in the first quarter of 2011. Professional and legal expense also decreased $753 thousand from $3.8 million for the three months ended March 31, 2011 due, in part, to lower expenses related to covered assets acquired in the FDIC-assisted transactions.  However, advertising expense increased $1.2 million from $1.5 million for the first quarter of 2011 due to an increase in television and radio spots during the second quarter.

Income Tax Expense

Income tax expense was $25.2 million and $14.1 million for the second quarters of 2011 and 2010, respectively.  The effective tax rate increased by 10.7 percent to 40.6 percent for the second quarter of 2011 as compared to 29.9 percent for the second quarter of 2010 largely due to an incremental tax provision of $8.5 million ($0.05 per common share) related to a change in state tax case law during the second quarter of 2011, partly offset by our increased and planned investment in additional federal tax credits during 2011.

Income tax expense was $42.3 million and $26.3 million for the six months ended June 30, 2011 and 2010, respectively.  The effective tax rate increased by 6.2 percent to 36.5 percent for the six months ended June 30, 2011 as compared to 30.3 percent for the same period of 2010 largely due to the aforementioned one-time tax provision related to a change in state tax case law during the second quarter of 2011, partly offset by our increased and planned investment in additional federal tax credits during 2011.

We expect that the tax law change will not materially impact our effective tax rate in future periods. For the remainder of 2011, we anticipate that our effective tax rate will approximate 29 percent.    

About Valley

Valley is a regional bank holding company with over $14 billion in assets, headquartered in Wayne, New Jersey. Its principal subsidiary, Valley National Bank, currently operates 198 branches in 134 communities serving 14 counties throughout northern and central New Jersey, Manhattan, Brooklyn and Queens. Valley National Bank is the largest commercial bank headquartered in New Jersey and is committed to providing the most convenient service, the latest in product innovations and an experienced and knowledgeable staff with a high priority on friendly customer service 24 hours a day, 7 days a week. Valley National Bank offers a wide range of deposit products, mortgage loans and cash management services to consumers and businesses including products tailored for the medical, insurance and leasing business. Valley National Bank's comprehensive delivery channels enable customers to bank in person, by telephone or online.

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

Forward Looking Statements

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

• a continued weakness or unexpected decline in the U.S. economy, in particular in New Jersey and the New York Metropolitan area;
• higher than expected increases in our allowance for loan losses;
• higher than expected increases in loan losses or in the level of nonperforming loans;
• unexpected changes in interest rates;
• higher than expected tax rates, including increases resulting from changes in tax laws, regulations and case law;
• a continued or unexpected decline in real estate values within our market areas;
• declines in value in our investment portfolio;
• charges against earnings related to the change in fair value of our junior subordinated debentures;
• higher than expected FDIC insurance assessments;
• the failure of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships;
• lack of liquidity to fund our various cash obligations;
• unanticipated reduction in our deposit base;  
• potential acquisitions may disrupt our business;
• government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve;
• legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model;
• changes in accounting policies or accounting standards;
• our inability to promptly adapt to technological changes;
• our internal controls and procedures may not be adequate to prevent losses;
• claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters;
• the possibility that the expected benefits of acquisitions will not be fully realized, including lower than expected cash flows from covered loan pools acquired in FDIC-assisted transactions;
• failure to obtain shareholder approval for the merger of State Bancorp with Valley or to satisfy other conditions to the merger on the proposed terms and within the proposed timeframe including, without limitation, the purchase from the United States Department of the Treasury of each share of State Bancorp's Series A Preferred Stock issued under the Treasury's Capital Purchase Program; and
• other unexpected material adverse changes in our operations or earnings.

A detailed discussion of factors that could affect our results is included in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2010.  We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 

Additional Information and Where to Find it

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.  In connection with the proposed merger, Valley has filed a proxy statement/prospectus (subject to completion) with the Securities and Exchange Commission.  INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT/PROSPECTUS BECAUSE IT CONTAINS IMPORTANT INFORMATION.  Investors and security holders may obtain a free copy of the registration statement and other documents filed by Valley with the Commission at the Commission's web site at www.sec.gov.  These documents may be accessed and downloaded for free at Valley's web site at http://www.valleynationalbank.com/filings.html or by directing a request to Dianne M. Grenz, First Senior Vice President, Valley National Bancorp, at 1455 Valley Road, Wayne, New Jersey 07470, telephone (973) 305-3380.

Participants in the Solicitation

This communication is not a solicitation of a proxy from any security holder of State Bancorp.  However, Valley, State Bancorp, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies from State Bancorp's shareholders in respect of the proposed transaction.  Information regarding the directors and executive officers of Valley may be found in its definitive proxy statement relating to its 2011 Annual Meeting of Shareholders, which was filed with the Commission on March 11, 2011 and can be obtained free of charge from Valley's website.  Information regarding the directors and executive officers of State Bancorp may be found in its definitive proxy statement relating to its 2011 Annual Meeting of Shareholders, which was filed with the Commission on March 25, 2011 and can be obtained free of charge from State Bancorp's website.  Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the proxy statement/prospectus and other relevant materials to be filed with the SEC.