UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549 ----------------- FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2000 [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-11179 ---------------------- VALLEY NATIONAL BANCORP (Exact name of registrant as specified in its charter) New Jersey (State or other Jurisdiction of incorporation or organization) 22-2477875 (I.R.S. Employer Identification No.) 1455 Valley Road, Wayne, New Jersey 07474-0558 (Address of principal executive offices) 973-305-8800 (Registrant's telephone number, including area code) 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (No par value), of which 60,161,422 shares were outstanding as of August 8, 2000.
TABLE OF CONTENTS Page Number PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition (Unaudited) June 30, 2000 and December 31, 1999 3 Consolidated Statements of Income (Unaudited) Six and Three Months Ended June 30, 2000 and 1999 4 Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 26 SIGNATURES 27
PART I Item 1. Financial Statements VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (in thousands, except per share data) <TABLE> <CAPTION> June 30, December 31, 2000 1999 <S> <C> <C> Assets Cash and due from banks $165,344 161,561 Federal funds sold 37,000 123,000 Investment securities held to maturity, fair value of $313,289 and $318,329 in 2000 and 1999, respectively 358,489 351,501 Investment securities available for sale 941,093 1,005,419 Loans 4,618,198 4,542,567 Loans held for sale 11,439 12,185 Total loans 4,629,637 4,554,752 Less: allowance for loan losses (55,150) (55,120) Net loans 4,574,487 4,499,632 Premises and equipment, net 84,931 84,790 Accrued interest receivable 36,158 35,504 Other assets 95,227 98,987 Total assets $6,292,729 $6,360,394 Liabilities Deposits: Non-interest bearing $ 972,109 $ 931,016 Interest bearing: Savings 1,978,216 2,018,530 Time 2,067,892 2,101,709 Total deposits 5,018,217 5,051,255 Short-term borrowings 114,710 129,065 Long-term debt 591,845 564,881 Accrued expenses and other liabilities 47,392 61,693 Total liabilities 5,772,164 5,806,894 Shareholders' Equity Preferred stock, no par value, authorized 30,000,000 shares; none issued - - Common stock, no par value, authorized 108,527,344 Shares; issued 60,615,977 shares in 2000 and 60,621,040 shares in 1999 25,956 25,943 Surplus 325,688 325,147 Retained earnings 193,534 244,605 Unallocated common stock held by employee benefit plan (869) (965) Accumulated other comprehensive loss (18,703) (16,733) 525,606 577,997 Treasury stock, at cost (182,746 shares in 2000 and 927,750 shares in 1999) (5,041) (24,497) Total shareholders' equity 520,565 553,500 Total liabilities and shareholders' equity $6,292,729 $6,360,394 </TABLE> See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> (in thousands, except per share data) Six Months Three Months Ended Ended June 30, June 30, 2000 1999 2000 1999 <S> <C> <C> <C> <C> Interest Income Interest and fees on loans $183,024 $165,138 $ 92,461 $83,316 Interest and dividends on investment securities: Taxable 37,179 36,722 18,435 18,626 Tax-exempt 3,681 3,587 1,865 1,843 Dividends 1,431 1,174 746 580 Interest on federal funds sold and other short-term investments 1,564 2,318 900 1,429 Total interest income 226,879 208,939 114,407 105,794 Interest Expense Interest on deposits: Savings deposits 24,183 20,103 12,110 10,097 Time deposits 54,081 50,454 27,709 25,538 Interest on short-term borrowings 3,011 1,246 1,752 667 Interest on long-term debt 17,372 9,295 8,925 5,235 Total interest expense 98,647 81,098 50,496 41,537 Net Interest Income 128,232 127,841 63,911 64,257 Provision for loan losses 3,700 3,775 2,200 1,775 Net Interest Income after Provision for Loan Losses 124,532 124,066 61,711 62,482 Non-Interest Income Trust and investment services 1,503 1,096 783 554 Service charges on deposit accounts 7,960 7,091 4,334 3,572 Gains on securities transactions, net - 2,431 - 456 Fees from loan servicing 5,512 3,853 2,782 1,921 Credit card fee income 4,053 4,199 2,103 2,208 Gains on sales of loans, net 1,349 1,448 584 785 Other 3,888 4,404 2,049 2,303 Total non-interest income 24,265 24,522 12,635 11,799 Non-Interest Expense Salary expense 30,640 28,465 15,417 14,047 Employee benefit expense 6,579 6,311 3,449 3,171 FDIC insurance premiums 525 624 262 311 Occupancy and equipment expense 9,940 9,796 4,741 5,054 Credit card expense 2,575 2,646 1,343 1,332 Amortization of intangible assets 3,579 2,142 1,920 818 Advertising 2,212 2,234 1,288 1,396 Merger-related charges - 3,005 - 3,005 Other 12,174 12,278 6,217 6,102 Total non-interest expense 68,224 67,501 34,637 35,236 Income Before Income Taxes 80,573 81,087 39,709 39,045 Income tax expense 26,970 29,201 13,049 13,648 Net Income $53,603 $51,886 $26,660 $25,397 Earnings Per Share: Basic $ 0.88 $ 0.81 $ 0.44 $ 0.40 Diluted $ 0.87 $ 0.80 $ 0.44 $ 0.39 Weighted Average Number of Shares Outstanding: Basic 61,206,797 64,243,687 60,491,929 63,930.027 Diluted 61,779,558 64,905,541 61,111,320 64,636,698 </TABLE> See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2000 1999 <TABLE> <CAPTION> <S> <C> <C> Cash flows from operating activities: Net income $ 53,603 $ 51,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,862 5,838 Amortization of compensation costs pursuant to long-term stock incentive plan 616 440 Provision for loan losses 3,700 3,775 Net amortization of premiums and accretion of discounts 1,131 2,253 Gains on securities transactions, net - (2,431) Proceeds from sales of loans 25,983 57,675 Gain on sales of loans, net (1,349) (1,448) Proceeds from recoveries of previously charged-off loans 1,823 1,884 Net decrease(increase) in accrued interest receivable and other assets 134 (9,914) Net (decrease)increase in accrued expenses and other liabilities (13,402) 405 Net cash provided by operating activities 79,101 110,363 Cash flows from investing activities: Purchases and originations of mortgage servicing rights (782) (4,212) Proceeds from sales of investment securities available for sale - 8,497 Proceeds from maturing investment securities available for sale 80,419 235,416 Purchases of investment securities available for sale (19,469) (341,697) Purchases of investment securities held to maturity (20,150) (119,055) Proceeds from maturing investment securities held to maturity 12,700 27,764 Proceeds form sales of trading account securities -- 1,415 Net decrease in federal funds sold and other short-term investments 86,000 108,100 Net increase in loans made to customers (105,012) (222,710) Purchases of premises and equipment, net of sales (3,326) (3,058) Net cash provided by (used in) investing activities 30,380 (309,540) Cash flows from financing activities: Net (decrease)increase in deposits (33,038) 75,326 Net (decrease)increase in short-term borrowings (14,355) 33,554 Advances of long-term debt 30,000 183,000 Repayments of long-term debt (3,036) (31,033) Dividends paid to common shareholders (30,974) (29,276) Addition of common shares to treasury (55,309) (46,036) Common stock issued, net of cancellations 1,014 4,441 Net cash (used in) provided by financing activities (105,698) 189,976 Net increase (decrease) in cash and cash equivalents 3,783 (9,201) Cash and cash equivalents at January 1 161,561 185,921 Cash and cash equivalents at June 30 165,344 176,720 Supplemental disclosure of cash flow information: Cash paid during the period for interest on deposits and borrowings $ 98,699 $ 80,585 Cash paid during the period for federal and state income taxes 28,350 28,179 Transfer of Ramapo securities from held to maturity to available for sale -- 42,387 </TABLE> See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Consolidated Financial Statements The Consolidated Statements of Financial Condition as of June 30, 2000 and December 31, 1999, the Consolidated Statements of Income for the six and three month periods ended June 30, 2000 and 1999 and the Consolidated Statements of Cash Flows for the six month periods ended June 30, 2000 and 1999 have been prepared by Valley National Bancorp ("Valley") without audit. In the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly Valley's financial position, results of operations, and cash flows at June 30, 2000 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements are to be read in conjunction with the financial statements and notes thereto included in Valley's December 31, 1999 Annual Report to Shareholders. Certain prior period amounts have been reclassified to conform to 2000 financial presentations. 2. Earnings Per Share Earnings per share ("EPS") amounts and weighted average shares outstanding have been restated to reflect the 5 percent stock dividend declared April 6, 2000 to Shareholders of record on May 5, 2000 and issued May 16, 2000. For Valley, the numerator of both the Basic and Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used in the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect of potentially dilutive common stock equivalents utilizing the treasury stock method. For Valley, common stock equivalents are common stock options outstanding.
The following table shows the calculation of both Basic and Diluted earnings per share for the six and three months ended June 30, 2000 and 1999. <TABLE> <CAPTION> Six Months Ended Three Months Ended June 30, June 30, 2000 1999 2000 1999 (in thousands, except for share data) <S> <C> <C> <C> <C> Net income $ 53,603 $ 51,886 $ 26,660 $25,397 Basic weighted-average number of shares outstanding 61,206,797 64,243,687 60,491,929 63,930,027 Plus: Common stock equivalents 572,761 661,854 619,391 706,671 Diluted weighted- average number of shares outstanding 61,779,558 64,905,541 61,111,320 64,636,698 Earnings per share: Basic $ 0.88 $ 0.81 $ 0.44 $ 0.40 Diluted 0.87 0.80 0.44 0.39 </TABLE> Common stock equivalents for the six and three months ended June 30, 2000 exclude 488 thousand and 255 thousand common stock options, respectively because the exercise prices exceed the average market value. 3. Recent Developments During the second quarter, Valley announced that it had entered into a definitive contract to acquire Hallmark Capital Management, Inc. ("Hallmark"), a Fairfield, N J-based investment management firm with $190 million of assets under management. The transaction closed July 6, 2000. Under the terms of the agreement, Valley will continue Hallmark's operations as a wholly-owned subsidiary of Valley National Bank. Also during the second quarter Valley announced that its Board of Directors authorized the Company to purchase up to 3,000,000 shares of the Company's outstanding common stock. At June 30, 2000, 8,170 shares had been repurchased under this program. Purchases may be made from time to time in the open market or in privately negotiated transactions at prices not exceeding prevailing market prices. Reacquired shares are held in treasury and are expected to be used for employee benefit programs, stock dividends and other corporate purposes. This is in addition to the 3,000,000 common shares authorized by the Board of Directors in December 1999, of which all shares have been purchased. The majority of these shares were reissued for the stock dividend which was issued May 16, 2000.
4. Accumulated Other Comprehensive Income (Loss) Valley's accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains (losses) on securities. The following table shows the related tax effects on each component of accumulated other comprehensive income for the six and three months ended June 30, 2000 and 1999. <TABLE> <CAPTION> Six Months Six Months Ended Ended June 30, 2000 June 30, 1999 (in thousands) <S> <C> <C> <C> <C> Net income $53,603 $51,886 Accumulated other comprehensive income, net of tax: Foreign currency translation adjustments (173) 349 Unrealized losses on securities: Unrealized holding losses arising during period $(1,797) $(8,733) Less: reclassification adjustment for gains realized in net income -- 1,544 Net unrealized losses (1,797) (7,189) Other comprehensive loss (1,970) (6,840) Accumulated other comprehensive income $51,633 $ 45,046 Three Months Three Months Ended Ended June 30, 2000 June 30, 1999 (in thousands) Net income $26,660 $25,397 Accumulated other comprehensive income, net of tax: Foreign currency translation (160) 205 adjustments Unrealized gains(losses)on securities: Unrealized holding gains (losses) arising during $1,070 $(4,836) period Less: reclassification adjustment for gains realized in net income -- 290 Net unrealized gains (losses) 1,070 (4,546) Other comprehensive income (loss) 910 (4,341) Accumulated other comprehensive income $27,570 $21,056 </TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Concerning Forward-Looking Statements This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by an "asterisk" (*) or such forward-looking terminology as "expect," "look," "believe," "anticipate," "may," "will," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of economic conditions and legal and regulatory barriers and structure. Actual results may differ materially from such forward-looking statements. Valley assumes no obligation for updating any such forward-looking statement at any time. Earnings Summary Net income for the six months ended June 30, 2000 was $53.6 million, or $0.87 per diluted share. These results compare with net income of $51.9 million, or $0.80 per diluted share for the same period in 1999 (1999 earnings per share amounts have been restated to give effect to a 5 percent stock dividend issued May 16, 2000). The annualized return on average equity increased to 20.25 percent from 17.60 percent, while the annualized return on average assets decreased to 1.72 percent from 1.74 percent, for the six months ended June 30, 2000 and 1999, respectively. Net income was $26.7 million or $0.44 per diluted share for the three month period ended June 30, 2000, compared with $25.4 million or $0.39 per diluted share for the same period in 1999. The six and three month net income and net income per diluted share for 1999 include a pre tax merger -related charge of $3.0 million. Net Interest Income Net interest income continues to be the largest source of Valley's operating income. Net interest income on a tax equivalent basis increased to $130.5 million compared with $130.0 million for the six months ended June 30, 1999. The increase in net interest income is due to higher average balances of total interest earning assets, primarily loans, combined with higher average interest rates for these interest earning assets. This was offset by an increase in average rates paid on both savings and time deposits, offset by slightly lower average balances in both of these categories. Net interest
income was also negatively impacted by the increase in the average balance and the rate associated with short-term borrowings and long-term debt and the use of funds for the repurchase of the Valley common stock. The net interest margin decreased to 4.36 percent for the six months ended June 30, 2000 compared with 4.56 percent for the same period in 1999. Assuming a rising interest rate environment, the net interest margin is expected to continue to decline.* While loans have been growing, competition for loans has caused rates on new loans and total interest earning assets to increase at a slower pace than rates on interest bearing liabilities. Average interest earning assets increased $283.1 million or 5.0 percent for the six months ended June 30, 2000 over the same period in 1999. This was mainly the result of the increase in average balance of loans of $381.8 million or 9.1 percent offset partly by the decrease in average balance of taxable investments of $61.1 million or 4.8 percent and federal funds sold and other short-term investments of $41.3 million or 44.2 percent. Average interest bearing liabilities for the six months ended June 30, 2000 increased $268.6 million or 6.0 percent from the same period in 1999. Average savings deposits decreased $33.1 million or 1.6 percent and average time deposits decreased $4.0 million. Average short-term borrowings increased $52.6 million or 86.6 percent and long-term debt, which includes primarily FHLB advances, increased $253.0 million, or 77.5 percent. Average demand deposits increased $75.5 million or 8.7 percent over 1999 balances. Average interest rates, in all categories of interest earning assets, increased during the six months ended June 30, 2000 compared with the six months ended June 30, 1999. The average interest rate for loans increased 12 basis points to 8.03 percent. Average interest rates on total interest earning assets increased 25 basis points to 7.65 percent. Average interest rates on deposits increased by 41 basis points to 3.86 percent. Average interest rates also increased on total interest bearing liabilities by 54 basis points to 4.16 percent from 3.62 percent. Although both interest earning assets and interest bearing liabilities increased relatively at the same volume, the decline in the net interest margin from 4.56 percent for the six months ended June 30, 1999 to 4.36 percent in 2000 resulted from interest rates on total interest bearing liabilities increasing at a faster pace than interest rates on total interest earning assets. Additionally, the use of capital to purchase treasury shares during the quarter and six months ended June 30, 2000 contributed to the decline in the net interest margin. Net interest income on a tax equivalent basis decreased to $65.0 million from $65.4 million for the three months ended June 30, 2000 compared with the same period in 1999. This can be attributed to an increase of $206.9 million in average balance and an increase of 32 basis points in the rate earned on total interest earning assets. These increases were offset by a $198.0 million increase in average balance and an increase of 60 basis points in the rate paid on total interest bearing liabilities. The net interest margin decreased to 4.33 percent for the three months ended June 30, 2000 compared with 4.51 percent for the same period in 1999 as a result of the increase of 32 basis points in the rate earned on average interest earning assets offset by the greater increase of 60 basis points in the rate paid on average interest bearing liabilities.
The following table reflects the components of net interest income for each of the six months ended June 30, 2000 and 1999. ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST INCOME ON A TAX EQUIVALENT BASIS <TABLE> <CAPTION> Six Months Ended June 30, 2000 Six Months Ended June 30, 1999 Average Average Average Average Balance Interest Rate Balance Interest Rate (in thousands) <S> <C> <C> <C> <C> <C> <C> Assets Interest earning assets Loans (1)(2) $4,564,214 $183,262 8.03% $4,182,369 $ 165,358 7.91% Taxable investments(3)1,207,762 38,610 6.39 1,268,900 37,896 5.97 Tax-exempt investments (1)(3) 166,289 5,663 6.81 162,580 5,518 6.79 Federal funds sold and other short-term investments 52,029 1,564 6.01 93,317 2,318 4.97 Total interest earning assets 5,990,294 $229,099 7.65 5,707,166 $ 211,090 7.40 Allowance for loan losses (55,790) (54,929) Cash and due from banks 143,352 148,703 Other assets 178,276 174,173 Unrealized (loss) gain on securities available or sale (30,377) 2,590 Total assets $6,225,755 $5,977,703 Liabilities and Shareholders' Equity Interest bearing liabilities Savings deposits $1,999,166 $ 24,183 2.42% $2,032,227 $ 20,103 1.98 Time deposits 2,054,301 54,081 5.27 2,058,298 50,454 4.90 Total interest bearing deposits 4,053,467 78,264 3.86 4,090,525 70,557 3.45 Short-term borrowings 113,287 3,011 5.32 60,700 1,246 4.11 Long-term debt 579,703 17,372 5.99 326,661 9,295 5.69 Total interest bearing liabilities 4,746,457 98,647 4.16 4,477,886 81,098 3.62 Demand deposits 945,093 869,578 Other liabilities 4,828 40,703 Shareholders' equity 529,377 589,536 Total liabilities and shareholders' equity $6,225,755 $5,977,703 Net interest income (tax) equivalent basis) 130,452 129,992 Tax equivalent adjustment (2,220) (2,151) Net interest income 128,232 127,841 Net interest rate differential 3.49% 3.78% Net interest margin (4) 4.36% 4.56 </TABLE> (1 ) Interest income is presented on a tax equivalent basis using a 35 percent tax rate. (2) Loans are stated net of unearned income and include non-accrual loans. (3) The yield for securities that are classified as available for sale is based on the average historical amortized cost. (4) Net interest income on a tax equivalent basis as a percentage of earning assets.
The following table reflects the components of net interest income for each of the three months ended June 30, 2000 and 1999. <TABLE> <CAPTION> ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST INCOME ON A TAX EQUIVALENT BASIS Three Months Ended June 30, 2000 Three Months Ended June 30, 1999 Average Average Average Average Balance Interest Rate Balance Interest Rate (in thousands) <S> <C> <C> <C> <C> <C> <C> Assets Interest earning assets Loans(1)(2)$4,584,696 $92,579,696 8.08% $4,225,243 $83,425 7.90% Taxable investments (3) 1,192,422 19,181 6.43 1,290,515 19,206 5.95 Tax-exempt investments (1)(3) 167,853 2,869 6.84 168,279 2,841 6.75 Federal funds sold and other short-term investments 57,185 900 6.30 111,196 1,429 5.14 Total interest earning assets 6,002,156 $115,529 7.70 5,795,233 $106,901 7.38% Allowance for loan losses (55,889) (54,323) Cash and due from banks 140,546 147,557 Other assets 180,744 171,528 Unrealized loss on securities available for sale (31,054) (541) Total assets $6,236,503 $6,059,454 Liabilities and Shareholders' Equity Interest bearing Liabilities Savings deposits $1,993,932 $12,110 2.43% $2,036,849 $10,097 1.98% Time deposits 2,047,344 27,709 5.41 2,093,593 25,538 4.88 Total interest bearing deposits 4,041,276 39,819 3.94 4,130,442 35,635 3.45 Short-term borrowings 125,077 1,752 5.60 64,321 667 4.15 Long-term debt 592,858 8,925 6.02 366,437 5,235 5.71 Total interest bearing Liabilities 4,759,211 50,496 4.24 4,561,200 41,537 3.64 Demand deposits 956,979 876,182 Other liabilities 3,782 37,802 Shareholders' equity 516,531 584,270 Total liabilities and shareholders' equity $6,236,503 $6,059,454 Net interest income (tax equivalent basis) 65,033 65,364 Tax equivalent Adjustment (1,122) (1,107) Net interest income $63,911 $64,257 Net interest rate Differential 3.46% 3.74% Net interest margin (4) 4.33% 4.51% </TABLE> (1 ) Interest income is presented on a tax equivalent basis using a 35 percent tax rate. (2) Loans are stated net of unearned income and include non-accrual loans. (3) The yield for securities that are classified as available for sale is based on the average historical amortized cost. (4) Net interest income on a tax equivalent basis as a percentage of earning assets.
The following table demonstrates the relative impact on net interest income of changes in volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by Valley on such assets and liabilities. CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS <TABLE> <CAPTION> Six Months ended June 30, Three Months ended June 30, 2000 Compared to 1999 2000 Compared to 1999 Increase(Decrease)(2) Increase(Decrease)(2) Interest Volume Rate Interest Volume Rate (in thousands) <S> <C> <C> <C> <C> <C> <C> Interest income: Loans (1) $ 17,904 $15,298 $ 2,606 $ 9,154 $7,224 $ 1,930 Taxable investments 714 (1,878) 2,592 (25) (1,517) 1,492 Tax-exempt investments(1) 145 126 19 28 (7) 35 Federal funds sold and other short- term investments (754) (1,172) 418 (529) (801) 272 18,009 12,374 5,635 8,628 4,899 3,729 Interest expense: Savings deposits 4,080 (332) 4,412 2,013 (217) 2,230 Time deposits 3,627 (98) 3,725 2,171 (575) 2,746 Short-term borrowings 1,765 1,317 448 1,085 791 294 Long-term debt 8,077 7,558 519 3,690 3,395 295 17,549 8,445 9,104 8,959 3,394 5,565 Net interest income (tax equivalent basis) 460 3,929 (3,469) (331) 1,505 (1,836) </TABLE> (1) Interest income is adjusted to a tax equivalent basis using a 35 percent tax rate. (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 six and three months ended June 30, 2000 and 1999. NON-INTEREST INCOME Six Months ended June 30, Three Months ended June 30, 2000 1999 2000 1999 (in thousands) Trust and investment services $ 1,503 $ 1,096 $ 783 $ 554 Service charges on deposit accounts 7,960 7,091 4,334 3,572 Gains on securities transactions, net -- 2,431 -- 456 Fees from loan servicing 5,512 3,853 2,782 1,921 Credit card fee income 4,053 4,199 2,103 2,208 Gains on sales of loans, net 1,349 1,448 584 785 Other 3,888 4,404 2,049 2,303 Total non-interest income $ 24,265 $24,522 $12,635 $11,799 Non-interest income continues to represent a considerable source of income for Valley. Total non-interest income amounted to $24.3 million for the six months ended June 30, 2000 while the comparable amount for the prior year period, excluding security gains, was $22.1 million. For the quarter ended June 30, 2000 total non-interest income excluding security gains, was $12.6 million compared with $11.3 million for the quarter ended June 30, 1999. Trust and investment services includes income from trust operations, brokerage commissions, and asset management fees. Trust and investment services income increased $407 thousand or 37.1 percent for the six months ended June 30, 2000 from the same period in 1999 and $229 thousand for the quarter. Additional fee income to the operations of Valley resulted primarily from the July 30, 1999 acquisition of New Century Asset Management, Inc. ("New Century"), a NJ-based money manager. The transaction was accounted for as a purchase. During the second quarter of 2000, Valley announced that it had entered into a definitive contract to acquire Hallmark Capital Management, Inc. ("Hallmark"), a Fairfield, N J-based investment management firm with $190 million of assets under management. The transaction closed July 6, 2000 and was accounted for as a purchase. Under the terms of the agreement, Valley will continue Hallmark's operations as a wholly-owned subsidiary of Valley National Bank. The generation of this fee based business is expected to contribute additional fee income to the operations of Valley beginning in the third quarter of 2000.*
Service charges on deposit accounts increased $869 thousand or 12.3 percent from $7.1 million for the six months ended June 30, 1999 to $8.0 million for the same period in 2000 and increased $762 thousand from $3.6 million for the quarter ended June 30, 1999 to $4.3 million for the quarter ended June 30, 2000. A majority of this increase is due to the implementation of new service fees and increased emphasis placed on collection efforts which occurred during the second quarter of 2000. Included in fees from loan servicing are fees for servicing residential mortgage loans and SBA loans. Fees from loan servicing increased by 43.1 percent from $3.9 million for the six months ended June 30, 1999 to $5.5 million for the six months ended June 30, 2000 due to an increase in the size of the servicing portfolio. The increase in the servicing portfolio was due mainly to the acquisition of servicing of several residential mortgage portfolios with an unpaid principal balance of approximately $668.2 million, which were acquired at the end of 1999. For the three months ended June 30, 2000 fees from loan servicing were $2.8 million, an increase of $861 thousand or 44.8% percent form the same period in 1999. Other non-interest income decreased $516 thousand to $3.9 million for the six months ended June 30, 2000 compared with $4.4 million for the six months ended June 30, 1999. This decrease is primarily attributable to the gain of $399 thousand realized on the sale of OREO properties during the six months ended June 30, 1999.
Non-Interest Expense The following table presents the components of non-interest expense for the six and three months ended June 30, 2000 and 1999. <TABLE> <CAPTION> NON-INTEREST EXPENSE Six Months Ended Three Months Ended June 30, June 30, 2000 1999 2000 1999 (in thousands) <S> <C> <C> <C> <C> Salary expense $30,640 $28,465 $15,417 $14,047 Employee benefit expense 6,579 6,311 3,449 3,171 FDIC insurance premiums 525 624 262 311 Occupancy and equipment expense 9,940 9,796 4,741 5,054 Credit card expense 2,575 2,646 1,343 1,332 Amortization of intangible assets 3,579 2,142 1,920 818 Advertising 2,212 2,234 1,288 1,396 Merger-related charges - 3,005 - 3,005 Other 12,174 12,278 6,217 6,102 Total non-interest expense $68,224 $67,501 $34,637 $35,236 </TABLE> Non-interest expense totaled $68.2 million and $34.6 million for the six and three months ended June 30, 2000. This represents an increase of 5.8 percent and 7.5 percent over the respective six month and three month 1999 levels after excluding the $3.0 million merger-related charge. The largest components of non- interest expense are salaries and employee benefit expense which totaled $37.2 million for the six months ended June 30, 2000 compared with $34.8 million in the comparable period of 1999 and $18.9 million for the quarter ended June 30, 2000 compared with $17.2 million for the quarter ended June 30, 1999. At June 30, 2000, full-time equivalent staff was 1,898 compared with 1,813 at June 30, 1999. 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 for the six months ended June 30, 2000 was 44.3 percent, one of the lowest in the industry, compared with an efficiency ratio of 43.9 percent for the year ended December 31, 1999 and 42.6 percent for the six months ended June 30, 1999. Valley strives to control its efficiency ratio and expenses as a means of producing increased earnings for its shareholders. Amortization of intangible assets increased to $3.6 million for the six months ended June 30, 2000 from $2.1 million in 1999, representing an increase of $1.4 million or 67.1 percent. The majority of this expense resulted from the amortization of residential mortgage servicing rights totaling $2.8 million during 2000. An increase in the servicing portfolio is responsible for the increase in amortization expense. An impairment analysis is completed quarterly to determine the adequacy of the mortgage servicing asset valuation allowance. For the three months ended June 30, 2000 amortization of intangible assets increased $1.1 million or 134.7 percent to $1.9 million. The majority of this increase is due to the increase in the amortization of the servicing portfolio.
The $3.0 million of merger-related charges resulted from the June 1999 acquisition of Ramapo Financial Corporation. The significant components of other non-interest expense include data processing, professional fees, postage, telephone and stationery expense which totaled approximately $6.2 million and $6.5 million for the six months ended June 30, 2000 and 1999, respectively, and $3.0 million and $2.7 million for the three months ended June 30, 2000 and 1999, respectively.
Income Taxes Income tax expense as a percentage of pre-tax income was 33.5 percent and 32.9 percent for the six and three months ended June 30, 2000 respectively, compared with 36.0 percent and 35.0 percent for the same periods in 1999. The reduction in the effective tax rate is mainly attributable to a business plan implemented during the second quarter of 1999. The effective tax rate for 2000 is expected to approximate 34 percent.* Business Segments VNB has four business segments it monitors and reports on to manage its business operations. These segments are commercial lending, consumer lending, investment management and corporate and other adjustments. Lines of business and actual structure of operations determine each segment. Each is reviewed routinely for its asset growth, contribution to pretax net income and return on assets. Expenses related to the branch network, all other components of retail banking, along with the back office departments of the bank are allocated from the corporate and other adjustments segment to each of the other six business segments. The financial reporting for each segment contains allocations and reporting in line with VNB's operations, which may not necessarily be compared to any other financial institution. The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting.
The following table represents the financial data for the six months ended June 30, 2000 and 1999. Six Months Ended June 30, 2000 (in thousands) Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total Average interest- earning assets $2,800,795 $1,799,925 $1,389,574 $ -- $5,990,294 Income (loss) before income taxes $ 35,110 $ 32,581 $ 14,271 $ (1,389) $ 80,573 Return on average interest-earning assets (pre-tax) 2.51% 3.62% 2.05% --% 2.69% Six Months Ended June 30, 1999 (in thousands) Corporate Consumer Commercial Investment and Other Lending Lending Manageme Adjustments Total Average interest- earning assets $2,632,965 $1,658,465 $1,415,736 -- $5,707,166 Income (loss) before income taxes $ 35,983 $ 32,192 $ 14,712 $ (1,800) $ 81,087 Return on average interest-earning assets (pre-tax) 2.73% 3.88% 2.08% --% 2.84% Consumer Lending The consumer lending segment had a return on average interest-earning assets before taxes of 2.51 percent for the six months ended June 30, 2000 compared to 2.73 percent for the six months ended June 30, 1999. Average interest-earning assets increased $167.8 million, attributable to an increase in residential lending. Average interest rates on consumer loans increased by 23 basis points, while the cost of funds increased by 45 basis points. Income before income taxes remained relatively unchanged. Commercial Lending The return on average interest-earning assets before taxes decreased 26 basis points to 3.62 percent for the six months ended June 30, 2000. Average interest-earning assets increased $141.5 million as a result of an increased volume of loans. Interest rates on commercial loans increased by 23 basis points, offset by an increase in the cost of funds of 45 basis points. Income before income taxes increased by $389 thousand as a result of an increase in average interest-earning assets.
Investment Management The return on average interest earning assets before taxes decreased to 2.05 percent for the six months ended June 30, 2000 compared to 2.08 percent for the six months ended June 30, 1999. The yield on interest earning assets increased by 13 basis points to 6.34 percent, offset by an increase in the cost of funds of 45 basis points to 3.29 percent. Average interest-earning assets decreased by $26.2 million and income before income taxes decreased $441 thousand. Corporate and Other Adjustments Corporate and other adjustments represent income and expense items not directly attributable to a specific segment which may include merger-related charges, gains on sales of securities, service charges on deposit accounts, and certain revenues and expenses recorded by acquired banks that could not be allocated to a line of business. The loss before taxes was $1.4 million for the six months ended June 30, 2000 compared with a loss before taxes of $1.8 million for the six months ended June 30, 1999. The pre-tax merger related charges of $3.0 million incurred in the second quarter of 1999 were offset by net gains realized on securities transactions, of $2.0 million in the first quarter of 1999.
The following table represents the financial data for the three months ended June 30, 2000 and 1999. Three Months Ended June 30, 2000 (in thousands) Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total Average interest- earning assets $2,809,414 $1,811,217 $1,381,525 $ -- $6,002,156 Income (loss) before income taxes $ 16,838 $ 16,261 $ 7,038 $ (428) $ 39,709 Return on average interest-earning assets (pre-tax) 2.40% 3.59% 2.04% --% 2.65% Three Months Ended June 30, 1999 (in thousands) Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total Average interest- earning assets $ 2,662,965 $ 1,706,532 $ 1,425,736 -- $ 233 Income (loss) before $ $ $ $ $ income taxes 19,327 17,796 7,385 (5,463) 39,045 Return on average interest-earning assets (pre-tax) 2.90% 4.17% 2.07% --% 2.69%
Consumer Lending The consumer lending segment had a return on average interest-earning assets before taxes of 2.40 percent for the three months ended June 30, 2000 compared to 2.90 percent for the three months ended June 30, 1999. Average interest-earning assets increased $146.4 million, attributable to an increase in residential lending. Average interest rates on consumer loans increased by 29 basis points, while the cost of funds increased by 43 basis points. Income before income taxes decreased $2.5 million to $16.8 million as a result of an increase in the internal expense transfer . Commercial Lending The return on average interest-earning assets before taxes decreased 58 basis points to 3.59 percent for the three months ended June 30, 2000. Average interest-earning assets increased $104.7 million as a result of an increased volume of loans. Interest rates on commercial loans increased by 26 basis points, offset by an increase in the cost of funds of 54 basis points. Income before income taxes decreased by $1.5 million mainly as a result of an increase in the cost of funds offset by a lesser increase in the yield on average interest-earning assets. Investment Management The return on average interest earning assets before taxes decreased to 2.04 percent for the three months ended June 30, 2000 compared with 2.07 percent for the three months ended June 30, 1999. The yield on interest earning assets increased by 31 basis points to 6.39 percent, offset by an increase in the cost of funds of 59 basis points to 3.37 percent. Average interest-earning assets decreased by $44.2 million and income before income taxes decreased $347 thousand. Corporate and Other Adjustments Corporate and other adjustments represent income and expense items not directly attributable to a specific segment which may include merger-related charges, gains on sales of securities, service charges on deposit accounts, and certain revenues and expenses recorded by acquired banks that could not be allocated to a line of business. The loss before taxes was $428 thousand for the three months ended June 30, 2000 compared with a loss of $5.5 million for the three months ended June 30, 1999. The increase in the loss was the result of the pre-tax merger-related charges incurred in the second quarter of 1999.
ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity Valley's success is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of Valley's net interest income to the movement in interest rates. Valley does not currently use derivatives to manage market and interest rate risks. Valley's interest rate risk management is the responsibility of the Asset/Liability Management Committee ("ALCO"), which reports to the Board of Directors. ALCO establishes policies that monitor and coordinate Valley's sources, uses and pricing of funds.
Valley uses a simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios over a twelve and twenty-four month period. The model is based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The model incorporates assumptions regarding the impact of changing interest rates on the prepayment rates of certain assets and liabilities. Assuming a rising interest rate environment, the net interest margin and net interest income are expected to continue to decline.* 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. Liquid assets amounted to $1.2 billion and $1.3 billion at June 30, 2000 and December 31, 1999, respectively. This represents 20.0 percent and 22.0 percent of earning assets, and 18.9 percent and 20.9 percent of total assets at June 30, 2000 and December 31, 1999, 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 $4.4 billion for both the six months ended June 30, 2000 and $3.5 billion for the year ended December 31, 1999, representing 73.1 percent and 73.3 percent of average earning assets. Short-term and long-term borrowings through Federal funds lines, repurchase agreements, Federal Home Loan Bank ("FHLB") advances and large dollar certificates of deposit, generally those over $100 thousand, are used as supplemental funding sources. Valley borrowed from the FHLB as part of a leverage strategy and matched funding to increase earning assets and net interest income. As of June 30, 2000, Valley had outstanding advances of $461.5 million with the FHLB and repurchase agreements of $130.0 million. Additional liquidity is derived from scheduled loan and investment payments of principal and interest, as well as prepayments received. For the six months ended June 30, 2000 there were no proceeds from the sales of investment securities available for sale, and
proceeds of $93.1 million were generated from investment maturities. Purchases of investment securities for the six months ended June 30, 2000 were $39.6 million. Short-term borrowings and certificates of deposit over $100 thousand amounted to $734.7 million and $637.1 million, on average, for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. Valley National Bancorp'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. In addition, Valley National Bancorp may repurchase shares of its outstanding common stock. The cash required for a purchase of shares can be met by using the Bancorp's own funds, dividends received from its subsidiary bank as well as borrowed funds. At June 30, 2000 Valley maintained a floating rate line of credit in the amount of $35 million, of which $25 million was drawn. This line is available for general corporate purposes and expires June 15, 2001. Borrowings under this facility are collateralized by mortgage-backed and equity securities. As of June 30, 2000, Valley had $941.1 million of securities available for sale recorded at their fair value, compared with $1.0 billion at December 31, 1999. As of June 30, 2000, the investment securities available for sale had an unrealized loss of $18.1 million, net of deferred taxes, compared to an unrealized loss of $16.3 million, net of deferred taxes, at December 31, 1999. This change was primarily due to a decrease in prices resulting from an increasing interest rate environment. These securities are not considered trading account securities, which may be sold on a continuous basis, but rather are securities which may be sold to meet the various liquidity and interest rate requirements of Valley.
Loan Portfolio As of June 30, 2000, total loans were $4.6 billion, unchanged from December 31, 1999. The following table reflects the composition of the loan portfolio as of June 30, 2000 and December 31, 1999. LOAN PORTFOLIO <TABLE> <CAPTION> June 30, December 31, 2000 1999 (in thousands) <S> <C> <C> Commercial $ 549,927 $ 512,164 Total commercial loans $ 549,927 $ 512,164 Construction 116,409 123,531 Residential mortgage 1,290,133 1,247,721 Commercial mortgage 1,206,117 1,164,065 Total mortgage loans 2,612,659 2,535,317 Home equity 289,920 276,261 Credit card 87,851 92,097 Automobile 1,019,825 1,053,457 Other consumer 69,455 85,456 Total consumer loans 1,467,051 1,507,271 Total loans $4,629,637 $4,554,752 As a percent of total loans: Commercial loans 11.9 % 11.2 % Mortgage loans 56.4 55.7 Consumer loans 31.7 33.1 Total 100.0 100.0 </TABLE> The majority of the increase in loans during 2000 was divided among commercial loans, residential mortgage loans and commercial mortgage loans. It is not known if the trend of increased lending in these loans types will continue, especially if interest rates continue to increase. Automobile loan growth has been partially hampered by low interest rates offered by automobile manufacturers as incentives in their attempt to sell vehicles. These rates are substantially lower than what Valley can offer. Residential loan origination volume has begun to soften with the rise in interest rates. Refinance activity has mostly disappeared with higher interest rates and new purchase originations also have begun to decline with the Federal Reserve's attempt to slow the economy.
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 or 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 totaled $6.8 million at June 30, 2000, compared with $5.7 million at December 31, 1999, an increase of $1.1 million or 19.0 percent. Non-performing assets at June 30, 2000 and December 31, 1999, respectively, amounted to 0.15 percent and 0.13 percent of loans and OREO, respectively. Loans 90 days or more past due and not included in the non- performing category totaled $11.5 million at June 30, 2000, compared with $11.7 million at December 31, 1999. These loans are primarily residential mortgage loans, commercial mortgage loans and commercial loans which are generally well-secured and in the process of collection. Also included are matured commercial mortgage loans in the process of being renewed, which totaled $3.1 million at June 30, 2000 and $1.5 million at December 31, 1999, respectively. The following table sets forth non-performing assets and accruing loans which were 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 <TABLE> <CAPTION> June 30, December 31, 2000 1999 (in thousands) <S> <C> <C> Loans past due in excess of 90 days and still accruing $11,538 $11,698 Non-accrual loans $ 6,166 $ 3,482 Other real estate owned 662 2,256 Total non-performing $ 6,828 $ 5,738 Troubled debt restructured loans $ 4,765 $ 4,852 Non-performing loans as a % of loans 0.13% 0.08% Non-performing assets as a % of loans plus other real estate owned 0.15% 0.13% Allowance as a % of loans 1.19% 1.21% </TABLE>
At June 30, 2000 the allowance for loan losses amounted to $55.2 million, relatively unchanged from the $55.1 million at year-end 1999. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. The provisions charged to operations for the six and three months ended June 30, 2000 were $3.7 million and $2.2 million, compared with $3.8 and $1.8 million for the same periods in 1999. Net loan charge- offs were $3.7 million and $2.4 million for the six and three months ended June 30, 2000 compared with $3.5 million and $1.9 million for the six and three months ended June 30, 1999. The allowance for loan losses is maintained at a level estimated to absorb loan losses inherent in the loan portfolio as well as other credit risk related charge-offs. The allowance is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio and unused commitments to provide financing. VNB's methodology for evaluating the appropriateness of the allowance consists of several significant elements, which include the allocated allowance, specific allowances for identified problem loans and portfolio segments and the unallocated allowance. The allowance also incorporates the results of measuring impaired loans as required for in Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." During the first six months of 2000, 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 economic conditions and applied that information to changes in the composition of the loan portfolio and net charge-off levels. Capital Adequacy A significant measure of the strength of a financial institution is its shareholders' equity. At June 30, 2000, shareholders' equity totaled $520.6 million or 8.3 percent of total assets, compared with $553.5 million or 8.7 percent at year-end 1999. On May 23, 2000 Valley's Board of Directors authorized the repurchase of up to 3,000,000 shares of the Company's outstanding common stock. This is in addition to the 3,000,000 shares authorized by the Board of Directors in December 1999 for which Valley has completed the purchase of 3 million shares. The majority of these shares were reissued for the stock dividend which was issued May 16, 2000. As of June 30, 2000 Valley had repurchased 8,170 shares of its common stock under the new repurchase program. Reacquired shares are held in treasury and are expected to be used for employee benefit programs, stock dividends and other corporate purposes. Included in shareholders' equity as components of accumulated other comprehensive income at June 30, 2000 was an $18.1 million unrealized loss on investment securities available for sale, net of tax, and a translation adjustment loss of $591 thousand related to the Canadian subsidiary of VNB, compared with an unrealized loss of $16.3 million and a $418 thousand translation adjustment loss at December 31, 1999.
Valley's capital position at June 30, 2000 under risk-based capital guidelines was $534.5 million, or 10.8 percent of risk- weighted assets, for Tier 1 capital and $589.7 million, or 11.9 percent for Total risk-based capital. The comparable ratios at December 31, 1999 were 11.6 percent for Tier 1 capital and 12.8 percent for Total risk-based capital. At June 30, 2000 and 1999, Valley was in compliance with the leverage requirement having Tier 1 leverage ratios of 8.6 percent and 9.1 percent, respectively. Valley's ratios at June 30, 2000 were above the "well capitalized" requirements, which require Tier I capital to risk-adjusted assets of at least 6 percent, Total risk-based capital to risk-adjusted assets of 10 percent and a minimum leverage ratio of 5 percent. Book value per share amounted to $8.61 at June 30, 2000 compared with $8.83 per share at December 31, 1999. 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 42.2 percent for the six months ended June 30, 2000, compared with 46.5 percent for the six months ended June 30, 1999. Cash dividends declared amounted to $0.51 per share, for the six months ended June 30, 2000, equivalent to a dividend payout ratio of 57.8 percent, compared with 53.5 percent for the same period in 1999. Valley declared a five percent stock dividend on April 6, 2000 to shareholders of record on May 5, 2000, and issued May 16, 2000. The annual dividend rate was increased from $0.99 per share, on an after stock dividend basis, to $1.04 per share. The increased cash dividend, which is payable quarterly, began on July 3, 2000. 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 cash distribution of earnings to its shareholders.* Recent Accounting Pronouncement Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), was issued by the FASB in June 1998. SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial condition at fair value. Valley would have had to adopt SFAS No. 133 by January 1, 2000. However, SFAS No. 137 extended the adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. Upon adoption, the provisions of SFAS No. 133 must be applied prospectively. Valley anticipates that the adoption of SFAS No. 133 will not have a material impact in the financial statements. In June of 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133 and 137," which amends the accounting and reporting standards of SFAS No. 133 for derivative instruments. Item 3. Quantitative and Qualitative Disclosures About Market Risk See page 20 for a discussion of interest rate sensitivity.
PART II Item 6. Exhibits and Reports on Form 8-K a) Exhibits (27) Financial Data Schedule b) Reports on Form 8-K 1) Filed April 6, 2000 to report the declaration of the Company's 5 percent stock dividend on the Company's outstanding common stock issued May 16, 2000. 2) Filed May 23, 2000 to report the purchase of up to 3,000,000 shares of its outstanding common stock. (10) Contracts A. "The Valley National Bancorp Long-term Stock Incentive Plan" dated January 10, 1989. B. Amendments to 1989 Long-term Stock Incentive Plan. C. Amendments to 1999 Long-term Stock Incentive Plan.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VALLEY NATIONAL BANCORP (Registrant) Date: August 11, 2000 /s/ Peter Southway PETER SOUTHWAY VICE CHAIRMAN Date: August 11, 2000 /s/ Alan D. Eskow ALAN D. ESKOW SENIOR VICE PRESIDENT AND CONTROLLER FINANCIAL ADMINISTRATION
EXHIBIT INDEX Exhibit Number Exhibit Description (10)A Valley National Bancorp Long-Term Stock Incentive Plan (10)B Amendments to 1989 Long-Term Stock Incentive Plan (10)C Amendments to 1999 Long-Term Stock Incentive Plan (27) Financial Data Schedule