NEW YORK, July 23, 2020 (GLOBE NEWSWIRE) — Valley National Bancorp (NASDAQ:VLY), the holding company for Valley National Bank, today reported net income for the second quarter 2020 of $95.6 million, or $0.23 per diluted common share, as compared to the second quarter 2019 earnings of $76.5 million, or $0.22 per diluted common share, and net income of $87.3 million, or $0.21 per diluted common share, for the first quarter 2020.
Key financial highlights for the second quarter:Loan Portfolio: Loans increased $1.9 billion to $32.3 billion at June 30, 2020 from March 31, 2020. The increase was largely due to approximately $2.2 billion of SBA Paycheck Protection Program (PPP) loans originated under the CARES Act to aid small- and medium-sized businesses in the second quarter. We also sold approximately $237 million of residential mortgage loans originated for sale rather than investment, resulting in total pre-tax gains of $8.3 million in the second quarter 2020, as compared to $196 million of residential mortgage loans sold in the linked quarter with total pre-tax gains of $4.6 million. See the “Loans” section below for more details.Net Interest Income and Margin: Net interest income on a tax equivalent basis of $283.5 million for the second quarter 2020 increased $17.2 million as compared to the first quarter 2020. The increase was driven by several factors in the second quarter 2020 including, a 46 basis point decline in our funding costs largely resulting from the lower interest rate environment and a $2.0 billion increase in average loan balances mostly due to the PPP loan originations. Our net interest margin on a tax equivalent basis of 3.00 percent for the second quarter 2020 decreased by 7 basis points from 3.07 percent for the first quarter 2020. See the “Net Interest Income and Margin” section below for additional information.Allowance and Provision for Credit Losses for Loans: Our allowance for credit losses for loans totaled $319.7 million and $293.4 million at June 30, 2020 and March 31, 2020, respectively. During the second quarter 2020, the provision for credit losses for loans was $41.1 million as compared to $33.9 million for the first quarter 2020 and a pre-CECL provision of $2.1 million for the second quarter 2019. The reserve build in the second quarter 2020 mainly reflects deterioration in Valley’s view of the macroeconomic outlook since the end of the first quarter, higher specific reserves associated with our taxi medallion loan portfolio and additional qualitative management adjustments to reflect the potential for higher levels of credit stress related to COVID-19 impacted borrowers.Credit Quality: Net loan charge-offs totaled $14.8 million for the second quarter 2020 as compared to $4.8 million for the first quarter 2020 primarily due to the partial charge-off of one impaired commercial loan relationship and lower collateral valuations related to non-performing taxi medallion loans. Non-accrual loans increased $4.7 million during the second quarter 2020 as compared to the first quarter 2020 and represented 0.65 percent and 0.68 percent of total loans at June 30, 2020 and March 31, 2020, respectively. See the “Credit Quality” Section below for more details.Non-interest Income: Non-interest income increased $3.4 million to $44.8 million for the second quarter 2020 as compared to the first quarter 2020. The increase was largely due to a $3.8 million increase in net gains on sales of residential mortgage loans and a $2.7 million increase in BOLI income, partially offset by a $2.1 million decline in service charges mostly caused by waived fees related to COVID-19 customer relief efforts.Non-interest Expense: Non-interest expense increased $1.5 million to $157.2 million for the second quarter 2020 as compared to the first quarter 2020 partly due to moderate increases in technology transformation consulting services, pension, cash incentive compensation and FDIC insurance assessment expenses. Merger related expenses totaled $366 thousand and $1.3 million for the second quarter 2020 and first quarter 2020, respectively. COVID-19 related expenses also totaled $2.2 million and $2.1 million for second quarter 2020 and first quarter 2020, respectively. During the second quarter 2020, these expenses consisted of certain PPP loan costs, such as advertising, additional remote work readiness costs, special cleaning and other COVID-19 safety related costs, while the first quarter 2020 expense was largely a special bonus for hourly employees.Efficiency Ratio: Our efficiency ratio was 48.01 percent for the second quarter 2020 as compared to 50.75 percent and 57.19 percent for the first quarter 2020 and second quarter 2019, respectively. Our adjusted efficiency ratio was 46.84 percent for the second quarter 2020 as compared to 49.26 percent and 54.57 percent for the first quarter 2020 and second quarter 2019, respectively. See the “Consolidated Financial Highlights” tables below for additional information regarding our non-GAAP measures.Performance Ratios: Annualized return on average assets (ROA), average shareholders’ equity (ROE) and average tangible shareholders’ equity (ROTE) were 0.92 percent, 8.54 percent, and 12.66 percent for the second quarter 2020, respectively. Annualized ROA, ROE and ROTE, adjusted for non-core charges, was 0.92 percent, 8.57 percent, and 12.70 percent for the second quarter 2020, respectively. See the “Consolidated Financial Highlights” tables below for additional information regarding our non-GAAP measures.
Ira Robbins, CEO and President commented, “While the uncertain economic environment is less than ideal, I am very pleased with our second quarter earnings, especially on a pre-provision net revenue basis, and the quality of our balance sheet. Our second quarter net interest margin and income reflected this quality and our ability to significantly reduce the cost of our funding sources. As a result of the strong performance of our margin and laser-focus on managing operating expenses, the adjusted efficiency ratio was below 50 percent for the second consecutive quarter.” Robbins continued, “During the quarter, we remained deeply committed to being a trusted partner and solution provider for our customers, originating over $2 billion in PPP loans, providing loan forbearances and waiving fees when appropriate for those significantly impacted by the COVID-19 pandemic. I’m extremely proud of Valley’s tireless commitment, flexibility and drive to make a difference for our customers, employees and communities.”Net Interest Income and MarginNet interest income on a tax equivalent basis totaling $283.5 million for the second quarter 2020 increased $62.1 million as compared to the second quarter 2019 and increased $17.2 million as compared to the first quarter 2020. The increase as compared to the first quarter 2020 was largely driven by our ability to significantly reduce our deposit and other funding costs in the current low interest rate environment and a $2.0 billion increase in average loan balances largely resulting from PPP loan originations. Interest expense of $66.0 million for the second quarter 2020 decreased $32.5 million as compared to the first quarter 2020 largely due to the overall lower cost of funds, partially offset by the interest cost associated with higher average interest-bearing deposits without stated maturities and other borrowings. However, interest income on a tax equivalent basis decreased $15.3 million to $349.5 million for the second quarter 2020 as compared to the first quarter 2020. The decrease was mainly due to overall lower loan yields caused, in part, by normal repayments of higher yielding loans, variable rate loan resets and a $3.1 million decline in loan discount accretion in second quarter 2020 due to lower prepayments for certain loans.Our net interest margin on a tax equivalent basis of 3.00 percent for the second quarter 2020 increased by 4 basis points from 2.96 percent in second quarter 2019 and decreased by 7 basis from 3.07 percent for the first quarter 2020. The yield on average interest earning assets decreased by 51 basis points on a linked quarter basis mostly due to the impact of the lower interest rate environment. The yield on average loans decreased by 42 basis points to 4.02 percent for the second quarter 2020 as compared to the first quarter 2020 largely due to the repayment of higher yielding loans, lower yielding variable and new loans, including the origination of $2.2 billion of PPP loans in second quarter 2020, and an increase in excess liquidity held in low yield overnight investments. The overall cost of average interest bearing liabilities decreased 54 basis points to 0.96 percent for the second quarter 2020 as compared to the linked first quarter 2020 due to the significantly lower interest rates paid on deposits and borrowings. During the first half of 2020, we also benefited from the prepayment of $635 million high cost FHLB advances in December 2019. Our cost of total average deposits was 0.60 percent for the second quarter 2020 as compared to 1.07 percent for the first quarter 2020.Loans, Deposits and Other BorrowingsLoans. Loans increased $1.9 billion to approximately $32.3 billion at June 30, 2020 from March 31, 2020 largely due to approximately $2.2 billion of SBA PPP loan originations within the commercial and industrial loan category during the second quarter 2020. Commercial real estate loans increased $181.6 million, or 4.4 percent on an annualized basis, to $16.6 billion at June 30, 2020 as compared to March 31, 2020 mainly due to our strong loan commitment pipeline at March 31, 2020 and slower repayment activity in the second quarter. Residential mortgage and the consumer loan categories all experienced moderate declines in the second quarter due to the impact of COVID-19 and our normal mortgage banking sales activity. During the second quarter 2020, we originated $296 million of residential mortgage loans for sale rather than held for investment and sold approximately $237 million of these loans. Residential mortgage loans held for sale at fair value totaled $120.6 million and $58.9 million at June 30, 2020 and March 31, 2020, respectively.Deposits. Total deposits increased $2.4 billion to approximately $31.4 billion at June 30, 2020 from March 31, 2020 largely due to increases of $2.0 billion and $666.6 million in non-interest bearing deposits and interest-bearing deposits without stated maturities, respectively. The increases were mostly driven by deposits from PPP loan customers, higher depositor balances due to the uncertain financial markets, as well as a partial shift to more liquid funds for maturing retail CD customers. As a result, time deposits decreased $294.3 million at June 30, 2020 as compared to March 31, 2020. Total brokered deposits (consisting of both time and money market deposit accounts) were $3.6 billion at June 30, 2020 as compared to $3.4 billion at March 31, 2020. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 29 percent, 45 percent and 26 percent of total deposits as of June 30, 2020, respectively.Other Borrowings. Long-term borrowings increased $101.9 million to $2.9 billion at June 30, 2020 as compared to March 31, 2020 mainly due to our recent $115.0 million issuance of 5.25 percent fixed-to-floating rate subordinated notes with a stated maturity of June 15, 2030. Short-term borrowings decreased by $12.8 million to $2.1 billion at June 30, 2020 as compared to March 31, 2020.Credit QualityNon-Performing Assets (NPAs). Total NPAs, consisting of non-accrual loans, other real estate owned (OREO), other repossessed assets and non-accrual debt securities increased $3.7 million to $224.2 million at June 30, 2020 as compared to March 31, 2020 mainly due to a $4.7 million increase in non-accrual loans, partially offset by a decline in OREO during the second quarter 2020. The increase in non-accrual loans was partially due to one commercial real estate loan which moved to non-accrual status during the second quarter 2020, as well as a moderately higher level of non-accrual consumer loans at June 30, 2020. Non-accrual loans represented 0.65 percent of total loans at June 30, 2020 compared to 0.68 percent at March 31, 2020.Non-performing Taxi Medallion Loan Portfolio. We continue to closely monitor our non-performing New York City and Chicago taxi medallion loans totaling $99.8 million and $7.0 million, respectively, within the commercial and industrial loan portfolio at June 30, 2020. At June 30, 2020, the non-accrual taxi medallion loans totaling $106.8 million had related reserves of $61.6 million within the allowance for loan losses.Accruing Past Due Loans. Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) decreased $66.3 million to $93.1 million, or 0.29 percent of total loans, at June 30, 2020 as compared to $159.4 million, or 0.52 percent of total loans, at March 31, 2020 due to a decline in early stage delinquencies for all loan categories. Commercial real estate loans past due 30 to 59 days and 60 to 89 days decreased by $27.8 million and $14.4 million, respectively, as compared to March 31, 2020. The improved performance within the 30 to 59 day category was mainly due to restored customer payments delayed by business disruptions caused by COVID-19 related factors at the end of the first quarter 2020. Commercial real estate loans past due 60 to 90 days at June 30, 2020 declined primarily due to the normal renewal of a $13.8 million performing matured loan reported in this category at March 31, 2020.Loan Forbearance. In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers. Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. To date, Valley has granted over 10,000 loan forbearances totaling approximately $4.6 billion in support of our customers. Of these, approximately 5,000 loans totaling $1.9 billion have completed the contractual deferral period and returned to regularly scheduled payments.Allowance for Credit Losses for Loans and Unfunded Commitments. The following table summarizes the allocation of the allowance for credit losses to loan categories and the allocation as a percentage of each loan category at June 30, 2020, March 31, 2020, and June 30, 2019:
Our loan portfolio, totaling $32.3 billion at June 30, 2020, had net loan charge-offs totaling $14.8 million for the second quarter 2020 as compared to $4.8 million and $3.0 million for the first quarter 2020 and second quarter 2019, respectively. The increase in net loan charge-offs was largely due to the partial charge-off of one commercial and industrial loan totaling $7.8 million for the second quarter 2020. Additionally, gross loan charge-offs related to taxi medallion loans totaled $3.2 million, $1.3 million and $2.3 million for the second quarter 2020, first quarter 2020 and second quarter 2019, respectively.
During the second quarter 2020, we recorded a $41.1 million provision for credit losses for loans as compared to $33.9 million and $2.1 million for the first quarter 2020 and the second quarter 2019, respectively. The second quarter 2020 provision mainly reflects the reserve build caused by deterioration in Valley’s view of the macroeconomic outlook since the end of the first quarter, higher specific reserves associated with our taxi medallion loan portfolio and additional qualitative management adjustments to reflect the potential for higher levels of credit stress for COVID-19 impacted borrowers.The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 0.99 percent, 0.96 percent and 0.61 percent at June 30, 2020, March 31, 2020 and June 30, 2019, respectively. At June 30, 2019, the allowance allocations for credit losses as a percentage of total loans increased for most loan categories as compared to March 31, 2020. However, the allocated reserves as a percentage of commercial and industrial loans declined by 0.63 percent due to $2.2 billion of SBA PPP loans with no related allowance at June 30, 2020. The allowance for credit losses for loans at June 30, 2020 as compared to June 30, 2019 increased largely due to the reserves related to PCD loans included in the Day 1 CECL adoption adjustment and the reserve build under CECL during the first six months of 2020 related to the impact of COVID-19 on lifetime expected credit losses.Capital AdequacyValley’s regulatory capital ratios continue to reflect its well capitalized position. Valley’s total risk-based capital, common equity Tier 1 capital, Tier 1 capital and Tier 1 leverage capital ratios were 12.19 percent, 9.51 percent, 10.23 percent and 7.70 percent, respectively, at June 30, 2020.For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 100 percent of the CECL Day 1 impact to shareholders’ equity equaling $28.2 million after-tax will be deferred over a two-year period ending January 1, 2022, at which time it will be phased in on a pro-rata basis over a three-year period ending January 1, 2025. Additionally, 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) for the six months ended June 30, 2020 will be phased in over the same time frame.Investor Conference CallValley will host a conference call with investors and the financial community at 11:00 AM Eastern Daylight Time, today to discuss the second quarter 2020 earnings. Those wishing to participate in the call may dial toll-free (866) 354-0432 Conference ID: 2150739. The teleconference will also be webcast live: https://edge.media-server.com/mmc/p/z4qssb75/edge.media-server.com and archived on Valley’s website through Friday, August 28, 2020. Investor presentation materials will be made available prior to the conference call at www.valley.com.About ValleyAs the principal subsidiary of Valley National Bancorp, Valley National Bank is a regional bank with approximately $42 billion in assets. Valley is committed to giving people and businesses the power to succeed. Valley operates many convenient branch locations across New Jersey, New York, Florida and Alabama, and is committed to providing the most convenient service, the latest innovations and an experienced and knowledgeable team dedicated to meeting customer needs. Helping communities grow and prosper is the heart of Valley’s corporate citizenship philosophy. To learn more about Valley, go to www.valley.com or call our Customer Service Center at 800-522-4100.Forward Looking StatementsThe 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, including the potential effects of the COVID-19 pandemic on our businesses and financial results and conditions. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:the impact of COVID-19 on the U.S. and the global economies, including business disruptions, reductions in employment and an increase in business failures, specifically the consequences among our commercial and consumer customers;the impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases of COVID-19 arise in various locations, including Florida and Alabama;potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic or as a result of our action, or failure to implement or effectively implement, federal, state and local laws, rules or executive orders requiring that we grant forbearances or not act to collect our loans;the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;a prolonged downturn in the economy, mainly in New Jersey, New York, Florida and Alabama, as well as an unexpected decline in commercial real estate values within our market areas;higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;the inability to grow customer deposits to keep pace with loan growth;a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations; the loss of or decrease in lower-cost funding sources within our deposit base, including our inability to achieve deposit retention targets under Valley’s branch transformation strategy;cyber-attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;results of examinations by the OCC, the FRB, the CFPB and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, the COVID-19 pandemic or other external events;unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors; andthe failure of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships.A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.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.VALLEY NATIONAL BANCORP
CONSOLIDATED FINANCIAL HIGHLIGHTSSELECTED FINANCIAL DATA
NOTES TO SELECTED FINANCIAL DATA
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except for share data)
(1) Interest income is presented on a tax equivalent basis using a 21 percent federal 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) Includes junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of condition.
(5) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(6) Net interest income as a percentage of total average interest earning assets.
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