(Source: PRNewswire-FirstCall)
WAYNE, N.J., April 23 /PRNewswire-FirstCall/ -- Valley National Bancorp , the holding company for Valley National Bank, announced today first quarter results for 2009. The words "Valley," "the Company," "we," "our" and "us" refer to Valley National Bancorp and its wholly owned subsidiaries, unless we indicate otherwise. We had net income of $37.4 million for the first quarter of 2009 compared to $31.6 million for the first quarter of 2008, and $16.9 million for the fourth quarter of 2008.
Adjusting for a five percent stock dividend declared April 14, 2009, payable May 22, 2009 to shareholders of record on May 8, 2009, fully diluted earnings per common share were $0.23 for the first quarter of 2009 as compared to $0.24 per share for the first quarter of 2008, and $0.10 per share for the fourth quarter of 2008. Accrued preferred dividends and accretion of the discount on preferred stock issued by Valley in November 2008 reduced fully diluted earnings per common share by $0.03 and $0.01, respectively, for the three months ended March 31, 2009 and December 31, 2008.
All other common share data presented was adjusted to reflect the stock dividend.
The following performance highlights occurred during the first quarter of 2009:
-- Our regulatory capital ratios continue to reflect Valley's strong capital position. The Company's total risk-based capital, Tier I capital, and leverage capital were 13.91 percent, 12.07 percent, and 9.17 percent, respectively at March 31, 2009. As previously disclosed, Valley issued $300 million in preferred stock and a warrant to purchase approximately 2.4 million shares of Valley common stock under the United States Department of the Treasury Capital Purchase Program in November 2008. -- Valley's home equity and residential mortgage loan delinquencies remained below the banking industry averages. At March 31, 2009, Valley's home equity and residential mortgage loan portfolios totaling approximately 24,000 individual loans had only 123 loans past due 30 days or more. These delinquencies totaled $25.3 million, or 0.91 percent of $2.8 billion in total home equity and residential mortgage loans. Total loans past due 30 days or more on Valley's entire loan portfolio of $9.8 billion were 1.34 percent at March 31, 2009 compared to 1.06 percent at December 31, 2008. See "Credit Quality" section below for more details. -- Net interest income on a fully tax equivalent basis increased $2.1 million from the fourth quarter of 2008 mainly due to a lower cost of funds. Interest expense on deposits benefited from maturing time deposits repricing at lower rates during the period. Valley's net interest margin also increased by 5 basis points to 3.35 percent. Due to the current trend in interest rates, management expects the net interest margin will continue to increase during the second quarter of 2009. See "Net Interest Income and Margin" section below for more details. -- Valley continued to extend credit to new and existing customers (with over $300 million new loan originations in the first quarter of 2009) while maintaining its conservative underwriting standards. However, the overall loan portfolio declined by $305.8 million, or 12.1 percent on an annualized basis, to approximately $9.8 million at March 31, 2009 compared to December 31, 2008 primarily due to management's decision to sell most refinanced and new residential mortgage loan originations (priced at the current low level of interest rates) in the secondary market, as well as continued declines in our automobile portfolio caused by the lack of consumer demand and our high underwriting standards. As a result of the increased volume of residential mortgage sales, net gains on sales of loans increased $1.9 million from the fourth quarter of 2008. -- Valley elected the early adoption of FASB Staff Position Nos. FAS 115-2, FAS 124-2, and FAS 157-2. Under the new fair value and other than temporary impairment guidance, Valley recorded other than temporary impairment charges totaling $2.2 million ($1.4 million after taxes) for estimated credit losses on three private label mortgage backed securities classified as available for sale. After the write downs, these securities had a combined book value of $36.5 million at March 31, 2009. -- Net trading gains increased to $13.2 million for the first quarter of 2009 mainly due to the change in the fair value of Valley's junior subordinated debentures issued to VNB Capital Trust I (which are carried at fair value). As of March 31, 2009, these debentures had a carrying value of $126.3 million and an unpaid contractual principal balance of $157.0 million. Chairman's Comments
Gerald H. Lipkin, Chairman, President and CEO noted that, "We are pleased with the level of our loan delinquencies and overall performance of the loan portfolios, especially in light of the current climate impacting our nation's economy and many other financial institutions. Our credit quality, the hallmark of Valley, remains very high. Total delinquencies 30 days or more past due for the entire loan portfolio were 1.34 percent, of which only 0.62 percent are greater than 90 days past due or non-accrual loans. Despite our satisfactory loan performance, we recorded a $10.0 million provision for credit losses during the quarter, approximately $2.7 million greater than net charge-offs. The addition to our reserves was to provide for the potential risk of loan losses resulting from a continued downturn in the U.S. economy. The allowance for credit losses as a percentage of total loans increased 6 basis points to 0.99 percent at March 31, 2009 as compared to December 31, 2008 and increased 12 basis points compared to March 31, 2008.
During the fourth quarter we issued $300 million in preferred stock under the Treasury's Capital Purchase Program as a precautionary measure to protect us and our common shareholders from the illiquid financial markets and further deterioration in the U.S. economy. We continued to utilize these funds in our lending operations during the first quarter of 2009 using our traditional conservative lending philosophy. During the first quarter of 2009 we originated over $300 million in new loans despite the decline in our overall loan portfolio mainly caused by low consumer demand for auto loans, our sale of most residential loan originations due to the low interest environment, and seasonal declines in our New York commercial customer line usage.
Although not asked to do so by the Federal Government, Valley's management is closely evaluating its future capital needs by stress testing our balance sheet under extreme assumptions regarding the future state of the U.S. economy and our local markets. Based on such tests, or actual changes in the current financial market conditions, we may request permission from our regulators to repay all or part of the Capital Purchase Program funds to the Treasury.
We continue to serve our customers, our communities and our shareholders during these difficult times. We believe our commitment to quality loans and consistent underwriting standards will allow us to prevail as the economy continues to work through the recession."
Credit Quality
Given the state of the U.S. economy and the low level of our loan delinquencies and losses relative to our peers, management believes that our credit quality remains good. Our focus has been and continues to be on traditional lending, utilizing our time-tested conservative underwriting approach. With a loan portfolio totaling approximately $9.8 billion, net loan charge-offs for the first quarter of 2009 were $7.2 million compared to $6.7 million for the fourth quarter of 2008, and $3.9 million for the first quarter of 2008.
Valley's allocated reserves for the commercial loan portfolio increased $3.6 million or 28 basis points as a percentage of the portfolio during the period due to increases in reserves for non-accrual and other factors identified by management. 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:
March 31, 2009 December 31, 2008 March 31, 2008 Allocation Allocation Allocation as a % of as a % of as a % of Allowance loan Allowance loan Allowance loan Allocation category Allocation category Allocation category Loan category: Commercial* $47,796 2.53% $44,163 2.25% $32,071 2.02% Mortgage: Construction 15,621 3.10% 15,885 3.11% 11,799 2.96% Residential mortgage 4,750 0.22% 4,434 0.20% 3,310 0.16% Commercial mortgage 9,824 0.29% 10,035 0.30% 9,611 0.39% Total mortgage loans 30,195 0.50% 30,354 0.50% 24,720 0.50% Consumer: Home equity 1,702 0.28% 1,696 0.28% 1,611 0.30% Other consumer 11,419 0.86% 12,622 0.86% 9,717 0.62% Total consumer loans 13,121 0.68% 14,318 0.69% 11,328 0.54% Unallocated 6,365 NA 5,903 NA 6,911 NA $97,477 0.99% $94,738 0.93% $75,030 0.87% * Includes the reserve for unfunded letters of credit.
Total non-performing assets, consisting of non-accrual loans, other real estate owned (OREO) and other repossessed assets, totaled $57.0 million, or 0.58 percent of loans at March 31, 2009 compared to $45.7 million, or 0.45 percent of loans at December 31, 2008. Non-accrual loans increased $14.3 million at March 31, 2009 as compared to December 31, 2008, while OREO declined $3.0 million over the same period. The increase in non-accrual loans was mostly due to two commercial loans totaling $7.8 million and two commercial mortgage loans totaling $2.0 million. OREO declined due to the transfer of one office property to fixed assets during the first quarter of 2009, as Valley will utilize the location for additional bank lending and retail services.
Loans past due 90 days or more and still accruing decreased $2.1 million to $13.5 million, or 0.14 percent of total loans at March 31, 2009 compared to $15.6 million, or 0.15 percent at December 31, 2008 mainly due to the migration of certain commercial and commercial mortgage loans to non-accrual. Loans past due 90 days or more and still accruing include matured performing loans in the normal process of renewal which totaled approximately $913 thousand and $4.0 million at March 31, 2009 and December 31, 2008, respectively. Management believes the current level of delinquencies reflects the strength of its underwriting policies given the difficult economic climate, and is relatively small in comparison to the credit problems being reported by other financial service providers.
Loans and Deposits
During the quarter, loans decreased $305.8 million to approximately $9.8 billion at March 31, 2009. The linked quarter decrease was mainly comprised of decreases in automobile, residential mortgage, and commercial loans of $119.2 million, $104.3 million and $76.8 million, respectively, partially offset by a $23.5 million increase in commercial mortgage loans. Our automobile loan portfolio has declined for three consecutive quarters mainly due to low consumer demand for such products, as well as Valley's move to strengthen its already conservative auto loan underwriting standards in light of the current economic conditions. The decline and lack of growth in the residential mortgage loan portfolio during the first quarter of 2009 was due to our sale or intention to sell (i.e., loans held for sale are presented separate from the loan portfolio) most refinanced loans and new loan originations in the secondary market. The loan sales are based on the current low level of interest rates and our management strategies for balance sheet and interest rate risk. The decline in commercial loans is partly due to seasonal declines in the usage of commercial lines of credit by our customers. The increase in commercial mortgage loans is mainly the result of the expansion of Valley's lending teams through its growing branch network coupled with the continued benefits from the dislocation in the credit markets for new loans with quality borrowers. We may experience further declines in automobile and residential mortgage loans during 2009 if the economy continues to weaken and we maintain our current asset/liability management strategies.
During the quarter, deposits increased $185.7 million to approximately $9.4 billion at March 31, 2009. At March 31, 2009, non-interest bearing deposits, savings, NOW, and money market, and time deposits increased by $87.5 million, $62.9 million and $35.3 million, respectively, as compared to December 31, 2008. The increases in both non-interest bearing and savings, Now, and money market deposits is partly due to the migration of customer repo sweep account balances (recorded as short-term borrowings) into these accounts. The lower customer repo balances can be attributed to the Company's reduction in collateral positions to support the repo product and lower interest rates which reduce the customers' incentive to overnight sweep their demand deposit balances. Time deposits increased mainly due to growth in municipal certificates of deposit during the first quarter of 2009.
Net Interest Income and Margin
Net interest income on a tax equivalent basis was $110.8 million for the first quarter of 2009, an increase of $13.8 million from the same quarter of 2008 and an increase of $2.1 million from the linked quarter ended December 31, 2008. The linked quarter increase was primarily due to a 28 basis point decline in the cost of average interest bearing deposits and higher average taxable investment balances during the first quarter of 2009. The positive effect of these items on our net interest income was partially negated by a 22 basis point decline in the yield on average loans during the three months ended March 31, 2009. During the first quarter of 2009, the yield on interest earning assets and the cost of interest bearing liabilities declined due to several factors, including a decrease of approximately 102 basis points in the average target Federal funds rate as compared to the fourth quarter of 2008.
The net interest margin on a tax equivalent basis was 3.35 percent for the first quarter of 2009, an increase of 5 basis points from 3.30 percent for the linked quarter ended December 31, 2008 and unchanged as compared to the first quarter of 2008. The cost of average interest bearing liabilities declined 18 basis points from the fourth quarter of 2008 mainly due to a 26 basis point decrease in the cost of average time deposits, as maturing higher cost certificates of deposit repriced at lower interest rates. The yield on average interest earning assets decreased by 14 basis points on a linked quarter basis mainly due to a 22 basis point decrease in yield on average loans as compared to the three months ended December 31, 2008.
Valley's cost of total deposits remained relatively low by industry standards at 1.54 percent for the first quarter of 2009 compared to 1.76 percent for the three months ended December 31, 2008. The decrease of 22 basis points was due to lower interest rates on savings, NOW, and money market accounts, maturing certificates of deposit repricing at lower interest rates and a $63.3 million increase in average non-interest bearing deposits. The cost of average short-term borrowings increased by 30 basis points as compared to the fourth quarter of 2008 as lower cost customer repo balances declined during the first quarter of 2009 and higher cost short-term FHLB advances represented a higher portion of the average balance. These FHLB advances totaled $300 million, of which $200 million matured between February and March of 2009. The remaining $100 million in FHLB advances matured in April 2009.
Non-Interest Income (Loss) First quarter of 2009 compared with first quarter of 2008
Non-interest income for the first quarter of 2009 increased $11.8 million to $31.0 million from $19.2 million for the quarter ended March 31, 2008 due to increases in net trading gains and net gains on sales of loans, partially offset by decreases in net gains on securities transactions and bank owned life insurance ("BOLI") income. For the first quarter of 2009, net trading gains increased $16.4 million to a gain of $13.2 million from a net loss of $3.2 million at March 31, 2008. The increase in net trading gains is mainly due to a $13.8 million gain on the change in the fair value of Valley's junior subordinated debentures carried at fair value in the first quarter of 2009 compared to a loss of $1.7 million on such debentures for the same period in 2008. The net trading losses in the first quarter of 2008 also included a loss of $1.1 million on the change in fair value of a FHLB advance held at fair value (no FHLB advances were held at fair value in the first quarter of 2009). Net gains on sales of loans increased $1.8 million to $2.1 million for the quarter ended March 31, 2009 mainly due to higher sale volumes. Valley is currently selling most refinanced and new residential mortgage loan originations in the secondary market due to the historically low level of current interest rates. Partially offsetting these increases, net losses on securities transactions declined by $2.4 million to a net loss of $2.2 million for the three months ended March 31, 2009 compared to a net gain of $145 thousand for the same period of 2008. The decline was primarily due to other-than-temporary impairment charges totaling $2.2 million for estimated credit losses on three private label mortgage-backed securities classified as available for sale during the 2009 period. BOLI income decreased $1.9 million as compared to the first quarter of 2008 mainly due to the severe downturn in financial markets and its negative impact on the performance of the underlying investment securities of the BOLI asset.
First quarter of 2009 compared with fourth quarter of 2008
Non-interest income increased $32.8 million to $31.0 million for the quarter ended March 31, 2009 compared to a non-interest loss of $1.8 million for the quarter ended December 31, 2008 primarily due to higher net trading gains and a decrease in other-than-temporary impairment charges on investment securities. For the first quarter of 2009, net trading gains increased $21.3 million as compared to a net loss of $8.1 million for the fourth quarter of 2008. The increase in net trading gains is mainly due to a $13.8 million gain on the change in the fair value of Valley's junior debentures carried at fair value in the first quarter of 2009 compared to a loss of $5.9 million on such debentures for the quarter ended December 31, 2008. Net losses on securities transactions for the quarter ended March 31, 2009 included other-than-temporary impairment charges of approximately $2.2 million for estimated credit losses on three private label mortgage backed securities classified as available for sale as compared to the linked quarter of 2008 which included other-than-temporary impairment charges of $17.5 million mainly related to Fannie Mae and Freddie Mac perpetual preferred securities and three other investment securities, net of gains on the sale of certain available for sale securities during the 2008 period. Net gains on sales of loans for the first quarter of 2009 increased $1.9 million from $268 thousand for the quarter ended December 31, 2008 due to Valley's decision to sell most refinanced and new residential mortgage loans in the secondary market throughout the first quarter. Insurance premiums increased $927 thousand due to higher quarterly bonus commissions received from insurance carriers during the 2009 period.
Non-Interest Expense First quarter of 2009 compared with first quarter of 2008
Non-interest expense increased approximately $9.4 million to $76.9 million for the quarter ended March 31, 2009 from $67.5 million for the quarter ended March 31, 2008. Other non-interest expense increased by $3.5 million mainly due to a $2.9 million increase in Federal Deposit Insurance Corporation ("FDIC") insurance premiums caused by depletion of our prior acquisition credit, higher assessment rates and our election to participate in the FDIC's Temporary Liquidity Guarantee Program. Amortization of other intangible assets increased $1.1 million due to a $1.1 million impairment charge recognized on the fair value of loan servicing rights during the first quarter of 2009.
