2010 ANNUAL REPORT
Branch Locations
Historical Financial Data 1990 - 2010
Sussex
NEW JERSEY
Passaic
Warren
Bergen
Morris
Essex
Hudson
Union
Hunterdon
Somerset
NEW YORK
Manhattan
CURRENT
LOCATIONS
See the complete branch
listing on inside back cover.
Middlesex
Monmouth
(cid:23)(cid:24)(cid:25)
Mercer
Queens
(cid:45)(cid:74)(cid:79)(cid:68)(cid:80)(cid:77)(cid:79)(cid:1)(cid:53)(cid:86)(cid:79)(cid:79)(cid:70)(cid:77)
(cid:19)(cid:24)(cid:25)
(cid:70)(cid:70) (cid:79) (cid:84)(cid:1) (cid:38) (cid:89) (cid:81) (cid:90)
(cid:86)
(cid:50)
(cid:79)(cid:1)
(cid:76) (cid:77)(cid:90)
(cid:1) (cid:35) (cid:83) (cid:80) (cid:80)
Brooklyn
(cid:49)
(cid:83)
(cid:80)
(cid:90)
(cid:88)
(cid:52)(cid:73)(cid:80)(cid:83)(cid:70)(cid:1)(cid:49)(cid:76)
(cid:84)
(cid:81)
(cid:70)
(cid:68)
(cid:85)(cid:1)
(cid:38)
(cid:89)
(cid:81)
(cid:90)
(cid:48)
(cid:68)
(cid:70)
(cid:66)
(cid:79)
(cid:1)
(cid:49)
(cid:76)
(cid:88)
(cid:90)
(cid:50)(cid:86)(cid:70)(cid:70)(cid:79)(cid:84)
(cid:35)(cid:77)(cid:87)(cid:69)
(cid:21)(cid:26)(cid:22)
(cid:19)(cid:24)
Year
End
Total
Assets
Net
Income
Diluted Earnings
Per Common
Share (1)
Return on
Average
Assets
Return on
Average
Equity
Dividends
Per Common
Share
Common Stock
Splits and
Dividends
2010 $14,144 $131.2 (2) $0.81
0.93%
10.32%
$0.72
5/10 - 5%
Stock Dividend
Dollars in millions, except for share data.
2009
14,284
116.1 (2)
0.64
2008
14,718
93.6 (2)
0.64
2007
12,749
153.2 (2)
1.10
2006
12,395
163.7 (2)
1.15
2005
12,436
163.4
2004
10,763
154.4
2003
9,873
153.4
2002
9,148
154.6
2001
8,590
135.2
2000
6,426
106.8
1999
6,360
106.3
1998
5,541
97.3
1997
5,091
85.0
1996
4,687
67.5
1995
4,586
62.6
1994
3,744
59.0
1993
3,605
56.4
1992
3,357
43.4
1991
3,055
31.7
1990
2,149
28.6
1.17
1.16
1.15
1.12
0.94
0.90
0.85
0.82
0.75
0.66
0.60
0.66
0.65
0.50
0.37
0.33
0.81
0.69
1.25
1.33
8.64
8.74
16.43
17.24
1.39
19.17
1.51
22.77
1.63
24.21
1.78
23.59
1.68
19.70
1.72
20.28
1.75
18.35
1.82
18.47
1.67
18.88
1.47
17.23
1.40
16.60
1.60
20.03
1.62
21.42
1.36
19.17
1.29
15.40
1.44
14.54
0.72
0.72
0.72
0.70
0.69
0.66
0.63
0.60
0.56
0.53
0.50
0.45
0.40
0.35
0.34
0.32
0.25
0.22
0.21
0.21
5/09 - 5%
Stock Dividend
5/08 - 5%
Stock Dividend
5/07 - 5%
Stock Dividend
5/06 - 5%
Stock Dividend
5/05 - 5%
Stock Dividend
5/04 - 5%
Stock Dividend
5/03 - 5%
Stock Dividend
5/02 - 5:4%
Stock Split
5/01 - 5%
Stock Dividend
5/00 - 5%
Stock Dividend
5/99 - 5%
Stock Dividend
5/98 - 5:4%
Stock Split
5/97 - 5%
Stock Dividend
5/96 - 5%
Stock Dividend
5/95 - 5%
Stock Dividend
5/94 - 10%
Stock Dividend
4/93 - 5:4%
Stock Split
4/92 - 3:2%
Stock Split
All per share amounts have been adjusted retroactively for stock splits and stock dividends during the periods presented. Data for the
years prior to 2001 in the table above exclude certain prior year results for merger transactions accounted for using the pooling-of-
interests method.
(1) Beginning in 1997, earnings per common share is presented on a diluted basis.
(2) Net income includes other-than-temporary impairment charges on investment securities, net of tax benefi t, totaling $2.9 million,
$4.0 million, $49.9 million, $10.4 million, and $3.0 million for years ended 2010, 2009, 2008, 2007, and 2006, respectively.
VALLEY NATIONAL BANCORP 1
Letter to our Shareholders
We are confi dent in our ability to survive adversity and
thrive by continuing to offer a friendly, personalized and
conservative banking experience as we interact with our
customers in person, over the phone, online or through
mobile banking applications.
In 2010, we continued to face a
challenging business environment due to
a sluggish housing market, low interest
rates, high levels of unemployment and
slow economic growth. Yet, despite these
obstacles, our management team has
been able to successfully navigate Valley
through the course of this diffi cult
business cycle and produce favorable
operating results.
We maintain strong
profitability and Balance
Sheet Management.
We realize that our primary focus is to
increase shareholder value. Investors
recognize our consistent profi tability and
our sound balance sheet management.
income available to
Our 2010 net
common stockholders
increased by
over 35 percent as compared to one
year ago. Net income of $131.2 million,
or $0.81 per diluted common share, for
the year ended December 31, 2010 was
fueled by a 26 percent increase in non-
interest income and higher net interest
income resulting from a widening of our
interest margin on an annual basis. Net
interest income grew to $462.8 million,
a three percent increase over the prior
year, as we benefi ted from our ability
to reduce our already low cost of funds
in this low interest rate environment.
Our ability to generate strong earnings,
during one of the worst economic times
in recent history, allowed us to maintain
our cash dividend to our shareholders
throughout 2010.
We are a responsible and
reliable financial institution.
Many of our shareholders, fi nancial
experts and customers agree that our
lending
traditional and
responsible
practices have helped sustain us, while
some other fi nancial institutions have
succumbed to the negative effects of this
prolonged recovery cycle and the weight
of their past business decisions. Strong
credit quality and a focus on long-term
returns are central to our reputation
within the business community and are
hallmarks of Valley National Bank. Our
annual results refl ect our solid credit
metrics, which continue to be better than
the credit performance
indicators
reported by most of our competitors. Total
loans past due 30 days or more were
1.77 percent of the loan portfolio totaling
$9.4 billion at December 31, 2010, a
fraction of the industry norm for a bank
of our size.
In an effort to stimulate economic growth
and grow banking relationships, we
continued to offer our $499 Home
Mortgage Refi nance Program for New
Jersey homeowners and recently extended
the offer to consumers in Pennsylvania.
We also offer a reduced fee refi nance
program for New York homeowners.
Benefi ting from some of the most
attractive interest rates in our history, this
innovative fi nancing solution has helped
thousands of our customers realize
substantial savings on their monthly
mortgage payments.
We offer a friendly
customer experience through
personalized, hands-on
customer service.
Our bank was founded on the principle of
offering personalized solutions delivered
with exceptional and friendly customer
service. After 83 years, we still adhere
to these fundamental values and this is
why many of our customers choose Valley
National Bank.
Customers are more than account
numbers to us. They are our neighbors,
friends, family members and business
associates. We seek to establish long-term
relationships with the residents of our
local communities by designing banking
solutions that fi t their individual needs.
Whether it’s a young couple looking to
purchase their fi rst home or a business
looking to fi nance the purchase of real
estate to expand their business, we are
there to work with them to develop the
appropriate fi nancial plan.
We understand that every
business has different needs.
Commercial lending activity is an essential
component of our ability to provide strong
returns. In business banking there is
no “one size fi ts all” commodity. We are
proud to serve thousands of business
customers that operate in a wide variety
of industries throughout our geographic
footprint. A physician may need fi nancing
for malpractice insurance premiums, a
manufacturer may need a loan to purchase
new equipment or a company may be
looking to purchase a new, larger facility to
accommodate the demands of growth and
expansion. Whatever their needs may be, we
take the time to get to know our customers
and learn about their businesses so that
we can help determine the best fi nancial
alternatives. Understanding their needs,
coupled with the skill and knowledge of our
experienced lending professionals, enables
us to provide individualized solutions to the
business community.
banking industry, the bank regulators
have imposed new capital standards and
regulations which create new challenges.
Once again, our conservative approach
to lending and historical strong capital
places us in a favorable position. In
the past, our performance metrics
have placed us among the best of our
peers and we are confi dent that we
will continue to generate performance
levels of which we can all be proud. We
look towards the future with guarded
optimism. We may continue to face
challenging headwinds in the year ahead
due to the slow recovery in both our local
markets and the U.S. economy. We are
confi dent that our position of capital
strength, our ability to evaluate credit
and other investment opportunities and
our commitment to provide excellent
service to our customers, will continue
to produce strong earnings.
We will look to emerge from this economic
environment as a respected and reliable
fi nancial institution. Ultimately, this is who
we are as a bank and this is why our
customers choose Valley National Bank.
On behalf of our management team and
The Board of Directors, we thank you for
the confi dence you have placed in us
and for your continued support.
Gerald H. Lipkin
Chairman, President & CEO
We care about being part
of the community.
There are many banks in our country
that dedicate themselves to serving
the needs of the communities they
serve. Community banking is more
than a mantra for our institution. It is a
fundamental concept that we embrace
passionately. At Valley, this approach is
an essential part of our business model.
Our vision for growth and prosperity is
derived from the value we place on our
efforts in serving the local community.
We have continued to serve the diverse
needs of our communities by providing
products and services that are in the
best interests of the neighborhoods
where we do business. Whether it is
investing in affordable housing projects
or supporting local charitable causes,
we have established long-standing ties
with these organizations. We believe it
is our civic responsibility to give back to
the communities that we serve.
During 2010, our staff raised over
$120,000 in donations at our “Valley
Goes Pink!” walk which took place
at our corporate campus in Wayne,
New Jersey. All of the proceeds were
donated directly to the Cure Breast
Cancer Foundation (CBCF), a 501(c)3
not-for-profi t foundation whose mission
is to fi nd a cure for breast cancer in
our lifetime. CBCF donates 100% of its
net fund-raising proceeds to support
Dr. Larry Norton and his research at
the Memorial Sloan-Kettering Cancer
Center. The contributions raised by
Valley in 2009 enabled Dr. Norton to
hire an additional full-time technician
in the Research Department.
We continue to seek
expansion opportunities.
We continue to search for growth
opportunities to expand our franchise.
By developing highly focused growth
strategies, we will continue to look for
locations to expand our footprint in
2011. Through two Federal Deposit
Insurance Corporation (FDIC) assisted
transactions, we acquired The Park
Avenue Bank and LibertyPointe Bank
in New York City during 2010. We
were able to welcome and provide a
safe and secure home to The Park
Avenue Bank and LibertyPointe Bank
customers and expand our presence in
a very lucrative market.
In 2011, we will continue to seek expansion
opportunities,
through both denovo
branching and acquisitions, especially
in New York and Long Island where we
can grow our franchise in locations that
are natural extensions to our existing
New York City locations. After careful
consideration, we believe that there is
an opportunity to gain market share in
these areas by offering Valley’s brand of
personalized banking. Through meticulous
and time-tested entry strategies, we are
confi dent that our Bank will have an
opportunity to achieve success in these
new communities.
In October, we opened a loan production
offi ce in Bethlehem, Pennsylvania. The
primary purpose of this new offi ce is to
generate residential mortgage products.
Homeowners with properties located in
Pennsylvania will also have the opportunity
to refi nance their existing mortgage through
our $499 Home Mortgage Refi nance
Program. To successfully facilitate this
program, Valley obtained a title insurance
license to do business in the Commonwealth
of Pennsylvania under the name, Valley
Search and Abstract Agency.
We expand financial
relationships with
our customers.
A banking relationship consists of more
than just an automobile loan, commercial
loan or a checking account. We offer a
full suite of fi nancial services to serve our
customers and develop a deep banking
relationship. From residential mortgages,
asset management, insurance products
and retirement planning services, Valley
offers everything a customer needs to
achieve their fi nancial goals.
We have a vision
for our future.
In reaction to the economic turmoil and
problems experienced throughout the
2
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 3
Senior Executive Management
Senior Management
Gerald H. Lipkin
Chairman of the Board, President
& Chief Executive Officer (center)
Peter Crocitto
Senior Executive Vice President
& Chief Operating Officer (left)
Alan D. Eskow
Senior Executive Vice President,
Chief Financial Officer & Secretary (right)
Executive Management
Sitting left to right:
Robert E. Farrell
Executive Vice President
& Chief Credit Offi cer
Bernadette M. Mueller
Executive Vice President
& Director of Sales and
Client Development
Robert M. Meyer
Executive Vice President
& Chief Commercial
Lending Offi cer
Standing left to right:
James G. Lawrence
Executive Vice President
Albert L. Engel
Executive Vice President
& Chief Retail Lending Offi cer
Robert J. Mulligan
Executive Vice President
& Chief Administrative Offi cer
Anthony M. Bruno
First Senior Vice President
President, Wealth Management
Mitchell L. Crandell
First Senior Vice President &
Chief Accounting Officer
Elizabeth De Laney
First Senior Vice President
Residential Mortgage Lending
Carol B. Diesner
First Senior Vice President
Human Resources
Kermit R. Dyke
First Senior Vice President
New York Commercial Lending
Wayne Fritsch
First Senior Vice President
Deposit Operations
Richard P. Garber
First Senior Vice President
Commercial Mortgage Lending
Eric W. Gould
First Senior Vice President
Investments
Dianne M. Grenz
First Senior Vice President
Marketing/Public Relations
Peter T. Jackey
First Senior Vice President
Information Services
Sheila M. Leary
First Senior Vice President
AML/BSA Compliance
Barbara Mohrbutter
First Senior Vice President
New Jersey Central Division Manager
Russell C. Murawski
First Senior Vice President
New Jersey Commercial Lending
John H. Noonan
First Senior Vice President
Chief Risk Officer
Andrea T. Onorato
First Senior Vice President
Retail Banking Operations &
Customer Service
Marianne Potito
First Senior Vice President
Special Assets
4
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 5
Ira Robbins
First Senior Vice President
Treasurer
Thomas Sparkes
First Senior Vice President
Consumer Lending
Maureen Zegler
First Senior Vice President
New York Division Manager
Mary J. Steele Guilfoile
Chairman
MG Advisors, Inc.
Board Member since 2003
Graham O. Jones
Partner
Jones & Jones, Esqs
Board Member since 1997
Walter H. Jones, III
Retired
Former Chairman, Hoke, Inc.
Board Member since 1997
Gerald Korde
President
Birch Lumber Company
Board Member since 1989
Since 1927, Valley National Bank has been providing quality banking and financial services to retail, commercial and
trust customers. We are committed to providing personalized, friendly service when responding to our customers’ needs.
With over $14 billion in assets, Valley currently operates 198 branch offices in 134 communities throughout 14 counties
in northern and central New Jersey, Manhattan, Brooklyn and Queens.
Board of Directors
Michael L. LaRusso
Financial Consultant
Board Member since 2004
Marc J. Lenner
CEO & CFO
Lester M. Entin Associates
Board Member since 2007
Robinson Markel
Of Council
Katten Muchin Rosenman LLP
Board Member since 2001
Richard S. Miller
President
Williams, Caliri, Miller & Otley, P.C.
Board Member since 1999
Gerald H. Lipkin
Chairman of the Board
President & CEO
Board Member since 1986
Andrew B. Abramson
President/CEO
The Value Group, Inc.
Board Member since 1994
Pamela R. Bronander
Vice President
KMC Mechanical, Inc.
Board Member since 1993
Eric P. Edelstein
Retired
Former EVP & CFO, Griffon Corporation
Board Member since 2003
Barnett Rukin
CEO
SLX Capital Management
Board Member since 1991
Suresh L. Sani
President
First Pioneer Properties, Inc.
Board Member since 2007
Robert C. Soldoveri
Owner
Solan Management, LLC
Board Member since 2008
Jack Kay
Retired
Director Emeritus since 2005
6
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 7
Because it’s our community too.
Part of being a responsible and successful corporate neighbor means giving something back
to the communities we serve. No single event captures the true meaning of that spirit better
than “Valley Goes Pink!”
On October 16th, Valley held its second “Valley Goes Pink!” walkathon event to raise money for breast cancer research. Over
1,600 Valley employees, customers, neighbors and friends joined together to raise more than $120,000 for the Memorial
Sloan-Kettering Cancer Center.
“In one way or another, all of our lives have been affected by this deadly disease,” remarked Valley National Bank Chairman,
President & CEO Gerald H. Lipkin. “Each dollar we raise, each step we take, moves us that much closer to fi nding a cure.
Together, we can be part of that solution.”
Left:
For the past eight years employees donated gifts
to the Salvation Army’s Angel Giving Tree Program.
This program provides Christmas gifts to children
in need so they can have a special holiday.
Right:
Our branch staff members are actively involved
in teaching fi nancial literacy by visiting schools
and hosting bank days at local schools. Children
are given branch tours, taught about the basics of
money and the importance of saving for their future.
Left:
Valley branch offi ces host free Shred-It Events
throughout the year. Customers and local residents
are invited to bring their personal and confi dential
documents for shredding, while staff members are
available to discuss their fi nancial needs.
in
Right:
Membership
local civic organizations and
Chambers of Commerce provide opportunities to
participate in community service events while
networking with local business professionals to help
grow or develop relationships in the communities
we serve.
Left:
Many of our employees volunteer their time and
service to assist organizations like the Paterson
Habitat for Humanity, which helps build homes for
underprivileged families.
Right:
In July, a team of Valley employees celebrated
Community Service Day by repairing a housing
facility in Asbury Park, New Jersey for HABcore.
HABcore is a nonprofi t organization in Monmouth
County that provides housing and other services
to low-income, homeless or disabled individuals.
On July 23rd, a group of aspiring college students
enrolled in the Rutgers Upward Bound Program
visited Valley to learn how a bank operates on a
daily basis. The students were given a tour of the
corporate campus and visited various departments
such as Accounting, Commercial Loans, Educa-
tional Resources, Residential Mortgage, Retail Bank-
ing and Marketing.
8
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 9
Consolidated Statements
FINANCIAL CONDITION
Valley National Bancorp & Subsidiaries
(in thousands, except for share data)
Assets
Cash and due from banks
Interest bearing deposits with banks
Investment securities:
Held to maturity, fair value of $1,898,872 at December 31, 2010 and
$1,548,006 at December 31, 2009
Available for sale
Trading securities
Total investment securities
Loans held for sale, at fair value
Non-covered loans
Covered loans
Less: Allowance for loan losses
Net loans
Premises and equipment, net
Bank owned life insurance
Accrued interest receivable
Due from customers on acceptances outstanding
FDIC loss-share receivable
Goodwill
Other intangible assets, net
Other assets
Total Assets
Liabilities
Deposits:
Non-interest bearing
Interest bearing:
Savings, NOW and money market
Time
Total deposits
Short-term borrowings
Long-term borrowings
Junior subordinated debentures issued to capital trusts (includes fair value of $161,734
at December 31, 2010 and $155,893 at December 31, 2009 for VNB Capital Trust I)
Bank acceptances outstanding
Accrued expenses and other liabilities
Total Liabilities
Shareholders' Equity
Preferred stock, no par value, authorized 30,000,000 shares; none issued
Common stock, no par value, authorized 210,451,912 shares; issued 162,058,055
shares at December 31, 2010 and 162,042,502 shares at December 31, 2009
Surplus
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (597,459 common shares at December 31, 2010 and
1,405,204 common shares at December 31, 2009)
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
December 31,
$
2010
302,629
63,657
$
2009
305,678
355,659
1,923,993
1,035,282
31,894
2,991,169
58,958
9,009,140
356,655
(124,704)
9,241,091
265,570
304,956
59,126
6,028
89,359
317,891
25,650
417,742
$ 14,143,826
1,584,388
1,352,481
32,950
2,969,819
25,492
9,370,071
---
(101,990)
9,268,081
266,401
304,031
56,245
6,985
---
296,424
24,305
405,033
$ 14,284,153
$ 2,524,299
$ 2,420,006
4,106,464
2,732,851
9,363,614
192,318
2,933,858
186,922
6,028
165,881
12,848,621
4,044,912
3,082,367
9,547,285
216,147
2,946,320
181,150
6,985
133,412
13,031,299
---
---
57,041
1,178,325
79,803
(5,719)
54,293
1,178,992
73,592
(19,816)
(14,245)
1,295,205
$ 14,143,826
(34,207)
1,252,854
$ 14,284,153
INCOME
Valley National Bancorp & Subsidiaries
(in thousands, except for share data)
Interest Income
Interest and fees on loans
Interest and dividends on investment securities:
Taxable
Tax-exempt
Dividends
Interest on federal funds sold and other short-term investments
Total interest income
Interest Expense
Interest on deposits:
Savings, NOW and Money Market
Time
Interest on short-term borrowings
Interest on long-term borrowings and junior subordinated debentures
Total interest expense
Net Interest Income
Provision for credit losses
Net Interest Income After Provision for Credit Losses
Non-Interest Income
Trust and investment services
Insurance commissions
Service charges on deposit accounts
Gains on securities transactions, net
Other-than-temporary impairment losses on securities
Portion recognized in other comprehensive income (before taxes)
Net impairment losses on securities recognized in earnings
Trading (losses) gains, net
Fees from loan servicing
Gains on sales of loans, net
Gains on sales of assets, net
Bank owned life insurance
Change in FDIC loss-share receivable
Other
Total non-interest income
Years ended December 31,
2010
$ 543,009
2009
$ 561,252
2008
$
572,918
115,593
10,366
7,428
416
676,812
19,126
55,798
1,345
137,791
214,060
462,752
49,456
413,296
7,665
11,334
25,691
11,598
(1,393)
(3,249)
(4,642)
(6,897)
4,919
12,591
619
6,166
6,268
16,015
91,327
131,792
9,682
8,513
945
712,184
24,894
93,403
4,026
140,547
262,870
449,314
47,992
401,322
6,906
10,224
26,778
8,005
(6,339)
(13)
(6,352)
(10,434)
4,839
8,937
605
5,700
–
17,043
72,251
137,763
10,089
6,734
2,190
729,694
45,961
117,152
10,163
135,619
308,895
420,799
28,282
392,517
7,161
10,053
28,274
5,020
(84,835)
–
(84,835)
3,166
5,236
1,274
518
10,167
–
17,222
3,256
Non-Interest Expense
176,106
Salary and employee benefi ts expense
61,765
Net occupancy and equipment expense
13,719
FDIC insurance assessment
7,721
Amortization of other intangible assets
10,137
Professional and legal fees
4,052
Advertising
44,182
Other
317,682
Total non-interest expense
186,941
Income Before Income Taxes
Income tax expense
55,771
Net Income $ 131,170
Dividends on preferred stock and accretion
–
Net Income Available to Common Stockholders
131,170
Earnings Per Common Share:
$
163,746
58,974
20,128
6,887
7,907
3,372
45,014
306,028
167,545
51,484
$ 116,061
19,524
$ 96,537
157,876
54,042
1,985
7,224
8,241
2,697
53,183
285,248
110,525
16,934
$ 93,591
2,090
$ 91,501
Basic
Diluted
Cash Dividends Declared Per Common Share
Weighted Average Number of Common Shares Outstanding:
Basic
Diluted
$ 0.81 $
0.81
0.72
$
0.64
0.64
0.72
0.64
0.64
0.72
161,059,906
161,068,175
151,675,691
151,676,409
143,805,528
143,884,683
See the consolidated fi nancial statements and accompanying notes presented in Item 8 of the Company’s Annual Report on Form 10-K.
See the consolidated fi nancial statements and accompanying notes presented in Item 8 of the Company’s Annual Report on Form 10-K.
10 VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 11
Valley National Bank
Advisory Board
Joseph Abergel
Jomark/Satex
Bernie Adler
Adler Development
JoAnn Andriola
Consultant
Donald Aronson
Donald Aronson Consulting Group
Frederick C. Ayers
Ayers Chevrolet
Carl Bachstadt
Bachstadt Tavern
Peter Baum
Baum Bros. Imports, Inc.
George Bean
The George Bean Co.
Jeffrey Birnberg
Tappan Zee Capital Corp.
George Blair
Retired/Shrewsbury State Bank
Robin Blair
Kellenyi Johnson Wagner,
Architects
Stanley Blum
Blum & Fink, Inc.
Edward Blumenfeld
Blumenfeld Development
Group, Ltd.
Leonard Boxer, Esq.
Strook & Strook & Lavan, LLP
Linda R. Brenner
Ricciardi Family, LLC
Milton Brown, PA
Accountant
Peter D. Brown
Falcon Management
John R. Bruno
Bruno Associates
Gilbert Buchalter
Pharmaceutical Innovations, Inc.
Bernard Burkhoff
The Real Estate Investment Group
Albert Burlando
Almetek Industries, Inc.
John F. Coffey, II, Esq.
Attorney-at-Law
Melvin Cohen
Handi-Hut, Inc.
M. Scott Coleman
Contemporary Motor Cars, Inc.
John Conti
Shore Haven Mobile Home Park
Anthony Coppola
Alliance Title Agency
David M. Corry
Bruno, DiBello & Co., LLC
Francis J. Costenbader, Esq.
Attorney-at-Law
Patrick D’Angola
PMD Consultants, Inc.
Terry Daverio
Lincroft Inn, Inc.
George E. Davey, Esq.
Attorney-at-Law
James Demetrakis, Esq.
Attorney-at-Law
Charles R. Hockey
Shamrock Stage Coach
Stewart C. Libes
Consultant
Peter Nussbaum, M.D.
Associates in Ophthalmology
Peter A. Spina
Wayne Motors, Inc.
Michael V. Benedetto, Esq.
Ansell, Zaro, Grimm & Aaron, PC
Michael LaForge, CPA
Sobel & Company, LLC
Roberta S. Weisinger, Esq.
Attorney-at-Law
David B. Kaufman, CPA
Rothstein Kass & Company, P.C.
Robert Devino
B. Devino Construction Co.
Charles B. Hummel
Hummel Machine & Tool Co.
Robert Lieberman
All-Ways Advertising Company
Steven Nussbaum
PF Pasbjerg Development Company
Martin Statfeld
Brown & Brown Insurance
Gary D. Bennett, Esq.
Koch Koch & Bennett
Diane M. Lavenda, Esq.
Sills, Cummis & Gross PC
Peter R. Yarem, Esq.
Genova, Burns & Giantomasi
Thomas Kesoglou, Esq.
McCarter & English, LLP
Morris Diamond
The Diamond Agency
Charles Infusino
Little Falls Shop-Rite, Inc.
Seymour Litwin
Prudential New Jersey Properties
Dennis C. Oberle
Mahwah Sales & Service, Inc.
Donald N. Dinallo
Terminal Construction Corporation
Terry Ingram
Consultant
Joseph A. Lobosco
Lobosco Insurance Group, LLC
David Oostdyk
Royal Pontiac & Oldsmobile, Inc.
George Dominguez
Sunrise House Foundation, Inc.
Robert Israel
Kentshire Galleries, Ltd.
Bernard Dorfman, Esq.
Attorney-at-Law
Peter Jakobson, Jr.
Jakobson Properties, LLC
Gerhardt Drechsel
Eagle American Realty, Inc.
Kenneth Jayson
Jayson Oil Company
Kenneth Elkin
Summit Stainless Steel, LLC
Sanford Kalb
Private Investor
Nathan Lubow
Consultant
Frank Luccarelli
Dearborn Farms, Inc.
Gerald A. Lustig
Acura of Denville &
Autosport Honda
Richard Mandelbaum
Mandelbaum &
Mandelbaum Investors
Anthony F. Marangi
Marangi Waste
Anthony J. Marino
Century 21 Construction
Corporation
Stefano A. Masi
Masi, Boyle Associates
Lawrence J. Massaro
Lordina Builders, Inc.
Solomon Masters
Real Estate Consultant
Sara L. Mayes
Gemini Shippers Group
Anthony J. Mazzone
Innovation Data Processing, Inc.
John V. McGrane
McGrane Mortgage Company
Renee P. McGuire
McGuire Auto Group, LLC
William H. McNear
McNear Excavating, Inc.
Joseph Melone
San Carlo Restaurant
Richard Kalikow
Manchester Real Estate
Andrew Kanter
Passaic-Clifton Driv-Ur-Self
System, Inc.
Edna Kanter
Passaic-Clifton Driv-Ur-Self
System, Inc.
Richard Kanter
Miller Construction
Jack Kaplowitz
Birch Lumber Company
Steven Katz
Sterling Properties Group
Carolyn Kessler
Kessler Industries, Inc.
Frank Kobola
Koburn Investments
Jan Kokes
The Kokes Organization
Perry J. Koplik
PFP - NJ, Inc.
Joseph Kubert
Joe Kubert School of Cartoon &
Graphic Art, Inc.
Robert Kuhl
J. Kuhl Metals, Inc.
Roy G. Meyer
Consultant
Michael Kurzer, CPA
The Kurzer Group, LLC
Alan Mirken
Aaron Publishing Group
Alan Lambiase
River Terminal Development Co.
Frank Misischia
FLM Graphics Corporation
Robert W. Landzettel
Landzettel & Sons
Joseph LaScala
Bell Mill Construction Co., Inc.
Stuart Lasser
Subaru/Kia of Mt. Olive
Herbert Lefkowitz
Consolidated Simon
Distributors, Inc.
Steven U. Leitner, Esq.
Attorney-at-Law
Burton Lerner
Retired
William Lerner
Imperial Parking Systems, Inc.
Donald Lesser
Pine Lesser & Sons
Larry Levy, Esq.
Marcus & Levy
Jeffrey Moll
Community Healthcare
Associates LLC
Michael Moskowitz
Catanio, Moskowitz &
Gutwetter, PC
Charles B. Moss, Jr.
Bow-Tie Building Times Square
Patrick Mucci, Jr.
Group Advisory, Inc.
David Nappa
Wayne Ford, Inc./Dayton Toyota
Mitchell Nelson
Flag Luxury Properties
David Newton
Newrent, Inc.
Eric Nielsen
Dover Chrysler Plymount, Inc. &
Franklin Sussex Hyundai
Barry G. Novin
Barry Novin Associates
Larry Pantirer
BNE Associates
Spiro Pappas
Comfort Inn
Hal Parnes
The Parnes Company
Kaiser Pathan
New Horizon Management Co.
Richard Pearson
Fleet Equipment Corporation
Ronald Petillo
Petillo Enterprises, Inc.
Joseph Petito
Sunset Deli & Liquors
Joel I. Picket
Gotham Organization, Inc.
James R. Poole
Northmarq Capital
George Poydinecz
Developer
Audrey Rabinowitz
Plaza Research
David Rabinowitz
Plaza Research
Joshua Rabinowitz
American Dyestuff Corporation
Mark Rachesky
MHR Fund Management Company
Lawrence Rappaport, Esq.
Attorney-at-Law
Robert Ringley
Ber Plastics, Inc.
Vincent Riviello
Atlantic Coast Fibers, LLC
Robert X. Robertazzi
Liberty Lincoln-Mercury, Inc.
Edward J. Rossi
Rossi Chevrolet Pontiac Oldsmobile
Buick GMC, Inc.
Vincent Russo
Vincent J. Russo Realty Co.
Leonard Schlussel
Welbilt Equipment Corporation
Ben Sher
Consultant
Charles I. Silberman
S. Parker Hardware
Manufacturing Corp.
Lee Silva
Silva & Silva, Inc.
Maria Silva
European Travel Agency
Albert Skoglund
Hiller & Skoglund, Inc.
Allan Sockol
Contemporary Motor Cars, Inc.
Roy Solondz
Roxbury Mortgage Co., Inc.
William T. Ferguson
Retired
John L. Fette
Fette Ford, Kia, Infiniti
Andrew Fiore, Jr.
AWF Leasing Corporation
George J. Fiore
Real Estate
Steven C. Fiske, M.D.
Jack Forgash
Tri-Realty Management
Corporation
Phil Forte
Sandy Hill Building Supply Co.
Theodore E. Gast
Gast & Nash, LLP
Andrew Gellert
Atalanta Corp.
Jay Gerish
J. Gerish, Inc.
Alan Golub
Modern Electric Co.
Peter A. Goodman
Goodman Sales Co., Inc.
Donald Gottheimer
Cosmetics Plus
Stanley Lee Gottlieb
The Diamond Agency
Fredric H. Gould
Gould Investors
Judith Greenberg
Heritage Management Co.
Steven R. Gross
Metro Insurance Services, Inc.
Joseph Guttilla
Chopper Express
J. Roger Haftek
J. R. Haftek Co., Inc.
Leonard Haiken
Prestige Imports, Inc.
Jackie Harrison
Center for Humanistic Change
Willard Hedden
Consultant
Jacob Helfrich
R. Helfrich & Son
Guy T. Hembling
Charles B. Hembling & Sons, Inc.
Mitchell Herman
Service Fabrics, Inc.
David Stavola
Stavola Companies
David Taub
Palm Bay Imports, Inc.
Saul G. Berkowitz, CPA
McGladrey & Pullen LLP
Robert J. Blackwell, CPA
Levine Jacobs & Company, L.L.C.
Marcia Toledano
990 AvAmericas Associates
Marc Blumenthal, CPA
Sax, Macy, Fromm & Co., PC
Pasquale P. Tremonte
Fulton Building Co., Inc.
Joseph W. Boyle, CPA
Meisel, Tuteur & Lewis, P.C.
Richard Tully
Kearny Shop-Rite
Richard O. Ullman
Benecard, LLC
John Usdan
Midwood Management
Corporation
Salvatore Valente
Bildisco Door
Manufacturing Co., Inc.
Milton Brown, PA
Accountant
Robert Burney, Esq.
Lindabury, McCormick, Estabrook,
& Cooper, PC
Frank A. Carlet, Esq.
Carlet, Garrison, Klein &
Zaretsky, L.L.P.
Larry Leaf, CPA
Leaf, Saltzman, Manganelli,
Pfeil & Tendler, LLP
Bruce Levinson, CPA
Hertz, Herson & Company LLP
Tom Loikith, Esq.
Harwood Lloyd, LLC
Douglas W. Lubic, Esq.
Wilentz, Goldman & Spitzer P.A.
Saul Lupin, CPA
Smolin, Lupin & Co., P.A.
Barry R. Mandelbaum, Esq.
Mandelbaum, Salsburg, Gold,
Lazris, Discenza & Steinberg, P.C.
Robert C. Masessa, Esq.
Masessa & Cluff
Frederick L. Cohen, CPA
Weiser Mazars, LLP
Michael McLafferty, CPA
Amper, Politziner & Mattia, P.A.
Marvin Van Dyk
Van Dyk Health Care, Inc.
Donna M. Conroy, Esq.
Frieri Conroy & Lombardo, LLC
William C. McNamara, CPA
Cowan, Gunteski & Co., PA
William Van Ness, Sr.
Van Ness Plastic Molding Co.
Ralph A. Contini, CPA
Ralph A. Contini, CPA, LLC
Alan Merker, CPA
Morris Merker & Co., L.L.C.
Warren Waters
River Development, LLC
Arthur M. Weis
Capintec, Inc.
John V. Werner
Werners Dodge
Nino A. Coviello, Esq.
Saiber LLC
Robert J. Crigler, CPA
WithumSmith+Brown
Sheila Mints, Esq.
Coughlin Duffy, LLP
John M. Mortenson, CPA
WithumSmith+Brown, PC
Roger J. Desiderio, Esq.
Bendit Weinstock, P.A.
Bruce Nadler, CPA
Klingher Nadler, LLP
Leo J. Zatta, CPA
Wiss & Company, LLP
Professional Group
Advisory Council for
New York (PGAC–NY)
Howard D. Bader, Esq
BallonStollBader&Nadler, P.C.
Daniel M. Bagatta, Esq.
CULLEN and DYKMAN LLP
Maurice Berkower, CPA
ACSB & Co., LLP
Frank J. Candia, CPA
Holtz Rubenstein Reminick
Jonathan S. Caplan, Esq.
Kramer Levin Naftalis &
Frankel LLP
Robert H. Charron, CPA
Marcum LLP
Lance D. Christensen, CPA
Margolin, Winer & Evens, LLP
Jeffrey I. Citron, Esq.
Davidoff, Malito & Hutcher, LLP
Lowell A. Citron, Esq.
Lowenstein Sandler, PC
Michael J. Clain, Esq.
Windels Marx Lane &
Mittendorf, LLP
Warren D. Kissin, CPA
Hertz Herson & Co., LLP
Bernard Leone, CPA
WithumSmith+Brown, PC
Mark Levenfus, CPA
Marks Paneth & Shron LLP
Donald A. Lipari, CPA
McGladrey & Pullen LLP
H. Michael Lynch, Esq.
Lynch & Associates
Bruce A. Madnick, CPA
Friedman, LLP
Steven J. Mayer, CPA
Amper, Politziner & Mattia
Jonathan L. Mechanic, Esq.
Fried, Frank, Harris, Shriver &
Jacobson, LLP
Steven M. Merdinger, CPA
Konigsberg Wolf & Co., P.C.
Joseph Michaels, IV, Esq.
Dunnington Bartholow
& Miller LLP
Stephen W. O’Connell, Esq.
Hartman & Craven, LLP
Douglas A. Phillips, CPA
Weiser, LLP
Michael Rosenbaum, CPA
Berdon, LLP
Eric Witmondt
Woodmont Properties, LLC
Michael Dunne, Esq.
Day Pitney, LLP
Michael L. Ostrowsky, Esq.
Bressler, Amery & Ross, P.C.
Terri A. Coffel, CPA
Citrin Cooperman & Co., LLP
Frank A. Schettino, CPA
Anchin Block & Anchin, LLP
Brett Woodward
Woodward Construction Co.
Carol O. Egan, CPA
Cowan, Gunteski & Co., PA
Dilip S. Patel, CPA
Dilip Patel & Company, LLP
J. Scott Wright
Graphic Management, Inc.
Scott R. Yagoda, Esq.
Attorney-at-Law
Professional Group
Advisory Council for
New Jersey (PGAC–NJ)
Joseph P. Acquavella, CPA
ACSB & Co., LLP
Rand M. Agins, Esq.
Lasser Hochman, L.L.C.
Edward J. Albowicz, Esq.
Wilentz, Goldman & Spitzer, PA
Thomas J. Angell, CPA
Rothstein, Kass & Company, P.C.
Fredric F. Azrak, Esq.
Azrak & Associates, LLC
Spiros Backos, CPA
Backos & Associates, PC
Khoren M. Bandazian, Esq.
Carella, Byrne, Bain, Gilfi llan,
Cecchi, Stewart & Olstein
Joseph L. Basralian, Esq.
Winne, Banta, Hetherington,
Basralian & Kahn, P.C.
Michael R. Belfer, CPA
Anchin, Block & Anchin LLP
Thomas J. Benedetti, Esq.
Azzolini & Benedetti, LLC
John D. Fanburg, Esq.
Brach Eichler, LLC
Gary R. Feitlin, Esq.
Feitlin, Youngman, Karas
& Youngman, LLC
W. Raymond Felton, Esq.
Greenbaum, Rowe, Smith &
Davis, LLP
Wilfredo Fernandez, CPA
Citrin Cooperman & Company, LLP
Robert A. Fodera, CPA
Beard Miller Company LLP
Paul A. Fried, CPA
Smolin, Lupin & Co., PA
Michael A. Gallo, Esq.
Schenck, Price, Smith & King, LLP
ParenteBeard LLC
James M. Garry, CPA
McGovern Garry LLC
John A. Giunco, Esq.
Giordano, Halleran & Ciesla, P.C.
Scott W. Goodman, Esq.
Day Pitney, LLP
Milton E. Kahn, CPA
Amper, Politziner & Mattia, P.A.
Lynne Z. Karinja, CPA
Lynne Karinja & Associates, LLC
Timothy J. King, CPA
Bederson & Company LLP
Herbert C. Klein, Esq.
Nowell Amoroso Klein Bierman, PC
Jonathan Perelman, CPA
Friedman LLP
Stephen A. Ploscowe, Esq.
Fox Rothschild LLP
Maria Plucinsky, CPA
Hunter Group
Wayne J. Positan, Esq.
Lum, Drasco & Positan, LLC
Patrick J. Power, CPA
WithumSmith+Brown
Richard Puzo, CPA
J.H. Cohn, LLP
Mark S. Rattner, Esq.
Riker Danzig, LLP
Kenneth Lowell Rose, Esq.
Attorney-at-Law
Nicholas San Filippo, IV, Esq.
Lowenstein Sandler, PC
Theodore E. Schiller, Esq.
Schiller & Pittenger, P.C.
Barry D. Shapiro, CPA
WithumSmith+Brown
William S. Taylor, Esq.
Attorney-at-Law
Robert Traphagen, CPA
Traphagen & Traphagen CPAs, LLP
Jeffrey D. Urbach, CPA
Urbach & Avraham, CPAs, LLP
Richard H. Weisinger, Esq.
Attorney-at-Law
Bruce M. Cohen, Esq
Cohen & Frankel, LLP
Jonathan T.K. Cohen, Esq.
Law Offi ces of
Jonathan T.K.Cohen
Robert C. Creighton, Esq.
Farrell Fritz, PC
Thomas P. Dobbins, CPA
O’Connor Davies Munns
& Dobbins, llp
Mark B. Feldstein, CPA
Freeman & Davis, a division of
Wiss & Company, LLP
Ted Felix, CPA
ParenteBeard, LLP
Lawrence E. Fenster, Esq.
Bressler Amery & Ross, P.C.
Victor R. Gerstein, Esq.
Gerstein Strauss & Rinaldi, LLP
Stan L. Goldberg, Esq.
Platzer Swergold Karlin Levine
Goldberg & Jaslow, LLP
Dennis H. Greenstein, Esq.
Seyfarth Shaw, LLP
Gerri A. Gregor, CPA
Grassi & Co.
Roy Hoffman, CPA
J.H. Cohn, LLP
Ronald H. Janis, Esq.
Day Pitney, LLP
Harvey M. Katz, Esq.
Fox Rothschild, LLP
Mark W. Schlussel, Esq.
Zeichner Ellman & Krause, LLP
Alan J. Sellitti, CPA
BDO Seidman, LLP
Fred Shapss, CPA
Rosen Seymour Shapss Martin
& Co., LLP
Paul H. Shur, Esq.
Sills Cummis & Gross, PC
Allan Starr, Esq.
Starr Associates, LLP
Richard L. Sussman, Esq.
Rosenberg & Estis, PC
Marc Taub, CPA
ERE LLP
Natasha Ziabkina, Esq.
Riker Danzig Scherer Hyland &
Perretti LLP
12 VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 13
Shareholder Relations
Corporate Headquarters
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470
(973) 305-8800
Form 10-K
Persons may obtain a copy
of Valley National Bancorp’s
2010 Annual Report or Form 10-K
by submitting a request in writing to:
Dianne M. Grenz
First Senior Vice President
Director of Marketing,
Shareholder & Public Relations
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470
dgrenz@valleynationalbank.com
Financial Information
Investors, security analysts and
others seeking fi nancial information
should submit a request in writing to:
Alan D. Eskow, CPA
Senior Executive Vice President
Chief Financial Offi cer &
Corporate Secretary
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470
aeskow@valleynationalbank.com
Shareholder Inquiries, Dividend
Reinvestment Plan, and
Registrar and Transfer Agent
For information regarding share
accounts of common stock or Valley’s
Dividend Reinvestment Plan, please
contact the Registrar and Transfer
Agent or Valley National Bancorp:
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, New York 10038
Attn: Shareholder Relations Dept.
(800) 937-5449
Dividend Reinvestment Plan
(800) 278-4353
Valley National Bancorp
Attn: Shareholder Relations Dept.
(800) 522-4100, ext. 3380
(973) 305-3380
Dianne M. Grenz
First Senior Vice President
Director of Marketing &
Shareholder Relations
Stock Listing
Valley National Bancorp common
stock is traded on the New York Stock
Exchange under the symbol VLY.
Wilma Falduto
Secretary to the Board
Annual Meeting
April 13, 2011
10:00 AM
Teaneck Marriott at Glenpointe
100 Frank W. Burr Boulevard
Teaneck, New Jersey 07666
14 VALLEY NATIONAL BANCORP
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2010
‘ 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 1-11277
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
Incorporation or Organization)
1455 Valley Road
Wayne, NJ
(Address of principal executive office)
22-2477875
(I.R.S. Employer
Identification Number)
07470
(Zip code)
973-305-8800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock, no par value
VNB Capital Trust I
7.75% Trust Preferred Securities
(and the Guarantee by Valley National Bancorp with
respect thereto)
Warrants to purchase Common Stock
Warrants to purchase Common Stock
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if
Act. Yes Í No ‘
the registrant
is a well-known seasoned issuer, as defined in Rule 405 of
the Securities
Indicate by check mark if the registrant
Act. Yes ‘ No Í
is not required to file reports pursuant
to Section 13 or Section 15(d) of the
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 Í No ‘
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act (check one):
Large accelerated filer Í
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ‘ No Í
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2.1 billion on June 30,
Accelerated filer ‘
Smaller reporting company ‘
2010.
There were 161,589,341 shares of Common Stock outstanding at February 23, 2011.
Documents incorporated by reference:
Certain portions of the registrant’s Definitive Proxy Statement (the “2011 Proxy Statement”) for the 2011 Annual Meeting of
Shareholders to be held April 13, 2011 will be incorporated by reference in Part III. The 2011 proxy statement will be filed within 120 days
of December 31, 2010.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Removed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 6.
Item 7.
Item 7A.
Item 8.
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bancorp and Subsidiaries:
Consolidated Statements of Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9A.
Item 9B.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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26
26
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27
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33
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81
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88
164
165
165
168
168
168
168
168
168
PART IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169
174
2
Item 1.
Business
PART I
The disclosures set forth in this item are qualified by Item 1A—Risk Factors and the section captioned
“Cautionary Statement Concerning Forward-Looking Statements” in Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set
forth elsewhere in this report.
Valley National Bancorp, headquartered in Wayne, New Jersey, is a New Jersey corporation organized in
1983 and is registered as a bank holding company with the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended (“Holding Company Act”). The words “Valley,”
“the Company,” “we,” “our” and “us” refer to Valley National Bancorp and its wholly owned subsidiaries, unless
we indicate otherwise. At December 31, 2010, Valley had consolidated total assets of $14.1 billion, total loans of
$9.4 billion, total deposits of $9.4 billion and total shareholders’ equity of $1.3 billion. In addition to its principal
subsidiary, Valley National Bank (commonly referred to as the “Bank” in this report), Valley owns all of the
voting and common shares of VNB Capital Trust I and GCB Capital Trust III, through which trust preferred
securities were issued. VNB Capital Trust I and GCB Capital Trust III are not consolidated subsidiaries. See
Note 12 to the consolidated financial statements.
Valley National Bank is a national banking association chartered in 1927 under the laws of the United
States. Currently, the Bank has 198 full-service banking offices located throughout northern and central New
Jersey and the New York City boroughs of Manhattan, Brooklyn and Queens. The Bank provides a full range of
commercial, retail and wealth management financial services products. The Bank provides a variety of banking
services including automated teller machines, telephone and internet banking, overdraft facilities, drive-in and
night deposit services, and safe deposit facilities. The Bank also provides certain international banking services
to customers including standby letters of credit, documentary letters of credit and related products, and certain
ancillary services such as foreign exchange, documentary collections, foreign wire transfers and the maintenance
of foreign bank accounts.
Valley National Bank’s wholly-owned subsidiaries are all included in the consolidated financial statements
of Valley (See Exhibit 21 at Part IV, Item 15 for a complete list of subsidiaries). These subsidiaries include:
•
•
•
•
•
•
•
•
•
a mortgage servicing company;
a title insurance agency;
asset management advisors which are Securities and Exchange Commission (“SEC”) registered
investment advisors;
an all-line insurance agency offering property and casualty, life and health insurance;
subsidiaries which hold, maintain and manage investment assets for the Bank;
a subsidiary which owns and services auto loans;
a subsidiary which specializes in asset-based lending;
a subsidiary which offers financing for general aviation aircraft and servicing for existing commercial
equipment leases; and
a subsidiary which specializes in health care equipment and other commercial equipment leases.
The Bank’s subsidiaries also include real estate investment trust subsidiaries (the “REIT” subsidiaries)
which own real estate related investments and a REIT subsidiary, which owns some of the real estate utilized by
the Bank and related real estate investments. Except for Valley’s REIT subsidiaries, all subsidiaries mentioned
above are directly or indirectly wholly owned by the Bank. Because each REIT must have 100 or more
3
shareholders to qualify as a REIT, each REIT has issued less than 20 percent of their outstanding non-voting
preferred stock to individuals, most of whom are non-senior management Bank employees. The Bank owns the
remaining preferred stock and all the common stock of the REITs.
Valley National Bank reports the results of its operations and manages its business through four business
segments: commercial lending, consumer lending, investment management, and corporate and other adjustments.
Valley’s Wealth Management Division comprised of trust, asset management and insurance services, is included
in the consumer lending segment. See Note 19 to the consolidated financial statements for details of the financial
performance of our business segments. We offer a variety of products and services within the commercial and
consumer lending segments as described below.
Commercial Lending Segment
Commercial and Industrial Loans. We make commercial loans to small and middle market businesses
most often located in the New Jersey and New York area. Our borrowers tend to be companies and individuals
with clear credit histories that demonstrate a historic ability to repay current and proposed future debts. Our loan
decisions will include consideration of a borrower’s standing in the community, willingness to repay debts,
collateral coverage and other forms of support. Strong consideration is given to long term existing customers that
have maintained a favorable relationship. Commercial loan products offered consist of term loans for equipment
purchases, working capital lines of credit that assist our customer’s financing of accounts receivable and
inventory, and commercial mortgages for owner occupied properties. Working capital advances are generally
used to finance seasonal requirements and are repaid at the end of the cycle by the conversion of short-term
assets into cash. Short-term commercial business loans may be collateralized by a lien on accounts receivable,
inventory, equipment and/or, partly collateralized by real estate. Unsecured loans, when made, are granted to the
Bank’s most credit worthy borrowers. In addition, through our subsidiaries we make aviation loans, provide
financing to the diamond and jewelry industry, the medical equipment leasing market, and engage in asset based
accounts receivable and inventory financing.
Commercial Real Estate. We originate commercial real estate loans that are secured by multi-unit
residential property and non-owner occupied commercial, industrial, and retail property within New Jersey, New
York and Pennsylvania. Loans are generally written on an adjustable basis with rates tied to a specifically
identified market rate index. Adjustment periods generally range between five to ten years and repayment is
structured on a fully amortizing basis for terms up to thirty years. When underwriting a commercial real estate
loan, primary consideration is given to the financial strength and ability of the borrower to service the debt, and
the experience and qualifications of the borrower’s management and/or guarantors. The underlying collateral
value of the mortgaged property and/or financial strength of the guarantors are considered secondary sources of
repayment.
Consumer Lending Segment
Residential Mortgage. We will offer a full range of residential mortgage loans for the purpose of purchasing
or refinancing one-to-four family residential properties. Residential mortgage loans are secured by 1-4 family
properties generally located in counties where we have branch presence and counties contiguous thereto
(including Pennsylvania). We do provide mortgage loans secured by homes beyond this primary geographic area;
however, lending outside this primary area is generally made in support of existing customer relationships.
Underwriting policies that are based on Fannie Mae and Freddie Mac guidelines are adhered to for loan requests
of conforming and non-conforming amounts. The weighted average loan-to-value ratio of all residential
mortgage originations in 2010 was 53 percent while FICO® (independent objective criteria measuring the
creditworthiness of a borrower) scores averaged 768. Terms of first mortgages range from 10 years for interest
only loans, to 30 years for fully amortizing loans. In deciding whether to make a residential real estate loan, we
consider the qualifications of the borrower as well as the value of the underlying property.
4
Other Consumer. Our other consumer loan portfolio is primarily comprised of direct and indirect
automobile loans, home equity loans and lines of credit, credit card loans, and to a lesser extent, secured and
unsecured other consumer loans. Valley is a auto lender in New Jersey, New York, Pennsylvania, and
Connecticut offering direct auto loans secured by either new or used automobiles. Auto loans may be originated
directly with the purchasers of the automobile and indirect auto loans are purchased from approved automobile
dealers. Home equity lines of credit are secured by 1 to 4 family residential properties and are generally provided
as a convenience to our residential mortgage borrowers. Home equity loans and home equity lines of credit may
have a variety of terms, interest rates and amortization features. Other consumer loans include direct consumer
term loans, both secured and unsecured. From time to time, the Bank will also purchase prime consumer loans
originated by and serviced by other financial institutions based on several factors, including current secondary
market rates, excess liquidity and other asset/liability management strategies.
Wealth Management. Our Wealth Management Division provides coordinated and integrated delivery of
asset management advisory, trust, brokerage, insurance including title insurance agency, asset management
advisory, and asset-based lending support services. Trust services include living and testamentary trusts,
investment management, custodial and escrow services, and estate administration, primarily to individuals. Asset
management advisory services include investment services for individuals and small to medium sized businesses,
trusts and custom tailored investment strategies designed for various types of retirement plans.
SEC Reports and Corporate Governance
We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K and amendments thereto available on our website at www.valleynationalbank.com without charge as soon as
reasonably practicable after filing or furnishing them to the SEC. Also available on the website are Valley’s Code
of Conduct and Ethics that applies to all of our employees including our executive officers and directors,
Valley’s Audit and Risk Committee Charter, Valley’s Compensation and Human Resources Committee Charter,
Valley’s Nominating and Corporate Governance Committee Charter, Valley’s Corporate Governance Guidelines
and Valley’s Categorical Standards of Independence.
Additionally, we will provide without charge, a copy of our Annual Report on Form 10-K or the Code of
Conduct and Ethics to any shareholder by mail. Requests should be sent to Valley National Bancorp, Attention:
Shareholder Relations, 1455 Valley Road, Wayne, NJ 07470.
Competition
The market for banking and bank-related services is highly competitive and we face substantial competition
in all phases of our operations. We compete with other providers of financial services such as other bank holding
companies, commercial banks, savings institutions, credit unions, mutual funds, mortgage companies, title
agencies, asset managers, insurance companies and a growing list of other local, regional and national institutions
which offer financial services. De novo branching by several national financial institutions and mergers between
financial institutions within New Jersey and New York City, as well as other neighboring states have heightened
the competitive pressure in our primary markets. We compete by offering quality products and convenient
services at competitive prices (including interest rates paid on deposits, interest rates charged on loans and fees
charged for other non-interest related services). We continually review our pricing, products,
locations,
alternative delivery channels and various acquisition prospects and periodically engage in discussions regarding
possible acquisitions to maintain and enhance our competitive position.
Employees
At December 31, 2010, Valley National Bank and its subsidiaries employed 2,720 full-time equivalent
persons. Management considers relations with its employees to be satisfactory.
5
Executive Officers
Names
Gerald H. Lipkin . . . . . . . .
Peter Crocitto . . . . . . . . . .
Alan D. Eskow . . . . . . . . .
Albert L. Engel . . . . . . . . .
Robert E. Farrell . . . . . . . .
James G. Lawrence . . . . . .
Robert M. Meyer . . . . . . . .
Bernadette M. Mueller . . .
Robert J. Mulligan . . . . . .
Elizabeth E. De Laney . . .
Kermit R. Dyke . . . . . . . . .
Richard P. Garber . . . . . . .
Eric W. Gould . . . . . . . . . .
Russell C. Murawski . . . . .
John H. Noonan . . . . . . . .
Ira D. Robbins . . . . . . . . . .
Stephen P. Davey . . . . . . .
Robert A. Ewing . . . . . . . .
Age at
December 31,
2010
Executive
Officer
Since
Office
69
53
62
62
64
67
64
52
63
46
63
67
42
61
64
36
55
56
1975
Chairman of the Board, President and Chief Executive
Officer of Valley and Valley National Bank
1991
Senior Executive Vice President, Chief Operating Officer
of Valley and Valley National Bank
1993
Senior Executive Vice President, Chief Financial Officer
and Corporate Secretary of Valley and Valley National
Bank
1998
Executive Vice President of Valley and Valley National
Bank
1990
Executive Vice President of Valley and Valley National
Bank
2001
Executive Vice President of Valley and Valley National
Bank
1997
Executive Vice President of Valley and Valley National
Bank
2009
Executive Vice President of Valley and Valley National
Bank
1991
Executive Vice President of Valley and Valley National
Bank
2007
2001
1992
2001
2007
2006
2009
2002
2007
First Senior Vice President of Valley National Bank
First Senior Vice President of Valley National Bank
First Senior Vice President of Valley National Bank
First Senior Vice President of Valley National Bank
First Senior Vice President of Valley National Bank
First Senior Vice President of Valley National Bank
First Senior Vice President of Valley National Bank
Senior Vice President of Valley National Bank
Senior Vice President of Valley National Bank
All officers serve at the pleasure of the Board of Directors.
SUPERVISION AND REGULATION
The Banking industry is highly regulated. Statutory and regulatory controls increase a bank holding
company’s cost of doing business and limit the options of its management to deploy assets and maximize
income. The following discussion is not intended to be a complete list of all the activities regulated by the
banking laws or of the impact of such laws and regulations on Valley or Valley National Bank. It is intended only
to briefly summarize some material provisions.
Bank Holding Company Regulation
Valley is a bank holding company within the meaning of the Holding Company Act. As a bank holding
company, Valley is supervised by the Board of Governors of the Federal Reserve System (“FRB”) and is
required to file reports with the FRB and provide such additional information as the FRB may require.
The Holding Company Act prohibits Valley, with certain exceptions, from acquiring direct or indirect
ownership or control of more than five percent of the voting shares of any company which is not a bank and from
6
engaging in any business other than that of banking, managing and controlling banks or furnishing services to
subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in,
certain businesses found by the FRB to be so closely related to banking “as to be a proper incident thereto.” The
Holding Company Act requires prior approval by the FRB of the acquisition by Valley of more than five percent
of the voting stock of any other bank. Satisfactory capital ratios and Community Reinvestment Act ratings and
anti-money laundering policies are generally prerequisites to obtaining federal regulatory approval to make
acquisitions. The policy of the FRB provides that a bank holding company is expected to act as a source of
financial strength to its subsidiary bank and to commit resources to support the subsidiary bank in circumstances
in which it might not do so absent that policy. Acquisitions through the Bank require approval of the Office of
the Comptroller of the Currency of the United States (“OCC”). The Holding Company Act does not place
territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Gramm-Leach-
Bliley Act, discussed below, allows Valley to expand into insurance, securities, merchant banking activities, and
other activities that are financial in nature if Valley elects to become a financial holding company.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Banking and
Branching Act”) enables bank holding companies to acquire banks in states other than its home state, regardless
of applicable state law. The Interstate Banking and Branching Act also authorizes banks to merge across state
lines, thereby creating interstate banks with branches in more than one state. Under the legislation, each state had
the opportunity to “opt-out” of this provision. Furthermore, a state may “opt-in” with respect to de novo
branching, thereby permitting a bank to open new branches in a state in which the Bank does not already have a
branch. Without de novo branching, an out-of-state commercial bank can enter the state only by acquiring an
existing bank or branch. States generally have not opted out of interstate banking by merger but several states
have not authorized de novo branching.
New Jersey enacted legislation to authorize interstate banking and branching and the entry into New Jersey
of foreign country banks. New Jersey did not authorize de novo branching into the state. However, under federal
law, federal savings banks which meet certain conditions may branch de novo into a state, regardless of state law.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was
signed into law on July 21, 2010. Generally, the Act is effective the day after it was signed into law, but different
effective dates apply to specific sections of the law. The Act, among other things:
• Directs the Federal Reserve to issue rules which are expected to limit debit-card interchange fees;
• After a three-year phase-in period which begins January 1, 2013, removes trust preferred securities as a
permitted component of Tier 1 capital for bank holding companies with assets of $15 billion or more,
however, bank holding companies with assets of less than $15 billion (including Valley) will be
permitted to include trust preferred securities that were issued before May 19, 2010 as Tier 1 capital;
•
Provides for an increase in the FDIC assessment for depository institutions with assets of $10 billion or
more (such as Valley), increases the minimum reserve ratio for the deposit insurance fund from 1.15
percent to 1.35 percent and changes the basis for determining FDIC premiums from deposits to assets
(See “Insurance of Deposit Accounts” section below);
• Creates a new Consumer Financial Protection Bureau that will have rulemaking authority for a wide
range of consumer protection laws that would apply to all banks and would have broad powers to
supervise and enforce consumer protection laws;
• Requires public companies to give shareholders a non-binding vote on executive compensation at their
first annual meeting following enactment and at least every three years thereafter and on “golden
parachute” payments in connection with approvals of mergers and acquisitions unless previously voted
on by shareholders;
7
• Authorizes the SEC to promulgate rules that would allow shareholders to nominate their own
candidates using a company’s proxy materials;
• Directs federal banking regulators to promulgate rules prohibiting excessive compensation paid to
executives of depository institutions and their holding companies with assets in excess of $1 billion,
regardless of whether the company is publicly traded or not;
•
Prohibits a depository institution from converting from a state to a federal charter or vice versa while it
is the subject of a cease and desist order or other formal enforcement action or a memorandum of
understanding with respect to a significant supervisory matter unless the appropriate federal banking
agency gives notice of conversion to the federal or state authority that issued the enforcement action
and that agency does not object within 30 days;
• Changes standards for Federal preemption of state laws related to federally chartered institutions and
their subsidiaries;
•
Provides mortgage reform provisions regarding a customer’s ability to repay, requiring the ability to
repay for variable-rate loans to be determined by using the maximum rate that will apply during the
first five years of the loan term, and making more loans subject to provisions for higher cost loans, new
disclosures, and certain other revisions;
• Creates a Financial Stability Oversight Council
that will recommend to the Federal Reserve
increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as
companies grow in size and complexity;
• Makes permanent the $250 thousand limit for federal deposit insurance and provides unlimited federal
deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all
insured depository institutions;
• Repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting
depository institutions to pay interest on business transactions and other accounts; and
• Authorizes de novo interstate branching, subject to non-discriminatory state rules, such as home office
protection.
The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, many
of which may have an impact on our operating environment in substantial and unpredictable ways. Consequently,
the Dodd-Frank Act is likely to increase our cost of doing business, it may limit or expand our permissible
activities, and it may affect the competitive balance within our industry and market areas. The nature and extent
of future legislative and regulatory changes affecting financial institutions, including as a result of the Dodd-
Frank Act, is very unpredictable at this time. Our management is actively reviewing the provisions of the Dodd-
Frank Act, many of which are phased-in over time, and assessing its probable impact on our business, financial
condition, and results of operations. However, the ultimate effect of the Dodd-Frank Act on the financial services
industry in general, and us in particular, is uncertain at this time.
Troubled Asset Relief Capital Purchase Program
The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008 and
authorized the U.S. Treasury to provide funds to be used to restore liquidity and stability to the U.S. financial
system. Under the authority of EESA, Treasury instituted the Troubled Asset Relief Program Capital Purchase
Program (the “TARP Capital Purchase Program”) to encourage U.S. financial institutions to build capital to
increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy.
In November 2008, we decided to enter into a Securities Purchase Agreement with the U.S. Treasury that
provided for our participation in the TARP Capital Purchase Program. On November 14, 2008, Valley issued and
sold to the U.S. Treasury 300,000 shares of Valley Fixed Rate Cumulative Perpetual Preferred Stock, with a
8
liquidation preference of $1 thousand per share, and a ten-year warrant to purchase up to approximately
2.5 million shares of Valley common shares (at $17.77 per share, adjusted for the 5 percent stock dividend issued
on May 21, 2010).
During 2009, we incrementally repurchased all 300,000 preferred shares from the U.S. Treasury for an
aggregate purchase price of $300 million (excluding accrued and unpaid dividends paid at
the date of
redemption). After negotiation with the U.S. Treasury, we could not agree on a redemption price for the warrants
with the U.S. Treasury. As a result, the U.S. Treasury sold the warrants through a public auction completed on
May 24, 2010. The warrants are currently traded on the New York Stock Exchange under the ticker symbol
“VLY WS”. Valley did not receive any of the proceeds of the warrant offering and is no longer a participant in
the TARP program.
Regulation of Bank Subsidiary
Valley National Bank is subject to the supervision of, and to regular examination by, the OCC. Various laws
and the regulations thereunder applicable to Valley and its bank subsidiary impose restrictions and requirements
in many areas, including capital requirements, the maintenance of reserves, establishment of new offices, the
making of loans and investments, consumer protection, employment practices, bank acquisitions and entry into
new types of business. There are various legal limitations, including Sections 23A and 23B of the Federal
Reserve Act, which govern the extent to which a bank subsidiary may finance or otherwise supply funds to its
holding company or its holding company’s non-bank subsidiaries. Under federal law, no bank subsidiary may,
subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its
parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not
financial subsidiaries) or take their securities as collateral for loans to any borrower. Each bank subsidiary is also
subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions.
Dividend Limitations
Valley is a legal entity separate and distinct from its subsidiaries. Valley’s revenues (on a parent company
only basis) result in substantial part from dividends paid by the Bank. The Bank’s dividend payments, without
prior regulatory approval, are subject to regulatory limitations. Under the National Bank Act, dividends may be
declared only if, after payment thereof, capital would be unimpaired and remaining surplus would equal 100
percent of capital. Moreover, a national bank may declare, in any one year, dividends only in an amount
aggregating not more than the sum of its net profits for such year and its retained net profits for the preceding
two years. However, declared dividends in excess of net profits in either of the preceding two years can be offset
by retained net profits in the third and fourth years preceding the current year when determining the Bank’s
dividend limitation. In addition, the bank regulatory agencies have the authority to prohibit the Bank from paying
dividends or otherwise supplying funds to Valley if the supervising agency determines that such payment would
constitute an unsafe or unsound banking practice.
Loans to Related Parties
Valley National Bank’s authority to extend credit to its directors, executive officers and 10 percent
stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of the
National Bank Act, Sarbanes-Oxley Act and Regulation O of the FRB thereunder. Among other things, these
provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and
follow credit underwriting procedures that are not
those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present
other unfavorable features and (ii) not exceed certain limitations on the amount of credit extended to such
persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. In
addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board of Directors.
Under the Sarbanes-Oxley Act, Valley and its subsidiaries, other than the Bank, may not extend or arrange for
any personal loans to its directors and executive officers.
less stringent
than,
9
Community Reinvestment
Under the Community Reinvestment Act (“CRA”), as implemented by OCC regulations, a national bank
has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to
develop the types of products and services that it believes are best suited to its particular community, consistent
with the CRA. The CRA requires the OCC, in connection with its examination of a national bank, to assess the
association’s record of meeting the credit needs of its community and to take such record into account in its
evaluation of certain applications by such association. The CRA also requires all institutions to make public
disclosure of their CRA ratings. Valley National Bank received a “satisfactory” CRA rating in its most recent
examination.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 added new legal requirements for public companies affecting corporate
governance, accounting and corporate reporting, to increase corporate responsibility and to protect investors.
Among other things, the Sarbanes-Oxley Act of 2002 has:
•
•
•
•
•
required our management to evaluate our disclosure controls and procedures and our internal control
over financial reporting, and required our auditors to issue a report on our internal control over
financial reporting;
imposed additional responsibilities for our external financial statements on our chief executive officer
and chief financial officer, including certification of financial statements within the Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q by the chief executive officer and the chief financial
officer;
established independence requirements for audit committee members and outside auditors;
created the Public Company Accounting Oversight Board (“PCAOB”); and
increased various criminal penalties for violations of securities laws.
Each of the national stock exchanges, including the New York Stock Exchange (“NYSE”) where Valley
common securities are listed and the NASDAQ Capital Market, where certain Valley warrants are listed, have
corporate governance listing standards, including rules strengthening director independence requirements for
boards, and requiring the adoption of charters for the nominating, corporate governance and audit committees.
USA PATRIOT Act
As part of the USA PATRIOT Act, Congress adopted the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 (the “Anti Money Laundering Act”). The Anti Money Laundering Act
authorizes the Secretary of the U.S. Treasury, in consultation with the heads of other government agencies, to
adopt special measures applicable to financial institutions such as banks, bank holding companies, broker-dealers
and insurance companies. Among its other provisions, the Anti Money Laundering Act requires each financial
institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures
and controls that are reasonably designed to detect and report instances of money laundering in United States
private banking accounts and correspondent accounts maintained for non-United States persons or their
representatives; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts
in the United States for, or on behalf of, a foreign shell bank that does not have a physical presence in any
country.
Regulations implementing the due diligence requirements, require minimum standards to verify customer
identity and maintain accurate records, encourage cooperation among financial institutions, federal banking
10
agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, prohibit the
anonymous use of “concentration accounts,” and requires all covered financial institutions to have in place an
anti-money laundering compliance program. The OCC, along with other banking agencies, have strictly enforced
various anti-money laundering and suspicious activity reporting requirements using formal and informal
enforcement tools to cause banks to comply with these provisions.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Financial Modernization Act of 1999 (“Gramm-Leach-Bliley Act”) became
effective in early 2000. The Gramm-Leach-Bliley Act provides for the following:
•
•
•
•
allows bank holding companies meeting management, capital and Community Reinvestment Act
standards to engage in a substantially broader range of non-banking activities than was previously
in
permissible,
commercial and financial companies;
including insurance underwriting and making merchant banking investments
allows insurers and other financial services companies to acquire banks;
removes various restrictions that previously applied to bank holding company ownership of securities
firms and mutual fund advisory companies; and
establishes the overall regulatory structure applicable to bank holding companies that also engage in
insurance and securities operations.
If a bank holding company elects to become a financial holding company, it files a certification, effective in
30 days, and thereafter may engage in certain financial activities without further approvals. Valley has not
elected to become a financial holding company.
The OCC adopted rules to allow national banks to form subsidiaries to engage in financial activities allowed
for financial holding companies. Electing national banks must meet the same management and capital standards
as financial holding companies but may not engage in insurance underwriting, real estate development or
merchant banking. Sections 23A and 23B of the Federal Reserve Act apply to financial subsidiaries and the
capital invested by a bank in its financial subsidiaries will be eliminated from the Bank’s capital in measuring all
capital ratios. Valley National Bank sold its one wholly owned financial subsidiary, Glen Rauch Securities, Inc,
on March 31, 2008.
The Gramm-Leach-Bliley Act modified other financial laws, including laws related to financial privacy and
community reinvestment.
Insurance of Deposit Accounts
The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal
Deposit Insurance Corporation (“FDIC”). Under the FDIC’s risk-based system, insured institutions are assigned
to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors
with less risky institutions paying lower assessments on their deposits.
In 2009, the FDIC imposed a special emergency assessment on all insured institutions in order to cover
losses to the Deposit Insurance Fund resulting from bank failures. Valley National Bank recorded an expense of
$6.5 million during the quarter ended June 30, 2009, to reflect the special assessment. In addition, in lieu of
further special assessments, the FDIC required all insured depository institutions to prepay on December 30,
2009 their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011,
and 2012. Estimated assessments for the fourth quarter of 2009 and for all of 2010 were based upon the
assessment rate in effect on September 30, 2009, with three basis points added for the 2011 and 2012 assessment
rates. In addition, a 5 percent annual growth in the assessment base was assumed. Prepaid assessments are to be
11
the actual quarterly assessments until exhausted, and may not be applied to any special
applied against
assessments that may occur in the future. Any unused prepayments will be returned to the institution on June 30,
2013. On December 30, 2009, Valley National Bank prepaid approximately $45.5 million in estimated
assessment fees. Because the prepaid assessments represent the prepayment of future expense, they do not affect
Valley National Bank’s capital (the prepaid asset will have a risk-weighting of zero percent) or tax obligations.
The balance of prepaid FDIC assessment fees at December 31, 2010 was $33.4 million.
In February 2011, as required by the Dodd Frank Act, the Federal Deposit Insurance Corporation approved a
final rule that revised the assessment base to consist of average consolidated total assets during the assessment
period minus the average tangible equity during the assessment period. In addition, the final revisions eliminate
the adjustment for secured borrowings, including Federal Home Loan Bank advances, and make certain other
changes to the impact of unsecured borrowings and brokered deposits on an institution’s deposit insurance
assessment. The rule also revises the assessment rate schedule to provide assessments ranging from 2.5 to
45 basis points. The changes will go into effect beginning April 1, 2011 and the first new assessment will be
payable as a reduction to our prepaid FDIC assessment fees in the third quarter of 2011. We are currently
evaluating the final rule’s impact on the level of Valley National Bank’s FDIC assessment fees and can provide
no assurance that such fees will not materially increase in the future.
As previously noted above, the Dodd-Frank Act makes permanent the $250 thousand limit for federal
deposit insurance and provides unlimited federal deposit insurance until January 1, 2013 for non-interest bearing
demand transaction accounts at all insured depository institutions. On January 18, 2011, the FDIC issued a final
rule to include Interest on Lawyer Trust Accounts (“IOLTAs”) in the temporary unlimited deposit coverage for
non-interest bearing demand transactions accounts.
The FDIC has authority to further increase insurance assessments. A significant increase in insurance
premiums may have an adverse effect on the operating expenses and results of operations of the Bank.
Management cannot predict what insurance assessment rates will be in the future.
Temporary Liquidity Guarantee Program
The FDIC’s Transaction Account Guarantee (“TAG”) Program, one of two components of the Temporary
Liquidity Guarantee Program, provides full federal deposit
insurance coverage for non-interest bearing
transaction deposit accounts, regardless of dollar amount. Valley National Bank opted to participate in this
program, which was initially set to expire on December 31, 2009. On August 26, 2009, the FDIC extended the
program until June 30, 2010, and revised the annualized assessment rate charged for the guarantee to between 15
and 25 basis points, depending on the institution’s risk category, on balances in non-interest bearing transaction
accounts that exceed the existing deposit insurance limit of $250,000. On April 13, 2010, the FDIC announced a
second extension of the program until December 31, 2010. We opted out of the second extension and ended our
participation in the TAG Program effective June 30, 2010.
The Dodd Frank-Wall Street Reform and Consumer Protection Act included a two-year extension of the
TAG Program, though the extension does not apply to all accounts covered under the current program. The
extension through December 31, 2012 applies only to non-interest bearing transaction accounts. Beginning
January 1, 2011, low-interest consumer checking (“NOW”) accounts and IOLTAs will no longer be eligible for
the unlimited guarantee. Unlike the original TAG Program, which allowed banks to opt in, the extended program
will apply at all FDIC-insured institutions and will no longer be funded by separate premiums. The FDIC will
account for the additional TAG insurance coverage in determining the amount of the general assessment it
charges under the risk-based assessment system.
The second component of the Temporary Liquidity Guarantee Program, the Debt Guarantee Program,
guarantees certain senior unsecured debt of participating organizations. Valley National Bank opted to participate
in this component of the Temporary Liquidity Guarantee Program. However, we have not issued debt under the
TLG Program.
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FIRREA
Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger
of default. These provisions have commonly been referred to as FIRREA’s “cross guarantee” provisions. Further,
under FIRREA, the failure to meet capital guidelines could subject a bank to a variety of enforcement remedies
available to federal regulatory authorities.
FIRREA also imposes certain independent appraisal requirements upon a bank’s real estate lending
activities and further imposes certain loan-to-value restrictions on a bank’s real estate lending activities. The
Bank regulators have promulgated regulations in these areas.
FDICIA
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), each federal
banking agency has promulgated regulations, specifying the levels at which a financial institution would be
considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or
“critically undercapitalized,” and to take certain mandatory and discretionary supervisory actions based on the
capital level of the institution. To qualify to engage in financial activities under the Gramm-Leach-Bliley Act, all
depository institutions must be “well capitalized.” The financial holding company of a national bank will be put
under directives to raise its capital levels or divest its activities if the depository institution falls from that level.
The OCC’s regulations implementing these provisions of FDICIA provide that an institution will be
classified as “well capitalized” if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1
risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0 percent, and
(iv) meets certain other requirements. An institution will be classified as “adequately capitalized” if it (i) has a
total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 4.0 percent,
(iii) has a Tier 1 leverage ratio of (a) at least 4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in
its most recent examination, and (iv) does not meet the definition of “well capitalized.” An institution will be
classified as “undercapitalized” if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1
risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0 percent or
(b) less than 3.0 percent if the institution was rated 1 in its most recent examination. An institution will be
classified as “significantly undercapitalized” if it (i) has a total risk-based capital ratio of less than 6.0 percent,
(ii) has a Tier 1 risk-based capital ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less than 3.0
percent. An institution will be classified as “critically undercapitalized” if it has a tangible equity to total assets
ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower
capitalization category if it receives an unsatisfactory examination rating. Similar categories apply to bank
holding companies. Valley National Bank’s capital ratios were all above the minimum levels required for it to be
considered a “well capitalized” financial institution at December 31, 2010.
In addition, significant provisions of FDICIA required federal banking regulators to impose standards in a
number of other important areas to assure bank safety and soundness, including internal controls, information
systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and
interest rate exposure.
Basel III
In December 2010, the Basel Committee released its final framework for strengthening international capital
and liquidity regulation, now officially identified by the Basel Committee as “Basel III”. Basel III, when
implemented by the U.S. banking agencies and fully phased-in, will require bank holding companies and their
bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.
13
The Basel III final capital framework, among other things, (i) introduces as a new capital measure
“Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1
capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most
adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and
(iv) expands the scope of the adjustments as compared to existing regulations.
When fully phased in on January 1, 2019, Basel III requires banks to maintain (i) as a newly adopted
international standard, a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital
conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a
minimum ratio of CET1 to risk-weighted assets of at least 7%), (ii) a minimum ratio of Tier 1 capital to risk-
weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital
ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full
implementation), (iii) a minimum ratio of Total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at
least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is
phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) as a
newly adopted international standard, a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to
balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the
month-end ratios for the quarter).
Basel III also provides for a “countercyclical capital buffer,” generally to be imposed when national
regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk, that
would be a CET1 add-on to the capital conservation buffer in the range of 0% to 2.5% when fully implemented
(potentially resulting in total buffers of between 2.5% and 5%). The aforementioned capital conservation buffer
is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-
weighted assets above the minimum but below the conservation buffer (or below the combined capital
conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on
dividends, equity repurchases and compensation based on the amount of the shortfall.
The implementation of the Basel III final framework will commence January 1, 2013. On that date, banking
institutions will be required to meet the following minimum capital ratios: 3.5% CET1 to risk-weighted assets,
4.5% Tier 1 capital to risk-weighted assets, and 8.0% Total capital to risk-weighted assets.
The Basel III final framework provides for a number of new deductions from and adjustments to CET1.
These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon
future taxable income and significant investments in non-consolidated financial entities be deducted from CET1
to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed
15% of CET1.
Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2014 and will be
phased-in over a five-year period (20% per year). The implementation of the capital conservation buffer will
begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing by that amount on each
subsequent January 1, until it reaches 2.5% on January 1, 2019).
The U.S. banking agencies have indicated informally that they expect to propose regulations implementing
Basel III in mid-2011 with final adoption of implementing regulations in mid-2012. Notwithstanding its release
of the Basel III framework as a final framework, the Basel Committee is considering further amendments to
Basel III, including the imposition of additional capital surcharges on globally systemically important financial
institutions. In addition to Basel III, Dodd-Frank requires or permits the Federal banking agencies to adopt
regulations affecting banking institutions’ capital requirements in a number of respects, including potentially
more stringent capital requirements for systemically important financial institutions. Accordingly, the regulations
ultimately applicable to us may be substantially different from the Basel III final framework as published in
December 2010. Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets
could adversely impact our net income and return on equity.
14
Item 1A. Risk Factors
An investment
in our securities is subject to risks inherent to our business. The material risks and
uncertainties that management believes affect Valley are described below. Before making an investment
decision, you should carefully consider the risks and uncertainties described below together with all of the other
information included or incorporated by reference in this report. The risks and uncertainties described below are
not the only ones facing Valley. Additional risks and uncertainties that management is not aware of or that
management currently believes are immaterial may also impair Valley’s business operations. The value or
market price of our securities could decline due to any of these identified or other risks, and you could lose all or
part of your investment. This report is qualified in its entirety by these risk factors.
Negative Impact of a Persistently Weak Economy.
The United States experienced a severe economic recession in 2008 and 2009. While modest economic
growth has recently resumed, the rate of growth has been slow and unemployment remains at very high levels
and is not expected to improve in the near future. Much of Valley’s lending is in northern and central New
Jersey, and Manhattan, Brooklyn and Queens, New York. As a result of this geographic concentration, a further
significant broad-based deterioration in economic conditions in New Jersey and the New York City metropolitan
area could have a material adverse impact on the quality of Valley’s loan portfolio, results of operations and
future growth potential. Prolonged weakened economic conditions and unemployment in our market area could
restrict borrowers’ ability to pay outstanding principal and interest on loans when due, and, consequently,
adversely affect the cash flows and results of operation of Valley’s business. Additionally, such weak conditions
may also continue to adversely affect our ability to originate loans.
A Significant Portion of Our Loan Portfolio Is Secured By Real Estate, And Events That Negatively Impact
The Real Estate Market Could Hurt Our Business.
A significant portion of our loan portfolio is secured by real estate. As of December 31, 2010,
approximately 69 percent of our loans that are not covered by loss-sharing agreements with the FDIC had real
estate as a primary or secondary component of collateral. The real estate collateral in each case provides an
alternate source of repayment in the event of default by the borrower and may deteriorate in value during the
time the credit is extended. A continued weakening of the real estate market in our primary market areas could
continue to result in an increase in the number of borrowers who default on their loans and a reduction in the
value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and
asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of
reduced real estate values, our earnings and shareholders’ equity could be adversely affected. The declines in
home prices in the New Jersey and New York metropolitan markets we serve, along with the reduced availability
of mortgage credit, also may result in increases in delinquencies and losses in our loan portfolios. Further
declines in home prices coupled with a deepened economic recession and continued rises in unemployment levels
could drive losses beyond that which is provided for in our allowance for loan losses. In that event, our earnings
could be adversely affected.
Additionally, recent weakness in the secondary market for residential lending could have an adverse impact
on our profitability. Significant ongoing disruptions in the secondary market for residential mortgage loans have
limited the market for and liquidity of most mortgage loans other than conforming Fannie Mae and Freddie Mac
loans. The effects of ongoing mortgage market challenges, combined with the ongoing correction in residential
real estate market prices and reduced levels of home sales, could result in further price reductions in single
family home values, adversely affecting the value of collateral securing mortgage loans held, mortgage loan
originations and gains on sale of mortgage loans. Continued declines in real estate values and home sales
volumes, and financial stress on borrowers as a result of job losses or other factors, could have further adverse
effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which could
adversely affect our financial condition or results of operations. For additional risks related to our sales of
15
residential mortgages in the secondary market, see the “We May Incur Future Losses in Connection With
Repurchases and Indemnification Payments Related to Mortgages That We Have Sold Into the Secondary
Market” risk section below.
Our Allowance For Loan Losses May Not Be Sufficient to Cover Loan Losses in Our Loan Portfolio.
We maintain an allowance for loan losses based on, among other things, national and regional economic
conditions, historical
loss experience, and our assumptions regarding delinquency trends and future loss
expectations. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to
cover losses inherent in our loan portfolio. Bank regulators review the classification of our loans in their
examination of us and we may be required in the future to change the classification on certain of our loans, which
may require us to increase our provision for loan losses or loan charge-offs. Valley’s management could also
decide that the allowance for loan losses should be increased. If actual net charge-offs were to exceed Valley’s
allowance, its earnings would be negatively impacted by additional provisions for loan losses. Any increase in
our allowance for loan losses or loan charge-offs as required by the OCC or otherwise could have an adverse
effect on our results of operations or financial condition.
Further Increases in Our Non-performing Assets May Occur and Adversely Affect Our Results of
Operations and Financial Condition.
As a result of the economic downturn, particularly during 2009 and the beginning of 2010, we are facing
historically high levels of delinquencies on our loans. Our non-performing assets (which consist of non-accrual
loans, other real estate owned and other repossessed assets) increased from 0.45 percent of loans and
non-performing assets at December 31, 2008 to 1.04 percent and 1.24 percent of loans and non-performing assets
at December 31, 2009 and 2010, respectively.
Until economic and market conditions improve at a more rapid pace, we expect to incur charge-offs to our
allowance for loan losses and lost
income relating to an increase in non-performing loans. Our
non-performing assets adversely affect our net income in various ways. Adverse changes in the value of our
non-performing assets, or the underlying collateral, or in the borrowers’ performance or financial conditions
could adversely affect our business, results of operations and financial condition. There can be no assurance that
we will not experience further increases in non-performing loans in the future, or that our non-performing assets
will not result in lower financial returns in the future.
interest
Changes in Interest Rates Can Have an Adverse Effect on Our Profitability.
Valley’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is
the difference between interest income earned on interest-earning assets, such as loans and investment securities,
and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Interest rates are
sensitive to many factors that are beyond Valley’s control, including general economic conditions, competition,
and policies of various governmental and regulatory agencies and, in particular, the policies of the FRB. Changes
in monetary policy, including changes in interest rates, could influence not only the interest Valley receives on
loans and investment securities and the amount of interest it pays on deposits and borrowings, but such changes
could also affect (i) Valley’s ability to originate loans and obtain deposits, (ii) the fair value of Valley’s financial
assets and liabilities, including the held to maturity, available for sale, and trading securities portfolios, and
(iii) the average duration of Valley’s interest-earning assets. This also includes the risk that interest-earning
assets may be more responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing
risk), the risk that the individual interest rates or rate indices underlying various interest-earning assets and
interest-bearing liabilities may not change in the same degree over a given time period (basis risk), and the risk of
changing interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability
maturities (yield curve risk).
16
Although management believes it has implemented effective asset and liability management strategies to
reduce the potential effects of changes in interest rates on Valley’s results of operations, any substantial,
unexpected, or prolonged change in market interest rates could have a material adverse effect on Valley’s
financial condition and results of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act May Affect Our Business Activities,
Financial Position and Profitability By Increasing Our Regulatory Compliance Burden and Associated
Costs, Placing Restrictions on Certain Products and Services, and Limiting Our Future Capital Raising
Strategies.
institutions,
impact all financial
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by
the President of the United States. The Dodd-Frank Act implements significant changes in financial regulation
and will
including Valley and the Bank. Among the Dodd-Frank Act’s
significant regulatory changes, it creates a new financial consumer protection agency, known as the Bureau of
Consumer Financial Protection (the “Bureau”), that is empowered to promulgate new consumer protection
regulations and revise existing regulations in many areas of consumer protection. The Bureau has exclusive
authority to issue regulations, orders and guidance to administer and implement the objectives of federal
consumer protection laws. The Bureau will also have exclusive supervision over our consumer compliance
examinations, replacing our current examinations by the Comptroller of the Currency in this area. Moreover, the
Dodd-Frank Act permits states to adopt stricter consumer protection laws and authorizes state attorney generals’
to enforce consumer protection rules issued by the Bureau. The Dodd-Frank Act also restricts the authority of the
Comptroller of the Currency to preempt state consumer protection laws applicable to national banks, such as the
Bank, and may affect the preemption of state laws as they affect subsidiaries and agents of national banks,
changes the scope of federal deposit insurance coverage, and potentially increases the FDIC assessment payable
by the Bank. We expect that the Bureau and certain other provisions in the Dodd-Frank Act will significantly
increase our regulatory compliance burden and costs and may restrict the financial products and services we offer
to our customers.
The Dodd-Frank Act also imposes more stringent capital requirements on bank holding companies by,
among other things, imposing leverage ratios on bank holding companies and prohibiting new issuances of trust
preferred securities from counting as Tier 1 capital. These restrictions will limit our future capital strategies.
Under the Dodd-Frank Act, our outstanding trust preferred securities will continue to count as Tier 1 capital but
we will be unable to issue replacement or additional trust preferred securities which would count as Tier 1
capital. The Dodd-Frank Act also increases regulation of derivatives and hedging transactions, which could limit
our ability to enter into, or increase the costs associated with, interest rate and other hedging transactions.
Because many of the Dodd-Frank Act’s provisions require regulatory rulemaking, we are uncertain as to the
impact that some of the provisions of the Dodd-Frank Act will have on Valley and the Bank and cannot provide
assurance that the Dodd-Frank Act will not adversely affect our financial condition and results of operations for
other reasons.
Regulatory Changes May Reduce Our Fee Income.
On July 6, 2010, final rules implemented by the Federal Reserve took effect, which impose overdraft fee
restrictions and may reduce our non-interest income. The new rules prohibit financial institutions from charging
consumers fees for paying overdrafts on automated teller machine and one time debit card transactions, unless a
consumer consents to the overdraft service for those types of transactions. During the second half of 2010, a large
number of customers “opted in” to our standard overdraft practice, which has partially mitigated the negative
impact of this rule change on the level of service charges on deposit accounts recognized in non-interest income
for the year ended December 31, 2010.
In addition, pursuant to Section 1075 of the Dodd-Frank Act, the Federal Reserve has proposed rules, which
may limit the debit card interchange fees that we are permitted to charge. These rules, applicable to debit card
17
issuers with assets of over $10 billion such as the Bank, would establish standards for determining whether a
debit card interchange fee is reasonable and proportional to the cost incurred for the transaction. Although the
new rules are in preliminary form, if they are adopted substantially as proposed we expect that our interchange
fees from debit card transactions would substantially decrease. The new rules are scheduled to become effective
on July 21, 2011.
We can provide no assurance that the change in regulation will not materially restrict or continue to reduce
our ability to generate these fees in the future periods.
Extensive Regulation and Supervision May Have a Material Effect on Our Business.
Valley, primarily through its principal subsidiary and certain non-bank subsidiaries, is subject to extensive
federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’
funds, federal deposit insurance funds and the banking system as a whole. Many of the federal laws and
regulations are not designed to protect Valley shareholders. Many affect Valley’s lending practices, capital
structure, investment practices, dividend policy and growth, among other things. They require Valley to focus
lending in defined areas, and establish and maintain comprehensive programs relating to anti-money laundering
and customer identification. Congress, state legislatures, and federal and state regulatory agencies continually
review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory
policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect
Valley in substantial and unpredictable ways. Such changes could subject Valley to additional costs, limit the
types of financial services and products it may offer and/or increase the ability of non-banks to offer competing
financial services and products, among other things. Failure to comply with laws, regulations or policies could
result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a
material adverse effect on Valley’s business, financial condition and results of operations. Valley’s compliance
with certain of these laws will be considered by banking regulators when reviewing bank merger and bank
holding company acquisitions.
Changes in Accounting Policies or Accounting Standards.
Valley’s accounting policies are fundamental to understanding its financial results and condition. Some of
these policies require the use of estimates and assumptions that may affect the value of Valley’s assets or
liabilities and financial results. Valley identified its accounting policies regarding the allowance for loan losses,
security valuations and impairments, goodwill and other intangible assets, and income taxes to be critical because
they require management to make difficult, subjective and complex judgments about matters that are inherently
uncertain. Under each of these policies, it is possible that materially different amounts would be reported under
different conditions, using different assumptions, or as new information becomes available.
From time to time, the FASB and the SEC change their guidance governing the form and content of
Valley’s external financial statements. In addition, accounting standard setters and those who interpret U.S.
generally accepted accounting principles (“GAAP”), such as the FASB, SEC, banking regulators and Valley’s
outside auditors, may change or even reverse their previous interpretations or positions on how these standards
should be applied. Such changes are expected to continue, and may accelerate based on the FASB and
International Accounting Standards Board commitments to achieving convergence between U.S. GAAP and
International Financial Reporting Standards. Changes in U.S. GAAP and changes in current interpretations are
beyond Valley’s control, can be hard to predict and could materially impact how Valley reports its financial
results and condition. In certain cases, Valley could be required to apply a new or revised guidance retroactively
or apply existing guidance differently (also retroactively) which may result in Valley restating prior period
financial statements for material amounts. Additionally, significant changes to U.S. GAAP may require costly
technology changes, additional training and personnel, and other expenses that will negatively impact our results
of operations.
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Declines in Value May Adversely Impact the Investment Portfolio.
As of December 31, 2010, we had approximately $1.9 billion, $1.0 billion, and $31.9 million in held to
maturity, available for sale, and trading investment securities, respectively. We may be required to record
impairment charges in earnings related to credit losses on our investment securities if they suffer a decline in
value that is considered other-than-temporary. Additionally, (a) if we intend to sell a security or (b) it is more
likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we will be
required to recognize an other-than-temporary impairment charge in the statement of income equal to the full
amount of the decline in fair value below amortized cost. Numerous factors, including lack of liquidity for
re-sales of certain investment securities, absence of reliable pricing information for investment securities, adverse
changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive
environment could have a negative effect on our investment portfolio and may result in other-than-temporary
impairment on our investment securities in future periods.
Among other securities, our investment portfolio includes private label mortgage-backed securities, trust
preferred securities principally issued by bank holding companies (including three pooled securities), perpetual
preferred securities issued by banks, and bank issued corporate bonds. These investments pose a risk of future
impairment charges by us as a result of the slow recovery in the U.S. economy and its negative effect on the
performance of these issuers and/or the underlying mortgage loan collateral. Additionally, some bank trust
preferred issuers may elect to defer future payments of interest on such securities either based upon requirements
or recommendations by bank regulators or management decisions driven by potential liquidity needs. Such
elections by issuers of securities within Valley’s investment portfolio could adversely affect securities valuations
and result in future impairment charges if collection of deferred and accrued interest (or principal upon maturity)
is deemed unlikely by management.
If an impairment charge is significant enough it could affect the ability of the Bank to upstream dividends to
us, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders
and could also negatively impact our regulatory capital ratios.
Currently, we own $55.0 million in trust preferred securities (with unrealized losses totaling $38.1 million at
December 31, 2010) of one issuer who has elected to defer interest payments since the latter half of 2009 based
upon the conditions of an agreement with its bank regulator. At this time, we are uncertain whether in future
periods we will be required to take impairment charges with regard to these securities. See Note 4 to the
consolidated financial statements for further information.
An Increased Valuation of Our Junior Subordinated Debentures Issued to VNB Capital Trust I May
Adversely Impact Our Net Income and Earnings Per Share.
Effective January 1, 2007, we elected to carry the junior subordinated debentures issued to VNB Capital
Trust I at fair value. We measure the fair value of these junior subordinated debentures using exchange quoted
prices in active markets for similar assets, specifically the trust preferred securities issued by VNB Capital Trust
I, which contain identical terms as our junior subordinated debentures (see Note 12 to the consolidated financial
statements). As a result, any increase in the market quoted price, or fair market value, of our trust preferred
securities will result
in a commensurate increase in the liability required to be recorded for the junior
subordinated debentures with an offsetting non-cash charge against our earnings. We recognized non-cash
charges totaling $5.8 million ($3.8 million after taxes) and $15.8 million ($10.3 million after taxes) during 2010
and 2009, respectively, due to the change in the fair value of the junior subordinated debentures caused by an
increase in the market price of the trust preferred securities. The non-cash charges against our earnings do not
impact our liquidity or our regulatory capital. We cannot predict whether or to what extent we would be required
to take a non-cash charge against earnings related to the change in fair value of our junior subordinated
debentures in future periods. Furthermore, changes in the law and regulations or other factors could require us to
redeem the junior subordinated debentures at par value. If we are carrying the junior subordinated debentures at a
fair value below par value when such redemption occurs, we will be required to record a charge against earnings
in the period in which the redemption occurred.
19
Increased FDIC Assessments will Adversely Affect Our Financial Condition.
The recent economic downturn has caused a high level of bank failures, which has dramatically increased
FDIC resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result,
the FDIC has significantly increased the initial base assessment rates paid by financial institutions for deposit
insurance. Increases in the base assessment rate have increased our deposit insurance costs and negatively
impacted our earnings. In addition, in May 2009, the FDIC imposed a special assessment on all insured
institutions. Our special assessment, which was reflected in earnings for the quarter ended June 30, 2009, was
$6.5 million. In lieu of imposing an additional special assessment, the FDIC required all institutions to prepay
their assessments for all of 2010, 2011 and 2012 in December 2009. We prepaid a total assessment of $48.5
million in December 2009. Notwithstanding this prepayment,
the FDIC may impose additional special
assessments for future quarters or may increase the FDIC standard assessments. Furthermore, the Dodd-Frank
Act changed the FDIC assessment standards which may cause our assessments to increase. We cannot provide
you with any assurances that we will not be required to pay additional FDIC insurance assessments, which could
have an adverse effect on our results of operations.
We May be Adversely Affected by the Soundness of Other Financial Institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other
relationships. We have exposure to many different
industries and counterparties, and routinely execute
transactions with counterparties in the financial services industry, including the Federal Home Loan Bank of
New York, commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of
these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our
credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not
sufficient to recover the full amount due to us. Any such losses could have a material adverse effect on our
financial condition and results of operations.
Liquidity Risk.
Liquidity risk is the potential that Valley will be unable to meet its obligations as they come due, capitalize
on growth opportunities as they arise, or pay regular dividends because of an inability to liquidate assets or
obtain adequate funding in a timely basis, at a reasonable cost and within acceptable risk tolerances.
Liquidity is required to fund various obligations, including credit commitments to borrowers, mortgage and
other loan originations, withdrawals by depositors, repayment of borrowings, dividends to shareholders,
operating expenses and capital expenditures.
Liquidity is derived primarily from retail deposit growth and retention; principal and interest payments on
loans; principal and interest payments on investment securities; sale, maturity and prepayment of investment
securities; net cash provided from operations and access to other funding sources.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors
that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our
access to liquidity sources include a decrease in the level of our business activity due to persistent weakness, or
downturn, in the economy or adverse regulatory action against us. Our ability to borrow could also be impaired
by factors that are not necessarily specific to us, such as a severe disruption of the financial markets or negative
views and expectations about the prospects for the financial services industry as a whole.
Our Deposit Base May Be Adversely Affected by the Loss of Lower-Cost Funding Sources.
Checking and savings, NOW, and money market deposit account balances and other forms of customer
deposits can decrease when customers perceive alternative investments, such as the stock market or money
20
market or fixed income mutual funds, as providing a better risk/return tradeoff. If customers move money out of
bank deposits and into other investments, Valley could lose a relatively low cost source of funds, increasing its
funding costs and reducing Valley’s net interest income and net income.
We Are a Holding Company and Depend on Our Subsidiaries for Dividends, Distributions and Other
Payments.
We are a separate and distinct legal entity from our banking and non-banking subsidiaries and depend on
dividends, distributions, and other payments from the Bank and its non-banking subsidiaries to fund cash
dividend payments on our common stock and to fund most payments on our other obligations. Regulations
relating to capital requirements affect the ability of the Bank to pay dividends and other distributions to us and to
make loans to us. Additionally, if our subsidiaries’ earnings are not sufficient to make dividend payments to us
while maintaining adequate capital levels, we may not be able to make dividend payments to our common
shareholders or interest payments on our junior subordinated debentures issued to capital trusts. Furthermore, our
right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the
prior claims of the subsidiary’s creditors.
We May Reduce or Eliminate the Cash Dividend on Our Common Stock.
Our common cash dividend payout per common share was approximately 88.9 percent of our earnings per
share for the year ended December 31, 2010. Our low retention rate resulted from earnings being negatively
impacted by net trading losses caused primarily by to mark-to-market losses on the fair value of our junior
subordinated debentures, net impairment losses on certain investment securities, and the lack of loan growth
mainly caused by the current economic conditions. A prolonged economic recovery or a downturn in the
economy, an increase in our costs to comply with current and future changes in banking laws and regulations,
and other factors may negatively impact our future earnings and ability to maintain our dividend at current levels.
Holders of our common stock are only entitled to receive such cash dividends, as our Board of Directors
may declare out of funds legally available for such payments. Although we have historically declared cash
dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock
cash dividend in the future. This could adversely affect the market price of our common stock. Also, as a bank
holding company, our ability to declare and pay dividends is dependent on federal regulatory considerations
including the guidelines of the OCC and the FRB regarding capital adequacy and dividends.
Competition in the Financial Services Industry.
Valley faces substantial competition in all areas of its operations from a variety of different competitors,
many of which are larger and may have more financial resources than Valley. Valley competes with other
providers of financial services such as commercial and savings banks, savings and loan associations, credit
unions, money market and mutual funds, mortgage companies,
insurance
companies and a large list of other local, regional and national institutions which offer financial services.
Mergers between financial institutions within New Jersey and in neighboring states have added competitive
pressure. If Valley is unable to compete effectively, it will lose market share and its income generated from
loans, deposits, and other financial products will decline.
title agencies, asset managers,
Future Offerings of Common Stock, Debt or Other Securities May Adversely Affect the Market Price of Our
Stock.
In the future, we may increase our capital resources or, if our or the Bank’s capital ratios fall below the
prevailing regulatory required minimums, we or the Bank could be forced to raise additional capital by making
additional offerings of common stock, preferred stock, trust preferred securities and debt securities. Upon
21
liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other
borrowings will receive distributions of our available assets prior to the holders of our common stock. Additional
equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common
stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against
dilution.
Potential Acquisitions May Disrupt Valley’s Business and Dilute Shareholder Value.
Valley regularly evaluates merger and acquisition opportunities, including FDIC-assisted transactions, and
conducts due diligence activities related to possible transactions with other financial institutions and financial
services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take
place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time.
Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some
dilution of Valley’s tangible book value and net income per common share may occur in connection with any
future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in
geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse
effect on Valley’s financial condition and results of operations.
We Are Subject to Certain Risks in Connection With Our Strategy of Growing Through Mergers and
Acquisitions Including FDIC-Assisted Transactions.
We continue to pursue a strategy of enhancing our growth by acquiring other financial institutions or their
assets and liabilities. Accordingly, it is possible that we could acquire other financial institutions, financial
service providers, or branches of banks in the future, including additional acquisitions from the FDIC acting in its
capacity as receiver for such financial institutions. However, our ability to engage in future mergers and
acquisitions depends on our ability to identify potential opportunities, our ability to finance and complete such
transactions on acceptable terms and at acceptable prices, our ability to bid competitively for FDIC-assisted
transactions, and our ability to receive the necessary regulatory and, where required, shareholder approvals.
The acquisition of assets and liabilities of financial institutions in FDIC-sponsored or assisted transactions
involves risks similar to those faced when acquiring existing financial institutions, even though the FDIC might
provide assistance to mitigate certain risks, e.g., entering into loss-sharing arrangements. However, because such
transactions are structured in a manner that does not allow the time normally associated with evaluating and
preparing for the integration of an acquired institution, we face the additional risk that the anticipated benefits of
such an acquisition may not be realized fully or at all, or within the time period expected.
Furthermore, mergers and acquisitions involve a number of risks and challenges, including:
•
Potential exposure to asset quality issues or unknown contingent liabilities of the banks, businesses,
assets and liabilities we acquire;
• Our success in deploying any cash received in a transaction into assets bearing sufficiently high yields
without incurring unacceptable credit or interest rate risk;
• Our ability to earn acceptable levels of interest and non-interest income, including fee income, from the
acquired banks, businesses, assets or branches;
• Our ability to control the incremental non-interest expense from the acquired banks, businesses, assets
or branches in a manner that enables us to maintain a favorable overall efficiency ratio; and
• Our need to finance an acquisition by borrowing funds or raising additional capital, which could
diminish our liquidity or dilute the interests of our existing stockholders.
22
Loans Acquired in Our Recent FDIC-Assisted Transactions May Not Be Covered By Loss-Sharing
Agreements if the FDIC Determines That We Have Not Adequately Managed These Agreements.
In connection with the acquisitions of certain assets and liabilities of LibertyPointe Bank and The Park
Avenue Bank, we entered into loss-sharing agreements with the FDIC. Under the terms of the loss-sharing
agreement with the FDIC in the LibertyPointe Bank transaction, the FDIC is obligated to reimburse us for: (i) 80
percent of any future losses on loans covered by the loss-sharing agreement up to $55.0 million, after we absorb
such losses up to the first loss tranche of $11.7 million; and (ii) 95 percent of losses in excess of $55.0 million.
Under the terms of the loss-sharing agreement with the FDIC in The Park Avenue Bank transaction, the FDIC is
obligated to reimburse us for 80 percent of any future losses on covered assets of up to $66.0 million and 95
percent of losses in excess of $66.0 million. Although the FDIC has agreed to reimburse us for the substantial
portion of losses on covered loans, the FDIC has the right to refuse or delay payment for loan losses if the loss-
sharing agreements are not managed in accordance with their terms. In addition, reimbursable losses are based on
the book value of the relevant loans as determined by the FDIC as of the effective dates of the transactions. The
amount that we realize on these loans could differ materially from the carrying value that will be reflected in our
financial statements, based upon the timing and amount of collections on the covered loans in future periods.
Failure to Successfully Manage Risks Related to Our Implementation of Growth Strategies Could Have a
Material Adverse Effect on Our Business.
Valley has a strategic branch expansion initiative to expand its physical presence in Brooklyn and Queens,
as well as add locations within its New Jersey and Manhattan markets. We may also expand our branch network
into markets outside of these areas based upon changes in management strategy and/or bank acquisition
opportunities that may become available in the future. Valley has opened a combined total of 14 branch locations
within Brooklyn and Queens since starting its initiative in these new markets during 2007. Valley’s ability to
successfully execute in these markets depends upon a variety of factors, including its ability to attract and retain
experienced personnel,
the
competitive responses from other financial institutions in the new market areas, and the ability to manage growth.
These initiatives could cause Valley’s expenses to increase faster than revenues. Valley can provide no
assurances that it will successfully implement or continue these initiatives.
the continued availability of desirable business opportunities and locations,
There are considerable initial and on-going costs involved in opening branches, growing loans in new
markets, and attracting new deposit relationships. These expenses could negatively impact future earnings. For
example, it takes time for new branches and relationships to achieve profitability. Expenses could be further
increased if there are delays in the opening of new branches or if attraction strategies are more costly than
expected. Delays in opening new branches can be caused by a number of factors such as the inability to find
suitable locations, zoning and construction delays, and the inability to attract qualified personnel to staff the new
branch. In addition, there is no assurance that a new branch will be successful even after it has been established.
From time to time, Valley may implement new lines of business or offer new products and services within
existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly
in instances where the markets are not fully developed. Valley may invest significant time and resources to
develop and market new lines of business and/or products and services. Initial timetables for the introduction and
development of new lines of business and/or new products or services may not be achieved and price and
profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive
alternatives, and shifting customer preferences, may also impact the successful implementation of a new line of
business or a new product or service. Additionally, any new line of business and/or new product or service could
have a significant impact on the effectiveness of Valley’s system of internal controls. Failure to successfully
manage these risks could have a material adverse effect on Valley’s business, results of operations and financial
condition.
23
The Price of Our Common Stock May Fluctuate.
The price of our common stock on the NYSE constantly changes and recently, given the uncertainty in the
financial markets, has fluctuated widely and may continue to fluctuate. Holders of our common stock will be
subject to the risk of volatility and changes in prices.
Our common stock price can fluctuate as a result of a variety of factors, many of which are beyond our
control. These factors include:
•
•
•
•
•
•
•
•
•
quarterly fluctuations in our operating and financial results;
operating results that vary from the expectations of management, securities analysts and investors;
changes in expectations as to our future financial performance, including financial estimates by
securities analysts and investors;
events negatively impacting the financial services industry which result in a general decline in the
market valuation of our common stock;
announcements of material developments affecting our operations or our dividend policy;
future sales of our equity securities;
new laws or regulations or new interpretations of existing laws or regulations applicable to our
business;
changes in accounting standards, policies, guidance, interpretations or principles; and
general domestic economic and market conditions.
In addition, recently the stock market generally has experienced extreme price and volume fluctuations, and
industry factors and general economic and political conditions and events, such as economic slowdowns or
recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of
our operating results.
Encountering Continuous Technological Change.
The financial services industry is continually undergoing rapid technological change with frequent
introductions of new technology-driven products and services. The effective use of technology increases
efficiency and enables financial institutions to better serve customers and to reduce costs. Valley’s future success
depends, in part, upon its ability to address the needs of its customers by using technology to provide products
and services that will satisfy customer demands, as well as to create additional efficiencies in Valley’s
operations. Many of Valley’s competitors have substantially greater resources to invest
in technological
improvements. Valley may not be able to effectively implement new technology-driven products and services or
be successful in marketing these products and services to its customers. Failure to successfully keep pace with
technological change affecting the financial services industry could have a material adverse impact on Valley’s
business and, in turn, Valley’s financial condition and results of operations.
Operational Risk.
We face the risk that the design of our controls and procedures, including those to mitigate the risk of fraud
by employees or outsiders, may prove to be inadequate or are circumvented, thereby causing delays in detection
of errors or inaccuracies in data and information. We regularly review and update our internal controls,
disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls,
however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not
absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and
procedures or failure to comply with regulations related to controls and procedures could have a material adverse
effect on our business, results of operations and financial condition.
24
We may also be subject to disruptions of our systems arising from events that are wholly or partially beyond
our control (including, for example, computer viruses or electrical or telecommunications outages), which may
give rise to losses in service to customers and to financial loss or liability. We are further exposed to the risk that
our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of
fraud or operational errors by their respective employees as us) and to the risk that our (or our vendors’) business
continuity and data security systems prove to be inadequate. We maintain a system of comprehensive policies
and a control framework designed to monitor vendor risks including, among other things, (i) changes in the
vendor’s organizational structure or
(ii) changes in the vendor’s financial condition,
(iii) changes in the vendor’s support for existing products and services and (iv) changes in the vendor’s strategic
focus. While we believe these policies and procedures help to mitigate risk, the failure of an external vendor to
perform in accordance with the contracted arrangements under service level agreements could be disruptive to
our operations, which could have a material adverse impact on our business and, in turn, our financial condition
and results of operations.
internal controls,
Our performance is largely dependent on the talents and efforts of highly skilled individuals. There is
intense competition in the financial services industry for qualified employees. In addition, we face increasing
competition with businesses outside the financial services industry for the most highly skilled individuals. Our
business operations could be adversely affected if we are unable to attract new employees and retain and
motivate our existing employees.
Severe Weather, Acts of Terrorism and Other External Events Could Significantly Impact Our Business.
A significant portion of our primary markets are located near coastal waters which could generate naturally
occurring severe weather, or in response to climate change, that could have a significant impact on our ability to
conduct business. Additionally, New York City and New Jersey remain central targets for potential acts of
terrorism against the United States. Such events could affect the stability of our deposit base, impair the ability of
borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property
damage, result in loss of revenue and/or cause us to incur additional expenses. Although we have established
disaster recovery policies and procedures, the occurrence of any such event in the future could have a material
adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and
results of operations.
We Are Subject to Environmental Liability Risk Associated With Lending Activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of
business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that
hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we
may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may
require us to incur substantial expenses and may materially reduce the affected property’s value or limit our
interpretations or
ability to use or sell
enforcement policies with respect
liability.
Although we have policies and procedures to perform an environmental review prior to originating certain
commercial real estate loans, as well as before initiating any foreclosure action on real property, these reviews
may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial
liabilities associated with an environmental hazard could have a material adverse effect on our financial
condition and results of operations.
the affected property. In addition, future laws or more stringent
to existing laws may increase our exposure to environmental
We May Incur Future Losses in Connection With Repurchases and Indemnification Payments Related to
Mortgages That We Have Sold Into the Secondary Market.
We engage in the origination of residential mortgages for sale into the secondary market. In connection with
such sales, we make representations and warranties, which, if breached, may require us to repurchase such loans,
25
substitute other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such
loans. The substantial decline in residential real estate values and the standards used by some originators has
resulted in more repurchase requests to many secondary market participants from secondary market purchasers.
Since January 1, 2006, we have originated and sold over 6,500 individual residential mortgages totaling
approximately $1.1 billion. During this same period, we have received only two loan repurchase requests, of
which both requests resulted in the repurchases of performing residential mortgages by Valley. The repurchases
occurred during 2010 and one of the two loans was subsequently re-sold at a premium, while the other
repurchased loan continues to perform to its contractual terms within our portfolio. As of December 31, 2010, no
reserves pertaining to loans sold were established on our financial statements. While we currently believe our
repurchase risk remains low based upon our careful loan underwriting and documentation standards, it is possible
that requests to repurchase loans could occur in the future and such requests may have a negative financial
impact on us.
Claims and Litigation Pertaining to Fiduciary Responsibility.
From time to time as part of Valley’s normal course of business, customers make claims and take legal
action against Valley based on actions or inactions of Valley. If such claims and legal actions are not resolved in
a manner favorable to Valley, they may result in financial liability and/or adversely affect the market perception
of Valley and its products and services. This may also impact customer demand for Valley’s products and
services. Any financial liability or reputation damage could have a material adverse effect on Valley’s business,
which, in turn, could have a material adverse effect on its financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None
Item 2.
Properties
We conduct our business at 198 retail banking center locations, with 169 in northern and central New Jersey
and 29 in the New York City metropolitan area. We own 93 of our banking center facilities. The other facilities
are leased for various terms. Additionally, we have 4 other properties located in New Jersey and New York City
that were either owned or under contract to purchase or lease. We intend to develop these properties into new
retail branch locations during 2011 and 2012.
Our principal business office is located at 1455 Valley Road, Wayne, New Jersey. Including our principal
business office, we own four office buildings in Wayne, New Jersey and one building in Chestnut Ridge, New
York which are used for various operations of Valley National Bank and its subsidiaries.
The total net book value of our premises and equipment (including land, buildings, leasehold improvements
and furniture and equipment) was $265.6 million at December 31, 2010. We believe that all of our properties and
equipment are well maintained, in good condition and adequate for all of our present and anticipated needs.
Item 3.
Legal Proceedings
In the normal course of business, we may be a party to various outstanding legal proceedings and claims. In
the opinion of management, our financial condition, results of operations, and liquidity should not be materially
affected by the outcome of such legal proceedings and claims.
Item 4.
Removed
26
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the NYSE under the ticker symbol “VLY”. The following table sets forth
for each quarter period indicated the high and low sales prices for our common stock, as reported by the NYSE,
and the cash dividends declared per common share for each quarter. The amounts shown in the table below have
been adjusted for all stock dividends and stock splits.
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.10
16.19
15.00
14.55
$12.29
13.52
12.33
12.46
$0.18
0.18
0.18
0.18
$18.37
14.73
13.23
13.65
$ 7.66
10.30
10.35
11.06
$0.18
0.18
0.18
0.18
Year 2010
Year 2009
High
Low
Dividend
High
Low
Dividend
There were 8,728 shareholders of record as of December 31, 2010.
Restrictions on Dividends
The timing and amount of cash dividends paid depend on our earnings, capital requirements, financial
condition and other relevant factors. The primary source for dividends paid to our common stockholders is
dividends paid to us from Valley National Bank. Federal laws and regulations contain restrictions on the ability
of national banks, like Valley National Bank, to pay dividends. For more information regarding the restrictions
on the Bank’s dividends, see “Item 1. Business—Supervision and Regulation—Dividend Limitations” and
“Item 1A. Risk Factors—We May Reduce or Eliminate the Cash Dividend on Our Common Stock” above, and
Note 16 to the consolidated financial statements contained in Item 8 of this Annual Report. In addition, under the
terms of the trust preferred securities issued by VNB Capital Trust I and GCB Capital Trust III, we cannot pay
dividends on our common stock if we defer payments on the junior subordinated debentures which provide the
cash flow for the payments on the trust preferred securities.
27
Performance Graph
The following graph compares the cumulative total return on a hypothetical $100 investment made on
December 31, 2005 in: (a) Valley’s common stock; (b) the Standard and Poor’s (“S&P”) 500 Stock Index; and
(c) the Keefe, Bruyette & Woods’ KBW50 Bank Index. The graph is calculated assuming that all dividends are
reinvested during the relevant periods. The graph shows how a $100 investment would increase or decrease in
value over time based on dividends (stock or cash) and increases or decreases in the market price of the stock.
Index of Total Returns
Valley
KBW 50
S&P 500
12/05
12/06
12/07
12/08
12/09
12/10
12/05
12/06
12/07
12/08
12/09
12/10
$ 100.00 $ 119.41 $ 93.65 $ 109.05 $ 84.98 $ 95.11
100.00
64.74
112.01
100.00
84.73
122.14
108.56
115.78
53.77
97.33
69.00
76.96
s
r
a
l
l
o
D
160
140
120
100
80
60
40
Valley
KBW 50
S&P 500
28
Issuer Repurchase of Equity Securities
The following table presents the purchases of equity securities by the issuer and affiliated purchasers during
the three months ended December 31, 2010:
Period
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans (1)
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans(1)
October 1, 2010 to October 31, 2010 . . . . . . . . . . . . .
November 1, 2010 to November 30, 2010 . . . . . . . . .
December 1, 2010 to December 31, 2010 . . . . . . . . . .
—
20,143(2)
500(2)
$ —
13.00
13.82
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,643
—
—
—
—
3,730,127
3,730,127
3,730,127
(1) On January 17, 2007, Valley publicly announced its intention to repurchase up to 4.3 million outstanding
common shares in the open market or in privately negotiated transactions. The repurchase plan has no stated
expiration date. No repurchase plans or programs expired or terminated during the three months ended
December 31, 2010.
(2) Represents repurchases made in connection with the vesting of employee stock awards.
Equity Compensation Plan Information
The information set forth in Item 12 of Part III of this Annual Report under the heading “Equity
Compensation Plan Information” is incorporated by reference herein.
29
Item 6.
Selected Financial Data
The following selected financial data should be read in conjunction with Valley’s consolidated financial
statements and the accompanying notes thereto presented herein in response to Item 8 of this Annual Report.
As of or for the Years Ended December 31,
2010
2009
2008
2007
2006
(in thousands, except for share data)
Summary of Operations:
Interest income—tax equivalent basis (1) . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
682,402 $
214,060
717,411 $
262,870
735,153 $
308,895
731,188 $
343,322
Net interest income—tax equivalent basis (1) . . . . . . . . . . . .
Less: tax equivalent adjustment . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . .
468,342
5,590
462,752
49,456
454,541
5,227
449,314
47,992
426,258
5,459
420,799
28,282
387,866
6,181
381,685
11,875
713,930
316,250
397,680
6,559
391,121
9,270
Net interest income after provisions for credit
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
413,296
401,322
392,517
369,810
381,851
Non-interest income:
Net impairment losses on securities recognized in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading (losses) gains, net . . . . . . . . . . . . . . . . . . . . . .
Gains on sale of assets, net
. . . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . . .
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense:
FDIC insurance assessment . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest expense . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock and accretion . . . . . . . . . . . . .
(4,642)
(6,897)
619
102,247
91,327
13,719
—
303,963
317,682
186,941
55,771
131,170
—
(6,352)
(10,434)
605
88,432
72,251
20,128
—
285,900
306,028
167,545
51,484
116,061
19,524
(84,835)
3,166
518
84,407
3,256
1,985
—
283,263
285,248
110,525
16,934
93,591
2,090
(17,949)
7,399
16,051
83,527
89,028
1,003
2,310
250,599
253,912
204,926
51,698
153,228
—
Net income available to common stockholders . . . . . . . . . . $
131,170 $
96,537 $
91,501 $
153,228 $
(4,722)
1,208
3,849
71,729
72,064
1,085
—
249,255
250,340
203,575
39,884
163,691
—
163,691
Per Common Share (2):
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible book value (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
0.81 $
0.81
0.72
8.02
5.89
0.64 $
0.64
0.72
7.80
5.80
0.64 $
0.64
0.72
7.20
5.04
1.10 $
1.10
0.72
6.84
5.37
1.16
1.15
0.70
6.77
5.26
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,059,906 151,675,691 143,805,528 139,215,889 141,657,890
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,068,175 151,676,409 143,884,683 139,628,162 142,235,816
Ratios:
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average shareholders’ equity . . . . . . . . . . . . . . . .
Return on average tangible shareholders’ equity (4) . . . . . . .
Average shareholders’ equity to average assets . . . . . . . . . .
Tangible common equity to tangible assets (5) . . . . . . . . . . .
Efficiency ratio (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-based capital:
Tier 1 capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Condition:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,143,826 $ 14,284,153 $ 14,718,129 $ 12,748,959 $ 12,395,027
8,256,967
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,487,651
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
949,590
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.69%
8.74
11.57
7.94
5.22
67.27
114.29
0.81%
8.64
11.34
9.40
6.68
58.67
113.43
0.93%
10.32
13.97
9.00
6.90
57.34
88.89
16.43
21.17
7.58
5.94
53.94
65.35
17.24
22.26
7.72
6.06
54.00
60.71
10,050,446
9,232,923
1,363,609
8,423,557
8,091,004
949,060
9,268,081
9,547,285
1,252,854
9,241,091
9,363,614
1,295,205
10.94%
12.91
8.31
10.64%
12.54
8.14
11.44%
13.18
9.10
9.55%
11.35
7.62
1.25%
10.56%
12.44
8.10
1.33%
See Notes to the Selected Financial Data that follow.
30
Notes to Selected Financial Data
(1)
In this report a number of amounts related to net interest income and net interest margin are presented on a
tax equivalent basis using a 35 percent federal tax rate. Valley believes that this presentation provides
comparability of net interest income and net interest margin arising from both taxable and tax-exempt
sources and is consistent with industry practice and SEC rules.
(2) All per common share amounts reflect a five percent common stock dividend issued May 21, 2010, and all
(3)
prior stock splits and dividends.
This Annual Report on Form 10-K contains supplemental financial information which has been determined
by methods other than U.S. GAAP that management uses in its analysis of our performance. Management
believes these non-GAAP financial measures provide information useful to investors in understanding our
underlying operational performance, our business and performance trends, and facilitates comparisons with
the performance of others in the financial services industry. These non-GAAP financial measures should not
be considered in isolation or as a substitute for or superior to financial measures calculated in accordance
with U.S. GAAP.
Tangible book value per common share, which is a non-GAAP measure,
is computed by dividing
shareholders’ equity less preferred stock, and less goodwill and other intangible assets by common shares
outstanding as follows:
2010
2009
2008
2007
2006
At December 31,
Common shares outstanding . . . . . . . .
161,460,596
(in thousands, except for share data)
148,863,994
160,637,298
138,743,092
140,217,480
Shareholders’ equity . . . . . . . . . . . . . . $
Less: Preferred stock . . . . . . . . . .
Less: Goodwill and other
1,295,205 $
—
1,252,854 $
—
1,363,609 $
291,539
949,060 $
—
949,590
—
intangible assets . . . . . . . . . . . .
343,541
320,729
321,100
204,547
211,355
Tangible common shareholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . $
951,664 $
932,125 $
750,970 $
744,513 $
738,235
Tangible book value per common
share . . . . . . . . . . . . . . . . . . . . . . . . $
5.89 $
5.80 $
5.04 $
5.37 $
5.26
(4) Return on average tangible shareholders’ equity, which is a non-GAAP measure, is computed by dividing
net income by average shareholders’ equity less average goodwill and average other intangible assets, as
follows:
Years Ended December 31,
2010
2009
2008
2007
2006
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 131,170
$ 116,061
($ in thousands)
93,591
$
$153,228
$163,691
Average shareholders’ equity . . . . . . . . . . . . . . .
1,270,778
1,342,790
1,071,358
932,637
949,613
Less: Average goodwill and other
intangible assets . . . . . . . . . . . . . . . . . . . .
331,667
319,756
262,613
208,797
214,338
Average tangible shareholders’ equity . . . . . . . .
$ 939,111
$1,023,034
$ 808,745
$723,840
$735,275
Return on average tangible shareholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.97%
11.34%
11.57%
21.17%
22.26%
31
(5)
Tangible common shareholders’ equity to tangible assets, which is a non-GAAP measure, is computed by
dividing tangible shareholders’ equity (shareholders’ equity less preferred stock, and less goodwill and other
intangible assets) by tangible assets, as follows:
2010
2009
2008
2007
2006
At December 31,
($ in thousands)
Tangible common shareholders’
equity . . . . . . . . . . . . . . . . . . . . . . . .
$
951,664
$
932,125
$
750,970
$
744,513
$
738,235
Total assets . . . . . . . . . . . . . . . . . . . . .
14,143,826
14,284,153
14,718,129
12,748,959
12,395,027
Less: Goodwill and other
intangible assets . . . . . . . . . . . .
343,541
320,729
321,100
204,547
211,355
Tangible assets . . . . . . . . . . . . . . . . . .
$13,800,285
$13,963,424
$14,397,029
$12,544,412
$12,183,672
Tangible common shareholders’
equity to tangible assets . . . . . . . . .
6.90%
6.68%
5.22%
5.94%
6.06%
(6)
The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total
non-interest income.
32
Item 7. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of
Operations
The purpose of this analysis is to provide the reader with information relevant to understanding and
assessing Valley’s results of operations for each of the past three years and financial condition for each of the
past two years. In order to fully appreciate this analysis the reader is encouraged to review the consolidated
financial statements and accompanying notes thereto appearing under Item 8 of this report, and statistical data
presented in this document.
Cautionary Statement Concerning Forward-Looking Statements
This Annual Report on Form 10-K, 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, acquisitions, relationships, opportunities, taxation, technology,
market conditions and economic expectations. These statements may be identified by such forward-looking
terminology as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,”
“typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Such forward-looking
statements involve certain risks and uncertainties and our 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 in addition to those risk factors listed under the “Risk Factors” section of this Annual
Report on Form 10-K include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
a continued weakness or unexpected decline in the U.S. economy, in particular in New Jersey and the
New York Metropolitan area;
higher than expected increases in our allowance for loan losses;
higher than expected increases in loan losses or in the level of nonperforming loans;
unexpected changes in interest rates;
a continued or unexpected decline in real estate values within our market areas;
declines in value in our investment portfolio;
charges against earnings related to the change in fair value of our junior subordinated debentures;
higher than expected FDIC insurance assessments;
the failure of other financial institutions with whom we have trading, clearing, counterparty and other
financial relationships;
lack of liquidity to fund our various cash obligations;
unanticipated reduction in our deposit base;
potential acquisitions may disrupt our business;
government intervention in the U.S. financial system and the effects of and changes in trade and
monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve;
legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and
Consumer Protection Act and related regulations) subject us to additional regulatory oversight which
may result in increased compliance costs and/or require us to change our business model;
changes in accounting policies or accounting standards;
our inability to promptly adapt to technological changes;
our internal controls and procedures may not be adequate to prevent losses;
claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters;
33
•
•
the possibility that the expected benefits of acquisitions will not be fully realized, including lower than
expected cash flows from covered loans acquired in FDIC-assisted transactions; and
other unexpected material adverse changes in our operations or earnings.
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform, in all material respects, to U.S. GAAP. In preparing the
consolidated financial statements, management has made estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and
results of operations for the periods indicated. Actual results could differ materially from those estimates.
Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its
financial condition and results of operations. Our significant accounting policies are presented in Note 1 to the
consolidated financial statements. We identified our policies for the allowance for loan losses, security valuations
and impairments, goodwill and other intangible assets, and income taxes to be critical because management has
to make subjective and/or complex judgments about matters that are inherently uncertain and could be most
subject to revision as new information becomes available. Management has reviewed the application of these
policies with the Audit and Risk Committee of Valley’s Board of Directors.
The judgments used by management in applying the critical accounting policies discussed below may be
affected by a further and prolonged deterioration in the economic environment, which may result in changes to
future financial results. Specifically, subsequent evaluations of the loan portfolio, in light of the factors then
prevailing, may result in material changes in the allowance for loan losses in future periods, and the inability to
collect on outstanding loans could result in increased loan losses. In addition, the valuation of certain securities
(including debt security valuations based on the expected future cash flows of their underlying collateral) in our
investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in
depressed market prices thus leading to further impairment losses.
Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of probable
loan losses inherent in the loan portfolio and is the largest component of the allowance for credit losses which
also includes management’s estimated reserve for unfunded commercial letters of credit. Determining the amount
of the allowance for loan losses is considered a critical accounting estimate because it requires significant
judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired
loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of
current economic trends and conditions, all of which may be susceptible to significant change. Various banking
regulators, as an integral part of their examination process, also review the allowance for loan losses. Such
regulators may require, based on their judgments about information available to them at the time of their
examination, that certain loan balances be charged off or require that adjustments be made to the allowance for
loan losses when their credit evaluations differ from those of management. Additionally, the allowance for loan
losses is determined, in part, by the composition and size of the loan portfolio which represents the largest asset
type on the consolidated statements of financial condition.
Allowance for Loan Losses on Non-Covered Loans
The allowance for losses on non-covered loans relates only to loans which are not subject to the loss-sharing
agreements with the FDIC. The allowance for losses on non-covered loans consists of the following:
•
•
•
specific reserves for individually impaired loans;
reserves for adversely classified loans, and higher risk rated loans that are not impaired loans; and
reserves for other loans that are not impaired.
34
Our reserves on classified and non-classified loans also include reserves based on general economic
conditions and other qualitative risk factors both internal and external to Valley, including changes in loan
portfolio volume, the composition and concentrations of credit, new market initiatives, and the impact of
competition on loan structuring and pricing.
Allowance for Loan Losses on Covered Loans
During 2010, we acquired loans in two FDIC-assisted transactions that are covered by loss-sharing
agreements with the FDIC whereby we will be reimbursed for a substantial portion of any future losses. We
evaluated the acquired covered loans and elected to account for them in accordance with Accounting Standards
Codification (“ASC”) Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,”
since all of these loans were acquired at a discount attributable, at least in part, to credit quality. The covered
loans are initially recorded at their estimated fair values segregated into pools of loans sharing common risk
characteristics, exclusive of the loss-sharing agreements with the FDIC. The fair values include estimates related
to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash
flows.
The covered loans are subject to our internal credit review. If and when unexpected credit deterioration
occurs at the loan pool level subsequent to the acquisition date, a provision for credit losses for covered loans
will be charged to earnings for the full amount of the decline in expected cash flows for the pool, without regard
to the FDIC loss-sharing agreements. Under the accounting guidance of ASC Subtopic 310-30 for acquired credit
impaired loans, the allowance for loan losses on covered loans is measured at each financial reporting date based
on future expected cash flows. This assessment and measurement is performed at the pool level and not at the
individual loan level. Accordingly, decreases in expected cash flows resulting from further credit deterioration on
a pool of acquired covered loan pools as of such measurement date compared to those originally estimated are
recognized by recording a provision and allowance for credit losses on covered loans. Subsequent increases in
the expected cash flows of the loans in that pool would first reduce any allowance for loan losses on covered
loans; and any excess will be accreted for prospectively as a yield adjustment. The portion of the additional
estimated losses on covered loans that is reimbursable from the FDIC under the loss-sharing agreements is
recorded in non-interest income and increases the FDIC loss-share receivable asset.
Note 1 to the consolidated financial statements describes the methodology used to determine the allowance
for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is
included in this MD&A.
Changes in Our Allowance for Loan Losses
Valley considers it difficult to quantify the impact of changes in forecast on its allowance for loan losses.
However, management believes the following discussion may enable investors to better understand the variables
that drive the allowance for loan losses, which amounted to $124.7 million at December 31, 2010.
For impaired credits, if the fair value of the collateral (for collateral dependent loans) or the present value of
expected cash flows (for other impaired loans) were ten percent higher or lower, the allowance would have
decreased $8.1 million and increased $9.4 million, respectively, at December 31, 2010.
If classified loan balances were ten percent higher or lower, the allowance would have increased or
decreased by approximately $2.8 million, respectively, at December 31, 2010.
The credit rating assigned to each non-classified credit
is an important variable in determining the
allowance. If each non-classified credit were rated one grade worse, the allowance would have increased by
approximately $10.2 million, while if each non-classified credit were rated one grade better there would be no
35
change in the level of the allowance as of December 31, 2010. Additionally, if the historical loss factors used to
calculate the allowance for non-classified loans were ten percent higher or lower, the allowance would have
increased or decreased by approximately $7.0 million, respectively, at December 31, 2010.
A key variable in determining the allowance is management’s judgment in determining the size of the
allowances attributable to general economic conditions and other qualitative risk factors. At December 31, 2010,
such allowances were 6.6 percent of the total allowance. If such allowances were ten percent higher or lower, the
total allowance would have increased or decreased by $835 thousand, respectively, at December 31, 2010.
Security Valuations and Impairments. Management utilizes various inputs to determine the fair value of
its investment portfolio. To the extent they exist, unadjusted quoted market prices in active markets (Level 1) or
quoted prices on similar assets (Level 2) are utilized to determine the fair value of each investment in the
portfolio. In the absence of quoted prices and liquid markets, valuation techniques would be used to determine
fair value of any investments that require inputs that are both significant to the fair value measurement and
unobservable (Level 3). Valuation techniques are based on various assumptions, including, but not limited to
cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. A
significant degree of judgment is involved in valuing investments using Level 3 inputs. The use of different
assumptions could have a positive or negative effect on our consolidated financial condition or results of
operations. See Note 3 to the consolidated financial statements for more details on our security valuation
techniques.
Management must periodically evaluate if unrealized losses (as determined based on the securities valuation
methodologies discussed above) on individual securities classified as held to maturity or available for sale in the
investment portfolio are considered to be other-than-temporary. The analysis of other-than-temporary impairment
requires the use of various assumptions, including, but not limited to, the length of time an investment’s book
value is greater than fair value, the severity of the investment’s decline, any credit deterioration of the
investment, whether management intends to sell the security, and whether it is more likely than not that we will
be required to sell the security prior to recovery of its amortized cost basis. Debt investment securities deemed to
be other-than-temporarily impaired are written down by the impairment related to the estimated credit loss and
the non-credit related impairment is recognized in other comprehensive income. Other-than-temporarily impaired
equity securities are written down to fair value and a non-cash impairment charge is recognized in the period of
such evaluation.
We recognized other-than-temporary impairment charges on securities of $4.6 million, $6.4 million, and
$84.8 million in 2010, 2009, and 2008, respectively, as a reduction of non-interest income on the consolidated
statements of income. See the “Investment Securities” section of this MD&A and Note 4 to the consolidated
financial statements for additional analysis and discussion of our other-than-temporary impairment charges.
Goodwill and Other Intangible Assets. We record all assets, liabilities, and non-controlling interests in the
acquiree in purchase acquisitions,
including goodwill and other intangible assets, at fair value as of the
acquisition date, and expense all acquisition related costs as incurred as required by ASC Topic 805, “Business
Combinations.” Goodwill totaling $317.9 million at December 31, 2010 is not amortized but is subject to annual
tests for impairment or more often, if events or circumstances indicate it may be impaired. Other intangible assets
totaling $25.7 million at December 31, 2010 are amortized over their estimated useful lives and are subject to
impairment tests if events or circumstances indicate a possible inability to realize the carrying amount. Such
evaluation of other intangible assets is based on undiscounted cash flow projections. The initial recording of
goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the
acquired assets and assumed liabilities.
The goodwill impairment test is performed in two steps. The first step compares the fair value of the
reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of
the reporting unit exceeds its fair value, an additional step must be performed. That additional step compares the
36
implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair
value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business
combination, i.e., by measuring the excess of the estimated fair value of the reporting unit, as determined in the
first step above, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable
intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date. An
impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The
loss establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses is not
permitted.
Fair value may be determined using: market prices, comparison to similar assets, market multiples,
discounted cash flow analysis and other determinants. Estimated cash flows may extend far into the future and,
by their nature, are difficult to determine over an extended timeframe. Factors that may materially affect the
estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth
trends, cost structures and technology, and changes in discount rates, terminal values, and specific industry or
market sector conditions.
To assist in assessing the impact of potential goodwill or other intangible asset impairment charges at
December 31, 2010, the impact of a five percent impairment charge would result in a reduction in net income of
approximately $17.2 million. See Note 9 to consolidated financial statements for additional
information
regarding goodwill and other intangible assets.
Income Taxes. We are subject to the income tax laws of the U.S., its states and municipalities. The income
tax laws of the jurisdictions in which we operate are complex and subject to different interpretations by the
taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, we
must make judgments and interpretations about the application of these inherently complex tax laws to our
business activities, as well as the timing of when certain items may affect taxable income.
Our interpretations may be subject to review during examination by taxing authorities and disputes may
arise over the respective tax positions. We attempt to resolve these disputes during the tax examination and audit
process and ultimately through the court systems when applicable. We monitor relevant tax authorities and revise
our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and
regulatory authorities on a quarterly basis. Revisions of our estimate of accrued income taxes also may result
from our own income tax planning and from the resolution of income tax controversies. Such revisions in our
estimates may be material to our operating results for any given quarter.
The provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more
likely than not. We perform regular reviews to ascertain the realizability of our deferred tax assets. These reviews
include management’s estimates and assumptions regarding future taxable income, which also incorporates
various tax planning strategies. In connection with these reviews, if we determine that a portion of the deferred
tax asset is not realizable, a valuation allowance is established. As of December 31, 2010, management has
determined it is more likely than not that Valley will realize its net deferred tax assets and therefore valuation
allowance was not established.
We maintain a reserve related to certain tax positions and strategies that management believes contain an
element of uncertainty. We adjust our unrecognized tax benefits as necessary when additional information
becomes available. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured
to determine the amount of benefit to recognize. An uncertain tax position is measured based on the largest
amount of benefit that management believes is more likely than not to be realized. It is possible that the
reassessment of our unrecognized tax benefits may have a material impact on our effective tax rate in the period
in which the reassessment occurs.
37
See Notes 1 and 14 to the consolidated financial statements and the “Income Taxes” section in this MD&A
for an additional discussion on the accounting for income taxes.
New Authoritative Accounting Guidance. See Note 1 of the consolidated financial statements for a
description of recent accounting pronouncements including the dates of adoption and the anticipated effect on
our results of operations and financial condition.
Executive Summary
Although the year started as a continuation of the economic recession experienced in 2009, the economy
began to improve during 2010, though at a rate that was insufficient to bring about a significant improvement in
unemployment. The Federal Reserve maintained, and continues to support, a target range of zero to 0.25 percent
for the federal funds rates due to current economic conditions. In November 2010, the Federal Reserve
announced a large-scale asset purchase program for U.S. Treasury securities through 2011, aimed to keep interest
rates low and reduce unemployment levels, as it attempts to accelerate the nation’s economic recovery. We
believe a low-rate, high unemployment environment would continue to challenge our business operations and
results in many ways during 2011, as previously highlighted in Part I, Item 1A, “Risk Factors” above and the
discussion below.
Net income available to common shareholders for the year ended December 31, 2010 was $131.2 million, or
$0.81 per diluted common share, compared to $96.5 million in 2009, or $0.64 per diluted common share after
$19.5 million in dividends and accretion on Valley preferred stock under the U.S. Treasury’s TARP Capital
Purchase Program which was fully redeemed in 2009. (All common share data is adjusted to reflect a five percent
common stock dividend issued on May 21, 2010). The increase in net income was largely due to: (i) a 26.4
percent increase in non-interest income resulting primarily from post-acquisition date increases in our FDIC loss-
share receivable, increased gains on sales of residential mortgage loans and investment securities, and lower net
trading losses mainly due to a decline in non-cash mark to market losses on our junior subordinated debentures
carried at fair value, (ii) higher net interest income, resulting from a widening of the net interest margin on an
annual basis mainly caused by our interest bearing liabilities repricing quicker than our earning assets in a
prolonged low interest rate environment, and (iii) a decline in the FDIC insurance assessment due to the industry-
wide special assessment in 2009, partially offset by (iv) increases in salary and employee benefit expense, net
occupancy and equipment expense, and professional and legal fees due, in part, to additional expenses related to
the FDIC-assisted acquisitions of LibertyPointe Bank and The Park Avenue Bank in March 2010, as well as from
de novo branch openings during the latter half of 2009 and 2010. Salary and employee benefit expense also
increased due to the resumption of cash incentive compensation accruals during 2010 (as no non-contractual
bonuses were accrued or awarded to employees for the 2009 period), normal annual employee salary increases in
2010, as well as higher pension and medical insurance costs incurred during 2010.
Loan growth in most loan categories remained a challenge for us during 2010 and a decline in our average
loan balances as compared to the year ended December 31, 2009 resulted in a $18.2 million decrease in our tax
equivalent interest income on loans. However, our loan portfolio totaled $9.4 billion at December 31, 2010 and
remained relatively unchanged as compared to December 31, 2009 mainly due to $356.7 million in loans
acquired in two FDIC-assisted transactions during the first quarter of 2010 for which Valley National Bank will
share losses with the FDIC. The acquisition of the covered loans almost completely offset a $360.9 million
decline in our non-covered loan portfolio from December 31, 2009. The majority of the decrease in non-covered
loans was due to declines in our automobile and commercial real estate portfolios.
Growth within our commercial lending segment, which includes commercial, commercial real estate, and
construction loans, and especially the commercial real estate portfolio, was challenged by persistently weak
business loan demand within our New Jersey markets. We believe many of these borrowers are reluctant to
expand their business operations or enter into new ventures until they see stronger signals of improvement in the
economy and unemployment levels. The commercial real estate portfolio has experienced the biggest decline in
38
volume within the segment as many of our commercial real estate borrowers continued to pay down lines of
credit and accelerated payment of loan balances with their own excess liquidity. In response to soft demand, we
have increased our business emphasis on co-op and multifamily loan lending in our markets. We believe there
are profitable growth opportunities in these lending areas, that still offer sound credit metrics. Additionally, many
of our commercial and industrial loan customers in New York appear less impacted by the current state of the
economy and have begun to draw down on their lines of credit and invest in growing their companies during the
fourth quarter of 2010. However, our New York jeweler trade customers continue to struggle with low demand
due to the slow economy, as well as changes in spending habits of many consumers after the financial crisis.
Our consumer lending segment, which includes residential mortgage, home equity, automobile, and other
consumer loans, declined $250.8 million from December 31, 2009 to December 31, 2010 mainly due to a $179.2
million decline in the auto portfolio. Auto balances declined due to several factors, including our high credit
standards, acceptable loan to collateral value levels, and high unemployment levels. Additionally, in an attempt
to build market share, some large competitors began to offer rates and terms that are well below levels we believe
to be profitable, further impacting the level of our auto loan originations during the second half of 2010. These
factors may continue to constrain the levels of our auto loan originations well into 2011.
Our residential mortgage originations continued to be one of the bright spots in the consumer lending
segment, as we originated nearly $980 million in new and refinanced residential mortgages in 2010 as compared
to approximately $640 million in 2009. Much of the 2010 loan volume was due to the success of our one-price
refinancing program with total closing costs as low as $499 including title insurance fees. In the latter half of
2010, we also opened our first residential mortgage loan production office in Eastern Pennsylvania, and we
anticipate further increases in origination activity in 2011 partly as a result of this geographic expansion outside
of our normal New Jersey and New York City markets, dependent on the level of interest rates. Despite the
increase in mortgage activity during 2010, our residential mortgage loan portfolio declined year over year as we
elected to sell, or hold for sale many of the fixed-rate loan originations due to the low level of interest rates and
our desire to manage the interest rate risk inherent in our balance sheet by minimizing the additions of such long-
term low fixed-rate instruments to the loan portfolio. We may experience further declines in the entire loan
portfolio during 2011 due to a prolonged economic recovery cycle, high unemployment, or due to certain of our
asset/liability management strategies, including the sale of new residential mortgage loan originations due to the
low level of interest rates. See more details in the “Loan Portfolio” section below.
Mindful of the difficult business environment and the higher delinquency rates reported throughout the
banking industry, we believe our loan portfolio’s performance remained at an acceptable level as of
December 31, 2010. Total loans past due in excess of 30 days increased 0.16 percent to 1.77 percent of our total
loan portfolio of $9.4 billion as of December 31, 2010 compared to 1.61 percent of total loans at December 31,
2009. Our non-accrual loans increased $13.1 million to $105.1 million, or 1.12 percent of total loans at
December 31, 2010 as compared to $92.0 million, or 0.98 percent of total loans at December 31, 2009. The
increased amount of non-accrual loans was mainly due to the weak economy. Although the timing of collection
is uncertain, we believe most of our non-accrual loans are well secured and, ultimately, collectible. Our lending
strategy is based on underwriting standards designed to maintain high credit quality; however, due to the
potential for future credit deterioration caused by a prolonged economic recovery and high levels of
unemployment, management cannot provide assurance that our non-performing assets will not continue to
increase from the levels reported as of December 31, 2010. See “Non-performing Assets” section below for
further analysis of our credit quality.
Lack of loan growth and the low level of interest rates has proved challenging, from an asset and liability
management perspective, for Valley and many other financial institutions during 2010. However, net interest
income, the primary driver of our earnings, grew to $462.8 million, a 3.0 percent increase from the prior year.
Much of the increase came from a 59 basis point decline in our costs of interest bearing deposits caused, in part,
by the Federal Reserve’s efforts to maintain a low level of interest rates in 2010 and the maturity of higher cost
time deposits. Our net interest margin and net interest income increased each of the first three quarters of 2010
39
primarily due to repricing of time deposits at lower rates. However, our net interest margin began to show signs
of interest rate pressures during the fourth quarter of 2010 as it declined 15 basis points to 3.63 percent (on a
fully tax equivalent basis) from the third quarter of 2010, and net interest income declined $4.7 million (on a
fully tax equivalent basis) during the same period. The declines were mainly due to normal repricing activity,
sales and balance reductions within our loan and investment security portfolios due to the low-rate environment
and a decrease in interest income recognized on covered loans, which more than offset the continued reduction in
high cost time deposits. See more details in the “Net Interest Income” section below.
Our net impairment charges on investment securities declined $1.7 million from 2009 to $4.6 million for the
year ended December 31, 2010. Although our impairment charges on investment securities continued to decline
in 2010, our investment portfolio still contains a large amount of private label mortgage-backed securities, trust
preferred securities, and other bank issued investment securities with a higher than normal risk of future
impairment charges due to, among other factors, a prolonged U.S. economic recovery and its potential negative
effect on the future performance of these bank issuers and/or the underlying mortgage loan collateral. See the
“Investment Securities” section below and Note 4 to the consolidated financial statements for further analysis of
our investment portfolio.
Our non-interest expense was positively impacted by a $6.4 million decline in the FDIC insurance
assessment during 2010 due to the industry-wide special assessment levied in 2009. Bank failures, totaling 140
institutions in 2009, led to the depletion of the FDIC’s insurance fund and resulted in a large increase in our
FDIC insurance assessment expense for 2009, including a $6.5 million special assessment. In 2010, this negative
trend continued as the number of bank failures increased to 151 institutions. Weak economic conditions, and
potentially the negative impact of past lending practices, continued to adversely influence the operating results of
many financial institutions. In addition, the FDIC has continued to report additional bank failures during 2011.
The FDIC may impose additional special assessments for future quarters or may further increase the FDIC
standard assessments, which could adversely affect our non-interest expense in 2011 and beyond.
The financial markets are in the midst of unprecedented change due to current and future regulatory and
market reform, including new regulations outlined under the Dodd-Frank Act, and a slow economic recovery
unseen in past U.S. recessions. These changes will impact us and our competitors, and will challenge the way we
both do business in the future. We believe our current capital position, ability to evaluate credit and other
investment opportunities, conservative balance sheet, and commitment to excellent customer service will afford
us a competitive advantage in the future. Additionally, we are well positioned to move quickly on market
expansion opportunities as they may arise, through possible acquisitions of other institutions, or failed banks
within New Jersey and the New York City Metropolitan area.
Net Interest Income
Net interest income consists of interest income and dividends earned on interest earning assets less interest
expense paid on interest bearing liabilities and represents the main source of income for Valley. The net interest
margin on a fully tax equivalent basis is calculated by dividing tax equivalent net interest income by average
interest earning assets and is a key measurement used in the banking industry to measure income from interest
earning assets. The net interest margin was 3.69 percent, for the year ended December 31, 2010, an increase of
20 basis points compared to 2009. As a continuation of 2009, our 2010 efforts to control our funding costs
coupled with a low interest rate environment allowed us to decrease the interest rates paid on savings, NOW, and
money market accounts, while maturing high cost certificates of deposit also repriced at lower interest rates.
Additionally, lower rates on customer repos balances mostly contributed to an 80 basis point decline in the cost
of short-term borrowings during 2010. Offsetting the positive impact of the lower costs of funds, a decline in
average earning asset balances mainly caused by low levels of new loan demand for most loan types and a 13
basis point decline in the yield on average earning assets both negatively impacted our interest income and our
ability to further expand the net interest margin. Both the declines in cost and yield continued during all of 2010
as the level of interest rates remained low due to, in part, the Federal Reserve’s continued efforts to revive the
40
U.S. economy and maintain the target federal funds rate at a historical low rate range of between zero to 0.25
percent since the fourth quarter of 2008. However, our fourth quarter net interest income and net interest margin
declined significantly from the third quarter of 2010 due to a decline in interest income caused by the prepayment
and some sales of higher yielding loans and investment securities, loan refinance activity in the current low
interest rate environment, a decline in accretion on pooled covered loans resulting from lower average balances,
and a general lack of loan growth with the exception of our residential mortgage loan portfolio. During 2010, we
continued to actively shorten the duration of interest earning assets and reduce the credit risk of our balance sheet
by (i) mainly reinvesting normal principal paydowns on higher yield investments in short duration and lower
yielding securities, primarily consisting of residential mortgage-backed securities issued by Ginnie Mae and U.S.
Treasury securities, and (ii) continued to sell the majority of our refinanced and new residential mortgage loan
originations with low fixed interest rates in the secondary market. Management expects the maintenance of its
short-term positioning of the balance sheet to enhance our ability to benefit from expanded growth in the
economy and potential increases in future interest rates. However, management cannot guarantee that its asset/
liability management strategies will prevent future declines in the net interest margin or net interest income, even
if the economy continues to recover or a rise in interest rates were to occur.
Net interest income on a tax equivalent basis increased $13.8 million to $468.3 million for 2010 compared
with $454.5 million for 2009. During 2010, a 41 basis point decline in interest rates paid on average interest
bearing liabilities and lower average interest bearing liabilities positively impacted our net interest income, but
were partially offset by a 66 basis point decline in the yield on average investments, a 5 basis point decline in the
yield on average loans, and lower average loan balances as compared to 2009. Market interest rates on interest
bearing deposits trended lower in 2010 as a result of the Federal Reserve’s commitment to its monetary policy
and the excess liquidity in the marketplace. Additionally, many of our higher cost time deposits continued to
mature and, if renewed, repriced at lower interest rates in 2010.
Our earning asset portfolio is comprised of both fixed-rate and adjustable-rate loans and investments. Many
of our earning assets are priced based upon the prevailing treasury rates, the Valley prime rate (set by Valley
management based on various internal and external factors) or on the U.S. prime interest rate as published in The
Wall Street Journal. On average, the 10 year treasury rate decreased from 3.24 percent in 2009 to 3.20 percent in
2010, negatively impacting our yield on average loans as new and renewed fixed-rate loans were originated at
lower interest rates in 2010. However, Valley’s prime rate and the U.S. prime rate have remained at 4.50 percent
and 3.25 percent, respectively, since the fourth quarter of 2008. Our U.S. prime rate based loan portfolio should
have an immediate positive impact on the yield of our average earning assets if the prime rate begins to move
upward in 2011, while an increase in treasury rates should also have a positive, but more gradual, effect on our
interest income based on our ability to originate new and renewed fixed rate loans. We do not expect our Valley
prime rate portfolio to have an immediate benefit to our interest income in a rising interest rate environment due
to its current level above the U.S. prime rate. We also expect interest income on many of our residential
mortgage-backed securities with unamortized purchase premiums to improve if interest rates were to move
upward and prepayment speeds on the underlying mortgages decline. The decline in prepayments will lengthen
the expected life of each security and reduce the amount of premium amortization expense recognized against
interest income each period.
Average loans totaling $9.5 billion for the year ended December 31, 2010 decreased $230.9 million as
compared to 2009 mainly due to declines in our commercial real estate and automobile loan portfolios. Average
investment securities increased $74.3 million, or 2.5 percent
in 2010 as compared to the year ended
December 31, 2009 due to reinvestment of excess liquidity from the decline in loan demand. The decline in
average loan balances during 2010 and a 5 basis point decline in yield on such loans contributed to an $18.2
million decrease in interest income on a tax equivalent basis for loans for the year ended December 31, 2010
compared with 2009. Interest income on a tax equivalent basis for investment securities also decreased $16.2
million due to a 66 basis point decline in yield caused by normal principal paydowns and sales of higher yield
securities which were mainly reinvested in shorter term and lower yield securities as we continued to reduce our
repricing risk during 2010 and maintain an acceptable level of asset sensitivity on our balance sheet in the event
41
of a rise in market interest rates. The decline in yield on investment securities was partially mitigated by the
increase in average investment securities during 2010 as we reallocated some of our excess liquidity from loan
principal paydowns and interest bearing cash balances at the Federal Reserve.
Average interest bearing liabilities decreased $221.8 million to $10.4 billion for
the year ended
December 31, 2010 from the same period in 2009 mainly due to the maturity of high cost time deposits and lower
average short-term borrowings caused by higher levels of short-term FHLB advances outstanding during the first
half of 2009 due to liquidity concerns caused by the financial crisis. Average long-term borrowings (including
junior subordinated debentures issued to capital trusts) also decreased $52.7 million from 2009 mainly due to the
maturity of certain long-term positions in FHLB advances that we entered into during the second quarter of 2008.
Partially offsetting these decreases, was an increase in average savings, NOW, and money market account
balances as compared to 2009 mainly due to additional retail deposits generated from our 19 de novo branches
opened over the last three year period and other existing branches as household savings appeared to remain
strong due to the current economic conditions. The cost of time deposits, and short-term borrowings and savings,
NOW, and money market accounts decreased 88, 80, and 19 basis points, respectively, during 2010 due to the
low level of market interest rates throughout 2010. Additionally, we anticipate that maturing higher cost time
deposits will continue to have some benefit to our interest margin in the first quarter of 2011.
The net interest margin on a tax equivalent basis was 3.69 percent for the year ended December 31, 2010
compared with 3.49 percent for the year ended December 31, 2009. The change was mainly attributable to a
decrease in interest rates paid on all interest bearing liabilities, run-off of higher cost time deposits and higher
average investment balances, partially offset by lower yields on average investments and loans. The yield on
average interest earning assets decreased 13 basis points while average interest rates paid on interest bearing
liabilities decreased 41 basis points causing a 20 basis point increase in the net interest margin for Valley as
compared to the year ended December 31, 2009.
During the fourth quarter of 2010, net interest income on a tax equivalent basis decreased $4.7 million and
the net interest margin declined 15 basis points when compared with the third quarter of 2010. The linked quarter
decrease was primarily due to a decline in interest income caused by the prepayment and sale of higher yielding
loans and investment securities, loan refinance activity in the current low interest rate environment, a decline in
the accretion on pooled covered loans resulting from lower average pool balances, and a general lack of loan
growth with the exception of our residential mortgage loan portfolio. The excess liquidity from the loan and
investment prepayments and sales contributed to a $96.9 million increase in average federal funds sold and other
interest bearing deposits yielding only 0.26 percent during the fourth quarter of 2010. We anticipate lower levels
of excess liquidity in the first quarter of 2011 which should positively impact our net interest income and margin;
however, expected yields on new loans and investments will continue to be at levels below current portfolio
yields due to the current interest rate environment. The lower yields on new loans is expected to be partially
offset by higher forecasted cash flows on certain pools of covered loans in future periods that are performing
better than was originally expected at the acquisition dates (see Note 5 to the consolidated financial statements
for additional information). Interest expense on time deposits declined $986 thousand due to maturing high cost
time deposits and lower average balances, and partially mitigated the negative impact of the decrease in interest
income during the quarter. Overall, the low level of interest rates combined with the continued short-term
positioning of interest earning assets is expected to put pressure on our net interest margin results during 2011.
To mitigate these factors, management may deploy several asset/liability management strategies, including a
reduction in the sales of mortgage loan originations based on acceptable levels of credit risk and terms, or an
increase in the competitive pricing of certain targeted loan products without compromising our high underwriting
standards. We also expect a continued decline in the average rate of our time deposits due to the maturity of
higher rate certificates of deposit to have a positive impact on our net interest margin.
42
The following table reflects the components of net interest income for each of the three years ended
December 31, 2010, 2009 and 2008:
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
2010
2009
2008
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
($ in thousands)
Assets
Interest earning assets:
Loans (1)(2) . . . . . . . . . . . . . . . . . . . . $ 9,474,994 $543,017
123,021
Taxable investments (3) . . . . . . . . . .
Tax-exempt investments (1)(3)
15,948
. . . . .
Federal funds sold and other
2,641,869
405,730
interest bearing deposits . . . . . . .
157,163
416
Total interest earning assets . . . . . .
12,679,756
682,402
Allowance for loan losses . . . . . . . .
Cash and due from banks . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on
securities available for sale,
net . . . . . . . . . . . . . . . . . . . . . . . .
(110,776)
310,908
1,225,837
13,505
Total assets . . . . . . . . . . . . . . . . . . $14,119,230
Liabilities and Shareholders’
Equity
Interest bearing liabilities:
Savings, NOW and money market
deposits . . . . . . . . . . . . . . . . . . . . $ 4,171,782 $ 19,126
55,798
Time deposits . . . . . . . . . . . . . . . . .
2,897,793
5.73% $ 9,705,909 $561,265
140,305
2,700,744
4.66
14,896
272,520
3.93
5.78% $ 9,386,987 $572,944
144,497
2,561,299
5.20
15,522
253,560
5.47
6.10%
5.64
6.12
0.26
5.38
352,473
945
13,031,646
717,411
0.27
5.51
182,779
2,190
12,384,625
735,153
1.20
5.94
(99,716)
249,877
1,113,420
(17,270)
$14,277,957
(80,436)
228,216
988,040
(31,982)
$13,488,463
0.46% $ 3,836,709 $ 24,894
93,403
3,325,800
1.93
0.65% $ 3,536,655 $ 45,961
117,152
3,171,057
2.81
1.30%
3.69
Total interest bearing deposits . . . .
Short-term borrowings . . . . . . . . . .
. . . . . . . .
Long-term borrowings (4)
7,069,575
194,587
3,099,807
74,924
1,345
137,791
Total interest bearing liabilities . . .
10,363,969
214,060
1.06
0.69
4.45
2.07
7,162,509
270,776
3,152,515
118,297
4,026
140,547
10,585,800
262,870
1.65
1.49
4.46
2.48
6,707,712
555,524
3,092,524
163,113
10,163
135,619
10,355,760
308,895
2.43
1.83
4.39
2.98
Non-interest bearing deposits . . . . .
Other liabilities . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . .
2,428,089
56,394
1,270,778
Total liabilities and shareholders’
equity . . . . . . . . . . . . . . . . . . . . . $14,119,230
Net interest income/interest rate
spread (5)
. . . . . . . . . . . . . . . . . . .
2,251,784
97,583
1,342,790
1,981,744
79,601
1,071,358
$14,277,957
$13,488,463
468,342
3.31%
454,541
3.03%
426,258
2.96%
Tax equivalent adjustment
. . . . . . .
(5,590)
Net interest income, as
reported . . . . . . . . . . . . . . . . . . .
$462,752
(5,227)
$449,314
(5,459)
$420,799
Net interest margin (6) . . . . . . . . . . .
. . . . . . . . . . .
Tax equivalent effect
Net interest margin on a fully tax
equivalent basis (6) . . . . . . . . . . . .
3.65%
0.04
3.69%
3.45%
0.04
3.49%
3.40%
0.04
3.44%
(1)
(2)
(3)
(4)
(5)
Interest income is presented on a tax equivalent basis using a 35 percent federal tax rate.
Loans are stated net of unearned income and include non-accrual loans.
The yield for securities that are classified as available for sale is based on the average historical amortized cost.
Includes junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of
condition.
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.
43
The following table demonstrates the relative impact on net interest income of changes in the volume of
interest earning assets and interest bearing liabilities and changes in rates earned and paid by Valley on such
assets and liabilities. 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.
CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Years Ended December 31,
2010 Compared to 2009
2009 Compared to 2008
Change
Due to
Volume
Change
Due to
Rate
Total
Change
Change
Due to
Volume
Change
Due to
Rate
Total
Change
(in thousands)
Interest income:
Loans* . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable investments . . . . . . . . . . . . . . . .
Tax-exempt investments* . . . . . . . . . . . .
Federal funds sold and other interest
$(13,266) $ (4,982) $(18,248) $19,064
7,613
1,110
(14,281)
(4,930)
(17,284)
1,052
(3,003)
5,982
$(30,743) $(11,679)
(4,192)
(11,805)
(626)
(1,736)
bearing deposits . . . . . . . . . . . . . . . . .
(517)
(12)
(529)
1,174
(2,419)
(1,245)
Total (decrease) increase in interest
income . . . . . . . . . . . . . . . . . . . . . . . .
(10,804)
(24,205)
(35,009)
28,961
(46,703)
(17,742)
Interest expense:
Savings, NOW and money market
deposits . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . .
Long-term borrowings and junior
2,028
(10,923)
(924)
(7,796)
(26,682)
(1,757)
(5,768)
(37,605)
(2,681)
3,616
5,485
(4,495)
(24,683)
(29,234)
(1,642)
(21,067)
(23,749)
(6,137)
subordinated debentures . . . . . . . . . . .
(2,344)
(412)
(2,756)
2,654
2,274
4,928
Total (decrease) increase in interest
expense . . . . . . . . . . . . . . . . . . . . . . . .
(12,163)
(36,647)
(48,810)
7,260
(53,285)
(46,025)
Increase in net interest income . . . . . . . .
$ 1,359
$ 12,442
$ 13,801
$21,701
$ 6,582
$ 28,283
* Interest income is presented on a fully tax equivalent basis using a 35 percent federal tax rate.
44
Non-Interest Income
The following table presents the components of non-interest income for the years ended December 31, 2010,
2009, and 2008:
Trust and investment services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on securities transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . . . .
Trading (losses) gains, net:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures carried at fair value . . . . . . . . . . . . . . . . . . .
FHLB advances carried at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total trading (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees from loan servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance (“BOLI”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in FDIC loss-share receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2010
2009
2008
$ 7,665
11,334
25,691
11,598
(4,642)
(in thousands)
$ 6,906 $ 7,161
10,053
28,274
5,020
(84,835)
10,224
26,778
8,005
(6,352)
(1,056)
(5,841)
—
(6,897)
4,919
12,591
619
6,166
6,268
16,015
5,394
(15,828)
—
(10,434)
4,839
8,937
605
5,700
—
17,043
(10,883)
15,243
(1,194)
3,166
5,236
1,274
518
10,167
—
17,222
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$91,327
$ 72,251
$ 3,256
Non-interest income represented 12.0 percent and 9.2 percent of total interest income plus non-interest
income for 2010 and 2009, respectively. For the year ended December 31, 2010, non-interest income increased
$19.1 million, compared with 2009, due to the change in the carrying value of the FDIC loss-share receivable,
higher gains on sales of residential mortgage loans, and a decrease in net trading losses. See the “Results of
Operations—2009 Compared to 2008” section below for the discussion and analysis of changes in our
non-interest income from 2008 to 2009.
Service charges on deposit accounts decreased $1.1 million, or 4.1 percent to $25.7 million for the year
ended December 31, 2010 as compared to 2009 mainly due to a decrease in non-sufficient funds charges and
overdraft protection fees. The decline in these fees reflects both better account management by our customers
caused, in part, by economic uncertainty and higher savings rates, and new regulatory restrictions on overdraft
charges enacted during the third quarter of 2010 (as previously noted Item 1A, “Risk Factors” above). The new
regulations prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller
machine and one time debit card transactions, unless a consumer consents to the overdraft service for those types
of transactions. During the second half of 2010, a large number of customers “opted in” to our standard overdraft
practice, and partially mitigated the negative impact of the rule changes on our ability to collect these fees. We
believe additional customers will opt into our overdraft program once they have a need for the product. However,
we may continue to experience declines in such fees during 2011 and be unable to generate sufficient other
service charges to offset the reduction in fees.
Net gains on securities transactions increased $3.6 million to $11.6 million for the year ended December 31,
2010, as compared to $8.0 million for 2009. The majority of the net gains in 2010 relates to $7.0 million in gains
recognized during the fourth quarter of 2010 primarily due to the sale of approximately $46 million in residential
mortgage-backed securities (deemed by Valley to have a high risk of prepayment in the short-term) issued by
Freddie Mac and Fannie Mae classified as available for sale, as well as gains realized on $15 million in trust
preferred securities that were called for early redemption. We also sold $75 million in U.S. Treasury securities
45
classified as available for sale during the second quarter of 2010, and recognized a $3.7 million gain. During
2009, the majority of the net gains were recognized during the fourth quarter as we sold certain corporate debt
and residential mortgage-backed securities classified as available for sale to reduce both the overall credit and
re-pricing risk exposures of our investment portfolio.
Net impairment losses on securities declined $1.7 million to $4.6 million for the year ended December 31,
2010 as compared to $6.4 million for 2009 mainly due to a $3.5 million decrease in non-cash credit impairment
charges on private label mortgage-backed securities classified as available for sale as compared to 2009, partially
offset by a $2.2 million increase in credit impairment charges on two previously impaired pooled trust preferred
securities. The large amount of other-than-temporary impairment charges incurred during 2008 were mainly due
to a decline in the value of Freddie Mac and Fannie Mae perpetual preferred securities caused by the U.S.
Government placing these entities into conservatorship and suspending their preferred stock dividends. See the
“Other-Than-Temporarily Impaired Securities” section below and Note 4 to the consolidated financial statements
for further details.
Our net trading gains and losses usually represent the non-cash mark to market valuations of a small number
of single-issuer trust preferred securities held in our trading securities portfolio and the non-cash mark to market
valuation of our junior subordinated debentures (issued by VNB Capital Trust I) carried at fair value. Net trading
losses decreased $3.5 million to $6.9 million for the year ended December 31, 2010, as compared to $10.4
million for 2009. The decrease was primarily caused by a $10.0 million decrease in non-cash mark to market
losses on our junior subordinated debentures carried at fair value. This decrease was partially offset by a $6.5
million decline in net gains on trading securities to a net loss of $1.1 million in 2010 as compared to a net gain of
5.4 million in 2009 mainly caused by non-cash mark to market losses recognized on trading securities in 2010
and $3.2 million in gains realized on the sale of trading securities in 2009.
Net gains on sales of loans increased $3.7 million during the year ended December 31, 2010 as compared to
2009. The increase was mainly the result of a $3.9 million gain recognized on sale of approximately $83 million
of conforming residential mortgage loans to Fannie Mae during the fourth quarter of 2010. These loans were
transferred from our loan portfolio to loans held for sale during the third quarter of 2010. The decision to sell
these loans was based on the likelihood that such loans would prepay in the short-term due to the current low
level of interest rates.
The Bank and the FDIC share in the losses on loans and real estate owned as part of the loss-sharing
agreements entered into on both of our FDIC-assisted transactions in March 2010. The asset arising from the
loss-sharing agreements is referred to as the “FDIC loss-share receivable” on our consolidated statements of
financial condition (See Note 2 to the consolidated financial statements). Within the non-interest income
category, we may recognize income or expense related to the change in the FDIC loss-share receivable resulting
from a change in the estimated credit losses on the pools of covered loans, as well as non-interest income related
to the discount accretion resulting from the present value of the receivable recorded at the acquisition dates.
During 2010, the $6.3 million in non-interest income recognized on the change in FDIC loss-share receivable
represents a $5.1 million increase in the FDIC loss-share receivable due to additional estimated credit losses and
discount accretion totaling $1.2 million.
46
Non-Interest Expense
The following table presents the components of non-interest expense for the years ended December 31,
2010, 2009, and 2008:
Years Ended December 31,
2010
2009
2008
Salary and employee benefits expense . . . . . . . . . . . . .
Net occupancy and equipment expense . . . . . . . . . . . .
FDIC insurance assessment . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets . . . . . . . . . . . .
Professional and legal fees . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$176,106
61,765
13,719
7,721
10,137
4,052
44,182
(in thousands)
$163,746
58,974
20,128
6,887
7,907
3,372
45,014
$157,876
54,042
1,985
7,224
8,241
2,697
53,183
Total non-interest expense . . . . . . . . . . . . . . . . . .
$317,682
$306,028
$285,248
Non-interest expense increased $11.7 million to $317.7 million for the year ended December 31, 2010 from
$306.0 million for 2009. The increase in 2010 was mainly attributable to increases in salary and employee
benefits expense of $12.4 million, net occupancy and equipment expense of $2.8 million, and professional and
legal fees of $2.3 million. These increases were partially offset by a $6.4 million decrease in the FDIC insurance
assessment. See the “Results of Operations—2009 Compared to 2008” section below for the discussion and
analysis of changes in our non-interest expense from 2008 to 2009.
Salary and employee benefits expense increased $12.4 million to $176.1 million in 2010 as compared to
$163.8 million in 2009. The increase was due to several factors, including the resumption of cash incentive
compensation accruals during 2010 (as no non-contractual bonuses were accrued or awarded to employees for
the 2009 period), normal annual employee salary increases in 2010, additional staffing costs related to the two
FDIC-assisted transactions in March 2010, as well as increases in both pension and medical insurance costs
during 2010.
Net occupancy and equipment expense increased $2.8 million to $61.8 million for the year ended
December 31, 2010 as compared to $59.0 million for 2009. The increase was due, in part, to additional expenses
incurred related to the two FDIC-assisted transactions in March 2010, as well as from de novo branch openings
during the latter half of 2009 and 2010.
Amortization of other intangible assets increased by $834 thousand in 2010, mainly due to the recognition
of a $551 thousand net impairment charge on certain loan servicing rights during 2010 as compared to $80
thousand during 2009, and $468 thousand of additional amortization expense related to core deposit intangibles
acquired in the FDIC-assisted transactions in March 2010.
Our FDIC insurance assessment decreased $6.4 million for the year ended December 31, 2010, as compared
to the same period in 2009 as a result of a special assessment totaling $6.5 million during the second quarter of
2009. The special assessment was imposed on all insured depository institutions during 2009 due to the depletion
of the Federal Deposit Insurance Fund caused by the costs associated with numerous bank failures resulting from
the financial crisis.
Professional and legal fees increased $2.2 million during 2010 as compared to 2009. This increase was
mainly due to general increases caused by the two FDIC-assisted transactions and other corporate matters.
Over the last several years, we have maintained a branch expansion plan which focuses on expanding our
presence in the New Jersey counties and towns neighboring our current office locations, as well as in New York
47
City boroughs of Manhattan, Brooklyn and Queens. We opened 2 and 7 de novo branches during 2010 and 2009,
respectively, excluding the branches acquired in the FDIC-assisted transactions. Also in the latter half of 2010,
we opened our first residential mortgage loan production office in Eastern Pennsylvania, in an effort to expand
outside of our normal markets within New Jersey and New York City. Generally, new branches and loan
production offices add future franchise value; however, for new branches the additional operating costs and
capital requirements normally have a negative impact on non-interest expense and net income for several years
until such operations become individually profitable.
The efficiency ratio measures total non-interest expense as a percentage of net interest income plus
non-interest income. Our efficiency ratio for the year ended December 31, 2010 was 57.34 percent compared to
58.67 percent in 2009. The decrease in the efficiency ratio for 2010 as compared to 2009 was mainly attributable
to increases in both net interest income and non-interest income in 2010, partially offset by the aforementioned
increases to our non-interest expense. We strive to maintain a low efficiency ratio through diligent management
of our operating expenses and balance sheet. We believe this non-GAAP measure provides a meaningful
comparison of our operational performance, and facilitates investors’ assessments of business performance and
trends in comparison to our peers in the banking industry.
Income Taxes
Income tax expense was $55.8 million and $51.5 million for the years ended December 31, 2010 and 2009,
respectively. However, the effective tax rate decreased to 29.8 percent for the 2010 annual period from 30.7
percent for 2009. The decrease in the effective tax rate from the 2009 period is mainly due to an increase in our
investment in tax credits.
Management expects that our adherence to the income tax guidelines under U.S. GAAP will continue to
result in increased volatility in our future quarterly and annual effective income tax rates because U.S. GAAP
requires that any change in judgment or change in measurement of a tax position taken in a prior annual period
be recognized as a discrete event in the period in which it occurs. Factors that could impact management’s
judgment include changes in income tax laws and regulations, and tax planning strategies. For 2011, we
anticipate that our effective tax rate will approximate 31 percent.
Business Segments
We have four business segments that we monitor and report on to manage our business operations. These
segments are consumer lending, commercial
investment management, and corporate and other
adjustments. Our reportable segments have been determined based upon Valley’s internal structure of operations
and lines of business. Certain business units have been combined for segment information reporting purposes
where the nature of the products and services, and type of customer are similar. The Wealth Management
Division, comprised of trust, asset management,
insurance services, and broker-dealer (our broker-dealer
subsidiary was sold on March 31, 2008) is included in the consumer lending segment.
lending,
Each business segment is reviewed routinely for its asset growth, contribution to income before income
taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible
inability to realize the carrying amount). Expenses related to the branch network, all other components of retail
banking, along with the back office departments of our subsidiary bank are allocated from the corporate and
other adjustments segment to each of the other three business segments. Interest expense and internal transfer
expense (for general corporate expenses) are allocated to each business segment utilizing a “pool funding”
methodology, whereas each segment is allocated a uniform funding cost based on each segments’ average
earning assets outstanding for the period. The financial reporting for each segment contains allocations and
reporting in line with our operations, which may not necessarily be comparable to any other financial institution.
The accounting for each segment includes internal accounting policies designed to measure consistent and
48
reasonable financial reporting, and may not necessarily conform to U.S. GAAP. Furthermore, changes in
management structure or allocation methodologies and procedures may result in changes in reported segment
financial data. See Note 19 to the consolidated financial statements for segments’ financial data.
Consumer lending. The consumer lending segment is mainly comprised of residential mortgages, home
equity loans and automobile loans. The duration of the residential mortgage loan portfolio is subject to
movements in the market level of interest rates and forecasted prepayment speeds. The average weighted life of
the automobile loans within the portfolio is relatively unaffected by movements in the market level of interest
rates. However, the average life may be impacted by the availability of credit within the automobile marketplace
and consumer demand for purchasing new or used automobiles.
Average assets at December 31, 2010 decreased year over year by $454.6 million to $3.3 billion, as
compared to $3.8 billion at December 31, 2009. This decrease reflects the decline in automobile loan volumes
resulting from several factors, including our high credit standards, acceptable loan to collateral value levels, and
high unemployment levels. During 2010, we continued to sell the majority of our refinanced and new residential
loan originations with low fixed interest rates in the secondary market. We also transferred $83 million in
conforming residential mortgage loans to loans held for sale, and subsequently sold them to Fannie Mae in the
fourth quarter of 2010.
Income before income taxes decreased $723 thousand to $64.3 million for the year ended December 31,
2010 as compared with the same period in 2009. The return on average interest earning assets before income
taxes increased 22 basis points to 1.94 percent compared with 1.72 percent for 2009 period. For the year ended
December 31, 2010, net interest income decreased $13.3 million to $129.2 million as compared to $142.5 million
for 2009. This decrease was mainly a result of the aforementioned decline in average assets, and a decrease in
yield, only partially offset by the decline in our cost of funds. The provision for loan losses decreased $6.6
million to $14.6 million primarily due to lower automobile loan net charge-offs coupled with declines of loan
balances in most consumer loan categories. Non-interest income increased year over year by $4.3 million mainly
due to the increased gains on the sale of residential mortgage loans sold into the secondary market.
The net interest margin increased by 12 basis points to 3.89 percent as a result of a 22 basis point decrease
in interest yield on loans, partially offset by a decline of 34 basis points in costs associated with our funding
sources, primarily driven by lower interest rates on most interest-bearing deposit products and higher average
non-interest bearing deposit balances.
Commercial lending. The commercial lending segment is mainly comprised of floating rate and adjustable
rate commercial and industrial loans, as well as fixed rate owner occupied and commercial real estate loans. Due
to the portfolio’s interest rate characteristics, commercial lending is Valley’s most sensitive business segment to
movements in market interest rates.
For the year ended December 31, 2010, income before income taxes increased $12.3 million to $93.9
million compared with the year ended December 31, 2009, primarily due to an increase in net interest income,
partially offset by increases in the provision for loan losses, non-interest expense and internal transfer expense.
Net interest income increased $31.5 million during 2010 primarily due to a $223.7 million increase in average
interest earning assets and an increase of 4 basis points in the interest yield on loans. For the year ended
December 31, 2010 the provision for loan losses increased $8.0 million to $34.9 million as compared to 2009.
The higher provision for credit losses was mainly attributable to a $6.4 million provision for covered loans (i.e.,
loans subject to our loss-sharing agreements with the FDIC) during the fourth quarter of 2010 due to the credit
impairment of certain loan pools caused by declines in the expected cash flows. In addition, the provision for
credit losses includes an increase in the specific reserve for impaired loans.
Net interest margin increased 38 basis points in 2010 mainly as a result of a 34 basis point decrease in costs
associated with our funding sources and the aforementioned 4 basis points increase in interest yield on loans as
compared to the 2009 period. The return on average interest earning assets before income taxes was 1.53 percent
compared with 1.37 percent for the prior year period.
49
Investment management. The investment management segment
is mainly comprised of fixed rate
investments, trading securities, and depending on our liquid cash position, federal funds sold and interest-bearing
deposits with banks (primarily the Federal Reserve Bank of New York). The fixed rate investments are one of
Valley’s least sensitive assets to changes in market interest rates. However, as we continue to shift the
composition of the investment portfolio to shorter-duration securities, the sensitivity to market interest rates will
increase. Net gains and losses on the change in fair value of trading securities and net impairment losses on
securities are reflected in the corporate and other adjustments segment.
For the year ended December 31, 2010, income before income taxes decreased $4.1 million to $51.3 million
compared with the year ended December 31, 2009 primarily due to a 34 basis point decrease in the yield on
average investments. The decline in investment yields was mainly attributable to reinvestment and new
investment in the current low interest rate environment, coupled with management’s desire to reduce the duration
of the portfolio while simultaneously diminishing the capital required for the portfolio. As a result of this strategy
during 2010, the principal paydowns on higher yielding investments were reinvested in shorter duration and
lower yielding securities, including U.S. Treasury securities and residential mortgage-backed securities issued by
Ginnie Mae. The reinvestment in securities at lower rates also resulted in a decrease in the return on average
interest earning assets before income tax to 1.60 percent for the year ended December 31, 2010 compared with
1.67 percent for 2009. Average investments decreased $121.0 million to $3.2 billion for the year ended
December 31, 2010, due to normal principal paydowns and lower average balances held on deposit at the Federal
Reserve due to less excess liquidity.
Corporate segment. The corporate and other adjustments segment represents income and expense items not
directly attributable to a specific segment, including trading and securities gains (losses), and net impairment
losses on securities not reported in the investment management segment above, interest expense related to the
junior subordinated debentures issued to capital trusts, the change in fair value of Valley’s junior subordinated
debentures carried at fair value, interest expense related to $100 million in subordinated notes, as well as income
and expense from derivative financial instruments.
The loss before income taxes for the corporate segment decreased $11.9 million to $22.6 million for the
year ended December 31, 2010 from $34.4 million loss for 2009. Non-interest income increased $13.8 million
from 2009 mainly due to $6.3 million in non-interest income recognized on the change in the FDIC loss-share
receivable due to the additional estimated credit losses and our recognition of discount accretion resulting from
the present value of the receivable recorded at the dates of our FDIC-assisted transactions. The increase in
non-interest income was also due to an increase of $3.6 million in net gains on securities transactions resulting
from the sale of approximately $46 million in residential mortgage-backed securities issued by Freddie Mac and
Fannie Mae and $15 million in callable trust preferred securities that were redeemed before maturity. A $3.5
million decrease in net trading losses mainly caused by the effect of the mark to market valuation of our junior
subordinated debentures carried at fair value, partially offset by a change in fair value of our trading securities,
also positively impacted non-interest income recognized in 2010 as compared to 2009.
50
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Our success is largely dependent upon our ability to manage interest rate risk. Interest rate risk can be
defined as the exposure of our interest rate sensitive assets and liabilities to the movement in interest rates. Our
Asset/Liability Management Committee is responsible for managing such risks and establishing policies that
monitor and coordinate our sources and uses of funds. Asset/Liability management is a continuous process due to
the constant change in interest rate risk factors. In assessing the appropriate interest rate risk levels for us,
management weighs the potential benefit of each risk management activity within the desired parameters of
liquidity, capital levels and management’s tolerance for exposure to income fluctuations. Many of the actions
undertaken by management utilize fair value analysis and attempts to achieve consistent accounting and
economic benefits for financial assets and their related funding sources. We have predominately focused on
managing our interest rate risk by attempting to match the inherent risk and cash flows of financial assets and
liabilities. Specifically, management employs multiple risk management activities such as the level of lower
yielding new residential mortgage originations retained in our mortgage portfolio through sales in the secondary
market, change in product pricing levels, change in desired maturity levels for new originations, change in
balance sheet composition levels as well as several other risk management activities.
We use 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 re-pricing characteristics of rate sensitive
assets and liabilities. The model incorporates certain assumptions which management believes to be reasonable
regarding the impact of changing interest rates and the prepayment assumptions of certain assets and liabilities as
of December 31, 2010. The model assumes changes in interest rates without any proactive change in the
composition or size of the balance sheet by management. In the model, the forecasted shape of the yield curve
remains static as of December 31, 2010. The impact of interest rate derivatives, such as interest rate swaps and
caps, is also included in the model.
Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of
December 31, 2010. Although the size of Valley’s balance sheet is forecasted to remain static as of December 31,
2010 in our model, the composition is adjusted to reflect new interest earning assets and funding originations
coupled with rate spreads utilizing our actual originations during 2010. The model utilizes an immediate parallel
shift in the market interest rates at December 31, 2010.
The following table reflects management’s expectations of the change in our net interest income over the
next twelve months period in light of the aforementioned assumptions:
Changes in Interest Rates
Dollar Change
Percentage Change
Estimated Change in Future Net Interest Income
(in basis points)
+200
+100
-100
($ in thousands)
$
5,328
(945)
(11,281)
1.15%
(0.20)
(2.43)
The assumptions used in the net interest income simulation are inherently uncertain. Actual results may
differ significantly from those presented in the table above, due to the frequency and timing of changes in interest
rates, and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is
affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage
these cash flows in conjunction with our liability mix, duration and rates to optimize the net interest income,
while structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our
net interest income is impacted by the level of competition within our marketplace. Competition can increase the
cost of deposits and negatively impact the level of interest rates attainable on loans, which may result in
51
downward pressure on our net interest margin in future periods. Other factors, including, but not limited to, the
slope of the yield curve and projected cash flows will impact our net interest income results and may increase or
decrease the level of asset sensitivity of our balance sheet.
Convexity is a measure of how the duration of a financial instrument changes as market interest rates
change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration
of the loan portfolio may have a positive or negative impact to our net interest income in varying interest rate
environments. As a result, the increase or decrease in forecasted net interest income may not have a linear
relationship to the results reflected in the table above. Management cannot provide any assurance about the
actual effect of changes in interest rates on our net interest income.
As noted in the table above, we are more susceptible to a decrease in interest rates under a scenario with an
immediate parallel change in the level of market interest rates than an increase in interest rates under the same
assumptions. However, we believe that a 100 basis point decrease in interest rates as of December 31, 2010 is
unlikely given current interest rate levels. A 100 basis point immediate increase in interest rates is projected to
decrease net interest income over the next twelve months by only 0.20 percent. The lack of balance sheet
sensitivity to such a move in interest rates, is due, in part, to the fact that many of our adjustable rate loans are
tied to the Valley prime rate (set by management) which currently exceeds the U.S. prime rate by 125 basis
points. Additional information regarding our use of these prime rates is located under the “Net Interest Income”
section above. Other factors, including, but not limited to, the slope of the yield curve and projected cash flows
will impact our net interest income results and may increase or decrease the level of asset sensitivity of our
balance sheet.
Although we do not expect our Valley prime rate loan portfolio to have an immediate benefit to our interest
income in a rising interest rate environment, we positioned a large portion of our investment portfolio in short-
duration securities and residential mortgage-backed securities that will allow us to benefit from a potential rise in
interest rates. Specifically, we expect interest income on many of our residential mortgage-backed securities with
unamortized purchase premiums to improve if interest rates were to move upward and prepayment speeds on the
underlying mortgages decline. The decline in prepayments will lengthen the expected life of each security and
reduce the amount of premium amortization expense recognized against interest income each period.
Our interest rate caps designated as cash flow hedging relationships, are designed to protect us from upward
movements in interest rates on certain deposits and short-term borrowings based on the prime and effective
federal funds rates. Our interest rate swaps designated as cash flow hedging relationships, are designed to protect
us from upward movements in interest rates on certain deposits based on the prime rate. We have interest rate
caps with a $200 million notional value, which protect us from upward increases in interest rates on certain
deposits and short-term borrowings, and are accounted for as cash flow hedges. During 2010, Valley also entered
into cash flow hedge interest rate swaps that are 1-year forward starting, 5-year term, with a notional value of
$200 million (pay fixed, receive floating rates). The floating rate leg of the transaction is indexed to the prime
rate as reported by the Federal Reserve Bank. All of these actions have expanded the expected net interest
income benefits in a rising interest rate environment. However, due to the current low level of interest rates, the
strike rate of these instruments, and the forward effective date applicable to the swaps, the cash flow hedge
interest rate caps and swaps are expected to have little impact over the next twelve month period on our net
interest income. See Note 15 to the consolidated financial statements for further details on our derivative
transactions.
The following table sets forth the amounts of interest earning assets and bearing liabilities, outstanding on
December 31, 2010 and their associated fair values. The expected cash flows are categorized based on each
financial instruments anticipated maturity or interest rate reset date. The amount of assets and liabilities shown,
which reprice or mature during a particular period, were determined based on the earlier of the term to repricing
or the term to repayment, inclusive of the impact of market level prepayment speeds.
52
INTEREST RATE SENSITIVITY ANALYSIS
Rate
2011
2012
2013
2014
2015
Thereafter Total Balance Fair Value
($ in thousands)
Interest sensitive assets:
Interest bearing deposits
with banks . . . . . . . . . . . . 0.25% $
63,657 $
— $
— $
— $ — $
— $
63,657
$
63,657
Investment securities held to
maturity . . . . . . . . . . . . . . 4.10
709,127
280,694
150,250
115,579
77,778
590,565
1,923,993
1,898,872
Investment securities
available for sale . . . . . . . 4.36
Trading securities . . . . . . . . 8.00
Loans held for sale . . . . . . . 4.12
Loans . . . . . . . . . . . . . . . . . . 5.64
Total interest sensitive
347,186
—
58,958
3,906,671
175,926
—
—
91,196
—
—
79,496
—
—
50,208
—
—
291,270
31,894
—
1,271,427
1,162,247
824,423
609,104
1,591,923
1,035,282
31,894
58,958
9,365,795
1,035,282
31,894
58,958
9,159,770
assets . . . . . . . . . . . . . . . . 5.27% $5,085,599 $1,728,047 $1,403,693 $1,019,498 $737,090 $2,505,652
$12,479,579
$12,248,433
Interest sensitive
liabilities:
Deposits:
Savings, NOW and
money market . . . . . 0.40% $1,418,805 $ 772,747 $ 772,747 $ 380,722 $190,361 $ 571,082
61,718
—
148,643
340,134
117,601
126,891
—
28,000
—
26,000
—
—
— 400,000
2,269,500
1,937,864
192,318
210,358
Time . . . . . . . . . . . . . . 1.81
Short-term borrowings . . . . 0.45
Long-term borrowings . . . . 4.20
Junior subordinated
$ 4,106,464
2,732,851
192,318
2,933,858
$ 4,106,464
2,783,680
195,360
3,201,090
debentures . . . . . . . . . . . . 7.65
—
—
—
—
—
186,922
186,922
187,480
Total interest sensitive
liabilities . . . . . . . . . . . . . 2.01% $3,759,345 $1,140,881 $ 916,348 $ 507,613 $739,004 $3,089,222
$10,152,413
$10,474,074
Interest sensitivity gap . . . .
$1,326,254 $ 587,166 $ 487,345 $ 511,885 $ (1,914) $ (583,570) $ 2,327,166
$ 1,774,359
Ratio of interest sensitive
assets to interest sensitive
liabilities . . . . . . . . . . . . .
1.35:1
1.51:1
1.53:1
2.01:1
1.00:1
0.81:1
1.23:1
1.17:1
Expected maturities are contractual maturities adjusted for all projected payments of principal. For
investment securities, loans, long-term borrowings and junior subordinated debentures, expected maturities are
based upon contractual maturity or call dates, projected repayments and prepayments of principal. The
prepayment experience reflected herein is based on historical experience combined with market consensus
expectations derived from independent external sources. The actual maturities of these instruments could vary
substantially if future prepayments differ from historical experience or current market expectations. Repricing
data for each instrument reflects the contractual interest rate/reset date. For non-maturity deposit liabilities, in
accordance with standard industry practice and our historical experience, “decay factors” were used to estimate
deposit runoff. Our cash flow derivatives are designed to protect us from upward movement in interest rates on
certain deposits and short-term borrowings. The interest rate sensitivity table reflects the sensitivity at current
interest rates. As a result, the notional amount of our derivatives is not included in the table. We use various
assumptions to estimate fair values. See Note 3 of the consolidated financial statements for further discussion of
fair value measurements.
The total gap re-pricing within one year as of December 31, 2010 was a positive $1.3 billion, representing a
ratio of interest sensitive assets to interest sensitive liabilities of 1.35:1. Current market prepayment speeds and
balance sheet management strategies implemented throughout 2010 have allowed us to maintain our asset
sensitivity level reported in the table above comparable to December 31, 2009. The total gap re-pricing position,
as reported in the table above, reflects the projected interest rate sensitivity of our principal cash flows based on
market conditions as of December 31, 2010. As the market level of interest rates and associated prepayment
speeds move, the total gap re-pricing position will change accordingly, but not likely in a linear relationship.
Management does not view our one year gap position as of December 31, 2010 as presenting an unusually high
risk potential, although no assurances can be given that we are not at risk from interest rate increases or
decreases.
53
Liquidity
Bank Liquidity. Liquidity measures the ability to satisfy current and future cash flow needs as they become
due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits,
and to fund operating costs and other corporate cash commitments. Liquidity management is monitored by our
Asset/Liability Management Committee and the Investment Committee of the Board of Directors of Valley
National Bank, which review historical funding requirements, current liquidity position, sources and stability of
funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs,
including the level of unfunded commitments. Our goal is to maintain sufficient asset-based liquidity to cover
potential funding requirements in order to minimize our dependence on volatile and potentially unstable funding
markets.
Valley National Bank has no required regulatory liquidity ratios to maintain; however, it adheres to an
internal liquidity policy. Our liquidity policy maintains that we may not have a ratio of loans to deposits in excess
of 120 percent and non-core funding (which generally includes certificates of deposits $100 thousand and over,
federal funds purchased, repurchase agreements and Federal Home Loan Bank advances) greater than 50 percent
of total assets. At December 31, 2010, we were in compliance with the foregoing policies.
On the asset side of the balance sheet, we have numerous sources of liquid funds in the form of cash and due
from banks, interest bearing deposits with banks (including the Federal Reserve Bank of New York), investment
securities held to maturity maturing within one year, investment securities available for sale, trading securities,
loans held for sale, and, from time to time, federal funds sold. The residential mortgage-backed securities
portfolio is a significant source of our liquidity through the monthly cash flow of principal and interest. The
liquid assets totaled approximately $1.7 billion and $2.2 billion at December 31, 2010 and 2009, respectively,
representing 13.5 percent and 17.4 percent of earning assets, and 11.9 percent and 15.5 percent of total assets at
December 31, 2010 and 2009, respectively. Of the $1.7 billion of liquid assets at December 31, 2010,
approximately $519 million of liquid investment securities classified as available for sale were pledged to
counterparties to support our earning asset funding strategies.
Additional
liquidity is derived from scheduled loan payments of principal and interest, as well as
prepayments received. Loan principal payments are projected to be approximately $3.1 billion over the next
twelve months. Asset liquidity is further enhanced by our ability to sell conforming residential mortgages from
our existing loan portfolio. As a contingency plan for significant funding needs, liquidity could also be derived
from the temporary curtailment of lending activities.
On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs. Our
core deposit base, which generally excludes certificates of deposit over $100 thousand as well as brokered
certificates of deposit, represents the largest of these sources. Core deposits averaged approximately $8.3 billion
and $8.0 billion for the years ended December 31, 2010 and 2009, representing 65.8 percent and 61.7 percent of
average earning assets at December 31, 2010 and 2009, respectively. The level of interest bearing deposits is
affected by interest rates offered, which is often influenced by our need for funds and the need to match the
maturities of assets and liabilities.
The following table lists, by maturity, all certificates of deposit of $100 thousand and over at December 31,
2010:
Less than three months . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three to six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six to twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
More than twelve months . . . . . . . . . . . . . . . . . . . . . . . . .
2010
(in thousands)
$ 355,118
204,368
319,212
299,317
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,178,015
54
Additional funding may be provided from short-term borrowings in the form of federal funds purchased
obtained through our well established relationships with several correspondent banks. While there are no firm
lending commitments currently in place, we believe that we could borrow up to approximately $1.0 billion for a
short time from these banks on a collective basis. At December 31, 2010, we had no outstanding federal funds
purchased. The Bank is also a member of the Federal Home Loan Bank of New York and has the ability to
borrow in the form of FHLB advances secured by pledges of residential mortgage-backed securities and a
blanket assignment of qualifying residential mortgage loans. Furthermore, we are able to obtain overnight
borrowings from the Federal Reserve Bank via the discount window as a contingency for additional liquidity.
During 2010, we expanded our ability to borrow from the discount window as we provided additional collateral
loans consisting primarily of commercial and industrial loans. At December 31, 2010, our borrowing capacity
under the Fed’s discount window was approximately $948 million as compared to $390 million at the same time
one year ago.
We also have access to other short-term and long-term borrowing sources to support our asset base, such as
securities sold under agreements to repurchase (“repos”), treasury tax and loan accounts. Short-term borrowings
decreased by $23.8 million to $192.3 million at December 31, 2010 compared to $216.1 million at December 31,
2009 due to a $23.2 million decrease in short-term repos and a $582 thousand decrease in the treasury tax and
loan accounts. At December 31, 2010, all short-term repos represent customer deposit balances being swept into
this vehicle overnight. See Note 11 to the consolidated financial statements for more detail on our borrowed
funds.
The following table sets forth information regarding Valley’s short-term repos at the dates and for the years
ended December 31, 2010, 2009, and 2008:
2010
2009
2008
($ in thousands)
Securities sold under agreements to repurchase:
Average balance outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum outstanding at any month-end during the period . . . . . . . . . . .
Balance outstanding at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate during the period . . . . . . . . . . . . . . . . . . .
Weighted average interest rate at the end of the period . . . . . . . . . . . . . . .
$184,021
186,633
183,295
$203,585
215,182
206,542
$418,518
437,272
335,510
0.72%
0.47
0.91%
0.67
1.51%
0.81
Corporation Liquidity. Valley’s recurring cash requirements primarily consist of dividends to common
shareholders and interest expense on junior subordinated debentures issued to capital trusts. These cash needs are
routinely satisfied by dividends collected from Valley National Bank, along with cash flows from investment
securities held at
the holding company. See Note 16 to the consolidated financial statements regarding
restrictions on such subsidiary bank dividends. Projected cash flows from these sources are expected to be
adequate to pay common dividends, if declared, and interest expense payable to capital trusts, given the current
capital levels and current profitable operations of the bank subsidiary.
As part of our on-going asset/liability management strategies, Valley could use cash to repurchase shares of
its outstanding common stock under its share repurchase program, using Valley’s own funds and/or dividends
received from the Bank, as well as new borrowed funds or capital issuances.
Investment Securities Portfolio
Securities are classified as held to maturity and carried at amortized cost when Valley has the positive intent
and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before
maturity, and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive
income, net of tax. Available for sale securities are not considered trading account securities, but rather are
securities which may be sold on a non-routine basis. Securities classified as trading are held primarily for sale in
the short term or as part of our balance sheet management strategies and are carried at fair value, with unrealized
55
gains and losses included immediately in the net trading gains and losses category of non-interest income. Valley
determines the appropriate classification of securities at the time of purchase. The decision to purchase or sell
securities is based upon the current assessment of long and short-term economic and financial conditions,
including the interest rate environment and other statement of financial condition components. Securities with
limited marketability and/or restrictions, such as Federal Home Loan Bank and Federal Reserve Bank stocks, are
carried at cost and are included in other assets.
tax-exempt
At December 31, 2010, our investment portfolio was comprised of U.S Treasury securities, U.S.
issues of states and political subdivisions, residential mortgage-backed
government agencies,
securities (including 19 private label mortgage-backed securities), single-issuer trust preferred securities
principally issued by bank holding companies (“bank issuers”) (including three pooled securities), corporate
bonds primarily issued by banks, and perpetual preferred and common equity securities issued by banks. There
were no securities in the name of any one issuer exceeding 10 percent of shareholders’ equity, except for
residential mortgage-backed securities issued by U.S. government sponsored agencies, including Fannie Mae,
Freddie Mac and Ginnie Mae.
Among other securities, our investments in the private label mortgage-backed securities, trust preferred
securities, perpetual preferred securities, equity securities, and bank issued corporate bonds may pose a higher
risk of future impairment charges to us as a result of the persistently weak U.S. economy and its potential
negative effect on the future performance of these bank issuers and/or the underlying mortgage loan collateral.
Additionally, some bank issuers of trust preferred securities may elect to defer future payments of interest on
such securities either based upon recommendations by the U.S. Government and the banking regulators or
management decisions driven by potential liquidity needs. Such elections by issuers of securities within our
investment portfolio could adversely affect securities valuations and result in future impairment charges if
collection of deferred and accrued interest (or principal upon maturity) is deemed unlikely by management.
Although these securities may pose a greater risk of impairment charges, many of the bank issuers of trust
preferred securities within our investment portfolio were allowed by their bank regulators to exit the U.S.
Treasury’s TARP Capital Purchase Program, and their capital ratios are at or above the minimum amounts to be
considered “well-capitalized” under current regulatory guidelines. For the small number of bank issuers within
our portfolio that remain TARP participants, dividend payments to trust preferred security holders are senior to
and payable before dividends can be paid on the preferred stock issued under the TARP Capital Purchase
Program. See the “Other-Than-Temporary Impairment Analysis” section below for further details.
56
Investment securities at December 31, 2010, 2009, and 2008 were as follows:
2010
2009
2008
(in thousands)
Held to maturity:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 100,161
—
387,280
1,114,469
269,368
52,715
$
— $
—
313,360
936,385
281,836
52,807
—
24,958
201,858
593,275
281,824
52,822
Total investment securities held to maturity (amortized cost) . . . . .
$1,923,993
$1,584,388
$1,154,737
Available for sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 163,810
88,800
29,462
610,358
41,083
53,961
$ 276,285
—
33,411
940,505
36,412
19,042
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
987,474
47,808
1,305,655
46,826
$
—
102,564
48,191
1,215,386
29,347
5,157
1,400,645
34,797
Total investment securities available for sale (fair value)
. . . . . . . .
$1,035,282
$1,352,481
$1,435,442
Trading:
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total trading securities (fair value) . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
31,894
31,894
$
$
32,950
32,950
$
$
34,236
34,236
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,991,169
$2,969,819
$2,624,415
As of December 31, 2010, we had $1.0 billion of securities classified as available for sale, a decrease of
$317.2 million from December 31, 2009 due, in part, to our reinvestment of normal principal paydowns into U.S.
Treasury securities and residential mortgage-backed securities primarily issued by Ginnie Mae that were
classified as held to maturity during 2010. We increased our holdings of these government guaranteed securities
classified as held to maturity to help reduce credit risk and potential volatility in our balance sheet.
At December 31, 2010, we had $1.1 billion and $610.4 million of residential mortgage-backed securities
classified as held to maturity and available for sale securities, respectively. The majority of these residential
mortgage-backed securities held by us are guaranteed by federal agencies. The residential mortgage-backed
securities included $5.8 million and $98.3 million of private label mortgage-backed securities classified as held
to maturity and available for sale securities, respectively.
Our trading securities portfolio consists of 4 single-issuer bank trust preferred securities with fair values of
$31.9 million and $33.0 million at December 31, 2010 and 2009, respectively.
57
The following table presents the maturity distribution schedule with its corresponding weighted-average
yields of held to maturity and available for sale securities at December 31, 2010:
0-1 year
1-5 years
5-10 years
over 10 years
Total
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
($ in thousands)
Held to maturity (1):
U.S. Treasury securities . . . . $ — — % $ — — % $ 66,273 3.27% $
Obligations of states and
33,888 3.70% $ 100,161 3.39%
political subdivisions (3)
. .
Residential mortgage-backed
securities (4) . . . . . . . . . . . .
Trust preferred securities . . .
Corporate and other debt
securities . . . . . . . . . . . . . .
186,617 1.61
34,486 5.76
65,658 5.63
100,519 5.66
387,280 3.71
— —
— —
19 9.44
— —
16,922 4.80
— —
1,097,528 3.50
269,368 6.81
1,114,469 3.52
269,368 6.81
507 6.24
28,175 5.87
15,050 8.49
8,983 7.39
52,715 6.88
Total
. . . . . . . . . . . . . . . . . . . $187,124 1.62% $62,680 5.81% $163,903 4.85% $1,510,286 4.26% $1,923,993 4.10%
Available for sale:
U.S. Treasury securities . . . . $100,627 0.71% $63,183 1.49% $ — — % $
U.S. government agency
— — % $ 163,810 1.01%
securities . . . . . . . . . . . . . .
— —
— —
50,144 1.14
38,656 3.41
88,800 2.09
Obligations of states and
political subdivisions (3)
. .
Residential mortgage-backed
securities (4) . . . . . . . . . . . .
Trust preferred securities . . .
Corporate and other debt
6,145 6.68
3,448 7.34
9,604 3.62
10,265 4.19
29,462 4.89
378 7.67
— —
5,012 6.22
— —
68,566 5.12
— —
536,402 5.47
41,083 3.53
610,358 5.43
41,083 3.53
securities . . . . . . . . . . . . . .
2,050 5.87
11,051 3.51
27,062 4.73
13,798 4.18
53,961 4.23
Total (5)
. . . . . . . . . . . . . . . . . $109,200 1.17% $82,694 2.29% $155,376 3.67% $ 640,204 5.17% $ 987,474 4.24%
(1) Held to maturity amounts are presented at amortized costs, stated at cost less principal reductions, if any, and adjusted for
accretion of discounts and amortization of premiums. Available for sale amounts are presented at fair value.
(2) Average yields are calculated on a yield-to-maturity basis.
(3) Average yields on obligations of states and political subdivisions are generally tax-exempt and calculated on a
tax-equivalent basis using a statutory federal income tax rate of 35 percent.
(4) Residential mortgage-backed securities are shown using stated final maturity.
(5)
Excludes equity securities, which do not have maturities.
The residential mortgage-backed securities portfolio is a significant source of our liquidity through the
monthly cash flow of principal and interest. Mortgage-backed securities, like all securities, are sensitive to
change in the interest rate environment, increasing and decreasing in value as interest rates fall and rise. As
interest rates fall, the potential increase in prepayments can reduce the yield on the mortgage-backed securities
portfolio, and reinvestment of the proceeds will be at lower yields. Conversely, rising interest rates may reduce
cash flows from prepayments and extend anticipated duration of these assets. We monitor the changes in interest
rates, cash flows and duration, in accordance with our investment policies. Management seeks out investment
securities with an attractive spread over our cost of funds.
Other-Than-Temporary Impairment Analysis
We may be required to record impairment charges on our investment securities if they suffer a decline in
value that is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of
certain investment securities, absence of reliable pricing information for investment securities, adverse changes
in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could
have a negative effect on our investment portfolio and may result in other-than-temporary impairment on our
investment securities in future periods.
58
Other-than-temporary impairment means we believe the security’s impairment is due to factors that could
include its inability to pay interest or dividends, its potential for default, and/or other factors. As a result of the
current authoritative accounting guidance, when a held to maturity or available for sale debt security is assessed
for other-than-temporary impairment, we have to first consider (i) whether we intend to sell the security, and
(ii) whether it is more likely than not that we will be required to sell the security prior to recovery of its
amortized cost basis. If one of these circumstances applies to a security, an other-than-temporary impairment loss
is recognized in the statement of income equal to the full amount of the decline in fair value below amortized
cost. If neither of these circumstances applies to a security, but we do not expect to recover the entire amortized
cost basis, an other-than-temporary impairment loss has occurred that must be separated into two categories:
(i) the amount related to credit loss, and (ii) the amount related to other factors. In assessing the level of other-
than-temporary impairment attributable to credit loss, we compare the present value of cash flows expected to be
collected with the amortized cost basis of the security. As discussed above, the portion of the total other-than-
temporary impairment related to credit loss is recognized in earnings, while the amount related to other factors is
recognized in other comprehensive income. The total other-than-temporary impairment loss is presented in the
statement of income, less the portion recognized in other comprehensive income. The amount of an additional
other-than-temporary impairment related to credit losses recognized during the period, may be recorded as a
reclassification adjustment from the accumulated other comprehensive income. When a debt security becomes
other-than-temporarily impaired, its amortized cost basis is reduced to reflect the portion of the total impairment
related to credit loss.
To determine whether a security’s impairment is other-than-temporary, we consider factors that include:
• The causes of the decline in fair value, such as credit problems, interest rate fluctuations, or market
volatility;
• The severity and duration of the decline;
• Our ability and intent to hold equity security investments until they recover in value, as well as the
likelihood of such a recovery in the near term; and
• Our intent to sell debt security investments, or if it is more likely than not that we will be required to
sell such securities before recovery of their individual amortized cost basis.
For debt securities, the primary consideration in determining whether impairment is other-than-temporary is
whether or not we expect to collect all contractual cash flows.
The investment grades in the table below reflect independent analysis performed by third parties of each
security. For many securities, the rating agencies may not have performed an independent analysis of the
tranches owned by us, but rather an analysis of the entire investment pool. For this and other reasons, we believe
the assigned investment grades may not accurately reflect the actual credit quality of each security and should not
be viewed in isolation as a measure of the quality of our investment portfolio.
59
The following table presents the held to maturity and available for sale investment securities portfolios by
investment grades at December 31, 2010:
Amortized
Cost
December 31, 2010
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Held to Maturity:
Investment grades*
AAA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BBB Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-investment grade . . . . . . . . . . . . . . . . . . . . . . . .
Not rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,258,026
135,813
96,353
123,038
24,488
286,275
$31,425
1,317
4,278
2,875
1,950
82
$ (5,292) $1,284,159
135,233
100,368
116,968
26,029
236,115
(1,897)
(263)
(8,945)
(409)
(50,242)
Total investment securities held to maturity . . .
$1,923,993
$41,927
$(67,048) $1,898,872
Available for sale:
Investment grades*
AAA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BBB Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-investment grade . . . . . . . . . . . . . . . . . . . . . . . .
Not rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 747,786
33,911
40,865
57,712
107,247
26,485
$36,292
1,172
2,428
554
978
824
$
(440) $ 783,638
33,743
32,997
54,120
103,676
27,108
(1,340)
(10,296)
(4,146)
(4,549)
(201)
Total investment securities available for
sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,014,006
$42,248
$(20,972) $1,035,282
* Rated using external rating agencies (primarily S&P and Moody’s). Ratings categories include entire range.
For example, “A rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the
higher of the rating levels.
The held to maturity portfolio includes $286.3 million in investments not rated by the rating agencies with
aggregate unrealized losses of $50.2 million at December 31, 2010. The unrealized losses for this category relate
mainly to 11 single-issuer bank trust preferred securities, of which $38.1 million in unrealized losses relate to
securities issued by one bank holding company with a combined amortized cost of $55.0 million. However, the
issuer’s principal subsidiary bank reported, in its most recent regulatory filing, that it meets the regulatory capital
minimum requirements to be considered a “well-capitalized institution” as of December 31, 2010 (see the “Held
to Maturity” section of Note 4 to the consolidated financial statements for further information regarding our
analysis of this bank issuer). Based on this information, management believes that we will receive all principal
and interest contractually due on both security issuances. We will continue to closely monitor the credit risk of
this issuer and may be required to recognize other-than-temporary impairment on such securities in future
periods. All other single-issuer bank trust preferred securities classified as held to maturity or available for sale
are paying in accordance with their contractual terms and have no deferrals of interest or defaults. Additionally,
we analyze the performance of each issuer on a quarterly basis, including a review of performance data from the
issuer’s most recent bank regulatory report to assess the company’s credit risk and the probability of impairment
of the contractual cash flows of the applicable security. Based upon our quarterly review, all of the issuers appear
to meet the regulatory capital minimum requirements to be considered a “well-capitalized” financial institution
and/or have maintained performance levels adequate to support the contractual cash flows of the security.
Although the majority of these financial
in their debt service payments at
December 31, 2010, there can be no assurance that the current economic conditions or bank regulatory actions
institutions were current
60
will not impair the institutions’ future ability to repay our investment in the trust preferred securities, which may
result in significant other-than-temporary impairment charges to our future earnings. In this volatile environment
a growing number of banking institutions have been required to defer trust preferred payments and a growing
number of banking institutions have been put in receivership by the FDIC during the past two years. A deferral
event by a bank holding company for which we hold trust preferred securities may require us to recognize an
other-than-temporary impairment charge if we determine that we no longer expect to collect all contractual
interest and principal, and an FDIC receivership for any single-issuer would result in a significant loss. See Note
4 to the consolidated financial statements for further details on our trust preferred securities portfolios.
The available for sale portfolio includes investments with non-investment grade ratings with amortized costs
and fair values totaling $107.2 million and $103.7 million, respectively, at December 31, 2010. The $4.5 million
in unrealized losses for this category mainly relate to 4 private label mortgage-backed securities and 2 pooled
trust preferred securities. The two pooled trust preferred securities and three of the four private label mortgage-
backed securities were previously impaired and are discussed further in the “Other-than-Temporarily Impaired
Securities” section below and Note 4 to the consolidated financial statements.
Other-than-Temporarily Impaired Securities
Other-than-temporary impairment is a non-cash charge and not necessarily an indicator of a permanent
decline in value. Security valuations require significant estimates, judgments and assumptions by management
and are considered a critical accounting policy of Valley. See the “Critical Accounting Policies and Estimates”
section of this MD&A for further discussion of this policy and Note 4 to the consolidated financial statements for
further details.
The following table provides information regarding our other-than-temporary impairment charges on
securities recognized in earnings for the years ended December 31, 2010, 2009, and 2008:
2010
2009
2008
(in thousands)
Held to Maturity:
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$ —
$ 7,846
Available for sale:
Residential mortgage-backed securities . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,265
2,377
—
5,735
183
434
6,435
—
70,554
Net impairment losses on securities recognized in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,642
$6,352
$84,835
Impaired Trust Preferred Securities. All of the other-than-temporary impairment charges on trust
preferred securities in the table above relate to two pooled trust preferred securities with a combined amortized
cost and fair value of $6.2 million and $3.3 million, respectively, at December 31, 2010, after recognition of all
credit impairments. At December 31, 2008, two pooled trust preferred securities (originally classified as held to
maturity) were initially found to be other-than-temporarily impaired and resulted in an impairment charge of $7.8
million, as each of Valley’s tranches in the securities had projected cash flows below their future contractual
principal and interest payments. After the impairment, management no longer had a positive intent to hold the
pooled trust preferred securities to their maturity dates due to the significant deterioration in issuers’
creditworthiness, and as a result, we were required to transfer these securities, with a total adjusted carrying value
of $1.1 million at the time of transfer, from the held to maturity portfolio to the available for sale portfolio at
December 31, 2008. During the year ended December 31, 2009, we recognized additional estimated credit losses
of $183 thousand for one of the two previously impaired pooled trust preferred securities and, in 2010, both
securities had additional estimated credit losses of $2.4 million as higher default rates decreased the expected
cash flows from the security in both periods.
61
Due to Valley’s early adoption of the authoritative accounting guidance under ASC Topic 320 on January 1,
2009, the amortized cost amounts for the two impaired pooled trust preferred securities were increased by a total
of $7.5 million at January 1, 2009 for the non-credit portion of the $7.8 million impairment charge taken during
the fourth quarter of 2008.
Impaired Residential Mortgage-Backed Securities. During 2010, Valley recognized impairment charges
on 5 of the 19 individual private label mortgage-backed securities classified as available for sale. All of these
securities, with the exception of one private label mortgage-backed security initially impaired in 2010, were
found to be previously impaired in 2009 and one security was initially impaired in 2008. At December 31, 2010,
the five private label mortgage-backed securities had a combined amortized cost of $51.1 million and fair value
of $50.9 million, respectively. Although Valley recognized other-than-temporary impairment charges on the
securities, each security is currently performing in accordance with its contractual obligations. See the “Other-
Than-Temporary Impairment Analysis” section above for further details regarding the impairment analysis of
residential mortgage-backed securities.
Due to Valley’s early adoption of the authoritative accounting guidance under ASC Topic 320 on January 1,
2009, the amortized cost for one private label mortgage-backed security was increased by a total of $6.2 million
at January 1, 2009 for the non-credit portion of the $6.4 million impairment charge taken during the fourth
quarter of 2008.
Impaired Equity Securities. For the years ended December 31, 2009 and 2008, we recognized other-than-
temporary impairment charges of $434 thousand and $70.6 million, respectively, on equity securities classified
as available for sale. The 2009 impairment charge relates to one common equity security issued by a bank with
an adjusted carrying value of $723 thousand at December 31, 2009. The impairment was recognized based on the
length of time and the severity of the difference between the security’s book value and its observable market
price and the security’s near term prospects for recovery. For the year-ended December 31, 2008, the majority of
the impairment charges related to perpetual preferred equity securities issued by Fannie Mae and Freddie Mac as
a significant decline in market value of these securities was caused by the U.S. Government placing these entities
into conservatorship and suspending their preferred stock dividends during the third quarter of 2008.
62
Loan Portfolio
The following table reflects the composition of the loan portfolio for the years indicated.
2010
2009
2008
2007
2006
At December 31,
($ in thousands)
. . . . . . . . . . . . .
$1,825,066
$1,801,251
$ 1,965,372
$1,563,150
$1,466,862
Non-covered loans
Commercial and industrial
Commercial real estate:
Commercial real estate . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . .
3,378,252
428,232
3,500,419
440,046
3,324,082
510,519
2,370,345
402,806
2,309,217
526,318
Total commercial real estate . . . . . . . . . . . .
3,806,484
3,940,465
3,834,601
2,773,151
2,835,535
Residential mortgage . . . . . . . . . . . . . . . . . .
Consumer:
1,925,430
1,943,249
2,269,935
2,063,242
2,106,306
Home equity . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . .
512,745
850,801
88,614
566,303
1,029,958
88,845
607,700
1,364,343
101,739
554,830
1,447,838
94,010
571,138
1,238,145
113,699
Total consumer loans . . . . . . . . . . . . . . . . .
1,452,160
1,685,106
2,073,782
2,096,678
1,922,982
Total non-covered loans . . . . . . . . . . . . . . .
9,009,140
9,370,071
10,143,690
8,496,221
8,331,685
Covered loans (1)
. . . . . . . . . . . . . . . . . . . . .
356,655
—
—
—
—
Total loans (2) . . . . . . . . . . . . . . . . . . . . . . . .
$9,365,795
$9,370,071
$10,143,690
$8,496,221
$8,331,685
As a percent of total loans:
Commercial and industrial
. . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . .
19.5%
40.6
20.6
15.5
3.8
19.2%
42.1
20.7
18.0
—
19.4%
37.8
22.4
20.4
—
18.4%
32.6
24.3
24.7
—
17.6%
34.0
25.3
23.1
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
100.0%
100.0%
100.0%
(1) Covered loans primarily consist of commercial and industrial loans and commercial real estate loans totaling
(2)
$316.8 million at December 31, 2010.
Total loans are net of unearned discount and deferred loan fees totaling $9.3 million, $8.7 million, $4.8
million, $3.5 million, and $5.1 million at December 31, 2010, 2009, 2008, 2007, and 2006, respectively.
Non-covered Loans
Non-covered loans are loans not subject to loss sharing agreements with the FDIC. During 2010, we
extended approximately $1.9 billion in new and renewed credit to quality existing and new customers while
maintaining our conservative underwriting standards. However, the non-covered loan portfolio declined $360.9
million, or 3.9 percent, to $9.0 billion at December 31, 2010 from $9.4 billion at December 31, 2009. The
decrease was primarily due to lower volumes in most of the loan classes, including declines caused by continued
economic uncertainty and high unemployment in 2010, our conservative underwriting standards, and strong rate
competition, mainly with regards to auto loans, from other financial institutions. In addition, approximately $376
million of our fixed-rate conforming refinanced and new residential mortgage loan originations were held for
sale or sold in the secondary market during 2010 due to the historically low level of interest rates. Our residential
mortgage loan balances were also negatively impacted by our decision to transfer approximately $83 million of
conforming 15 and 20 year fixed-rate residential mortgages from our loan portfolio to loans held for sale, and
subsequently sold in the secondary market during the fourth quarter of 2010. The decision to sell these loans was
based on the likelihood that such loans would prepay in the short-term due to the current low level of interest
rates.
63
Our commercial loan portfolios, which includes commercial and industrial, commercial real estate, and
construction loans, decreased $110.2 million or 1.9 percent during the year ended December 31, 2010 as
compared to 2009 mainly due to declines in both the commercial real estate and construction loan portfolios
stemming from the weak economy, high unemployment and the soft housing market. We believe many of these
borrowers are reluctant to expand their business operations or enter into new ventures until they see stronger
signals of improvement. Additionally, many of these borrowers continued to pay down lines of credit and
accelerated payment of loan balances with their own excess liquidity. However, our commercial and industrial
loans increased $23.8 million or 1.32 percent during the year ended December 31, 2010 as compared to 2009
mainly due to slightly stronger loan demand in our New York markets as new and existing customers seem less
reluctant about the state of the economy and began investing in their companies and carrying higher balances on
their lines of credit during 2010.
Residential mortgage loans declined $17.8 million to $1.9 billion at December 31, 2010 as compared to one
year ago mostly as expected as we sold many of our refinanced and new loan originations with historically low
fixed rates in the secondary market during 2010. As previously noted, we also sold $83 million in fixed-rate
loans during the fourth quarter of 2010 that were transferred from our portfolio to loans held for sale in the third
quarter of 2010. During 2010, we experienced strong loan origination volume due to the success of our low-cost
refinancing program and the historically low level of interest rates. During the fourth quarter of 2010, we grew
the residential mortgage loan portfolio by over seven percent on an annualized basis from the third quarter of
2010 due to the success of our aforementioned refinance program, and our decision to retain, rather than sell in
the secondary market, some fixed-rate mortgage loans meeting certain collateral and interest rate levels. Our
residential mortgage loan balances may continue to fluctuate based on the levels of market interest rates, new and
refinance loan activity, and qualified borrowers.
The total consumer loan portfolio decreased $232.9 million, or 13.8 percent to $1.5 billion at December 31,
2010 as compared to 2009 primarily due to the declines in automobile and home equity loans of $179.2 million
and $53.6 million, respectively. Auto loan balances have declined due to several factors, including our high
credit standards, acceptable loan to collateral value levels, and high unemployment levels. Additionally, in an
attempt to build market share, some large competitors have begun to offer rates and terms that are well below
levels we believe to be profitable in the second half of 2010. These factors may continue to constrain the levels
of our auto loan originations well into 2011. Home equity loans continued to decline in 2010 as many borrowers
continued to refinance their first mortgages at historically low rates and roll home equity balances into the new
mortgage. Additionally, home equity line of credit usage remained low as customers changed their spending
habits over concerns about the economy. Typically, our home equity loans are provided as a convenience to our
existing residential mortgage customers and are expected to fluctuate based upon the level of loan volumes
within the residential mortgage portfolio.
Much of our lending is in northern and central New Jersey and New York City, with the exception of
smaller auto and residential mortgage loan portfolios derived mainly from the neighboring states of Pennsylvania
and Connecticut, which could present a geographic and credit risk if there was a another significant broad based
economic downturn or a prolonged economic recovery within the region. To mitigate these risks, we make
efforts to maintain a diversified portfolio as to type of borrower and loan to guard against a potential downward
turn in any one economic sector. The impact of the persistently weak economic conditions and high
unemployment in our region during 2010 has limited the number of new quality loan opportunities in our
primary markets and impacted the performance of our loan portfolio (see the “Non-performing Assets” section
below). We can provide no assurance that our markets will not deteriorate beyond their current levels in the
future and cause an increase in the credit risk of our loan portfolio.
64
The following table reflects the contractual maturity distribution of the commercial and industrial, and
construction loans within our non-covered loan portfolio as of December 31, 2010:
One Year
or Less
One to
Five Years
Over Five
Years
Total
(in thousands)
Commercial and industrial - fixed-rate . . . . . . . . . . . . . . . . . . .
Commercial and industrial - adjustable-rate . . . . . . . . . . . . . . .
Construction - fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction - adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 486,251
674,989
20,534
70,830
$238,197
330,652
68,163
235,116
$ 39,770
55,207
7,549
26,040
$ 764,218
1,060,848
96,246
331,986
$1,252,604
$872,128
$128,566
$2,253,298
We may renew loans at maturity when requested by a customer. In such instances, we generally conduct a
review which includes an analysis of the borrower’s financial condition and, if applicable, a review of the
adequacy of collateral. A rollover of the loan at maturity may require a principal reduction or other modified
terms.
Covered Loans
Loans for which the Bank will share losses with the FDIC are referred to as “covered loans,” and consist of
loans acquired from LibertyPointe Bank and The Park Avenue Bank as a part of two FDIC-assisted transactions
during the first quarter of 2010. Our covered loans consist primarily of commercial real estate loans and
commercial and industrial loans and totaled $356.7 million at December 31, 2010 and $412.3 million at the
acquisition dates.
Covered loans are accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities
Acquired with Deteriorated Credit Quality,” since all of these loans were acquired at a discount attributable, at
least in part, to credit quality and are not subsequently accounted for at fair value. Covered loans were initially
recorded at fair value (as determined by the present value of expected future cash flows) with no valuation
allowance (i.e., the allowance for loan losses). Under ASC Subtopic 310-30, the covered loans were aggregated
and accounted for as pools of loans based on common risk characteristics.
The difference between the undiscounted cash flows expected at acquisition and the investment in the
covered loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the
life of the loans in each pool. Contractually required payments for interest and principal that exceed the
undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield
adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the
acquisition are recognized prospectively through an adjustment of the yield on the pool over its remaining life,
while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in
the allowance for loan losses.
Covered loans are subject to the Bank’s credit review and monitoring. During the fourth quarter of 2010,
certain pools of covered loans experienced decreases in their expected cash flows based on higher levels of credit
impairment than originally forecasted by us at the acquisition dates. Accordingly, we recorded a $6.4 million
provision for losses on covered loans as a component of our provision of credit losses in the consolidated
statement of income for the year ended December 31, 2010. The $6.4 million provision was partially offset by
$5.1 million in non-interest income reflecting the applicable increase in our FDIC loss-share receivable for the
FDIC’s portion of the additional estimated credit losses under the loss sharing agreements with us.
FDIC Loss-Share Receivable Related to Covered Loans and Foreclosed Assets
The receivable arising from the loss sharing agreements (referred to as the “FDIC loss-share receivable” on
our statements of financial condition) is measured separately from the covered loan pools because the agreements
65
are not contractually part of the covered loans and are not transferable should the Bank choose to dispose of the
covered loans. As of the acquisition date, we recorded an FDIC loss-share receivable of $108.0 million,
consisting of the present value of the expected future cash flows the Bank expected to receive from the FDIC
under the loss sharing agreements. The FDIC loss-share receivable is reduced as the loss sharing payments are
received from the FDIC for losses realized on covered loans and other real estate owned acquired in the FDIC-
assisted transactions. Realized losses in excess of the acquisition date estimates will result in an increase in the
FDIC loss-share receivable and the immediate recognition of non-interest
financial
statements. However, reductions in the FDIC loss-share receivable due to realized losses less than the acquisition
date estimates are recognized prospectively over the shorter of (i) the estimated life of the applicable pools of
covered loans or (ii) the term of the loss sharing agreements with the FDIC. During the year ended December 31,
2010, we recorded $1.2 million of discount accretion in non-interest income and, as noted under covered loans
above, $5.1 million of non-interest income due to the increase in the FDIC loss-share receivable caused by the
additional credit impairment on certain covered loans which is to be accreted prospectively as a yield adjustment.
At December 31, 2010, the carrying amount of the FDIC loss-share receivable totaled $89.4 million.
income in our
See Notes 2 and 5 to the consolidated financial statements for further details on our covered loans, FDIC
loss-share receivable, and the FDIC-assisted transactions.
Non-performing Assets
Non-performing assets include non-accrual loans, other real estate owned (“OREO”), and other repossessed
assets which consist of automobiles, as well as one aircraft at December 31, 2010. Loans are generally placed on
non-accrual status when they become past due in excess of 90 days as to payment of principal or interest.
Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process
of collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO and other
repossessed assets are reported at the lower of cost or fair value, less cost to sell at the time of acquisition and at
the lower of fair value, less estimated costs to sell, or cost thereafter. See Note 1 to the consolidated financial
statements for details about our loan accounting policies. Given the persistently weak economy, and relative to
our peers, the level of non-performing assets remained relatively low as a percentage of the total loan portfolio
although they increased steadily since 2008, as shown in the table below.
66
The following tables set forth by loan category, accruing past due and non-performing assets on
non-covered loans on the dates indicated in conjunction with our asset quality ratios:
2010
2009
At December 31,
2008
($ in thousands)
2007
2006
Accruing past due loans: (1)
30 to 89 days past due:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,852
14,563
2,804
12,682
14,638
$11,949
4,539
1,834
12,462
22,835
$13,299
5,005
5,456
12,189
23,275
$ 5,839
5,233
12,047
6,486
16,210
$ 3,346
8,537
8,402
5,530
13,166
Total 30 to 89 days past due . . . . . . . . . . . . . . . . . . . . . . . . .
58,539
53,619
59,224
45,815
38,981
90 or more days past due:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total 90 or more days past due . . . . . . . . . . . . . . . . . . . . . .
12
—
196
1,556
723
2,487
$ 2,191
250
—
1,421
1,263
$
864
4,257
3,156
5,323
1,957
5,125
15,557
$
814
1,407
3,154
1,592
1,495
8,462
$
321
1,381
683
625
765
3,775
Total accruing past due loans . . . . . . . . . . . . . . . . . . . . . . . .
$ 61,026
$58,744
$74,781
$54,277
$42,756
Non-accrual loans: (1)
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,721
32,981
27,312
28,494
2,547
$17,424
29,844
19,905
22,922
1,869
$10,511
14,895
877
6,195
595
$10,931
15,940
833
2,693
226
$ 8,989
16,198
—
1,727
330
Total non-accrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105,055
91,964
33,073
30,623
27,244
Other real estate owned (“OREO”) (2)
. . . . . . . . . . . . . . . . .
Other repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,498
1,707
3,869
2,565
8,278
4,317
609
1,466
779
844
Total non-performing assets (“NPAs”) . . . . . . . . . . . . . . . .
$117,260
$98,398
$45,668
$32,698
$28,867
Performing troubled debt restructured loans . . . . . . . . . . . .
Total non-accrual loans as a % of loans . . . . . . . . . . . . . . . .
Total NPAs as a % of loans and NPAs . . . . . . . . . . . . . . . .
Total accruing past due and non-accrual loans as a % of
$ 89,696
$19,072
$ 7,628
$ 8,363
$
1.12%
1.24
0.98%
1.04
0.33%
0.45
0.36%
0.38
713
0.33%
0.35
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.77
1.61
1.06
1.00
0.84
Allowance for losses on non-covered loans as a % of
non-accrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112.63
110.90
281.93
237.29
274.25
(1)
(2)
Past due loans and non-accrual loans exclude loans that were acquired as part of the LibertyPointe Bank and
The Park Avenue Bank FDIC-assisted transactions. These loans are accounted for on a pool basis.
This table excludes OREO that is related to the LibertyPointe Bank and The Park Avenue Bank FDIC-
assisted transactions. OREO related to the FDIC-assisted transactions, which totaled $7.8 million at
December 31, 2010, is subject to the loss-sharing agreements with the FDIC.
Total non-performing assets (“NPAs”), consisting of non-accrual loans, OREO and other repossessed assets,
totaled $117.3 million, or 1.24 percent of loans and NPAs at December 31, 2010 compared to $98.4 million, or
1.04 percent of loans and NPAs at December 31, 2009. The increase was mainly due to non-accrual loans, which
67
increased $13.1 million to $105.1 million as compared to $92.0 million at December 31, 2009. Approximately 85
percent of the total non-accrual loans are comprised of construction, residential mortgage and commercial real
estate loans, in which Valley has historically had very low loss rates due to its conservative underwriting
standards, including conservative loan to value ratios.
At December 31, 2010, non-accrual commercial real estate and construction loans, which totaled $60.3
million, consisted of 74 and 18 credit relationships, respectively, which have been negatively impacted by the
current economic conditions and slowdown in the real estate markets. Non-accrual residential mortgage loans
increased to 1.48 percent of the residential mortgage loan portfolio at December 31, 2010 mainly due to higher
unemployment and unfavorable market conditions caused by the slow economic recovery. Non-accrual
commercial and industrial loans decreased $3.7 million mainly due to one charge-off within the non-accrual
category which totaled $3.2 million.
Although the timing of collection is uncertain, management believes most of the non-accrual loans are well
secured and largely collectible based on, in part, our quarterly review of impaired loans. Our impaired loans,
mainly consisting of non-accrual and troubled debt restructured commercial and commercial real estate loans,
totaled $154.3 million at December 31, 2010 and had $15.2 million in related specific reserves included in our
total allowance for loan losses.
If interest on non-accrual loans had been accrued in accordance with the original contractual terms, such
interest income would have amounted to approximately $7.9 million, $6.5 million, and $2.7 million for the years
ended December 31, 2010, 2009, and 2008, respectively; none of these amounts were included in interest income
during these periods. Interest income recognized on loans once classified as non-accrual loans was immaterial for
the years ended December 31, 2010, 2009, and 2008, respectively. No mortgage loans classified as loans held for
sale and carried at fair value were on non-accrual status at December 31, 2010. See Note 5 to the consolidated
financial statements for further analysis of our impaired loans.
OREO and other repossessed assets, excluding OREO subject to loss-sharing agreements with the FDIC,
totaled a combined $12.2 million at December 31, 2010 as compared to $6.4 million at December 31, 2009. The
increase during 2010 was largely due to one additional OREO property with a carrying value of $5.3 million at
December 31, 2010. Other repossessed assets are comprised of automobiles and one aircraft at December 31,
2010 and 2009. Our residential mortgage loan foreclosure activity remains low due to the nominal amount of
individual loan delinquencies within this portfolio.
We evaluated our foreclosure documentation procedures, given the recent announcements made by other
financial institutions regarding their foreclosure activities. The results of our review indicate that our procedures
for reviewing and validating the information in our documentation are sound and we believe our foreclosure
affidavits are accurate.
Loans 90 days or more past due and still accruing, which were not included in the non-performing category,
are presented in the above table. These loans ranged from 0.03 percent to 0.15 percent of total loans for the last
five years and decreased $2.6 million to $2.5 million, or 0.03 percent of total loans at December 31, 2010 as
compared to $5.1 million, or 0.05 percent at December 31, 2009. This decrease was primarily due to the
migration of commercial and industrial loans, and consumer loans to the non-accrual loan delinquency category.
Loans past due 90 days or more and still accruing represent most loan types and are considered to be well
secured and in the process of collection.
Performing troubled debt restructured loans (“restructured loans”) with modified terms and not reported as
loans 90 days or more past due and still accruing or non-accrual, are performing restructured loans to customers
experiencing financial difficulties where a concession has been granted. All loan modifications are made on a
case-by-case basis. The majority of our loan modifications that are considered restructured loans involve
68
lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an
rate, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or
interest. In addition, we frequently obtain additional collateral or guarantor support when modifying such loans.
Valley has continued its efforts to assist customers by modifying certain performing loans during 2010. Our
performing restructured loans increased to $89.7 million at December 31, 2010 and consisted of 44 loans
(primarily commercial and industrial loans and commercial real estate loans) as compared to 7 commercial and
industrial loans totaling $19.1 million at December 31, 2009. On an aggregate basis, the $89.7 million in
restructured loans at December 31, 2010 had a weighted average modified interest rate of approximately 5.14
percent as compared to a yield of 5.64 percent on the entire loan portfolio for the fourth quarter of 2010.
Although we believe that substantially all risk elements at December 31, 2010 have been disclosed in the
categories presented above, it is possible that for a variety of reasons, including economic conditions, certain
borrowers may be unable to comply with the contractual repayment terms on certain real estate and commercial
loans. As part of the analysis of the loan portfolio, management determined that there were approximately $47.9
million and $56.9 million in potential problem loans at December 31, 2010 and 2009, respectively, which were
not classified as non-accrual loans in the non-performing asset table above. Potential problem loans are defined
as performing loans for which management has serious doubts as to the ability of such borrowers to comply with
the present loan repayment terms and which may result in a non-performing loan. Our decision to include
performing loans in potential problem loans does not necessarily mean that management expects losses to occur,
but that management recognizes potential problem loans carry a higher probability of default. Of the $47.9
million in potential problem loans as of December 31, 2010, approximately $13.7 million is considered at risk
after collateral values and guarantees are taken into consideration. At December 31, 2010, the potential problem
loans consist of various types of credits, including commercial mortgages, revolving commercial lines of credit
and commercial leases. There can be no assurance that Valley has identified all of its potential problem loans at
December 31, 2010.
Asset Quality and Risk Elements
Lending is one of the most important functions performed by Valley and, by its very nature, lending is also
the most complicated, risky and profitable part of our business. For our commercial loan portfolio, comprised of
commercial and industrial
loans, commercial real estate loans, and construction loans, a separate credit
department is responsible for risk assessment and periodically evaluating overall creditworthiness of a borrower.
Additionally, efforts are made to limit concentrations of credit so as to minimize the impact of a downturn in any
one economic sector. Our loan portfolio is diversified as to type of borrower and loan. However, loans
collateralized by real estate represent approximately 65 percent of total loans at December 31, 2010. Most of the
loans collateralized by real estate are in northern and central New Jersey and New York City, presenting a
geographical and credit risk if there was a further significant broad-based deterioration in economic conditions
within the region.
Consumer loans are comprised of residential mortgage loans, home equity loans, automobile loans and other
consumer loans. Residential mortgage loans are secured by 1-4 family properties generally located in counties
where we have branch presence and counties contiguous thereto (including Pennsylvania). We do provide
mortgage loans secured by homes beyond this primary geographic area; however, lending outside this primary
area is generally made in support of existing customer relationships. Residential mortgage loan underwriting
policies that are based on Fannie Mae and Freddie Mac guidelines are adhered to for loan requests of conforming
and non-conforming amounts. The weighted average loan-to-value ratio of all residential mortgage originations
in 2010 was 53 percent while FICO® (independent objective criteria measuring the creditworthiness of a
borrower) scores averaged 768. Home equity and automobile loans are secured loans and are made based on an
evaluation of the collateral and the borrower’s creditworthiness. In addition to New Jersey, automobile loans are
primarily originated in several other states. Due to the level of our underwriting standards applied to all loans,
69
management believes the out of state loans generally present no more risk than those made within New Jersey.
However, each loan or group of loans made outside of our primary markets poses different geographic risks
based upon the economy of that particular region.
Management realizes that some degree of risk must be expected in the normal course of lending activities.
Allowances are maintained to absorb such loan losses inherent in the portfolio. The allowance for credit losses
and related provision are an expression of management’s evaluation of the credit portfolio and economic climate.
The following table summarizes the relationship among loans, loans charged-off, loan recoveries, the
provision for credit losses and the allowance for credit losses for the years indicated:
Average loans outstanding . . . . . . . . . . . . . . . . . . . . . . . . . $9,474,994
$9,705,909
($ in thousands)
$9,386,987
$8,261,111
$8,262,739
Beginning balance—Allowance for credit losses . . . . . . . $ 103,655
$
94,738
$
74,935
$
74,718
$
75,188
Years Ended December 31,
2010
2009
2008
2007
2006
Loans charged-off:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged-off loans recovered:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,475)
(1,823)
(1,738)
(3,741)
(10,882)
(33,659)
4,121
156
—
97
2,678
7,052
(16,981)
(3,110)
(1,197)
(3,488)
(17,689)
(42,465)
449
75
—
36
2,830
3,390
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision charged for credit losses . . . . . . . . . . . . . . . . . .
Additions from acquisitions . . . . . . . . . . . . . . . . . . . . . . . .
(26,607)
49,456
—
(39,075)
47,992
—
Ending balance—Allowance for credit losses . . . . . . . . . . $ 126,504
$ 103,655
Components of allowance for credit losses:
Allowance for non-covered loans . . . . . . . . . . . . . . . $ 118,326
6,378
Allowance for covered loans . . . . . . . . . . . . . . . . . . .
$ 101,990
—
Allowance for loan losses . . . . . . . . . . . . . . . . .
124,704
101,990
Allowance for unfunded letters of credit* . . . . . . . . .
1,800
1,665
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . $ 126,504
$ 103,655
Components of provision for credit losses:
Provision for losses on non-covered loans . . . . . . . . $
Provision for losses on covered loans . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . .
Provision for unfunded letters of credit . . . . . . . . . . .
$
42,943
6,378
49,321
135
47,821
—
47,821
171
$
$
$
$
(6,760)
(500)
—
(501)
(14,902)
(22,663)
627
6
—
—
2,141
2,774
(19,889)
28,282
11,410
94,738
93,244
—
93,244
1,494
94,738
29,059
—
29,059
(5,808)
(1,596)
—
(103)
(7,628)
(6,078)
(448)
—
(644)
(4,918)
(15,135)
(12,088)
1,427
254
—
17
1,779
3,477
(11,658)
11,875
—
74,935
72,664
—
72,664
2,271
74,935
12,751
—
12,751
$
$
$
$
$
$
$
$
528
181
—
54
1,585
2,348
(9,740)
9,270
—
74,718
74,718
—
74,718
—
74,718
9,270
—
9,270
—
(777)
(876)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . $
49,456
$
47,992
$
28,282
$
11,875
$
9,270
Ratio of net charge-offs during the period to average
loans outstanding during the period . . . . . . . . . . . . . . . .
0.28%
0.40%
0.21%
0.14%
0.12%
Allowance for non-covered loan losses as a % of
non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses as a % of total loans . . . . . . .
1.31
1.35
1.09
1.11
0.92
0.93
0.86
0.88
0.90
0.90
*
Effective January 1, 2007, Valley transferred $3.1 million of the allowance for loan losses related to commercial lending
letters of credit to other liabilities.
70
The allowance for credit losses consists of the allowance for losses on non-covered loans, the allowance for
unfunded letters of credit, and the allowance for losses on covered loans related to credit impairment of certain
covered loan pools subsequent to acquisition. Management maintains the allowance for credit losses at a level
estimated to absorb probable losses inherent in the loan portfolio and unfunded letter of credit commitments at
the balance sheet dates, based on ongoing evaluations of the loan portfolio. Our methodology for evaluating the
appropriateness of the allowance for non-covered loans includes:
•
•
•
•
•
segmentation of the loan portfolio based on the major loan categories, which consist of commercial,
commercial real estate (including construction), residential mortgage and other consumer loans;
tracking the historical levels of classified loans and delinquencies;
assessing the nature and trend of loan charge-offs;
providing specific reserves on impaired loans; and
applying economic outlook factors, assigning specific incremental reserves where necessary.
Additionally, the volume of non-performing loans, concentration risks by size, type, and geography, new
markets, collateral adequacy, credit policies and procedures, staffing, underwriting consistency, loan review and
economic conditions are taken into consideration when evaluating the adequacy of the allowance for credit
losses.
The allowance for loan losses consists of five elements: (i) specific reserves for individually impaired
credits, (ii) reserves for adversely classified, or higher risk rated, loans that are not impaired, (iii) reserves for
other loans based on historical loss factors, (iv) reserves based on general economic conditions and other
qualitative risk factors both internal and external to Valley, including changes in loan portfolio volume, the
composition and concentrations of credit, new market initiatives, and the impact of competition on loan
structuring and pricing, and (v) an allowance for impaired covered loan pools. The Credit Risk Management
Department individually evaluates non-accrual (non-homogeneous) loans within the commercial and industrial
loan and commercial real estate loan portfolio segments over a specific dollar amount and troubled debt
restructured loans within all the loan portfolio segments for impairment based on the underlying anticipated
method of payment consisting of either the expected future cash flows or the related collateral. If payment is
expected solely based on the underlying collateral, an appraisal is completed to assess the fair value of the
collateral. Collateral dependent impaired loan balances are written down to the current fair value of each loan’s
underlying collateral resulting in an immediate charge-off to the allowance, excluding any consideration for
personal guarantees that may be pursued in the Bank’s collection process. If repayment is based upon future
expected cash flows, the present value of the expected future cash flows discounted at the loan’s original
effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as a specific
valuation allowance in the allowance for credit losses.
Additionally, we individually evaluate non-accrual (non-homogeneous) loans within commercial and
commercial real estate loan portfolio segments over a specific dollar amount and troubled debt restructured loans
in all of our loan segments for impairment based on the underlying anticipated method of payment consisting of
either the expected future cash flows or the related collateral. If payment is expected solely based on the
underlying collateral, an appraisal is completed to assess the fair value of the collateral (See the “Assets and
Liabilities Measured on Non-recurring Basis” section of Note 3 to the consolidated financial statements for
further details). As required by regulatory guidance, collateral dependent impaired loan balances are written
down to the current fair value of each loan’s underlying collateral resulting in an immediate charge-off to the
allowance, excluding any consideration for personal guarantees that may be pursued in our collection process. If
repayment is based upon future expected cash flows, the present value of the expected future cash flows
discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any
shortfall is recorded as a specific valuation allowance in the allowance for credit losses. At December 31, 2010, a
$15.2 million specific valuation allowance was included in the allowance for credit losses related to $105.7
million in impaired loans that had such an allowance. See Note 5 to the consolidated financial statements for
more details regarding impaired loans.
71
The allowance allocations for non-classified loans within all of our loan portfolio segments are calculated
by applying historical loss factors by specific loan types to the applicable outstanding loans and unfunded
commitments. Loss factors are based on the Bank’s historical loss experience and may be adjusted for significant
changes in the current loan portfolio quality that, in management’s judgment, affect the collectability of the
portfolio as of the evaluation date.
The allowance contains reserves identified as the unallocated portion in the table below to cover inherent
losses within a given loan category which have not been otherwise reviewed or measured on an individual basis.
Such reserves include management’s evaluation of the national and local economy, loan portfolio volumes, the
composition and concentrations of credit, credit quality and delinquency trends. These reserves reflect
management’s attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty
that is inherent in estimates of probable credit losses.
Net charge-offs have remained relatively low in the last five years as compared to most of our peers despite
the recent economic recession and the economy’s slow recovery during 2010. During this five year period, our
net charge-offs peaked at a high of 0.40 percent of average loans during 2009 from a low of 0.12 percent in 2006.
During 2010, our net charge-offs decreased $12.5 million to 0.28 percent of average loans mainly due to lower
automobile loan charge-offs within the other consumer loan category. Despite the recent signals of a continued
economic recovery, there can be no assurance that our levels of net-charge-offs will continue to improve during
2011, and not deteriorate in the future.
The provision for credit losses was $49.5 million in 2010 compared to $48.0 million in 2009. For the year
ended December 31, 2010, the provision for credit losses included provisions for losses on non-covered loans
(i.e., loans which are not subject to our loss-sharing agreements with the FDIC) and unfunded letters of credit
which totaled a combined $43.1 million, as well as a provision for covered loan losses of $6.4 million due to
credit impairment within certain pools of covered loans acquired in FDIC-assisted transactions. The decrease of
$4.9 million in provision for non-covered loans reflects, among other factors, the lower level of net charge-offs
during 2010 compared to 2009.
The following table summarizes the allocation of the allowance for credit losses to specific loan portfolio
categories for the past five years:
2010
2009
2008
2007
2006
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Percent
of Loan
Category
to total
loans
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Allowance
Allocation
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Allowance
Allocation
($ in thousands)
Loan Category:
Commercial and
industrial* . . . . . . . . . . . . $ 58,229
19.5% $ 50,932
19.2% $44,163
19.4% $31,638
18.4% $31,888
17.6%
Commercial real estate:
Commercial real
estate . . . . . . . . . . . .
Construction . . . . . . . .
Residential mortgage . . . . .
Consumer . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . .
Allowance for non-covered
loans . . . . . . . . . . . . . . . .
Allowance for covered
15,755
14,162
9,128
14,499
8,353
36.0
4.6
20.6
15.5
—
10,253
15,263
5,397
15,480
6,330
37.4
4.7
20.7
18.0
—
120,126
103,655
10,035
15,885
4,434
14,318
5,903
94,738
32.8
5.0
22.4
20.4
—
8,788
11,748
3,124
10,815
8,822
74,935
27.9
4.7
24.3
24.7
—
9,518
15,302
3,122
8,189
6,699
74,718
27.7
6.3
25.3
23.1
—
loans . . . . . . . . . . . . . . . .
6,378
3.8
—
—
—
—
—
—
—
—
Total allowance for
credit losses . . . . . . $126,504
100.0% $103,655
100.0% $94,738
100.0% $74,935
100.0% $74,718
100.0%
* Includes the allowance for unfunded letters of credit.
72
Our total allowance for credit losses on non-covered loans amounted to $120.1 million or 1.33 percent of
non-covered loans at December 31, 2010 as compared to 1.11 percent at December 31, 2009. The increase of 22
basis points was mainly the result of an increase in the allowance attributable to commercial and industrial loans
and commercial real estate loans due to, in part, an increase in specific reserves for impaired credits and
classified loans, as well as higher loss factors applied to most loan categories due to an increase in historical loss
rates, the level of loan delinquencies, a down real estate market, high unemployment, general economic
uncertainty, and other factors identified by management.
Impaired loans, mainly consisting of non-accrual and troubled debt
restructured commercial and
commercial real estate loans, and their related specific allocations to the allowance for loan losses totaled $154.3
million and $15.2 million, respectively, at December 31, 2010 and $74.5 million and $7.3 million, respectively,
at December 31, 2009. Specific reserves for impaired loans increased $7.9 million from 2009 mainly driven by
higher levels of non-accrual commercial real estate and construction loans and performing troubled debt
restructured loans. The average balance of impaired loans during 2010, 2009, and 2008 was approximately
$104.1 million, $49.8 million, and $25.3 million, respectively.
Management believes that the unallocated allowance is appropriate given the current weakened economic
climate, the size of the loan portfolio and delinquency trends at December 31, 2010.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At December 31,
2010 and December 31, 2009, shareholders’ equity totaled approximately $1.3 billion, or 9.2 percent and 8.8
percent of total assets, respectively. During the year ended December 31, 2010, total shareholders’ equity
increased by approximately $42 million. The change was related to net income of $131.2 million, a $14.1 million
decrease in our accumulated other comprehensive loss, $8.4 million in net proceeds from 618 thousand shares of
treasury stock reissued under our dividend reinvestment plan, and increases attributable to the effect of our stock
incentive plan, partially offset by cash dividends on common stock totaling $115.2 million.
Included in shareholders’ equity as a component of accumulated other comprehensive loss at December 31,
2010 was a $13.4 million net unrealized gain on investment securities classified as available for sale, net of
deferred tax as compared to a $2.0 million net unrealized gain, net of deferred tax at December 31, 2009. Also
included as a component of accumulated other comprehensive loss at December 31, 2010 was a charge of $18.4
million, net of deferred tax, representing the unfunded portion of Valley’s various pension obligations, and a
$708 thousand unrealized loss on derivatives, net of deferred tax used in cash flow hedging relationships.
In February 2009, Valley filed a shelf registration statement on Form S-3 with the SEC, which was declared
effective immediately. This shelf registration statement allows Valley to periodically offer and sell in one or
more offerings, individually or in any combination, an unlimited aggregate amount of Valley’s common stock,
preferred stock, or warrants to purchase common stock or preferred stock or units of the two. The shelf
registration statement provides Valley with capital raising flexibility and enables Valley to promptly access the
capital markets in order to pursue growth opportunities that may become available in the future or permit Valley
to comply with any changes in the regulatory environment that call for increased capital requirements. Valley’s
ability, and any decision to issue and sell securities pursuant to the shelf registration statement, is subject to
market conditions and Valley’s capital needs at such time.
During 2009, Valley raised net proceeds of approximately $71.6 million from an “at-the-market” common
equity offering of 6.0 million shares of newly issued common stock and net proceeds of $63.7 million through an
additional registered direct offering of 5.3 million shares of newly issued common stock to several institutional
through common equity offerings during the year ended
investors. We did not raise additional capital
December 31, 2010.
73
Additional equity offerings, including shares issued under Valley’s dividend reinvestment plan (“DRIP”)
may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.
Such offerings may be necessary in the future due to several factors beyond management’s control, including
potential increases to the regulatory minimum levels of capital required to be considered a well capitalized bank
and the negative impact of a persistently weak economy. Effective June 29, 2009, Valley may issue up to
10.0 million authorized and previously unissued or treasury shares of Valley common stock for purchases under
Valley’s DRIP. Under the DRIP, a shareholder may choose to have future cash dividends automatically invested
in Valley common stock and make voluntary optional cash payments of up to $100 thousand per quarter to
purchase shares of Valley common stock. Shares purchased under this plan are issued directly from Valley or in
open market
transactions. During 2010 and 2009, 618 thousand and 389 thousand of common shares,
respectively, were reissued from treasury stock under the DRIP for net proceeds totaling $8.4 million and $4.5
million, respectively.
In November 2008, we decided to enter into a Securities Purchase Agreement with the U.S. Treasury that
provided for our participation in the TARP Capital Purchase Program. On November 14, 2008, Valley issued and
sold to the U.S. Treasury 300,000 shares of Valley Fixed Rate Cumulative Perpetual Preferred Stock, with a
liquidation preference of $1 thousand per share, and a ten-year warrant to purchase up to approximately
2.5 million shares of Valley common shares (at $17.77 per share, adjusted for the 5 percent stock dividend issued
on May 21, 2010). During 2009, we incrementally repurchased all 300,000 shares of our senior preferred shares
from the U.S. Treasury for an aggregate purchase price of $300 million (excluding accrued and unpaid dividends
paid at the date of redemption). After negotiation with the U.S. Treasury, we could not agree on a redemption
price for the warrants with the U.S. Treasury. As a result, the U.S. Treasury sold the warrants through a public
auction completed on May 24, 2010. The warrants are currently traded on the New York Stock Exchange under
the ticker symbol “VLY WS”. Valley did not receive any of the proceeds of the warrant offering and is no longer
a participant in the TARP program. See Note 16 to the consolidated financial statements for more details.
In 2007, Valley’s Board of Directors approved a publicly announced repurchase plan which allows for the
repurchase of up to 4.3 million common shares. Purchases may be made from time to time in the open market or
in privately negotiated transactions generally not exceeding prevailing market prices. Repurchased shares are
held in treasury and are expected to be used for general corporate purposes or issued under the dividend
reinvestment plan. The repurchase plan has no stated expiration date and has approximately 3.7 million shares
available for repurchase as of December 31, 2010. Under this repurchase plan, Valley made no purchases of its
outstanding shares during the years ended December 31, 2010 and 2009. Valley also purchases shares directly
from its employees in connection with employee elections to withhold taxes related to the vesting of restricted
stock awards. During the year ended December 31, 2010, Valley purchased approximately 29 thousand shares of
its outstanding common stock at an average price of $13.23 for such purpose.
Risk-based capital guidelines define a two-tier capital framework. Tier 1 capital consists of common
shareholders’ equity and eligible long-term borrowing related to VNB Capital Trust I and GCB Capital Trust III,
less disallowed intangibles and adjusted to exclude unrealized gains and losses, net of deferred tax. Total risk-
based capital consists of Tier 1 capital, Valley National Bank’s subordinated borrowings and the allowance for
credit losses up to 1.25 percent of risk-adjusted assets. Risk-adjusted assets are determined by assigning various
levels of risk to different categories of assets and off-balance sheet activities.
Valley’s Tier 1 capital position included $176.3 million of its outstanding trust preferred securities issued by
capital trusts as of December 31, 2010 and December 31, 2009. In compliance with U.S. GAAP, Valley does not
consolidate its capital trusts. As discussed in Part I, Item 1A—“Risk Factors,” the Dodd-Frank Act was signed
into law on July 21, 2010. The Dodd-Frank Act imposes new capital requirements on bank and thrift holding
companies, including the phase out (through January 2016) of trust preferred securities being permitted in Tier 1
capital for holding companies with consolidated assets of $15 billion or more. Based on our current interpretation
of the Dodd-Frank Act, holding companies with less than $15 billion in consolidated assets, such as Valley, will
continue to be permitted to include trust preferred securities issued before May 19, 2010 in Tier 1 capital within
74
regulatory limits even if its total assets exceed $15 billion in the future. Based on this final law and regulatory
guidelines, Valley included all of its outstanding trust preferred securities in Tier 1 capital at December 31, 2010.
See Note 12 to the consolidated financial statements for additional information.
Including trust preferred securities, Valley’s capital position under risk-based capital guidelines was $1.1
billion, or 10.9 percent of risk-weighted assets for Tier 1 capital and $1.3 billion or 12.9 percent for total risk-
based capital at December 31, 2010. The comparable ratios at December 31, 2009 (including our senior preferred
shares) were 10.6 percent for Tier 1 capital and 12.5 percent for total risk-based capital. At December 31, 2010
and 2009, Valley was in compliance with the leverage requirement having Tier 1 leverage ratios of 8.3 percent
and 8.1 percent, respectively. The Bank’s ratios at December 31, 2010 were all above the minimum levels
required for Valley to be considered “well capitalized”, which require Tier 1 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.
Typically, our primary source of capital growth is through retention of earnings. Our rate of earnings
retention is derived by dividing undistributed earnings per common share by earnings (or net income available to
common stockholders) per common share. For the year ended December 31, 2010, the retention ratio was 11.11
percent. Comparatively, our common stock cash dividend pay-out per common share was greater than our
earnings during the year ended December 31, 2009, thereby causing our earnings retention to be zero for the
same period, as net income available to common shareholders was negatively impacted by preferred dividends
and accretion of the discount on preferred stock, as well as net trading losses caused primarily by mark to market
losses on the fair value of junior subordinated debentures and net impairment losses on securities. While we
expect that our rate of earnings retention will continue to improve in future periods, potential future mark to
market losses on trading securities and our junior subordinated debentures, net impairment losses on securities,
and other deterioration in earnings and our balance sheet resulting from the continued weak economic conditions
may negatively impact our future earnings and ability to maintain our dividend at current levels.
Cash dividends declared amounted to $0.72 per common share for both the years ended December 31, 2010
and 2009. The Board continued the cash dividend unchanged during 2010 but, consistent with its conservative
philosophy, the Board is committed to examine and weigh relevant facts and considerations, including its
commitment to shareholder value, each time it makes a cash dividend decision in this economic environment.
Under Bank Interagency Guidance, the Office of the Comptroller of the Currency has cautioned banks to
carefully consider the dividend payout ratio to ensure they maintain sufficient capital to be able to lend to credit
worthy borrowers.
75
Off-Balance Sheet Arrangements
Contractual Obligations. In the ordinary course of operations, Valley enters into various financial
obligations, including contractual obligations that may require future cash payments. The following table
presents significant fixed and determinable contractual obligations to third parties by payment date as of
December 31, 2010:
Note to Financial
Statements
One Year
or Less
One to
Three Years
Three to
Five Years
Over Five
Years
Total
Time deposits . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . .
Junior subordinated debentures
issued to capital trusts* . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
10
11
12
15
(in thousands)
$1,950,141 $452,614 $272,234 $
54,754
207,641
400,204
57,862 $2,732,851
2,933,858
2,271,259
—
17,917
4,093
181,767
309,702
4,093
$2,179,792 $540,255 $705,230 $2,736,994 $6,162,271
181,767
226,106
—
—
32,792
—
—
32,887
—
* Amounts presented consists of the contractual principal balances. The junior subordinated debentures issued to
VNB Capital Trust I are carried at fair value of $161.7 million on the consolidated statement of condition at
December 31, 2010.
Valley also has obligations under its pension benefit plans, not included in the above table, as further
described in Note 13 of the consolidated financial statements.
Commitments. As a financial services provider, we routinely enter into commitments to extend credit,
including loan commitments, standby and commercial letters of credit. While these contractual obligations
represent our future cash requirements, a significant portion of commitments to extend credit may expire without
being drawn on based upon our historical experience. Such commitments are subject to the same credit policies
and approval process accorded to loans made by the Bank. For additional information, see Note 15 of the
consolidated financial statements.
The following table shows the amounts and expected maturities of significant commitments as of
December 31, 2010:
One Year
or Less
One to
Three Years
Three to
Five Years
Over Five
Years
Total
(in thousands)
Commitments under commercial loans and lines
of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,643,020
$ 16,330
$ 9,025
$103,211
$1,771,586
Home equity and other revolving lines of
credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
566,302
—
—
—
566,302
Outstanding commercial real estate loan
commitments . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Standby letters of credit
Outstanding residential mortgage loan
commitments . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments under unused lines of credit—
credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial letters of credit . . . . . . . . . . . . . . . . .
Commitments to sell loans . . . . . . . . . . . . . . . . . .
Commitments to fund civic and community
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,894
117,181
86,413
15,147
494
74,862
—
14,770
264,529
—
41,360
11,882
127,950
1,486
11,361
29,828
—
—
—
1,303
—
—
—
—
—
262
—
—
—
—
—
—
189,801
221,960
264,529
71,188
11,882
127,950
1,486
12,926
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,887,965
$149,021
$84,643
$117,981
$3,239,610
* This category primarily consists of contractual communication and technology costs.
76
Derivative Instruments and Hedging Activities. Valley is exposed to certain risks arising from both its
business operations and economic conditions. Valley principally manages its exposures to a wide variety of
business and operational risks through management of its core business activities. Valley manages economic
risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration
of its assets and liabilities and, from time to time, the use of derivative financial instruments. Specifically, Valley
enters into derivative financial instruments to manage exposures that arise from business activities that result in
the payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Valley’s derivative financial instruments are used to manage differences in the amount, timing, and duration of
Valley’s known or expected cash receipts and its known or expected cash payments mainly related to certain
variable-rate deposits and borrowings, and fixed-rate loan assets.
Cash Flow Hedges of Interest Rate Risk
Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its
exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps and caps as
part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the
payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts
from a counterparty. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate
amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front
premium.
In October 2010, Valley entered into two forward starting interest rate swaps to hedge the change in cash
flows associated with certain prime-rate-indexed deposits, consisting of consumer and commercial money market
deposit accounts. The cash flow hedge interest rate swaps, with a total notional amount of $200 million, will
require the payment by Valley of fixed-rate amounts at approximately 4.73 percent in exchange for the receipt of
variable-rate payments at the prime rate starting in October 2011 and expiring in October 2016.
At December 31, 2010, Valley had two interest rate caps with an aggregate notional amount of $100
million, strike rates of 2.50 percent and 2.75 percent, and a maturity date of May 1, 2013. Hedge accounting was
not applied to these interest rate caps from January 1, 2009 until February 20, 2009 due to the termination of the
original hedging relationship in the fourth quarter of 2008. On February 20, 2009, Valley re-designated the
interest rate caps to hedge the variable cash flows associated with customer repurchase agreements and money
market deposit accounts products that have variable interest rate, based on the federal funds rate. The change in
fair value of these derivatives, while they were not designated as hedges, was a $369 thousand gain, which is
included in other non-interest income for the year ended December 31, 2009.
At December 31, 2010, Valley also had two interest rate caps designated as cash flow hedges, to reduce its
exposure to movements in interest rates above the caps’ strike rate based on the U.S. prime interest rate. The
interest rate caps have an aggregate notional amount of $100 million, strike rates of 6.00 percent and 6.25
percent, and a maturity date of July 15, 2015. The caps are used to hedge the total change in cash flows
associated with prime-rate-indexed deposits, consisting of consumer and commercial money market deposit
accounts, which have variable interest rates indexed to the prime rate.
Fair Value Hedge of a Fixed Rate Asset
Valley is exposed to changes in the fair value of certain of its fixed rate assets due to changes in benchmark
interest rates based on one month-LIBOR. From time to time, Valley uses interest rate swaps to manage its
exposure to changes in fair value. Interest rate swaps designated as fair value hedges involve the receipt of
variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of
the agreements without the exchange of the underlying notional amount. As of December 31, 2010, Valley had
one interest rate swap with a notional amount of $9.1 million.
77
Non-designated Hedges
Valley does not use derivatives for speculative purposes. Derivatives not designated as hedges are used to
manage Valley’s exposure to interest rate movements and other identified risks but do not meet the strict hedge
accounting requirements under U.S. GAAP. During 2009, Valley entered into and terminated three interest rate
swaps not designated as hedges to potentially offset the change in fair value of certain trading securities. During
the fourth quarter of 2008, as mentioned above, two interest rate caps (due to mismatches in index) no longer
qualified for hedge accounting but were subsequently re-designated as cash flow hedges in February 2009.
During the year ended December 31, 2010, Valley had no derivatives that were not designated in hedging
relationships.
Credit Risk Related Contingent Features
By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not
perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits,
monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with
derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk
management process. Valley’s counterparties and the risk limits monitored by management are periodically
reviewed and approved by the Board of Directors.
See Note 15 to the consolidated financial statements for quantitative information on our derivative financial
instruments and hedging activities.
Trust Preferred Securities. In addition to the commitments and derivative financial instruments of the
types described above, our off balance sheet arrangements include a $5.5 million ownership interest in the
common securities of our statutory trusts to issue trust preferred securities. See “Capital Adequacy” section
above in this Item 7 and Note 12 of the consolidated financial statements.
Results of Operations—2009 Compared to 2008
Net interest income on a tax equivalent basis increased $28.2 million to $454.5 million for 2009 compared
with $426.3 million for 2008. During 2009, a 50 basis point decline in interest rates paid on average interest
bearing liabilities and higher average interest earning assets positively impacted our net interest income, but were
partially offset by a 32 basis point decline in the yield on average loans, a 46 basis point decline in the yield on
average investments, and higher average interest bearing liabilities as compared to 2008.
The net interest margin on a tax equivalent basis was 3.49 percent for the year ended December 31, 2009
compared with 3.44 percent for the year ended December 31, 2008. The change was mainly attributable to a
decrease in interest rates paid on all interest bearing liabilities and higher average loan balances, partially offset
by a lower yield on average loans and higher average interest bearing liabilities. Average interest rates earned on
interest earning assets decreased 43 basis points while average interest rates paid on interest bearing liabilities
decreased 50 basis points causing a 5 basis point increase in the net interest margin as compared to the year
ended December 31, 2008.
Average loans totaling $9.7 billion for the year ended December 31, 2009 increased $318.9 million as
compared to the same period for 2008 mainly due to higher loan balances in the 2009 period related to solid
organic loan growth in the second half of 2008 and loans acquired in the Greater Community merger on July 1,
2008. Average investment securities increased $158.4 million, or 5.6 percent in 2009 as compared to the year
ended December 31, 2008. Despite the higher average loan balances during 2009, interest income on a tax
equivalent basis for loans decreased $11.7 million for the year ended December 31, 2009 compared with the
same period in 2008 due to a 32 basis point decrease in the yield on average loans. Interest income on a tax
equivalent basis for investment securities also decreased $4.8 million due to a 46 basis point decline in yield
caused by normal principal paydowns of higher yield securities which were mainly reinvested in shorter term and
78
lower yield securities as we reduced our repricing risk and positioned the balance sheet to be more asset sensitive
in the current low interest rate environment. The decline in yield on investment securities was partially mitigated
by the increase in average investment securities during 2009 as we reallocated some of our excess liquidity from
loan principal paydowns and growth in deposits to investment securities. A 93 basis point decline in the yield on
average federal funds sold and other interest bearing deposits, partially offset by a $170.0 million increase in
average balances within the category, resulted in a decrease of $1.2 million in interest income on such
investments in 2009 compared to 2008.
Average interest bearing liabilities increased $230 million to $10.6 billion for the year ended December 31,
2009 mainly due to additional deposits generated from 17 de novo branches opened in 2009 and 2008, and our
other existing branches (assisted by the nominal level of long-term interest rates on other investment alternatives
available to customers during 2009) and deposits assumed from Greater Community in the latter half of 2008,
partially offset by the maturity of $300 million in short-term FHLB advances during the first and second quarters
of 2009. The cost of savings, NOW, and money market accounts, time deposits, and short-term borrowings
decreased 65, 88, and 34 basis points, respectively, during 2009 due to a sharp decline in short-term interest rates
since the fourth quarter of 2008, while the cost of long-term borrowing increased by 7 basis points during the
2009 period. Average savings, NOW, and money market deposits increased $300.1 million as compared to 2008
due to several factors, including new deposits from de novo branches, deposits assumed in the 2008 acquisition,
some migration of customer repo balances caused by our decision to reduce collateral positions to support the
repo product during the first quarter of 2009, as well as potential general increases from a higher U.S. household
savings rate in 2009 caused by the economic downturn. Average time deposits increased $154.7 million mainly
due to deposit initiatives during the fourth quarter of 2008 and the first quarter of 2009, as well as time deposits
assumed in the Greater Community merger during 2008. Although average time deposits increased from 2008
due to the aforementioned factors, the actual time deposits balance at December 31, 2009 declined almost 15
percent as compared to December 31, 2008 as we did not actively pursued the retention of higher cost interest
bearing deposits since the first quarter of 2009 due to lower loan volumes and the level of interest rates available
to us on other investment alternatives for such funds. Average long-term borrowings (including junior
subordinated debentures issued to capital trusts) increased $60.0 million from 2008 due to new long-term
positions in FHLB advances mainly entered into during the second quarter of 2008 that remained outstanding
during 2009, as well as approximately $25 million in junior subordinated debentures assumed from Greater
Community in 2008. Average short-term borrowings decreased $284.7 million mainly due to the maturity of
$300 million in short-term FHLB advances in the first half of 2009 and lower customer repo balances during
2009 as the low level of interest rates reduced customers’ incentive to overnight sweep their demand deposit
balance and we reduced our support of the product.
Non-interest income represented 9.2 percent and 0.4 percent of total interest income plus non-interest
income for 2009 and 2008, respectively. For the year ended December 31, 2009, non-interest income increased
$69.0 million, compared with 2008.
Service charges on deposit accounts decreased $1.5 million, or 5.3 percent to $26.8 million for the year
ended December 31, 2009 as compared to 2008 mainly due to a decrease in overdraft fees and non-sufficient
funds charges. However, fees on checking accounts increased approximately $1.0 million as compared to 2008
due to our de novo branch expansion activity and deposit accounts assumed in the Greater Community merger
during the second half of 2008.
Net gains on securities transactions increased $3.0 million to $8.0 million for the year ended December 31,
2009 compared to $5.0 million in 2008. The majority of the net gains in 2009 were recognized during the fourth
quarter as we sold certain corporate debt and residential mortgage-backed securities classified as available for
sale to reduce both the overall credit and re-pricing risk exposures of our investment portfolio.
Net
the year ended
December 31, 2009 compared to $84.8 million for 2008. The 2009 amount includes estimated credit losses on
losses on securities decreased $78.5 million to $6.4 million for
impairment
79
four private label mortgage-backed securities, one pooled trust preferred security, and one equity security issued
by a financial institution. The other-than-temporary impairment charges incurred during 2008 were mainly due to
a decline in the value of Freddie Mac and Fannie Mae perpetual preferred securities, one private label mortgage-
backed security, and two pooled trust preferred securities.
Net trading losses increased $13.6 million to a net loss of $10.4 million for the year ended December 31,
2009 compared to a net gain of $3.2 million for 2008. The increase was mainly due to a $15.8 million non-cash
loss related to the change in the fair value our junior subordinated debentures carried at fair value during the
2009 period compared to $15.2 million gain recorded on the same debentures in the comparable 2008 period. The
negative impact of the change in the fair value of the junior subordinated debentures from 2008 was partially
offset by a $16.3 million increase in mark to market gains on our trading securities and realized gains on sales of
trading securities which had a combined total net gain of $5.4 million for 2009 as compared to a net loss of $10.9
million for 2008. The 2008 period also includes a $1.2 million loss realized on one fixed FHLB advance carried
at fair value, which was redeemed prior to its contractual maturity date during the second quarter of 2008. No
FHLB advances were held at fair value at December 31, 2009.
Net gains on sales of loans increased $7.7 million to $8.9 million for the year ended December 31, 2009
compared to $1.3 million for the prior year. This increase was mainly due to the gains realized on conforming
residential mortgage loans originated for sale totaling approximately $380 million during 2009, as we sold most
conforming refinanced and new residential mortgage loans in the secondary market due to the historical low level
of current interest rates.
BOLI income decreased $4.5 million, or 43.9 percent for the year ended December 31, 2009 compared with
2008 primarily due to severe downturn in the financial markets during 2009 and its negative impact on the
performance of the underlying investment securities of the BOLI asset.
Non-interest expense increased $20.8 million to $306.0 million for the year ended December 31, 2009 from
$285.2 million for 2008. The increase in the 2009 period was mainly due to an $18.1 million increase in the
FDIC insurance assessment. Additionally, increases in salary expense, employee benefit expense, and net
occupancy and equipment expense from 2008 were partially offset by a decrease in other expense during 2009.
The largest component of non-interest expense is salary and employee benefit expense which totaled $163.7
million in 2009 compared with $157.9 million in 2008. The increases in most categories from 2008 relate mainly
to de novo branch expansion and the acquisition of Greater Community on July 1, 2008.
The FDIC insurance assessment increased $18.1 million to $20.1 million for the year ended December 31,
2009 compared to $2.0 million for 2008 mainly due to the depletion of our prior period FDIC acquisition credits
during the first quarter of 2009, higher normal assessment rates and our election to participate in the FDIC’s
Temporary Liquidity Guarantee Program starting in the latter half of the fourth quarter of 2008. Additionally, the
2009 period includes a $6.5 million special assessment which was imposed on all depository institutions (equal
to 5 basis points of total assets minus tier 1 capital as on June 30, 2009) due to depletion of the Federal Deposit
Insurance Fund.
Income tax expense was $51.5 million for the year ended December 31, 2009, reflecting an effective tax rate
of 30.7 percent, compared with $16.9 million for 2008, reflecting an effective tax rate of 15.3 percent. The
increase was due to several factors, including the lower level of 2008 pre-tax income and a $6.5 million reduction
in Valley’s deferred tax asset valuation allowance in 2008. Additionally, the effective tax rate in 2009 was
negatively impacted by lower tax advantaged income and higher state and local tax expense.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For information regarding Quantitative and Qualitative Disclosures About Market Risk, see Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate
Sensitivity.”
80
Item 8.
Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities:
Held to maturity, fair value of $1,898,872 at December 31, 2010 and $1,548,006 at
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2010
2009
(in thousands except for
share data)
$
302,629
63,657
$
305,678
355,659
1,923,993
1,035,282
31,894
2,991,169
58,958
9,009,140
356,655
(124,704)
9,241,091
1,584,388
1,352,481
32,950
2,969,819
25,492
9,370,071
—
(101,990)
9,268,081
Premises and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from customers on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC loss-share receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265,570
304,956
59,126
6,028
89,359
317,891
25,650
417,742
$14,143,826
266,401
304,031
56,245
6,985
—
296,424
24,305
405,033
$14,284,153
Liabilities
Deposits:
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing:
Savings, NOW and money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures issued to capital trusts (includes fair value of $161,734 at
December 31, 2010 and $155,893 at December 31, 2009 for VNB Capital Trust I) . . . . . . . . .
Bank acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ Equity
Preferred stock, no par value, authorized 30,000,000 shares; none issued . . . . . . . . . . . . . . . . . .
Common stock, no par value, authorized 210,451,912 shares; issued 162,058,055 shares at
December 31, 2010 and 162,042,502 shares at December 31, 2009 . . . . . . . . . . . . . . . . . . . . .
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (597,459 common shares at December 31, 2010 and 1,405,204 common
shares at December 31, 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,524,299
$ 2,420,006
4,106,464
2,732,851
9,363,614
192,318
2,933,858
4,044,912
3,082,367
9,547,285
216,147
2,946,320
186,922
6,028
165,881
12,848,621
181,150
6,985
133,412
13,031,299
—
—
57,041
1,178,325
79,803
(5,719)
54,293
1,178,992
73,592
(19,816)
(14,245)
1,295,205
$14,143,826
(34,207)
1,252,854
$14,284,153
See accompanying notes to consolidated financial statements.
81
CONSOLIDATED STATEMENTS OF INCOME
Interest Income
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividends on investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on federal funds sold and other short-term investments . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense
Interest on deposits:
Savings, NOW and money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on long-term borrowings and junior subordinated debentures . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income After Provision for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest Income
Trust and investment services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on securities transactions, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment losses on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portion recognized in other comprehensive income (before taxes) . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . . . . . . . . .
Trading (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees from loan servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in FDIC loss-share receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest Expense
Salary and employee benefits expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC insurance assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional and legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income Available to Common Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Common Share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average Number of Common Shares Outstanding:
Years ended December 31,
2010
2009
2008
(in thousands, except for share data)
$
543,009
$
561,252
$
572,918
115,593
10,366
7,428
416
676,812
19,126
55,798
1,345
137,791
214,060
462,752
49,456
413,296
7,665
11,334
25,691
11,598
(1,393)
(3,249)
(4,642)
(6,897)
4,919
12,591
619
6,166
6,268
16,015
91,327
176,106
61,765
13,719
7,721
10,137
4,052
44,182
317,682
186,941
55,771
131,170
—
131,170
0.81
0.81
0.72
$
$
131,792
9,682
8,513
945
712,184
24,894
93,403
4,026
140,547
262,870
449,314
47,992
401,322
6,906
10,224
26,778
8,005
(6,339)
(13)
(6,352)
(10,434)
4,839
8,937
605
5,700
—
17,043
72,251
163,746
58,974
20,128
6,887
7,907
3,372
45,014
306,028
167,545
51,484
116,061
19,524
96,537
0.64
0.64
0.72
$
$
137,763
10,089
6,734
2,190
729,694
45,961
117,152
10,163
135,619
308,895
420,799
28,282
392,517
7,161
10,053
28,274
5,020
(84,835)
—
(84,835)
3,166
5,236
1,274
518
10,167
—
17,222
3,256
157,876
54,042
1,985
7,224
8,241
2,697
53,183
285,248
110,525
16,934
93,591
2,090
91,501
0.64
0.64
0.72
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161,059,906
161,068,175
151,675,691
151,676,409
143,805,528
143,884,683
See accompanying notes to consolidated financial statements.
82
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Number
of Common
Shares
138,743
Preferred
Stock
Common
Stock
Surplus
Retained
Earnings
(in thousands)
— $43,185 $ 879,892 $ 104,225
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders’
Equity
$(12,982)
$(65,260) $ 949,060
—
—
—
93,591
—
—
93,591
Balance—December 31, 2007 . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax:
Net change in unrealized gains
and losses on securities
available for sale (AFS), net of
tax benefit of $53,603 . . . . . . .
Less reclassification adjustment
for losses included in net
income, net of tax benefit of
$33,084 . . . . . . . . . . . . . . . . . .
Net change in unrealized gains
and losses on derivatives, net
of tax of $3,928 . . . . . . . . . . . .
Less reclassification adjustment
for derivative losses included
in net income, net of tax
benefit of $313 . . . . . . . . . . . . .
Pension benefit adjustment, net of
tax benefit of $7,946 . . . . . . . .
Other comprehensive loss . . . . . . . . . .
Total comprehensive income . . . . . . . .
Proceeds from issuance of preferred
stock and warrant . . . . . . . . . . . . . . .
Accretion of discount on preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends accrued on preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of stock incentive plan, net . . . .
Stock dividend declared . . . . . . . . . . . .
Stock dividend paid . . . . . . . . . . . . . . .
Common stock and warrants issued in
acquisition . . . . . . . . . . . . . . . . . . . .
Fair value of stock options granted . . .
Tax benefit from stock-based
compensation . . . . . . . . . . . . . . . . . .
Balance—December 31, 2008 . . . . . .
Cumulative effect of adoption of a
new accounting principle (ASC
Topic 320) . . . . . . . . . . . . . . . . . . . .
Balance—January 1, 2009 . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
526
—
—
9,595
—
—
—
—
—
—
—
—
—
291,365
174
—
—
—
—
—
—
—
—
—
(78,678)
—
—
—
—
—
—
—
8,635
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(174)
— (104,352)
—
(106)
—
2,097
3,052
—
—
—
(5,296)
(108,124)
105,869
(1,916)
(6,140)
—
—
165,018
985
106
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17,991
—
—
(277)
—
—
—
—
—
—
—
(47,949)
45,642
300,000
—
(104,352)
(1,916)
6,449
(108,124)
107,966
167,793
985
106
46,731
(5,434)
434
(11,002)
(47,949)
—
—
—
—
—
—
—
—
—
—
—
148,864
$291,539 $48,228 $1,047,085 $ 85,234
$(60,931)
$(47,546) $1,363,609
—
—
—
—
8,605
(8,605)
—
—
148,864
$291,539 $48,228 $1,047,085 $ 93,839
$(69,536)
$(47,546) $1,363,609
83
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY—(Continued)
Number
of Common
Shares
Preferred
Stock
Common
Stock
Surplus
Retained
Earnings
148,864
(in thousands)
$ 291,539 $48,228 $1,047,085 $ 93,839
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders’
Equity
$(69,536)
$(47,546) $1,363,609
—
—
—
— 116,061
—
116,061
—
—
—
—
—
—
—
—
—
—
—
—
—
182
—
—
11,591
—
—
—
—
—
—
—
—
—
47,351
(5,003)
—
—
—
—
—
—
(2,774)
—
—
—
—
—
—
—
(300,000)
8,461
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(8,461)
— (11,063)
—
(32)
—
2,363
3,734
—
— (110,101)
(2,121)
—
—
(4,562)
—
1,725
(101,051)
98,650
131,562
1,021
3,767
2,017
267
4,095
49,720
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,319
—
—
9,020
—
—
—
—
—
—
—
—
49,720
165,781
(300,000)
—
(11,063)
(110,101)
3,891
(101,051)
101,013
139,754
1,021
Balance—January 1, 2009 . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of
tax:
Net change in unrealized gains
and losses on securities AFS,
net of tax of $23,518 . . . . . . . .
Less reclassification adjustment
for gains included in net
income, net of tax of $3,002 . .
Net change in non-credit
impairment losses on
securities, net of tax benefit of
$1,337 . . . . . . . . . . . . . . . . . . .
Less reclassification adjustment
for credit impairment losses on
securities included in net
income, net of tax benefit of
$2,237 . . . . . . . . . . . . . . . . . . .
Net change in unrealized gains
and losses on derivatives, net
of tax of $1,458 . . . . . . . . . . . .
Less reclassification adjustment
for derivative losses included
in net income, net of tax
benefit of $193 . . . . . . . . . . . . .
Pension benefits adjustment, net
of tax $2,957 . . . . . . . . . . . . . .
Other comprehensive income . . . . . . .
Total comprehensive income . . . . . . . .
Preferred stock redemption . . . . . . . . .
Accretion of discount on preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on common
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of stock incentive plan, net . . . .
Common stock dividend declared . . . .
Common stock dividend paid . . . . . . .
Common stock issued . . . . . . . . . . . . .
Fair value of stock options granted . . .
Balance—December 31, 2009 . . . . . .
160,637
$
— $54,293 $1,178,992 $ 73,592
$(19,816)
$(34,207) $1,252,854
84
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY—(Continued)
Number
of Common
Shares
Preferred
Stock
Common
Stock
Surplus
Retained
Earnings
160,637
$—
(in thousands)
$54,293 $1,178,992 $ 73,592
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders’
Equity
$(19,816)
$(34,207) $1,252,854
—
—
—
— 131,170
—
—
131,170
—
—
—
—
—
—
—
—
—
—
—
—
—
206
—
—
618
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,637
(7,330)
—
—
3,328
—
—
—
—
—
—
—
—
—
—
—
—
—
65
—
2,683
—
—
— (116,137)
(2,603)
—
—
(6,219)
—
1,322
(110,848)
108,015
—
844
2,741
866
1,142
713
14,097
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,313
—
—
14,649
—
—
—
—
—
—
—
—
14,097
145,267
(116,137)
4,097
(110,848)
110,698
8,430
844
Balance—December 31, 2009
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of
tax:
Net change in unrealized gains
and losses on securities AFS,
net of tax of $7,739 . . . . . . . . .
Less reclassification adjustment
for gains included in net
income, net of tax of $4,268 . .
Net change in non-credit
impairment losses on
securities, net of tax of
$1,973 . . . . . . . . . . . . . . . . . . .
Less reclassification adjustment
for credit impairment losses on
securities included in net
income, net of tax benefit of
$1,640 . . . . . . . . . . . . . . . . . . .
Net change in unrealized gains
and losses on derivatives, net
of tax of $627 . . . . . . . . . . . . . .
Less reclassification adjustment
for derivative losses included
in net income, net of tax
benefit of $825 . . . . . . . . . . . . .
Pension benefits adjustment, net
of tax of $512 . . . . . . . . . . . . . .
Other comprehensive income . . . . . . .
Total comprehensive income . . . . . . . .
Cash dividends declared on common
stock . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of stock incentive plan, net . . . .
Common stock dividend declared . . . .
Common stock dividend paid . . . . . . .
Common stock issued . . . . . . . . . . . . .
Fair value of stock options granted . . .
Balance—December 31, 2010 . . . . . .
161,461
$—
$57,041 $1,178,325 $ 79,803
$ (5,719)
$(14,245) $1,295,205
See accompanying notes to consolidated financial statements.
85
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
2010
2009
2008
(in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
131,170
$ 116,061
$
93,591
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of premiums and accretion of discounts on securities and borrowings . . . . . .
Amortization of other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on securities transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of borrowings carried at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash surrender value of bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,850
4,830
49,456
12,443
7,721
(11,598)
4,642
385,997
(12,591)
(323,710)
(619)
20,176
1,056
5,841
(6,166)
93
3,301
(8,878)
15,316
5,049
47,992
9,592
6,887
(8,005)
6,352
369,917
(8,937)
(381,930)
(605)
(10,898)
1,286
15,828
(5,700)
1,472
91,644
(166,768)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
279,014
104,553
14,662
5,531
28,282
(3,013)
7,224
(5,020)
84,835
55,598
(1,274)
(55,882)
(518)
(33,956)
688,341
(14,049)
(10,167)
(1,139)
83,478
(1,155)
935,369
Cash flows from investing activities:
Net loan repayments (originations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held to maturity:
359,117
(52,279)
734,544
(854,870)
—
—
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities, calls and principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(993,407)
644,810
(967,904)
526,637
(574,991)
118,673
Investment securities available for sale:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities, calls and principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Death benefit proceeds from bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of real estate property and equipment
Purchases of real estate property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired (paid) in acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(321,318)
425,473
327,316
5,241
4,601
(14,599)
44,228
(503,483)
326,096
333,041
1,727
3,713
(25,282)
(285)
(722,640)
262,796
456,871
—
2,209
(29,877)
35,376
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429,183
428,804
(1,306,453)
Cash flows from financing activities:
Net change in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock and a warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued, net
(837,871)
(36,517)
50,681
(72,742)
—
—
—
—
(115,190)
—
8,391
314,362
(424,157)
—
(60,755)
—
—
(300,000)
(12,980)
(109,005)
—
140,008
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,003,248)
(452,527)
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(295,051)
661,337
80,830
580,507
426,977
19,735
391,001
(315,480)
(7,689)
300,000
—
—
(102,517)
106
1,993
714,126
343,042
237,465
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
366,286
$ 661,337
$
580,507
See accompanying notes to consolidated financial statements.
86
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
Years ended December 31,
2010
2009
2008
(in thousands)
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal and state income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$217,102
50,636
$288,858
63,021
$ 305,216
46,971
Supplemental schedule of non-cash investing activities:
Transfer of investment securities held to maturity to available for sale* . . . . . . . . . . . . . . . . . . . . .
Loans transferred to loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
83,162
Acquisitions:
Non-cash assets acquired:
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net
FDIC loss-share receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,743
412,331
—
133
—
2,788
21,413
4,884
108,000
22,558
Total non-cash assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
645,850
Liabilities assumed:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures issued to capital trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
654,200
12,688
10,559
—
12,631
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
690,078
Net non-cash assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (44,228) $
—
—
—
—
—
—
—
—
726
224
—
—
950
—
—
—
—
665
665
285
1,059
—
67,411
812,489
(11,410)
15,266
16,284
3,834
115,318
7,476
—
9,969
1,036,637
714,942
15,415
133,574
25,359
14,927
904,217
$ 132,420
Cash and cash equivalents acquired (paid) in acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44,228
35,376
$ — $ — $ 167,796
(285) $
$
* Valley changed its intent to hold two pooled trust preferred securities to maturity after significant deterioration in the issuers’
creditworthiness resulting in other-than-temporary impairment charges of $7.8 million for the year ended December 31, 2008.
See accompanying notes to consolidated financial statements.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Note 1)
Business
Valley National Bancorp, a New Jersey Corporation (“Valley”), is a bank holding company whose principal
wholly-owned subsidiary is Valley National Bank (the “Bank”), a national banking association providing a full
range of commercial, retail and trust and investment services through its branch and ATM network throughout
northern and central New Jersey, as well as in New York City boroughs of Manhattan, Brooklyn and Queens.
The Bank also lends to borrowers outside its branch network. The Bank is subject to intense competition from
other financial services companies and is subject to the regulation of certain federal and state agencies and
undergoes periodic examinations by certain regulatory authorities.
Valley National Bank’s subsidiaries are all included in the consolidated financial statements of Valley.
These subsidiaries include:
•
•
•
•
•
•
•
•
•
a mortgage servicing company;
a title insurance agency;
asset management advisors which are Securities and Exchange Commission (“SEC”) registered
investment advisors;
an all-line insurance agency offering property and casualty, life and health insurance;
subsidiaries which hold, maintain and manage investment assets for the Bank;
a subsidiary which owns and services auto loans;
a subsidiary which specializes in asset-based lending;
a subsidiary which offers financing for general aviation aircraft and servicing for existing commercial
equipment leases; and
a subsidiary which specializes in health care equipment and other commercial equipment leases.
The Bank’s subsidiaries also include real estate investment trust subsidiaries (the “REIT” subsidiaries)
which own real estate related investments and a REIT subsidiary which owns some of the real estate utilized by
the Bank and related real estate investments. Except for Valley’s REIT subsidiaries, all subsidiaries mentioned
above are directly or indirectly wholly-owned by the Bank. Because each REIT must have 100 or more
shareholders to qualify as a REIT, each REIT has issued less than 20 percent of their outstanding non-voting
preferred stock to individuals, most of whom are non-senior management Bank employees. The Bank owns the
remaining preferred stock and all the common stock of the REITs.
Basis of Presentation
The consolidated financial statements of Valley include the accounts of its commercial bank subsidiary,
Valley National Bank and all of Valley’s direct or indirect wholly-owned subsidiaries. All inter-company
transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to U.S.
generally accepted accounting principles (“GAAP”) and general practices within the financial services industry.
In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for
the sole purpose of issuing trust preferred securities and related trust common securities. See Note 12 below for
more detail. Certain prior period amounts have been reclassified to conform to the current presentation. Valley
has evaluated subsequent events for potential recognition and/or disclosure in the consolidated financial
statements and accompanying notes included in this Annual Report on Form 10-K.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In preparing the consolidated financial statements in conformity with U.S. GAAP, management has made
estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the
consolidated statements of financial condition and results of operations for the periods indicated. Material
estimates that are particularly susceptible to change are: the allowance for loan losses; the evaluation of goodwill
and other intangible assets, and investment securities for impairment; fair value measurements of assets and
liabilities (including the estimated fair values recorded for acquired assets and assumed liabilities in business
combination transactions—see Note 2); and income taxes. Estimates and assumptions are reviewed periodically
and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed to
be necessary. While management uses its best judgment, actual amounts or results could differ significantly from
those estimates. The current economic environment has increased the degree of uncertainty inherent in these
material estimates.
In March 2010, the Bank assumed all of the deposits, excluding brokered deposits, and acquired loans, other
real estate owned (“covered loans” and “covered OREO”, together “covered assets”) and certain other assets of
The Park Avenue Bank and LibertyPointe Bank, from the Federal Deposit Insurance Corporation (the “FDIC”),
as receiver (the “FDIC-assisted transactions”). See Note 2 for further details regarding these transactions.
On May 21, 2010, Valley issued a five percent common stock dividend to shareholders of record on May 7,
2010. All common share and per common share data presented in the consolidated financial statements and the
accompanying notes below were adjusted to reflect the dividend.
On March 31, 2008, the Bank sold its registered broker-dealer subsidiary. The divesture was not accounted
for in the consolidated audited financial statements as discontinued operations due to the immaterial nature of
this subsidiary’s financial position and results of operations. See Note 2 for additional details of this transaction.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from
banks, interest bearing deposits in other banks (including the Federal Reserve Bank of New York) and, from time
to time, overnight federal funds sold.
The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank
based on a percentage of deposits. These reserve balances totaled $16.8 million and $22.9 million at
December 31, 2010 and 2009, respectively.
Investment Securities
At the time of purchase, management elects to classify investment securities into one of three categories:
held to maturity, available for sale or trading. Investment securities are classified as held to maturity and carried
at amortized cost when management has the positive intent and ability to hold to maturity. Investment securities
to be held for indefinite periods are classified as available for sale and carried at fair value, with unrealized
holding gains and losses reported as a component of other comprehensive income, net of tax. Securities that may
be sold and reinvested over short durations as part of management’s asset/liability management strategies are
classified as trading and are carried at fair value, with changes in unrealized holding gains and losses included in
non-interest income in the accompanying consolidated statements of income as a component of trading (losses)
gains, net. Realized gains or losses on the sale of trading securities are recognized by the specific identification
method and are included in trading (losses) gains, net. Investments in Federal Home Loan Bank and Federal
Reserve Bank stock, which have limited marketability, are carried at cost in other assets and totaled $139.8
million and $139.9 million at December 31, 2010 and 2009, respectively. Management noted no indicators of
impairment for the Federal Home Loan Bank of New York stock during 2010.
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Quarterly, Valley evaluates its investment securities classified as held to maturity or available for sale for
other-than-temporary impairment. Other-than-temporary impairment means Valley believes the security’s
impairment is due to factors that could include its inability to pay interest or dividends, its potential for default,
and/or other factors. As a result of Valley’s adoption of new authoritative guidance under ASC Topic 320,
“Investments—Debt and Equity Securities” on January 1, 2009, when a held to maturity or available for sale debt
security is assessed for other-than-temporary impairment, Valley has to first consider (a) whether it intends to
sell the security, and (b) whether it is more likely than not that Valley will be required to sell the security prior to
recovery of its amortized cost basis. If one of these circumstances applies to a security, an other-than-temporary
impairment loss is recognized in the statement of income equal to the full amount of the decline in fair value
below amortized cost. If neither of these circumstances applies to a security, but Valley does not expect to
recover the entire amortized cost basis, an other-than-temporary impairment loss has occurred that must be
separated into two categories: (a) the amount related to credit loss, and (b) the amount related to other factors. In
assessing the level of other-than-temporary impairment attributable to credit loss, Valley compares the present
value of cash flows expected to be collected with the amortized cost basis of the security. The portion of the total
other-than-temporary impairment related to credit loss is recognized in earnings, while the amount related to
other factors is recognized in other comprehensive income. The total other-than-temporary impairment loss is
presented in the statement of income, less the portion recognized in other comprehensive income. When a debt
security becomes other-than-temporarily impaired, its amortized cost basis is reduced to reflect the portion of the
total impairment related to credit loss. Prior to Valley’s adoption of the new authoritative guidance, total other-
than-temporary impairment losses (i.e., both credit and non-credit losses) on debt securities were recognized
through earnings with an offset to reduce the amortized cost basis of the applicable debt securities by their entire
impairment amount.
To determine whether a security’s impairment
is other-than-temporary, Valley considers factors that
include, the causes of the decline in fair value, such as credit problems, interest rate fluctuations, or market
volatility; the severity and duration of the decline; Valley’s ability and intent to hold equity security investments
until they recover in value (as well as the likelihood of such a recovery in the near term); Valley’s intent to sell
security investments; and whether it is more likely than not that Valley will be required to sell such securities
before recovery of their individual amortized cost basis less any current-period credit loss. For debt securities, the
primary consideration in determining whether impairment is other-than-temporary is whether or not it is probable
that current or future contractual cash flows have been or may be impaired.
Interest income on investments includes amortization of purchase premiums and discounts. Realized gains
and losses are derived based on the amortized cost of the security sold.
Loans Held for Sale
Loans held for sale consist of conforming residential mortgage loans originated and intended for sale in the
secondary market and are carried at their estimated fair value on an instrument by instrument basis as permitted
by the fair value option election under U.S. GAAP. Changes in fair value are recognized in earnings as a
component of gains on sales of loans, net. Origination fees and costs related to loans held for sale are recognized
as earned and as incurred. Loans held for sale are generally sold with loan servicing rights retained by Valley.
Gains recognized on loan sales include the value assigned to the rights to service the loan. See “Loan Servicing
Rights” section below.
Loans and Loan Fees
Loans are reported at
their outstanding principal balance net of any unearned income, charge-offs,
unamortized deferred fees and costs on originated loans and premium or discounts on purchased loans, except for
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
covered loans. Loan origination and commitment fees, net of related costs are deferred and amortized as an
adjustment of loan yield over the estimated life of the loans approximating the effective interest method. See
Note 5 for further detail regarding accounting policies for non-accrual and impaired loans.
Loans Acquired Through Transfer (Including Covered Loans)
Loans acquired through the completion of a transfer, including loans acquired in a business combination
(see Note 2), are initially recorded at fair value (as determined by the present value of expected future cash
flows) with no valuation allowance. Beginning in 2010, Valley accounts for interest income on all loans acquired
at a discount that is due, in part; to credit quality based on the acquired loans’ expected cash flows. The acquired
loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk
characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate
expectation of cash flow.
The difference between the undiscounted cash flows expected at acquisition and the investment in the loans,
or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each
pool. Contractually required payments for interest and principal that exceed the undiscounted cash flows
expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss
accrual or a valuation allowance. Increases in expected cash flows subsequent to the acquisition are recognized
prospectively through adjustment of the yield on the pool over its remaining life, while decreases in expected
cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan
losses. Valuation allowances (recognized in the allowance for loan losses) on these impaired pools reflect only
losses incurred after the acquisition (representing the present value of all cash flows that were expected at
acquisition but currently are not expected to be received). The allowance for loan losses on covered loans
(acquired through two FDIC-assisted transactions)
is determined without consideration of the amounts
recoverable through the FDIC loss-share agreements (see “FDIC Loss-Share Receivable” below).
Allowance for Credit Losses
The allowance for credit losses (the “allowance”) is increased through provisions charged against current
earnings and additionally by crediting amounts of recoveries received, if any, on previously charged-off loans.
The allowance is reduced by charge-offs on loans or unfunded letters of credit which are determined to be a loss,
in accordance with established policies, when all efforts of collection have been exhausted.
The allowance is maintained at a level estimated to absorb probable credit 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 non-covered loan portfolio and off balance sheet unfunded letters of
credits, as well as reserves for impairment of covered loans subsequent to their acquisition date (See discussion
under the “Loans Acquired Through Transfer” section above). The Bank’s methodology for evaluating the
appropriateness of the allowance includes grouping the non-covered loan portfolio into loan segments based on
common risk characteristics,
levels of classified loans and delinquencies, applying
economic outlook factors, assigning specific incremental reserves where necessary, providing specific reserves
on impaired loans, and assessing the nature and trend of loan charge-offs. Additionally,
the volume of
non-performing loans, concentration risks by size, type, and geography, new markets, collateral adequacy, credit
policies and procedures, staffing, underwriting consistency, loan review and economic conditions are taken into
consideration.
tracking the historical
The allowance for loan losses consists of five elements: (i) specific reserves for individually impaired
credits, (ii) reserves for adversely classified, or higher risk rated, loans that are not impaired, (iii) reserves for
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
other loans based on historical loss factors, (iv) reserves based on general economic conditions and other
qualitative risk factors both internal and external to Valley, including changes in loan portfolio volume, the
composition and concentrations of credit, new market initiatives, and the impact of competition on loan
structuring and pricing, and (v) an allowance for impaired covered loan pools.
The Credit Risk Management Department individually evaluates non-accrual (non-homogeneous) loans
within the commercial and industrial loan and commercial real estate loan portfolio segments over a specific
dollar amount and troubled debt restructured loans within all the loan portfolio segments for impairment based on
the underlying anticipated method of payment consisting of either the expected future cash flows or the related
collateral. If payment is expected solely based on the underlying collateral, an appraisal is completed to assess
the fair value of the collateral. Collateral dependent impaired loan balances are written down to the current fair
value of each loan’s underlying collateral resulting in an immediate charge-off to the allowance, excluding any
consideration for personal guarantees that may be pursued in the Bank’s collection process. If repayment is based
upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s
original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as a
specific valuation allowance in the allowance for credit losses.
The allowances established for probable losses on specific loans are based on a regular analysis and
evaluation of the loans. Loans are evaluated based on an internal credit risk rating system for the commercial and
industrial loan and commercial real estate loan portfolio segments and non-performing loan status for the
residential and consumer loan portfolio segments. Loans are risk-rated based on an internal credit risk grading
process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any;
and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at
the relationship manager level for all commercial and industrial loans and commercial real estate loans, and
evaluated by the Loan Review Department on a test basis. Loans with a grade that is below “Pass” grade are
adversely classified. See Note 5 for details. Any change in the credit risk grade of performing and/or
non-performing loans affects the amount of the related allowance. Once a loan is adversely classified, the
assigned relationship manager and/or a special assets officer in conjunction with the Credit Risk Management
Department analyze the loan to determine whether the loan is impaired and, if impaired, the need to specifically
allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by
analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan
and economic conditions affecting the borrower’s industry, among other things.
The allowance allocations for other loans (i.e.; risk rated loans that are not adversely classified and loans
that are not risk rated) are calculated by applying historical loss factors for each loan portfolio segment to the
applicable outstanding loan portfolio balances. Loss factors are calculated using statistical analysis supplemented
by management judgment. The statistical analysis considers historical default rates and historical loss severity in
the event of default. The management analysis includes an evaluation of loan portfolio volumes, the composition
and concentrations of credit, credit quality and current delinquency trends.
The allowance also contains reserves to cover inherent losses within each of Valley’s loan portfolio
segments which have not been otherwise reviewed or measured on an individual basis. Such reserves include
management’s evaluation of national and local economic and business conditions, loan portfolio volumes, the
composition and concentrations of credit, credit quality and delinquency trends. These reserves reflect
management’s attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty
that is inherent in estimates of probable credit losses.
See Notes 5 and 6 for Valley’s loan credit quality and additional allowance disclosures.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Premises and Equipment, Net
Premises and equipment are stated at cost less accumulated depreciation computed using the straight-line
method over the estimated useful lives of the related assets. Generally, these useful lives range from three to
forty years. Leasehold improvements are depreciated over the term of the lease or estimated useful life of the
asset, whichever is shorter. Major improvements are capitalized, while repairs and maintenance costs are charged
to operations as incurred. Upon retirement or disposition, any gain or loss is credited or charged to operations.
Bank Owned Life Insurance
Valley owns bank owned life insurance (“BOLI”) to help offset the cost of employee benefits. BOLI is
recorded at its cash surrender value. Valley’s BOLI is invested primarily in U.S. Treasury securities and U.S.
agency mortgage-backed securities and the majority of the underlying investment portfolio is managed by one
independent investment firm. The change in the cash surrender value is included as a component of non-interest
income and is exempt from federal and state income taxes as long as the policies are held until the death of the
insured individuals.
Other Real Estate Owned
Other real estate owned (“OREO”), acquired through foreclosure on loans secured by real estate, is reported
at the lower of cost or fair value, as established by a current appraisal, less estimated costs to sell, and is included
in other assets. Any write-downs at the date of foreclosure are charged to the allowance for loan losses. Expenses
incurred to maintain these properties, unrealized losses resulting from write-downs after the date of foreclosure,
and realized gains and losses upon sale of the properties are included in other non-interest expense and other
non-interest income, as appropriate. OREO and other repossessed assets totaled $12.2 million (including $7.8
million of OREO related to the FDIC-assisted transactions, which is subject to the loss-sharing agreements) at
December 31, 2010 and $6.4 million at December 31, 2009.
FDIC Loss-Share Receivable
The receivable arising from the loss sharing agreements (referred to as the “FDIC loss-share receivable” on
our consolidated statements of financial condition) is measured separately from the covered loan pools because
the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to
dispose of the covered loans. Although this asset represents a contractual receivable from the FDIC, there is no
contractual interest rate associated with the asset. At the date of acquisition, the FDIC loss-share receivable was
measured at its fair value based on expected future cash flows covered by the loss share agreements. In addition,
the asset is based on the credit adjustments estimated for each loan pool and the loss-share percentages. See Note
2 for further details.
The difference between the present value at acquisition date and the undiscounted cash flow expected to be
collected from the FDIC is accreted into non-interest income over the life of the FDIC loss-share receivable. The
FDIC loss-share receivable is reduced as losses are realized on covered loans and other real estate owned, and as
the loss-sharing payments are received from the FDIC. Realized losses in excess of the acquisition date estimates
will result in an increase in the FDIC loss-share receivable. However, a reduction in the FDIC loss-share
receivable due to realized losses less than the acquisition date estimates are recognized prospectively over the
shorter of (i) the estimated life of the respective pools of covered loans or (ii) the term of the loss-sharing
agreements with the FDIC. The potential increases and decreases to the FDIC loss-share receivable are recorded
as a component of non-interest income. The amount ultimately collected for the FDIC loss-share receivable is
dependent upon the performance of the underlying covered assets, the passage of time, and claims submitted to
the FDIC. See Note 5 for further details.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill
Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill
and other intangible assets (see “Other Intangible Assets” section below). Goodwill is not amortized and is
subject to an annual assessment for impairment by applying a fair value based test. Goodwill is allocated to
Valley’s reporting unit, which is a business segment or one level below, at the date goodwill is actually recorded.
Impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value. An
impairment charge is recognized in the current period earnings. Valley reviews goodwill annually or more
frequently if a triggering event indicates impairment may have occurred, to determine potential impairment by
determining if the fair value of the reporting unit has fallen below the carrying value.
Other Intangible Assets
Other intangible assets primarily consist of loan servicing rights, core deposits, customer lists and covenants
not to compete obtained through acquisitions. Other intangible assets are amortized using various methods over
their estimated lives and are periodically evaluated for impairment whenever events or changes in circumstances
indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If
impairment is deemed to exist, an adjustment is recorded to earnings in the current period for the difference
between the fair value of the asset and its carrying amount.
Loan Servicing Rights
Loan servicing rights are recorded when purchased or when originated loans are sold, with servicing rights
retained. The cost of each originated loan is allocated between the servicing right and the loan (without the
servicing right) based on their relative fair values. The fair value of the purchased mortgage servicing rights
(“PMSRs”) and internally originated mortgage servicing rights (“OMSRs”) are determined using a method which
utilizes servicing income, discount rates, prepayment speeds and default rates specifically relative to Valley’s
portfolio for OMSRs.
The unamortized costs associated with acquiring loan servicing rights are included in other intangible assets
in the consolidated statements of financial condition and are accounted for using the amortization method. Under
this method, Valley amortizes the loan servicing assets in proportion to and over the period of estimated net
servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk
characteristics and assesses each group for impairment based on fair value. A valuation allowance is established
through an impairment charge to earnings to the extent the amortized cost of a stratified group of loan servicing
rights exceeds its estimated fair value. Increases in the fair value of impaired loan servicing rights are recognized
as a reduction of the valuation allowance, but not in excess of such allowance.
Stock-Based Compensation
Compensation expense for stock options and restricted stock awards (i.e., non-vested stock awards) is based
on the fair value of the award on the date of the grant and is recognized ratably over the service period of the
award. Under Valley’s long-term incentive compensation plans, award grantees that are eligible for retirement do
not have a service period requirement. Compensation expense for these awards is recognized immediately in
earnings. The fair value of each option granted is estimated using a binomial option pricing model. The fair value
of restricted stock awards is the market price of Valley’s stock on the date of grant. For stock options granted
prior to November 1, 2005, Valley estimated the fair value of each option granted on the date of grant using the
Black-Scholes option-pricing model.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements
In general, fair values of financial instruments are based upon quoted market prices, where available. If such
quoted market prices are not available due to inactive or illiquid markets, fair value is based upon internal and
third party models that primarily use as inputs, observable market-based parameters. Valuation adjustments may
be made to ensure that financial instruments are recorded at fair value, including adjustments based on internal
cash flow model projections that utilize assumptions similar to those incorporated by market participants. Other
adjustments may include amounts to reflect counterparty credit quality and Valley’s creditworthiness, among
other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over
time. See Note 3 for additional information.
During the first quarter of 2010, Valley completed two FDIC-assisted transactions. Valley recorded the
assets acquired and liabilities assumed at their estimated fair values as of the acquisition dates. See Note 2 for
additional information on the fair value measurements techniques.
Income Taxes
Valley uses the asset and liability method to provide income taxes on all transactions recorded in the
consolidated financial statements. This method requires that income taxes reflect the expected future tax
consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax
purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the
enacted tax rates that will to be in effect when the underlying items of income and expense are expected to be
realized.
Valley’s expense for income taxes includes the current and deferred portions of that expense. A valuation
allowance is established to reduce deferred tax assets to the amount we expect to realize. Deferred income tax
expense (benefit) results from differences between assets and liabilities measured for financial reporting versus
income-tax return purposes. The effect on deferred taxes of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
Valley maintains a reserve related to certain tax positions and strategies that management believes contain
an element of uncertainty. Periodically, Valley evaluates each of its tax positions and strategies to determine
whether the reserve continues to be appropriate. See Note 14 for further analysis of Valley’s accounting for
income taxes.
Comprehensive Income (Loss)
Valley’s components of other comprehensive income, net of deferred tax, include: (i) unrealized gains and
losses on securities available for sale (including the non-credit portion of any other-than-temporary impairment
charges relating to these securities effective January 1, 2009); (ii) unrealized gains and losses on derivatives used
in cash flow hedging relationships; and (iii) the unfunded portion of its various employee, officer, and director
pension plans. Valley reports comprehensive income and its components in the consolidated statements of
changes in shareholders’ equity.
Earnings Per Common Share
For Valley, the numerator of both the basic and diluted earnings per common share is net income available
to common stockholders (which is equal to net income less dividends on preferred stock and related discount
accretion). The weighted average number of common shares outstanding used in the denominator for basic
earnings per common share is increased to determine the denominator used for diluted earnings per common
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
share by the effect of potentially dilutive common stock equivalents utilizing the treasury stock method. For
Valley, common stock equivalents are outstanding common stock options and warrants to purchase Valley’s
common shares.
The following table shows the calculation of both basic and diluted earnings per common share for the years
ended December 31, 2010, 2009 and 2008:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock and accretion . . . . . . . . . . . . . . . . .
Net income available to common stockholders . . . . . . . . . . . . . .
Basic weighted-average number of common shares
2010
2009
2008
(in thousands, except for share data)
$
$
131,170
—
131,170
$
$
116,061
19,524
96,537
$
$
93,591
2,090
91,501
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Common stock equivalents . . . . . . . . . . . . . . . . . . . . .
161,059,906
8,269
151,675,691
718
143,805,528
79,155
Diluted weighted-average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
161,068,175
151,676,409
143,884,683
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.81
0.81
$
$
0.64
0.64
$
$
0.64
0.64
Common stock equivalents, in the table above, represent the effect of outstanding common stock options
and warrants to purchase Valley’s common shares, excluding those with exercise prices that exceed the average
market price of Valley’s common stock during the periods presented and therefore, would have an anti-dilutive
effect on the diluted earnings per common share calculation. Anti-dilutive common stock options and warrants
equaled approximately 6.6 million, 6.9 million, and 5.9 million common shares for the years ended December 31,
2010, 2009, and 2008, respectively.
Preferred and Common Dividends
On November 14, 2008, Valley issued 300,000 shares of fixed rate cumulative perpetual preferred stock (the
“senior preferred shares”), with a liquidation preference of $1 thousand per share, to the U.S. Department of
Treasury. Subsequently, Valley incrementally repurchased all 300,000 shares back from the U.S. Treasury during
2009 and effectively ended its participation in the TARP Capital Purchase Program on December 23, 2009.
While the senior preferred shares were outstanding to the U.S. Treasury, the shares paid dividends at a rate of
five percent per annum. Valley accrued the obligation for the preferred dividends as earned over the period the
senior preferred shares were outstanding.
Cash dividends to common stockholders are payable and accrued when declared by Valley’s Board of
Directors.
Treasury Stock
Treasury stock is recorded using the cost method and accordingly is presented as a reduction of
shareholders’ equity.
Derivative Instruments and Hedging Activities
As part of its asset/liability management strategies and to accommodate commercial borrowers, Valley has
used interest rate swaps and caps to hedge variability in future fair values or cash flows caused by changes in
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
interest rates. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular
rate risk, are considered fair value
such as
hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges. Valley records all derivatives as assets or liabilities at
fair value on the consolidated statements of financial condition.
interest
risk,
For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged
item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the
effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income
(outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and
the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. On a
quarterly basis, Valley assesses the effectiveness of each hedging relationship by comparing the changes in fair
value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the
designated hedged item or transaction. If a hedging relationship is terminated due to ineffectiveness, and the
derivative instrument is not re-designated to a new hedging relationship, the change in fair value of such
instrument is charged directly to earnings.
New Authoritative Accounting Guidance
Accounting Standards Update (“ASU”) No. 2009-16, “Transfers and Servicing (Topic 860)—Accounting
for Transfers of Financial Assets,” (i) enhances reporting about
including
securitizations, where companies have continuing exposure to the risks related to transferred financial assets,
(ii) eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for
derecognizing financial assets, and (iii) requires additional disclosures about all continuing involvements with
transferred financial assets including information about gains and losses resulting from transfers during the
period. The new guidance under Accounting Standards Codification (“ASC”) Topic 860 was effective on
January 1, 2010. The adoption of this guidance did not have a material impact on Valley’s consolidated financial
statements.
transfers of financial assets,
ASU No. 2009-17, “Consolidations (Topic 810)—Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities,” amends prior guidance to change how a company determines when an
is insufficiently capitalized or is not controlled through voting (or similar rights) should be
entity that
consolidated. The determination of whether a company is required to consolidate an entity is based on, among
other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. ASU No. 2009-17 requires additional disclosures about
the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due
to that involvement as well as its effect on the entity’s financial statements. The provisions of ASU No. 2009-17
became effective on January 1, 2010 and did not have a material impact on Valley’s consolidated financial
statements.
ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures About
Fair Value Measurements,” requires new disclosures and clarifies certain existing disclosure requirements about
fair value measurement. Specifically, the update requires an entity to disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for such
transfers. A reporting entity is required to present separately information about purchases, sales, issuances, and
settlements in the reconciliation of fair value measurements using Level 3 inputs. In addition, the update clarifies
the following requirements of the existing disclosures: (i) for the purposes of reporting fair value measurement
for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate
classes of assets; and (ii) a reporting entity is required to include disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The disclosures
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in
Level 3 of the fair value hierarchy will be required for Valley beginning January 1, 2011. The remaining
disclosure requirements and clarifications made by ASU No. 2010-06 became effective for Valley on January 1,
2010. The applicable new disclosures have been included in Note 3.
ASU No. 2010-18, “Receivables (Topic 310)—Effect of a Loan Modification When the Loan Is Part of a
Pool That Is Accounted for as a Single Asset,” codifies the consensus reached by the Emerging Issues Task Force
that modifications of loans that are accounted for within a pool under ASC Subtopic 310-30 do not result in the
removal of those loans from the pool even if the modification of those loans would otherwise be considered a
troubled debt restructuring. An entity must continue to consider whether the pool of assets in which the loan is
included is impaired if expected cash flows for the pool change. ASU No. 2010-18 became effective
prospectively for modifications of loans accounted for within pools under Subtopic 310-30 beginning in the third
quarter of 2010. The new guidance did not have a material impact on Valley’s consolidated financial statements.
See Note 5 for more information regarding Valley’s covered loans accounted for in accordance with ASC
Subtopic 310-30.
ASU No. 2010-20, “Receivables (Topic 310)—Disclosures about
the Credit Quality of Financing
Receivables and the Allowance for Credit Losses”, requires significant new disclosures about the credit quality
of financing receivables and the allowance for credit losses. The objective of these disclosures is to improve
financial statement users’ understanding of (i) the nature of an entity’s credit risk associated with its financing
receivables and (ii) the entity’s assessment of that risk in estimating its allowance for credit losses as well as
changes in the allowance and the reasons for those changes. The disclosures should be presented at the level of
disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. The
required disclosures include, among other things, a rollforward of the allowance for credit losses as well as
information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU
No. 2010-20 disclosures related to period-end information (e.g., credit-quality information and the ending
financing receivables balance segregated by impairment method) were required in all interim and annual
reporting periods ending on or after December 15, 2010. Disclosures of activity that occurs during a reporting
period (e.g., the rollforward of the allowance for credit losses by portfolio segment) will be required in interim or
annual periods beginning on or after December 15, 2010. Comparative disclosures for reporting periods ending
after initial adoption are required. Since the provisions of ASU 2010-20 are only disclosure related, our adoption
of this guidance did not have an impact on our consolidated financial statements. See Notes 5 and 6 for the
related disclosures.
ASU No. 2011-01, “Receivables (Topic 310)—“Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20,” was issued in January 2011 and postpones the effective
date of the disclosures about troubled debt restructurings. The new effective date for disclosures about troubled
debt restructurings will be aligned with the finalization of the effective date of the exposure drafts “Clarifications
to Accounting for Troubled Debt Restructurings by Creditors, which is proposed” for interim and annual periods
ending on or after June 15, 2011.
BUSINESS COMBINATIONS AND DISPOSITIONS (Note 2)
Acquisitions
FDIC-Assisted Transactions
On March 11, 2010, the Bank assumed all of the deposits, and acquired certain assets of LibertyPointe
Bank, a New York State chartered bank in an FDIC-assisted transaction. The Bank assumed $198.3 million in
customer deposits and acquired $207.7 million in assets, including $140.6 million in loans. The loans acquired by
the Bank principally consist of commercial real estate loans. This transaction resulted in $11.6 million of
goodwill and generated $370 thousand in core deposit intangibles.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On March 12, 2010, the Bank assumed all of the deposits, excluding brokered deposits, and borrowings, and
acquired certain assets of The Park Avenue Bank, a New York State chartered bank in an FDIC-assisted
transaction. The Bank assumed $455.9 million in customer deposits and acquired $480.5 million in assets,
including $271.8 million in loans. The loans acquired by the Bank principally consist of commercial and
industrial loans, and commercial real estate loans. This transaction resulted in $7.9 million of goodwill and
generated $1.2 million in core deposit intangibles.
The Bank and the FDIC will share in the losses on loans and real estate owned as a part of the loss-sharing
agreements entered into by the Bank with the FDIC for both transactions. Under the terms of the loss-sharing
agreement for the LibertyPointe Bank transaction, the FDIC is obligated to reimburse the Bank for 80 percent of
any future losses on covered assets up to $55.0 million, after the Bank absorbs such losses up to the first loss
tranche of $11.7 million, and 95 percent of losses in excess of $55.0 million. Under the terms of the loss-sharing
agreement for The Park Avenue Bank transaction, the FDIC is obligated to reimburse the Bank for 80 percent of
any future losses on covered assets of up to $66.0 million and 95 percent of losses in excess of $66.0 million. The
Bank will reimburse the FDIC for 80 percent of recoveries with respect to losses for which the FDIC paid the
Bank 80 percent reimbursement under the loss-sharing agreements, and for 95 percent of recoveries with respect
to losses for which the FDIC paid the Bank 95 percent reimbursement under the loss-sharing agreements.
The receivable arising from the loss-sharing agreements (referred to as the “FDIC loss-share receivable” on
our consolidated statements of financial condition) is measured separately from the covered loan portfolio
because the agreements are not contractually part of the covered loans and are not transferable should the Bank
choose to dispose of the covered loans. The FDIC loss-share receivable will be reduced as losses are realized on
covered loans and other real estate owned, and as the loss sharing payments are received from the
FDIC. Realized losses in excess of the acquisition date estimates will result in an increase in the FDIC loss-share
receivable. However, reduction in the FDIC loss-share receivable due to realized losses less than the acquisition
date estimates are recognized prospectively over the shorter of (i) the estimated life of the respective pool(s) of
covered loans or (ii) the term of the loss-sharing agreements with the FDIC. The potential increases and
decreases to the FDIC loss-share receivable are recorded as a component of non-interest income. The amount
ultimately collected for the FDIC loss-share receivable is dependent upon the performance of the underlying
covered assets, the passage of time, and claims submitted to the FDIC. See “Fair Value Measurement of Assets
Acquired and Liabilities Assumed” section below for details regarding the fair value measurement of the FDIC
loss-share receivable.
In the event the losses under the loss-sharing agreements fail to reach expected levels, the Bank has agreed
to pay to the FDIC, on approximately the tenth anniversary following the transactions’ closings, a cash payment
pursuant to each loss-sharing agreement.
In addition, as part of the consideration for The Park Avenue Bank FDIC-assisted transaction, the Bank
agreed to issue a cash-settled equity appreciation instrument to the FDIC. Under the terms of the instrument, the
FDIC had the opportunity to obtain a cash payment equal to the product of (i) the number of units with respect to
which the FDIC exercises its right under the equity appreciation instrument and (ii) the amount by which the
average of the volume weighted average price of Valley’s common stock for each of the five New York Stock
Exchange trading days immediately prior to the exercise of the equity appreciation instrument exceeds $14.372
(unadjusted for the five percent stock dividend issued on May 21, 2010). The equity appreciation instrument was
initially recorded as a liability in the first quarter of 2010 and was settled in cash after the FDIC exercised the
instrument on April 1, 2010. The valuation and settlement of the equity appreciation instrument did not
significantly impact Valley’s consolidated financial statements for the year ended December 31, 2010.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth assets acquired and liabilities assumed in the FDIC-assisted transactions, at
their estimated fair values as of the closing dates of each transaction:
March 11, 2010 March 12, 2010
LibertyPointe
Bank
The Park Avenue
Bank
(in thousands)
Assets acquired:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC loss-share receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,269
5,014
140,570
—
524
11,625
370
29,000
2,285
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$207,657
Liabilities assumed:
Deposits:
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings, NOW and money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34,349
592
163,362
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198,303
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
9,354
$ 29,259
68,729
271,761
123
2,263
7,872
1,190
79,000
20,274
$480,471
$141,775
2,342
311,780
455,897
12,688
10,559
1,327
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$207,657
$480,471
The determination of the fair value of the assets acquired and liabilities assumed required management to
make estimates about discount rates, future expected cash flows, market conditions, and other future events that
are highly subjective in nature and subject to change. During the second and third quarters of 2010, the estimated
fair values of the acquired assets and liabilities as of the acquisition dates were adjusted as a result of additional
information obtained related to the fair value of the loans and unfunded loan commitments acquired and, on a
combined basis, resulted in increases in goodwill, the FDIC loss-share receivable and other liabilities, and a
decrease in covered loans. The purchase accounting for both FDIC-assisted transactions is completed and
reflected in the table above and in our consolidated financial statements for the year ended December 31, 2010.
Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the significant assets acquired and
liabilities assumed in the FDIC-assisted transactions.
Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated
face amounts, as these financial instruments are either due on demand or have short-term maturities.
Investment securities available for sale. The estimated fair values of the investment securities available
for sale were calculated utilizing Level 2 inputs. The prices for these instruments are obtained through an
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
independent pricing service and are derived from market quotations and matrix pricing. The fair value
measurements consider observable data that may include dealer quotes, market spreads, cash flows,
the
U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit
information and the bond’s terms and conditions, among other things. Management reviewed the data and
assumptions used in pricing the securities by its third party provider to ensure the highest level of significant
inputs are derived from market observable data.
Covered loans. The acquired loan portfolios were segregated into categories for valuation purposes
primarily based on loan type and payment status (performing or non-performing). The estimated fair values were
computed by discounting the expected cash flows from the respective portfolios. Management estimated the cash
flows expected to be collected at the acquisition date by using valuation models that incorporated estimates of
current key assumptions, such as prepayment speeds, default rates, and loss severity rates. Prepayment
assumptions were developed by reference to recent or historical prepayment speeds observed for loans with
similar underlying characteristics. Prepayment assumptions were influenced by many factors including, but not
limited to, forward interest rates, loan and collateral types, payment status, and current loan-to-value ratios.
Default and loss severity rates were developed by reference to recent or historical default and loss rates observed
for loans with similar underlying characteristics. Default and loss severity assumptions were influenced by many
factors including, but not limited to, underwriting processes and documentation, vintages, collateral types,
collateral locations, estimated collateral values, loan-to-value ratios, and debt-to-income ratios.
The expected cash flows from the acquired loan portfolios were discounted at estimated market rates. The
market rates were estimated using a buildup approach which included assumptions with respect to funding cost
and funding mix, estimated servicing cost,
to
compensate for the uncertainty inherent in the acquired loans. The methods used to estimate the fair values of the
covered loans are extremely sensitive to the assumptions and estimates used. While management attempted to
use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a
greater degree of subjectivity is inherent in these values than in those determined in active markets.
liquidity premium, and additional spreads,
if warranted,
See Note 5 for further discussion regarding covered loans and Valley’s accretion of the loan discount
resulting from acquisition date fair value adjustments.
FDIC loss-share receivable. The fair value of the FDIC loss-share receivable represents the present value
of the estimated loss share reimbursements expected to be received from the FDIC for future losses on covered
assets, based on the credit assumptions estimated for covered assets, loss sharing percentages, and the first loss
tranche amount, if applicable. These loss share reimbursements were then discounted using the U.S. Treasury
strip curve plus a premium to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements
from the FDIC. The amounts ultimately collected for this asset are dependent upon the performance of the
underlying covered assets, the passage of time, and claims submitted to the FDIC.
Other intangible assets. Other intangible assets consisting of core deposit intangibles (“CDI”) are measures
of the value of non-maturity checking, savings, NOW and money market deposits that are acquired in a business
combination. The fair value of the CDI stemming from any given business combination is based on the present
value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of
funding. The CDI related to the FDIC-assisted transactions is being amortized over an estimated useful life of
five years to approximate the existing deposit relationships acquired. Valley evaluates such identifiable
intangibles for impairment when an indication of impairment exists.
Deposits. The fair values of deposit liabilities with no stated maturity (i.e., savings, NOW and money
market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable
on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value
using interest rates currently offered on deposits with similar characteristics and remaining maturities.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Short-term and long-term borrowings. The fair values of short-term and long-term borrowings were
estimated by obtaining quoted market prices of the identical or similar financial instruments when available.
When these quoted prices were available, the fair values of borrowings were estimated by discounting the
estimated future cash flows using market discount rates of financial instruments with similar characteristics,
terms and remaining maturity.
Other Acquisitions
On December 14, 2010, Masters Coverage Corp., an all-line insurance agency that is a wholly-owned
subsidiary of the Bank, acquired certain assets of S&M Klein Co. Inc., an independent insurance agency located
in Queens, New York. The purchase price totaled $5.3 million, consisting of $3.3 million in cash and earn-out
payments totaling $2.0 million that are payable over a four year period, subject to certain customer retention and
earnings performance. The transaction generated goodwill and other intangible assets totaling $1.9 million and
$3.3 million, respectively. Other intangible assets consist of a customer list, covenants not to compete, and a
trade name with a weighted average amortization period of 16 years.
On November 30, 2009, Masters Coverage Corp. acquired the assets of Samuel M. Berman Company, Inc.,
an independent retail insurance agency offering property and casualty, and health insurance. The purchase price
totaled $950 thousand, consisting of $285 thousand in cash and a $665 thousand note payable, subject to certain
customer retention levels and payable over the next four years. The transaction generated approximately $726
thousand in goodwill and $224 thousand in other intangible assets. Other intangible assets consist of a customer
list and covenants not to compete with a weighted average amortization period of seven years.
On July 1, 2008, Valley completed the acquisition of Greater Community Bancorp (“Greater Community”),
the holding company of Greater Community Bank, a commercial bank with approximately $1.0 billion in assets
and 16 full-service branches in northern New Jersey. The purchase price of $167.8 million was paid through a
combination of Valley’s common stock (9.6 million shares) and warrants (described below). The transaction
generated approximately $115.8 million in goodwill and $7.5 million in core deposit intangibles subject to
amortization beginning July 1, 2008. Of the $115.8 million in goodwill, $485 thousand was recorded during the
second quarter of 2009 relating to the valuation of certain deferred tax assets acquired from Greater Community.
Greater Community Bank was merged into Valley National Bank as of the acquisition date.
As a part of the purchase price for Greater Community, Valley issued approximately 918 thousand warrants
on July 1, 2008. Each warrant is entitled to purchase 1.1025 Valley common shares at $17.24 per share and
exercisable through an expiration date on June 30, 2015. The Valley warrants, which have been determined to
qualify as permanent equity, are publicly traded and listed on the NASDAQ Capital Market under the ticker
symbol “VLYWW”. All of the warrants remained outstanding at December 31, 2010.
Pro forma results of operations including Greater Community for the year ended December 31, 2008 have
not been presented, as the acquisition did not have a material impact on Valley’s operating results.
Disposition
On March 31, 2008, Valley sold its wholly-owned broker-dealer subsidiary, Glen Rauch Securities, Inc., for
$1.9 million, consisting of cash and a note receivable. The subsidiary’s operations and the disposition did not
materially impact Valley’s consolidated financial position or results of operations during 2008 and therefore has
not been presented as discontinued operations in Valley’s consolidated financial statements.
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES (Note 3)
ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are
described below:
Level 1 Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or
identical liabilities traded as assets that the reporting entity has the ability to access at the
measurement date.
Level 2 Quoted prices in markets that are not active, or inputs that are observable either directly or
indirectly (i.e., quoted prices on similar assets), for substantially the full term of the asset or
liability.
Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported by little or no market activity).
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring basis by
level within the fair value hierarchy as reported on the consolidated statements of financial condition at
December 31, 2010 and 2009. Financial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement.
Fair Value Measurements at Reporting Date Using:
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2010
(in thousands)
Assets:
Investment securities:
Available for sale:
U.S. Treasury securities . . . . . . . . . . . .
U.S. government agency securities . . .
Obligations of states and political
$ 163,810
88,800
$163,810
—
$ —
88,800
$ —
—
subdivisions . . . . . . . . . . . . . . . . . . .
29,462
—
29,462
—
Residential mortgage-backed
securities . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . .
Corporate and other debt securities . . .
Equity securities . . . . . . . . . . . . . . . . . .
Total available for sale . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (1) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (2)
610,358
41,083
53,961
47,808
1,035,282
31,894
58,958
8,414
—
20,343
41,046
28,227
253,426
9,991
—
—
514,711
—
—
10,228
643,201
—
58,958
8,414
95,647
20,740
12,915
9,353
138,655
21,903
—
—
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,134,548
$263,417
$710,573
$160,558
Liabilities:
Junior subordinated debentures issued to VNB
Capital Trust I (3)
. . . . . . . . . . . . . . . . . . . . . . .
Other liabilities (2) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 161,734
1,379
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 163,113
$161,734
—
$161,734
$ —
1,379
$
1,379
$ —
—
$ —
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements at Reporting Date Using:
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2009
(in thousands)
Assets:
Investment securities:
Available for sale:
U.S. Treasury securities . . . . . . . . . . . .
Obligations of states and political
$ 276,285
$276,285
$ —
$ —
subdivisions . . . . . . . . . . . . . . . . . . .
33,411
—
33,411
—
Residential mortgage-backed
securities . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . .
Corporate and other debt securities . . .
Equity securities . . . . . . . . . . . . . . . . . .
Total available for sale . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (1) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (2)
940,505
36,412
19,042
46,826
1,352,481
32,950
25,492
7,124
—
16,320
—
28,098
320,703
—
—
—
820,652
—
10,868
10,235
875,166
—
25,492
7,124
119,853
20,092
8,174
8,493
156,612
32,950
—
—
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,418,047
$320,703
$907,782
$189,562
Liabilities:
Junior subordinated debentures issued to VNB
Capital Trust I (3)
. . . . . . . . . . . . . . . . . . . . . . .
Other liabilities (2) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 155,893
1,018
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 156,911
$155,893
—
$155,893
$ —
1,018
$
1,018
$ —
—
$ —
(1)
Loans held for sale (which consists of residential mortgages) had contractual unpaid principal balances
totaling approximately $58.4 million and $25.3 million at December 31, 2010 and December 31, 2009,
respectively for loans originated for sale and carried at fair value.
(2) Derivative financial instruments are included in this category.
(3)
The junior subordinated debentures had contractual unpaid principal obligations totaling $157.0 million at
December 31, 2010 and 2009.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The changes in Level 3 assets measured at fair value on a recurring basis for the years ended December 31,
2010 and 2009 are summarized below:
2010
2009
Trading
Securities
Available
For Sale
Securities
Trading
Securities
Available
For Sale
Securities
(in thousands)
Balance, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . $ 32,950
—
(10,567)
Transfers into Level 3 (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers out of Level 3 (1)
. . . . . . . . . . . . . . . . . . . . . . . .
Total net (losses) gains for the period included in:
$156,612
—
(1,384)
$ —
34,236
$ —
156,820
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . .
Purchases, sales and settlements . . . . . . . . . . . . . . . . . . . .
(480)
—
—
—
9,626
(26,199)
4,414
—
(5,700)
—
22,867
(23,075)
Balance, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,903
$138,655
$32,950
$156,612
Net unrealized (losses) gains included in net income for the
period relating to assets held at year end (2)
. . . . . . . . . . . . . $
(480)(3) $ (4,642)(4) $ 7,303(3) $ (6,352)(4)
(1) All transfers into/or out of Level 3 are assumed to occur at the beginning of the reporting period.
(2) Represents net losses that are due to changes in economic conditions and management’s estimates of fair
(3)
value.
Included in trading gains (losses), net within the non-interest
statements of income.
income category on the consolidated
(4) Represents the net impairment losses on securities recognized in earnings for the period.
During 2010, two trust preferred securities totaling $12.0 million with the same issuer, one classified as
trading and one classified as available for sale, were transferred out of Level 3 assets to Level 1 assets due to
newly available exchange quoted prices in active markets for these securities.
Five corporate debt securities with a combined fair value of $11.1 million at December 31, 2010 were
transferred from Level 2 to Level 1 assets during the year ended December 31, 2010 due to newly available
exchange quoted prices in active markets for these securities.
The following valuation techniques were used for financial instruments measured at fair value on a
recurring basis. All the valuation techniques described below apply to the unpaid principal balance excluding any
accrued interest or dividends at the measurement date. Interest income and expense and dividend income are
recorded within the consolidated statements of income depending on the nature of the instrument using the
effective interest method based on acquired discount or premium.
Available for sale and trading securities. All U.S. Treasury securities, certain corporate and other debt
securities, and certain common and preferred equity securities (including trust preferred securities) are reported
at fair values utilizing Level 1 inputs (exchange quoted prices). The majority of the other investment securities
are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an
independent pricing service or dealer market participants with whom Valley has historically transacted both
purchases and sales of investment securities. Prices obtained from these sources include prices derived from
market quotations and matrix pricing. The fair value measurements consider observable data that may include
dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data,
market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other
things. Management reviews the data and assumptions used in pricing the securities by its third party providers to
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ensure the highest level of significant inputs are derived from market observable data. For certain securities, the
inputs used by either dealer market participants or independent pricing service, may be derived from
unobservable market information. In these instances, Valley evaluated the appropriateness and quality of each
price. In addition, Valley reviewed the volume and level of activity for all available for sale and trading securities
and attempted to identify transactions which may not be orderly or reflective of a significant level of activity and
volume. For securities meeting these criteria, the quoted prices received from either market participants or an
independent pricing service may be adjusted, as necessary, to estimate fair value and this results in fair values
based on Level 3 inputs. In determining fair value, Valley utilized unobservable inputs which reflect Valley’s
own assumptions about the inputs that market participants would use in pricing each security. In developing its
assertion of market participant assumptions, Valley utilized the best information that is both reasonable and
available without undue cost and effort.
In calculating the fair value for certain trading securities, consisting of trust preferred securities, under
Level 3, Valley prepared present value cash flow models incorporating the contractual cash flow of each security
adjusted, if necessary, for potential changes in the amount or timing of cash flows due to the underlying credit
worthiness of each issuer. The resulting estimated future cash flows were discounted at a yield determined by
reference to similarly structured securities for which observable orderly transactions occurred. For a majority of
the securities valued under Level 3, the discount rate actually utilized reflected orderly transactions of similar
issued securities by the same obligor. The discount rate is further adjusted to reflect a market premium which
incorporates, among other variables, illiquidity premiums and variances in the instruments’ structure. The quoted
prices received from either market participants or independent pricing services are weighted with the internal
price estimate to determine the fair value of each instrument.
In calculating the fair value for the available for sale securities under Level 3, Valley prepared present value
cash flow models for certain trust preferred securities (including three pooled trust preferred securities), and
certain private label mortgage-backed securities. The cash flows for the residential mortgage-backed securities
incorporated the expected cash flow of each security adjusted for default rates, loss severities and prepayments of
the individual loans collateralizing the security. The cash flows for trust preferred securities reflected the
contractual cash flow, adjusted if necessary for potential changes in the amount or timing of cash flows due to the
underlying credit worthiness of each issuer.
For available for sale trust preferred securities and corporate debt securities, the resulting estimated future
cash flows were discounted at a yield determined by reference to similarly structured securities for which
observable orderly transactions occurred. The discount rate for each security was applied using a pricing matrix
based on credit, security type and maturity characteristics to determine the fair value. The quoted prices received
from either market participants or independent pricing services are weighted with the internal price estimate to
determine the fair value of each instrument.
For available for sale private label mortgage-backed securities, cash flow assumptions incorporated
independent third party market participant data based on vintage year for each security. The discount rate utilized
in determining the present value of cash flows for the mortgage-backed securities was arrived at by combining
the yield on orderly transactions for similar maturity government sponsored mortgage-backed securities with
(i) the historical average risk premium of similar structured private label securities, (ii) a risk premium reflecting
current market conditions, including liquidity risk and (iii) if applicable, a forecasted loss premium derived from
the expected cash flows of each security. The estimated cash flows for each private label mortgage-backed
security were then discounted at the aforementioned effective rate to determine the fair value. The quoted prices
received from either market participants or independent pricing services are weighted with the internal price
estimate to determine the fair value of each instrument.
Loans held for sale. The conforming residential mortgage loans originated for sale are reported at fair value
using Level 2 (significant other observable) inputs. The fair values were calculated utilizing quoted prices for
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
similar assets in active markets. To determine these fair values, the mortgages held for sale are put into multiple
tranches, or pools, based on the coupon rate of each mortgage. If the mortgages held for sale are material, the
market prices for each tranche are obtained from both Fannie Mae and Freddie Mac. The market prices represent
a delivery price which reflects the underlying price each institution would pay Valley for an immediate sale of an
aggregate pool of mortgages. The market prices received from Fannie Mae and Freddie Mac are then averaged
and interpolated or extrapolated, where required, to calculate the fair value of each tranche. Depending upon the
time elapsed since the origination of each loan held for sale, non-performance risk and changes therein were
addressed in the estimate of fair value based upon the delinquency data provided to both Fannie Mae and Freddie
Mac for market pricing and changes in market credit spreads. Non-performance risk did not materially impact the
fair value of mortgage loans held for sale at December 31, 2010 and 2009 based on the short duration these assets
were held, and the high credit quality of these loans.
Junior subordinated debentures issued to capital trusts. The junior subordinated debentures issued to
VNB Capital Trust I are reported at fair value using Level 1 inputs. The fair value was estimated using quoted
prices in active markets for similar assets, specifically the quoted price of the VNB Capital Trust I preferred
stock traded under ticker symbol “VLYPRA” on the New York Stock Exchange. The preferred stock and
Valley’s junior subordinated debentures issued to the Trust have identical financial terms (see Note 12 for
details) and therefore, the preferred stock’s quoted price moves in a similar manner to the estimated fair value
and current settlement price of the junior subordinated debentures. The preferred stock’s quoted price includes
market considerations for Valley’s credit and non-performance risk and is deemed to represent the transfer price
that would be used if the junior subordinated debenture were assumed by a third party. Valley’s potential credit
risk and changes in such risk did not materially impact the fair value measurement of the junior subordinated
debentures at December 31, 2010 and 2009.
Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair value of Valley’s
interest rate caps and interest rate swaps are determined using third party prices that are based on discounted cash
flow analyses. The fair value measurement of the interest caps is calculated by discounting the future expected
cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest
rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates
derived from observed market interest rate curves and volatilities. The fair value measurement of the interest rate
swaps are determined by netting the discounted future fixed cash payments and the discounted expected variable
cash receipts. The variable cash receipts are based on the expectation of future interest rates derived from
observed market interest rate curves. The fair values of the derivatives incorporate credit valuation adjustments,
which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance
risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall
valuation of Valley’s derivatives at December 31, 2010 and 2009.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is,
the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in
certain circumstances (for example, when there is evidence of impairment). Certain non-financial assets and
non-financial liabilities are measured at fair value on a nonrecurring basis, including other real estate owned and
other repossessed assets (upon initial recognition or subsequent impairment), goodwill measured at fair value in
the second step of a goodwill impairment test, and loan servicing rights, core deposits, other intangible assets,
and other long-lived assets measured at fair value for impairment assessment.
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes assets measured at fair value on a non-recurring basis as of the dates
indicated:
Fair Value Measurements at Reporting Date Using:
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Total
Significant Other
Observable Inputs
(Level 2)
(in thousands)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2010
Collateral dependent impaired loans (1) . . . . . . .
Loan servicing rights . . . . . . . . . . . . . . . . . . . . .
Foreclosed assets (2) . . . . . . . . . . . . . . . . . . . . . .
$53,330
11,328
19,986
As of December 31, 2009
Collateral dependent impaired loans . . . . . . . . .
Loan servicing rights . . . . . . . . . . . . . . . . . . . . .
Foreclosed assets . . . . . . . . . . . . . . . . . . . . . . . .
$16,835
11,110
6,434
$—
—
—
$—
—
—
$—
—
—
$—
—
—
$53,330
11,328
19,986
$16,835
11,110
6,434
(1)
(2)
Excludes pooled covered loans acquired in the FDIC-assisted transactions.
Includes other real estate owned totaling $7.8 million related to the FDIC-assisted transactions, which is
subject to loss-sharing agreements with the FDIC.
Impaired loans. Certain impaired loans are reported at the fair value of the underlying collateral if
repayment is expected solely from the collateral and are commonly referred to as “collateral dependent impaired
loans.” Collateral values are typically estimated using Level 3 inputs, consisting of individual appraisals
performed, on average, every 12 months. Between scheduled appraisals, property values are monitored within the
commercial portfolio by reference to recent trends in commercial property sales as published by leading industry
sources. Property values are monitored within the residential mortgage portfolio by reference to available market
indicators, including real estate price indices within Valley’s primary lending areas.
During the years ended December 31, 2010 and 2009, collateral dependent impaired loans were individually
re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses and/or a
specific valuation allowance allocation based on the fair value of the underlying collateral. The direct loan
charge-offs to the allowance for loan losses totaled $8.3 million for the year ended December 31, 2010. At
December 31, 2010, collateral dependent impaired loans (mainly consisting of commercial and construction
loans) with a carrying value of $54.4 million were reduced by specific valuation allowance allocations totaling
$1.1 million to a reported fair value of $53.3 million. During 2009, impaired loans with a carrying value of $22.5
million were reduced by direct loan charge-offs totaling $4.1 million and specific valuation allowance allocations
totaling $1.6 million to a reported fair value of $16.8 million based on collateral values.
Loan servicing rights. Fair values for each risk-stratified group are calculated using a fair value model
from a third party vendor that requires inputs that are both significant to the fair value measurement and
unobservable (Level 3). The fair value model is based on various assumptions, including but not limited to,
servicing cost, prepayment speed, internal rate of return, ancillary income, float rate, tax rate, and inflation. A
significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs. The use of
different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment
charges are recognized on loan servicing rights when the book value of a risk-stratified group of loan servicing
rights exceeds the estimated fair value. Impairment charges are recognized on loan servicing rights when the
book value of a risk-stratified group of loan servicing rights exceeds the estimated fair value. For the years ended
December 31, 2010 and 2009, net impairment charges of $551 thousand and $80 thousand, respectively, were
recognized on loan servicing rights. At December 31, 2010 and 2009, Valley’s loan servicing rights had a
carrying value of $11.3 million, net of a $1.2 million valuation allowance and $11.1 million, net of a $612
thousand valuation allowance, respectively.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed
assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value through a
charge-off to the allowance for loan losses based upon the fair value of the foreclosed assets. The fair value of a
foreclosed asset, upon initial recognition, is typically estimated using Level 3 inputs, consisting of an appraisal
that is significantly adjusted based on customized discounting criteria. During the years ended December 31,
2010 and 2009, foreclosed assets measured at fair value upon initial recognition totaled $24.7 million and $12.5
million, respectively. In connection with the measurement and initial recognition of the aforementioned
foreclosed assets, Valley recognized charge-offs to the allowance for loan losses totaling $8.1 million and $11.6
million for the years ended December 31, 2010 and 2009, respectively.
Other Fair Value Disclosures
The following table presents the amount of gains and losses from fair value changes included in income
before income taxes for financial assets and liabilities carried at fair value for the years ended December 31,
2010, 2009 and 2008:
Reported in
Consolidated Statements
of Financial Condition
Reported in
Consolidated Statements
of Income
Assets:
Held to maturity securities
Net impairment losses on
Gains (Losses) on Change in Fair Value
Years Ended December 31,
2010
2009
2008
(in thousands)
Available for sale securities
Net impairment losses on
securities . . . . . . . . . . . . . . . . . . .
$ —
$ — $ (7,846)
Trading securities
Loans held for sale
Liabilities:
Long-term borrowings*
Junior subordinated debentures
securities . . . . . . . . . . . . . . . . . . .
Trading (losses) gains, net . . . . . . .
. . . . . .
Gains on sales of loans, net
(4,642)
(1,056)
12,591
(6,352)
5,394
8,937
(76,989)
(10,883)
1,274
Trading (losses) gains, net . . . . . . .
—
—
(1,194)
issued to capital trusts
Trading (losses) gains, net . . . . . . .
(5,841)
(15,828)
15,243
$ 1,052
$ (7,849)
$(80,395)
* During the second quarter of 2008, Valley prepaid one fixed rate Federal Home Loan Bank advance elected to
be carried at fair value which had a $40.0 million contractual principal obligation. No other long-term
borrowings were carried at fair value at December 31, 2008.
ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and
financial liabilities, including those financial assets and financial liabilities that are not measured and reported at
fair value on a recurring basis or non-recurring basis.
The fair value estimates presented in the following table were based on pertinent market data and relevant
information on the financial instruments available as of the valuation date. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the entire portfolio of financial
instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be
based on judgments regarding future expected loss experience, current economic conditions, risk characteristics
of various financial
instruments and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities that are not considered financial
instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation,
trust and investment management departments) that were not considered in these estimates since these activities
are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and have not been considered in any of the
estimates.
The carrying amounts and estimated fair values of financial instruments were as follows at December 31,
2010 and 2009:
Financial assets:
2010
2009
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(in thousands)
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposit with banks . . . . . . . . . . . . . . .
Investment securities held to maturity . . . . . . . . . . . .
Investment securities available for sale . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . .
Federal Reserve Bank and Federal Home Loan Bank
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 302,629
63,657
1,923,993
1,035,282
31,894
58,958
9,241,091
59,126
$ 302,629
63,657
1,898,872
1,035,282
31,894
58,958
9,035,066
59,126
$ 305,678
355,659
1,584,388
1,352,481
32,950
25,492
9,268,081
56,245
$ 305,678
355,659
1,548,006
1,352,481
32,950
25,492
9,233,493
56,245
139,778
8,414
139,778
8,414
139,911
7,124
139,911
7,124
Financial liabilities:
Deposits without stated maturities . . . . . . . . . . . . . . .
Deposits with stated maturities . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures issued to capital
trusts (carrying amount includes fair value of
$161,734 at December 31, 2010 and $155,893 at
December 31, 2009 for VNB Capital Trust I) . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,630,763
2,732,851
192,318
2,933,858
6,630,763
2,783,680
195,360
3,201,090
6,464,918
3,082,367
216,147
2,946,320
6,464,918
3,135,611
206,296
3,115,285
186,922
4,344
1,379
187,480
4,344
1,379
181,150
7,081
1,018
180,639
7,081
1,018
* Derivative financial instruments are included in this category.
Financial instruments with off-balance sheet risk, consisting of loan commitments and standby letters of
credit, had immaterial estimated fair values at December 31, 2010 and 2009.
The following methods and assumptions were used to estimate the fair value of other financial assets and
financial liabilities not measured and reported at fair value on a recurring basis or a non-recurring basis:
Cash and due from banks and interest bearing deposits with banks. The carrying amount is considered
to be a reasonable estimate of fair value.
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Investment securities held to maturity. Fair values are based on prices obtained through an independent
pricing service or dealer market participants which Valley has historically transacted both purchases and sales of
investment securities. Prices obtained from these sources include prices derived from market quotations and
matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market
spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus
prepayment speeds, credit information and the bond’s terms and conditions, among other things. For certain
securities, for which the inputs used by either dealer market participants or independent pricing service were
derived from unobservable market information, Valley evaluated the appropriateness and quality of each price.
Additionally, Valley reviewed the volume and level of activity for all classes of held to maturity securities and
attempted to identify transactions which may not be orderly or reflective of a significant level of activity and
volume. For securities meeting these criteria, the quoted prices received from either market participants or an
independent pricing service may be adjusted, as necessary, to estimate fair value (fair values based on Level 3
inputs). If applicable, the adjustment to fair value was derived based on present value cash flow model
projections prepared by Valley utilizing assumptions similar to those incorporated by market participants.
Loans. Fair values of non-covered and covered loans are estimated by discounting the projected future cash
flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. Projected future
cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of
principal. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value, but
instead are based on a comparison to current market rates for comparable loans.
Accrued interest receivable and payable. The carrying amounts of accrued interest approximate their fair
value.
Federal Reserve Bank and Federal Home Loan Bank stock. The redeemable carrying amount of these
securities with limited marketability approximates their fair value. These securities are recorded in other assets
on the consolidated statements of financial condition.
Deposits. Current carrying amounts approximate estimated fair value of demand deposits and savings
accounts. The fair value of time deposits is based on the discounted value of contractual cash flows using
estimated rates currently offered for alternative funding sources of similar remaining maturity.
Short-term and long-term borrowings. The fair value is estimated by obtaining quoted market prices of
the identical or similar financial instruments when available. When these quoted prices are unavailable, the fair
value of borrowings is estimated by discounting the estimated future cash flows using market discount rates of
financial instruments with similar characteristics, terms and remaining maturity.
Junior subordinated debentures issued to GCB Capital Trust III. There is no active market for the trust
preferred securities issued by GCB Capital Trust III. Therefore, the fair value is estimated utilizing the income
approach, whereby the expected cash flows, over the remaining estimated life of the security, are discounted
using Valley’s credit spread over the current yield on a similar maturity U.S. Treasury security. Valley’s credit
spread was calculated based on Valley’s trust preferred securities issued by VNB Capital Trust I, which are
publicly traded in an active market.
INVESTMENT SECURITIES (Note 4)
As of December 31, 2010, Valley had approximately $1.9 billion, $1.0 billion, and $31.9 million in held to
maturity, available for sale, and trading investment securities, respectively. Valley may be required to record
impairment charges on its investment securities if they suffer a decline in value that is considered other-than-
temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
reliable pricing information for investment securities, adverse changes in business climate, adverse actions by
regulators, or unanticipated changes in the competitive environment could have a negative effect on Valley’s
investment portfolio and may result in other-than-temporary impairment on certain investment securities in
future periods. Valley’s investment portfolios include private label mortgage-backed securities, trust preferred
securities principally issued by bank holding companies (referred to below as “bank issuers”) (including three
pooled trust preferred securities), corporate bonds primarily issued by banks, and perpetual preferred and
common equity securities issued by banks. These investments may pose a higher risk of future impairment
charges by Valley as a result of the persistently weak U.S. economy and its potential negative effect on the future
performance of these bank issuers and/or the underlying mortgage loan collateral. Additionally, some bank trust
preferred issuers may elect
to defer future payments of interest on such securities either based upon
recommendations by the U.S. Government and the banking regulators or management decisions driven by
potential liquidity needs. Such elections by issuers of securities within Valley’s investment portfolio could
adversely affect securities valuations and result in future impairment charges if collection of deferred and
accrued interest (or principal upon maturity) is deemed unlikely by management. Although these securities may
pose a greater risk of impairment charges, many of the bank issuers of trust preferred securities within our
investment portfolio were allowed by their bank regulators to exit the U.S. Treasury’s TARP Capital Purchase
Program, and their capital ratios are at or above the minimum amounts to be considered “well-capitalized” under
current regulatory guidelines. For the small number of bank issuers within our portfolio that remain TARP
participants, dividend payments to trust preferred security holders are senior to and payable before dividends can
be paid on the preferred stock issued under the TARP Capital Purchase Program. See the “Other-Than-
Temporary Impairment Analysis” section below for further details.
Held to Maturity
The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at
December 31, 2010 and 2009 were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
December 31, 2010
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . .
$ 100,161
387,280
1,114,469
269,368
52,715
$
251
2,146
30,728
5,891
2,911
$
(909) $
(3,467)
(3,081)
(59,365)
(226)
99,503
385,959
1,142,116
215,894
55,400
Total investment securities held to maturity . . . . . . . . . . .
$1,923,993
$41,927
$(67,048) $1,898,872
December 31, 2009
Obligations of states and political subdivisions . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . .
$ 313,360
936,385
281,836
52,807
$ 3,430
17,970
3,832
907
$
(227) $ 316,563
953,942
(413)
226,152
(59,516)
51,349
(2,365)
Total investment securities held to maturity . . . . . . . . . . .
$1,584,388
$26,139
$(62,521) $1,548,006
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The age of unrealized losses and fair value of related securities held to maturity at December 31, 2010 and
2009 were as follows:
Less than
Twelve Months
December 31, 2010
More than
Twelve Months
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$ 57,027
(in thousands)
$ (909) $ — $ — $ 57,027
$
(909)
123,399
226,135
14,152
7,971
(3,467)
(3,081)
(250)
(13)
50
—
75,477
8,761
—
—
(59,115)
(213)
123,449
226,135
89,629
16,732
(3,467)
(3,081)
(59,365)
(226)
U.S. Treasury securities . . . . . . . . . . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . .
Trust preferred securities . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$428,684
$(7,720) $ 84,288
$(59,328) $512,972
$(67,048)
Less than
Twelve Months
December 31, 2009
More than
Twelve Months
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thousands)
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . .
Trust preferred securities . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
$ 42,507
120,101
10,702
7,206
$ (219) $
(404)
(89)
(338)
1,305
2,450
121,197
17,926
$
(8) $ 43,812
122,551
(9)
131,899
(59,427)
25,132
(2,027)
$
(227)
(413)
(59,516)
(2,365)
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$180,516
$(1,050) $142,878
$(61,471) $323,394
$(62,521)
The unrealized losses on investment securities held to maturity are primarily due to changes in interest rates
(including, in certain cases, changes in credit spreads) and lack of liquidity in the marketplace. The total number
of security positions in the securities held to maturity portfolio in an unrealized loss position at December 31,
2010 was 153 as compared to 79 at December 31, 2009.
At December 31, 2010, the unrealized losses reported for trust preferred securities relate to 19 single-issuer
securities, mainly issued by bank holding companies. Of the 19 trust preferred securities, 7 were investment
grade, 1 was non-investment grade, and 11 were not rated. Additionally, $38.1 million of the $59.4 million in
unrealized losses at December 31, 2010, relate to securities issued by one bank holding company with a
combined amortized cost of $55.0 million. Valley privately negotiated the purchase of the $55.0 million in trust
preferred securities from the bank issuer and holds all of the securities of the two issuances. Typical of most trust
preferred issuances, the bank issuer may defer interest payments for up to five years with interest payable on the
deferred balance. In August and October of 2009, the bank issuer elected to defer its scheduled interest payments
on each respective security issuance. The bank issuer is currently operating under an agreement with its bank
regulators, which requires, among other things, the issuer to receive permission from the regulators prior to
resuming its regularly scheduled payments on both security issuances. However, the issuer’s principal subsidiary
bank reported, in its most recent regulatory filing, that it meets the regulatory capital minimum requirements to
be considered a “well-capitalized institution” as of December 31, 2010. Based on this information, management
believes that we will receive all principal and interest contractually due on both security issuances. Valley will
continue to closely monitor the credit risk of this issuer and we may be required to recognize other-than-
temporary impairment charges on such securities in future periods. All other single-issuer bank trust preferred
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities classified as held to maturity are paying in accordance with their terms, have no deferrals of interest or
defaults and, if applicable, meet the regulatory capital requirements to be considered to be “well-capitalized
institutions” at December 31, 2010.
Management does not believe that any individual unrealized loss as of December 31, 2010 included in the
table above represents other-than-temporary impairment as management mainly attributes the declines in value to
changes in interest rates and lack of liquidity in the market place, not credit quality or other factors. Based on a
comparison of the present value of expected cash flows to the amortized cost, management believes there are no
credit losses on these securities. Valley does not have the intent to sell, nor is it more likely than not that Valley
will be required to sell, the securities contained in the table above before the recovery of their amortized cost
basis or maturity.
As of December 31, 2010, the fair value of investments held to maturity that were pledged to secure public
deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $964 million.
The contractual maturities of investments in debt securities held to maturity at December 31, 2010 are set
forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed
securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore,
residential mortgage-backed securities are not included in the maturity categories in the following summary.
December 31, 2010
Amortized
Cost
Fair
Value
(in thousands)
Due in one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . .
$ 187,124
62,661
146,981
412,758
1,114,469
$ 187,222
64,592
149,171
355,771
1,142,116
Total investment securities held to maturity . . . .
$1,923,993
$1,898,872
Actual maturities of debt securities may differ from those presented above since certain obligations provide
the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted-average remaining expected life for residential mortgage-backed securities held to maturity
was 3.73 years at December 31, 2010.
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Available for Sale
The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at
December 31, 2010 and 2009 were as follows:
December 31, 2010
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . .
Trust preferred securities* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
$ 162,404
88,926
28,231
578,282
54,060
53,379
48,724
$ 1,406
26
1,234
35,016
1,142
2,612
812
$ — $ 163,810
88,800
29,462
610,358
41,083
53,961
47,808
(152)
(3)
(2,940)
(14,119)
(2,030)
(1,728)
Total investment securities available for sale . . . . . . . . . .
$1,014,006
$42,248
$(20,972) $1,035,282
December 31, 2009
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . .
Trust preferred securities* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 277,429
32,724
911,186
56,636
22,578
49,112
$ — $ (1,144) $ 276,285
33,411
940,505
36,412
19,042
46,826
(35)
(10,218)
(20,341)
(3,734)
(4,242)
722
39,537
117
198
1,956
Total investment securities available for sale . . . . . . . . . .
$1,349,665
$42,530
$(39,714) $1,352,481
* Includes three pooled trust preferred securities, principally collateralized by securities issued by banks and
insurance companies.
The age of unrealized losses and fair value of related securities available for sale at December 31, 2010 and
2009 were as follows:
Less than
Twelve Months
December 31, 2010
More than
Twelve Months
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$66,157
$(152)
$ — $ — $ 66,157
$
(152)
(in thousands)
1,146
11,439
1,262
—
1,538
(3)
(350)
(153)
—
(243)
—
46,206
33,831
7,944
13,736
—
(2,590)
(13,966)
(2,030)
(1,485)
1,146
57,645
35,093
7,944
15,274
(3)
(2,940)
(14,119)
(2,030)
(1,728)
U.S. government agency securities . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . .
Trust preferred securities . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$81,542
$(901)
$101,717
$(20,071) $183,259
$(20,972)
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Less than
Twelve Months
December 31, 2009
More than
Twelve Months
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$276,285
(in thousands)
$(1,144) $ — $ — $276,285
$ (1,144)
395
11,318
—
1,878
—
(4)
(245)
—
(57)
—
1,688
122,031
34,622
6,296
35,901
(31)
(9,973)
(20,341)
(3,677)
(4,242)
2,083
133,349
34,622
8,174
35,901
(35)
(10,218)
(20,341)
(3,734)
(4,242)
U.S. Treasury securities . . . . . . . . . . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . .
Trust preferred securities . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$289,876
$(1,450) $200,538
$(38,264) $490,414
$(39,714)
The total number of security positions in the securities available for sale portfolio in an unrealized loss
position at December 31, 2010 was 43 as compared to 82 at December 31, 2009.
Within the residential mortgage-backed securities category of
the available for sale portfolio at
December 31, 2010, the unrealized losses relate to 10 private label mortgage-backed securities. Of these 10
securities, 6 securities had an investment grade rating and 4 had a non-investment grade rating at December 31,
2010. Three of the four non-investment grade private label mortgage-backed securities with unrealized losses
were other-than-temporarily impaired during 2009 and 2010. See the “Other-Than-Temporary Impairment
Analysis” section below.
At December 31, 2010, the unrealized losses for trust preferred securities in the table above relate to 3
pooled trust preferred and 12 single-issuer bank issued trust preferred securities. Substantially all of the
unrealized loss was attributable to three pooled trust preferred securities with an amortized cost of $23.1 million
and a fair value of $10.0 million. One of the three pooled trust preferred securities with an unrealized loss of
$10.3 million had an investment grade rating at December 31, 2010. The two other pooled trust preferred
securities were other-than-temporarily impaired in 2008, 2009 and the first quarter of 2010. See “Other-Than-
Temporarily Impaired Securities” section below for more details. At December 31, 2010, 9 of the single-issuer
trust preferred securities classified as available for sale had investment grade ratings and 3 had non-investment
grade ratings. These single-issuer securities are all paying in accordance with their terms and have no deferrals of
interest or defaults.
Unrealized losses reported for corporate and other debt securities at December 31, 2010, relate mainly to
one investment rated bank issued corporate bond with a $10.0 million amortized cost and a $2.0 million
unrealized loss that is paying in accordance with its contractual terms.
The unrealized losses on equity securities, including those more than twelve months, are related primarily to
two perpetual preferred security positions from the same issuance with a combined $9.8 million amortized cost
and a $1.3 million unrealized loss. At December 31, 2010, these perpetual preferred securities had investment
grade ratings and are currently performing and paying quarterly dividends.
Management does not believe that any individual unrealized loss as of December 31, 2010 represents an
other-than-temporary impairment, except for the previously impaired securities discussed above, as management
mainly attributes the declines in value to changes in interest rates and recent market volatility, not credit quality
or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost,
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
management believes there are no credit losses on these securities. Valley has no intent to sell, nor is it more
likely than not that Valley will be required to sell, the securities contained in the table above before the recovery
of their amortized cost basis or, if necessary, maturity.
As of December 31, 2010, the fair value of securities available for sale that were pledged to secure public
deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $519 million.
The contractual maturities of investments in debt securities available for sale at December 31, 2010, are set
forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed
securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore,
residential mortgage-backed securities are not included in the maturity categories in the following summary.
December 31, 2010
Amortized
Cost
Fair
Value
(in thousands)
Due in one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 108,406
75,951
84,972
117,671
578,282
48,724
$ 108,822
77,682
86,810
103,802
610,358
47,808
Total investment securities available for sale . . . .
$1,014,006
$1,035,282
Actual maturities of debt securities may differ from those presented above since certain obligations provide
the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted-average remaining expected life for residential mortgage-backed securities available for sale
at December 31, 2010 was 3.3 years.
Other-Than-Temporary Impairment Analysis
In assessing the level of other-than-temporary impairment attributable to credit loss for debt securities,
Valley compares the present value of cash flows expected to be collected with the amortized cost basis of the
security. The portion of the total other-than-temporary impairment related to credit loss is recognized in earnings,
while the amount related to other factors is recognized in other comprehensive income. The total other-than-
temporary impairment loss is presented in the consolidated statement of income, less the portion recognized in
other comprehensive income. Subsequent assessments may result in additional estimated credit losses on
previously impaired securities. These additional estimated credit losses are recorded as reclassifications from the
portion of other-than-temporary impairment previously recognized in other comprehensive income to earnings in
the period of such assessments. When a debt security becomes other-than-temporarily impaired, its amortized
cost basis is reduced to reflect the portion of the total impairment related to credit loss.
For residential mortgage-backed securities, Valley estimates loss projections for each security by stressing
the cash flows from the individual loans collateralizing the security using expected default rates, loss severities,
and prepayment speeds, in conjunction with the underlying credit enhancement (if applicable) for each security.
Based on collateral and origination vintage specific assumptions, a range of possible cash flows was identified to
determine whether other-than-temporary impairment existed at December 31, 2010. Generally, the range of
expected constant default rates (“CDR”), loss severity rates and constant prepayment rates (“CPR”) used in the
modeling scenarios for the 19 private label mortgage-backed securities were as follows: a CDR of 0 percent to
18.9 percent, a loss severity rate of 23.5 percent to 57.4 percent, and a CPR of 0 percent to 47.7 percent.
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the single-issuer trust preferred securities and corporate and other debt securities, Valley reviews each
portfolio to determine if all the securities are paying in accordance with their terms and have no deferrals of
interest or defaults. Additionally, Valley analyzes the performance of the issuers on a quarterly basis, including a
review of performance data from the issuer’s most recent bank regulatory report, if applicable, to assess their
credit risk and the probability of impairment of the contractual cash flows of the applicable security. Based upon
management’s quarterly review, all of the issuers’ capital ratios are at or above the minimum amounts to be
considered a “well-capitalized” financial institution, if applicable, and/or have maintained performance levels
adequate to support the contractual cash flows.
For the three pooled trust preferred securities, Valley evaluates the projected cash flows from each of its
tranches in the three securities to determine if they are adequate to support their future contractual principal and
interest payments. Valley assesses the credit risk and probability of impairment of the contractual cash flows by
projecting the default rates over the life of the security. Higher projected default rates will decrease the expected
future cash flows from each security. If the projected decrease in cash flows in each tranche causes a change in
contractual yield, the security would be considered to be other-than-temporarily impaired. Two of the pooled
trust preferred securities were initially impaired in 2008 with additional estimated credit losses recognized in
2009 and 2010. “See Other-Than-Temporarily Impaired Securities” section below for further details.
The perpetual preferred securities, reported in equity securities, are hybrid investments that are assessed for
impairment by Valley as if they were debt securities. Therefore, Valley assessed the creditworthiness of each
security issuer, as well as any potential change in the anticipated cash flows of the securities as of December 31,
2010. Based on this analysis, management believes the declines in fair value of these securities are attributable to
a lack of liquidity in the marketplace and are not reflective of any deterioration in the creditworthiness of the
issuers.
Other-Than-Temporarily Impaired Securities
The following table provides information regarding our other-than-temporary impairment charges on
securities recognized in earnings for the years ended December 31, 2010, 2009, and 2008.
Held to Maturity:
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ 7,846
Available for sale:
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,265
2,377
—
5,735
183
434
6,435
—
70,554
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . . . . . . .
$4,642
$6,352
$84,835
2010
2009
2008
(in thousands)
Impaired Trust Preferred Securities. All of the other-than-temporary impairment charges on trust
preferred securities in the table above relate to two pooled trust preferred securities with a combined amortized
cost and fair value of $6.2 million and $3.3 million, respectively, at December 31, 2010, after recognition of all
credit impairments. At December 31, 2008, two pooled trust preferred securities (originally classified as held to
maturity ) were initially found to be other-than-temporarily impaired and resulted in an impairment charge of
$7.8 million, as each of Valley’s tranches in the securities had projected cash flows below their future contractual
principal and interest payments. After the impairment, management no longer had a positive intent to hold the
pooled trust preferred securities to their maturity dates due to the significant deterioration in issuers’
creditworthiness, and as a result, we were required to transfer these securities, with a total adjusted carrying value
of $1.1 million at the time of transfer, from the held to maturity portfolio to the available for sale portfolio at
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2008. During the year ended December 31, 2009, we recognized additional estimated credit losses
of $183 thousand for one of the two previously impaired pooled trust preferred securities and, in 2010, both
securities had additional estimated credit losses of $2.4 million as higher default rates decreased the expected
cash flows from the securities.
Due to Valley’s early adoption of the authoritative accounting guidance under ASC Topic 320 on January 1,
2009, the amortized cost amounts for the two impaired pooled trust preferred securities were increased by a total
of $7.5 million at January 1, 2009 for the non-credit portion of the $7.8 million impairment charge taken during
the fourth quarter of 2008.
Impaired Residential Mortgage-Backed Securities. During 2010, Valley recognized impairment charges
on 5 of the 19 individual private label mortgage-backed securities classified as available for sale. All of these
securities, with the exception of one private label mortgage-backed security initially impaired in 2010, were
found to be previously impaired in 2009 and one security was initially impaired in 2008. At December 31, 2010,
the five private label mortgage-backed securities had a combined amortized cost of $51.1 million and fair value
of $50.9 million, respectively. Although Valley recognized other-than-temporary impairment charges on the
securities, each security is currently performing in accordance with its contractual obligations. See the “Other-
Than-Temporary Impairment Analysis” section above for further details regarding the impairment analysis of
residential mortgage-backed securities.
Due to Valley’s early adoption of the authoritative accounting guidance under ASC Topic 320 on January 1,
2009, the amortized cost for one private label mortgage-backed security was increased by a total of $6.2 million
at January 1, 2009 for the non-credit portion of the $6.4 million impairment charge taken during the fourth
quarter of 2008.
Impaired Equity Securities. For the years ended December 31, 2009 and 2008, we recognized other-than-
temporary impairment charges of $434 thousand and $70.6 million, respectively, on equity securities classified
as available for sale. The 2009 impairment charge relates to one common equity security issued by a bank with
an adjusted carrying value of $723 thousand at December 31, 2009. The impairment was recognized based on the
length of time and the severity of the difference between the security’s book value and its observable market
price and the security’s near term prospects for recovery. For the year-ended December 31, 2008, the majority of
the impairment charges related to perpetual preferred equity securities issued by Fannie Mae and Freddie Mac as
a significant decline in the market value of these securities was caused by the U.S. Government placing these
entities into conservatorship and suspending their preferred stock dividends during the third quarter of 2008.
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Realized Gains and Losses
Gross gains (losses) realized on sales, maturities and other securities transactions related to investment
securities included in earnings for the years ended December 31, 2010, 2009 and 2008 were as follows:
Sales transactions:
Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,615
(96)
$8,006
(36)
$10,326
(5,599)
2010
2009
2008
(in thousands)
Maturities and other securities transactions:
Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,519
$7,970
$ 4,727
$ 3,158
(79)
$ 3,079
$
$
79
(44)
35
$
$
317
(24)
293
Gains on securities transactions, net
. . . . . . . . . . . . . . . . . . . . . . . . . .
$11,598
$8,005
$ 5,020
During the year ended December 31, 2008, Valley recognized gross losses on securities transactions of $5.6
million mainly due to the sale of 50 percent of its position in one of the Fannie Mae perpetual preferred stocks
classified as available for sale, which resulted in a gross loss of $5.4 million included in the table above.
The following table presents the changes in the credit loss component of cumulative other-than-temporary
impairment losses on debt securities classified as either held to maturity or available for sale that Valley has
recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other
comprehensive income for the years ended December 31, 2010 and 2009:
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Additions:
2010
2009
(in thousands)
$ 6,119
$ 549
Initial credit impairments . . . . . . . . . . . . . . . . . . . . . . . .
Subsequent credit impairments . . . . . . . . . . . . . . . . . . . .
124
4,518
2,171
3,747
Reductions:
Accretion of credit loss impairment due to an increase
in expected cash flows . . . . . . . . . . . . . . . . . . . . . . . . .
(261)
(348)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,500
$6,119
The credit loss component of the impairment loss represents the difference between the present value of
expected future cash flows and the amortized cost basis of the security prior to considering credit losses. The
beginning balance represents the credit loss component for debt securities for which other-than-temporary
impairment occurred prior to the periods presented. Other-than-temporary impairments recognized in earnings
for credit impaired debt securities are presented as additions in two components based upon whether the current
period is the first time the debt security was credit impaired (initial credit impairment) or is not the first time the
debt security was credit impaired (subsequent credit impairment). The credit loss component is reduced if Valley
sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally,
the credit loss component is reduced if (i) Valley receives cash flows in excess of what it expected to receive
over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully
written down.
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Trading Securities
The fair value of trading securities (consisting of 4 single-issuer bank trust preferred securities) was $31.9
million and $33.0 million at December 31, 2010 and 2009, respectively. Interest income on trading securities
totaled $2.6 million, $3.8 million, and $8.3 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
LOANS (Note 5)
The detail of the loan portfolio as of December 31, 2010 and 2009 was as follows:
2010
2009
(in thousands)
Non-covered loans:
Commercial and industrial
Commercial real estate:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,825,066
$1,801,251
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,378,252
428,232
3,500,419
440,046
Total commercial real estate loans . . . . . . . . . . . . . . . . . . .
3,806,484
3,940,465
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer:
1,925,430
1,943,249
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
512,745
850,801
88,614
566,303
1,029,958
88,845
Total consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,452,160
1,685,106
Total non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,009,140
9,370,071
Covered loans:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
$
$ 121,151
195,646
16,153
17,026
6,679
Total covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
356,655
—
—
—
—
—
—
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,365,795
$9,370,071
FDIC under loss-share receivable related to covered loans and
foreclosed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
89,359
$
—
Total non-covered loans are net of unearned discount and deferred loan fees totaling $9.3 million and $8.7
million at December 31, 2010 and 2009, respectively. At December 31, 2010, covered loans had outstanding
contractual principal balances totaling approximately $439.9 million.
Covered Loans
Covered loans acquired through the FDIC-assisted transactions are accounted for in accordance with ASC
Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” since all of these loans
were acquired at a discount attributable, at least in part, to credit quality and are not subsequently accounted for
at fair value. Covered loans were initially recorded at fair value (as determined by the present value of expected
future cash flows) with no valuation allowance (i.e., the allowance for loan losses). Under ASC Subtopic 310-30,
122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk
characteristics. The difference between the undiscounted cash flows expected at acquisition and the investment in
the covered loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over
the life of each pool. Contractually required payments for interest and principal that exceed the undiscounted
cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or
as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the acquisition are
recognized prospectively through adjustment of the yield on the pool over its remaining life, while decreases in
expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for
loan losses. Valuation allowances (recognized in the allowance for loan losses) on these impaired pools reflect
only losses incurred after the acquisition (representing the present value of all cash flows that were expected at
acquisition but currently are not expected to be received). The allowance for loan losses on covered loans
(acquired through two FDIC-assisted transactions)
is determined without consideration of the amounts
recoverable through the FDIC loss-share agreements (see “FDIC loss-share receivable” below).
The following table presents information regarding the combined estimates of the contractually required
payments receivable, the cash flows expected to be collected, and the estimated fair value of the covered loans
acquired in the LibertyPointe Bank and The Park Avenue Bank transactions (see Note 2), as of the closing dates
for those transactions:
Contractually required principal and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual cash flows not expected to be collected (non-accretable difference) . . .
$ 625,978
(143,988)
Expected cash flows to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest component of expected cash flows (accretable yield) . . . . . . . . . . . . . . . . . .
481,990
(69,659)
Fair value of covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 412,331
(in thousands)
Changes in the accretable yield for covered loans were as follows for the year ended December 31, 2010:
Balance at acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net reclassification from non-accretable difference . . . . . . . . .
(in thousands)
$ 69,659
(20,547)
51,940
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$101,052
Valley reclassified $51.9 million from the non-accretable difference for covered loans because of increases
in expected cash flows for certain pools of covered loans during 2010. This amount will be recognized
prospectively as an adjustment to yield over the life of the individual pools.
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
FDIC Loss-Share Receivable
The receivable arising from the loss-sharing agreements (referred to as the “FDIC loss-share receivable” on
our statements of financial condition) is measured separately from the covered loan portfolio because the
agreements are not contractually part of the covered loans and are not transferable should the Bank choose to
dispose of the covered loans (see Notes 1 and 2). Changes in FDIC loss-share receivable for the year ended
December 31, 2010 were as follows:
Balance at acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to impairment on covered loans* . . . . . . . . . . . . .
Other reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursements from the FDIC . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$108,000
1,166
5,102
2,561
(27,470)
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,359
*
Valley recognized $6.3 million in non-interest income for the year ended December 31, 2010 due to
increases in the FDIC loss-share receivable related to accretion and impairment of certain covered loan
pools.
Related Party Loans
The Bank’s authority to extend credit to its directors and executive officers, as well as to entities controlled
by such persons, and companies in which the Bank has beneficial ownership, is subject to requirements of the
National Bank Act, Sarbanes-Oxley Act and Regulation O of the Federal Reserve Bank.
The following table summarizes the change in the total amounts of loans and advances to directors,
executive officers, and their affiliates during the year ended December 31, 2010, adjusted for changes in
directors, executive officers and their affiliates:
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . .
New loans and advances . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
(in thousands)
$175,678
36,752
(19,085)
(301)
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
$193,044
All loans to related parties are performing as of December 31, 2010.
Loan Portfolio Risk Elements and Credit Risk Management
Credit risk management. For all of its loan types discussed below, Valley adheres to a credit policy
designed to minimize credit risk while generating the maximum income given the level of risk. Management
reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of
Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is
centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting
system supplements the review process by providing management with frequent reports concerning loan
production, loan quality, concentrations of credit, loan delinquencies, non-performing, and potential problem
loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business
sectors and through cyclical economic circumstances.
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Commercial and industrial loans. A significant proportion of Valley’s commercial and industrial loan
portfolio is granted to long standing customers of proven ability, strong repayment performance, and high
character. Underwriting standards are designed to assess the borrower’s ability to generate recurring cash flow
sufficient to meet the debt service requirements of loans granted. While such recurring cash flow serves as the
primary source of repayment, a significant number of the loans are collateralized by borrower assets intended to
serve as a secondary source of repayment should the need arise. Anticipated cash flows of borrowers, however,
may not be as expected and the collateral securing these loans may fluctuate in value, or in the case of loans
secured by accounts receivable, the ability of the borrower to collect all amounts due from its customers. Short-
term loans may be made on an unsecured basis based on a borrower’s financial strength and past performance.
Valley, in most cases, will obtain the personal guarantee of the borrower’s principals to mitigate the risk.
Commercial real estate loans. Commercial real estate loans are subject to underwriting standards and
processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and
secondarily as loans secured by real property. Loans generally involve larger principal balances and longer
repayment periods as compared to commercial and industrial loans. Repayment of most loans is dependent upon
the cash flow generated from the property securing the loan or the business that occupies the property.
Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the
general economy and accordingly conservative loan to value ratios are required at origination, as well as, stress
tested to evaluate the impact of market changes relating to key underwriting elements. The properties securing
the commercial real estate portfolio represent diverse types, with most properties located within Valley’s primary
markets.
Construction loans. With respect to loans to developers and builders, Valley originates and manages
construction loans structured on either a revolving or non-revolving basis, depending on the nature of the
underlying development project. These loans are generally secured by the real estate to be developed and may
also be secured by additional real estate to mitigate the risk. Non-revolving construction loans often involve the
disbursement of substantially all committed funds with repayment substantially dependent on the successful
completion and sale, or lease, of the project. Sources of repayment for these types of loans may be from
pre-committed permanent loans from other lenders, sales of developed property, or an interim loan commitment
from Valley until permanent financing is obtained elsewhere. Revolving construction loans (generally relating to
single family residential construction) are controlled with loan advances dependent upon the presale of housing
units financed. These loans are closely monitored by on-site inspections and are considered to have higher risks
than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental
regulation of real property, general economic conditions and the availability of long-term financing.
Residential mortgages. Valley originates residential, first mortgage loans with the assistance of computer-
based underwriting engines licensed from Fannie Mae and/or Freddie Mac. Appraisals of real estate collateral are
contracted directly with independent appraisers and not through appraisal management companies. The Bank’s
appraisal management policy and procedure is in accordance with all rules and best practice guidance from the
Bank’s primary regulator. Credit scoring, using FICO® and other proprietary, credit scoring models, is employed
in the ultimate, judgmental credit decision by Valley’s underwriting staff. Valley does not use third party contract
underwriting services. Residential mortgage loans include fixed and variable interest rate loans secured by one to
four family homes generally located in northern and central New Jersey, New York City metropolitan area, and
eastern Pennsylvania. Valley’s ability to be repaid on such loans is closely linked to the economic and real estate
market conditions in this region. Underwriting policies generally adhere to Fannie Mae and Freddie Mac
guidelines for loan requests of conforming and non-conforming amounts. In deciding whether to originate each
residential mortgage, Valley considers the qualifications of the borrower as well as the value of the underlying
property. During 2010 and 2009, Valley elected to sell many of its fixed-rate loan originations due to the low
level of market interest rates and Valley’s desire to manage the credit and interest rate risk inherent in Valley’s
balance sheet by minimizing the additions of such long-term, low-fixed rate instruments.
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Home equity loans. Home equity lending is made up of both fixed and variable interest rate products, while
automobile loans are exclusively fixed rate and term. Valley mainly provides home equity loans to its residential
mortgage customers within the footprint of its primary lending territory. Valley generally will not exceed a
combined (i.e., first and second mortgage) loan-to-value ratio of 70 percent when originating a home equity loan.
Automobile loans. Valley uses both judgmental and scoring systems in the credit decision process for
automobile loans. Automobile originations (including light truck and sport utility vehicles) are largely produced
via indirect channels, originated through approved automobile dealers. The value of automotive collateral is
generally a depreciating asset and there are times in the life of an automobile loan where the amount owed on a
vehicle may exceed its collateral value. Additionally, automobile charge-offs will vary based on strength or
weakness in the used vehicle market, original advance rate, when in the life cycle of a loan a default occurs and
the condition of the collateral being liquidated. Where permitted by law, and subject to the limitations of the
bankruptcy code, deficiency judgments are sought and acted upon to ultimately collect all money owed, even
when a default resulted in a loss at collateral liquidation. Valley uses a third party to actively track collision and
comprehensive risk insurance required of the borrower on the automobile and this third party provides coverage
to Valley in the event of an uninsured collateral loss.
Other consumer loans. Valley’s consumer portfolio also has minor exposures in credit card loans, personal
lines of credit, personal loans and loans secured by cash surrender value of life insurance. Valley believes the
aggregate risk exposure of these lines of credit is well diverse and minimal at December 31, 2010.
Credit Quality
Past due and non-accrual loans. All loans are deemed to be past due when the contractually required
principal and interest payment have not been received as they become due. Loans are placed on non-accrual
status generally when they become 90 days past due and the full and timely collection of principal and interest
becomes uncertain. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged against current income. Payments received on non-accrual loans are applied
against principal. A loan may be restored to an accruing basis when it becomes well secured and is in the process
of collection, or all past due amounts become current under the loan agreement and collectability is no longer
doubtful.
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The covered loans acquired from the FDIC were aggregated into pools based on common risk characteristics
in accordance with ASC Subtopic 310-30. Each loan pool is accounted for as a single asset with a single
composite interest rate and an aggregate expectation of cash flows. The covered loans that may have been
classified as non-performing loans by the acquired banks are no longer classified as non-performing because
these loans are accounted for an a pooled basis. Management’s judgment is required in classifying loans in pools
subject to ASC Subtopic 310-30 as performing loans, and is dependent on having a reasonable expectation about
the timing and amount of the pool cash flows to be collected, even if certain loans within the pool are
contractually past due. The following table presents past due, non-accrual and current loans by the loan portfolio
class at December 31, 2010 and for total non-covered loans at December 31, 2009.
Past Due and Non-Accrual Loans*
30-89 Days
Past Due
Loans
Accruing Loans
90 Days Or More
Past Due
Non-Accrual
Loans
Total
Past Due
Loans
Current
Non-Covered
Loans
Total
Non-Covered
Loans
(in thousands)
$13,852
$
12
$ 13,721
$ 27,585 $1,797,481 $1,825,066
December 31, 2010
Commercial and industrial . . . . . .
Commercial real estate:
Commercial real estate . . . . .
Construction . . . . . . . . . . . . .
14,563
2,804
Total commercial real estate
loans . . . . . . . . . . . . . . . . . . . . .
17,367
Residential mortgage . . . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . .
Other consumer . . . . . . . . . .
12,682
1,045
13,328
265
Total consumer loans . . . . . . . . . .
14,638
—
196
196
1,556
—
686
37
723
32,981
27,312
47,544
30,312
3,330,708
397,920
3,378,252
428,232
60,293
28,494
1,955
539
53
2,547
77,856
3,728,628
3,806,484
42,732
1,882,698
1,925,430
3,000
14,553
355
509,745
836,248
88,259
512,745
850,801
88,614
17,908
1,434,252
1,452,160
Total . . . . . . . . . . . . . . . . . . .
$58,539
$2,487
$105,055
$166,081 $8,843,059 $9,009,140
December 31, 2009
Total . . . . . . . . . . . . . . . . . . .
$53,619
$5,125
$ 91,964
$150,708 $9,219,363 $9,370,071
* Past due loans and non-accrual loans exclude loans that were acquired as part of the Liberty Pointe Bank and
The Park Avenue Bank FDIC-assisted transactions. These loans are accounted for on a pooled basis.
If interest on non-accrual loans had been accrued in accordance with the original contractual terms, such
interest income would have amounted to approximately $7.9 million, $6.5 million, and $2.7 million for the years
ended December 31, 2010, 2009, and 2008, respectively; none of these amounts were included in interest income
during these periods. Interest income recognized on loans once classified as non-accrual loans was immaterial for
the years ended December 31, 2010, 2009, and 2008.
Performing troubled debt restructured loans (“restructured loans”). Restructured loans with modified
terms and not reported as loans 90 days or more past due and still accruing or non-accrual, are performing
restructured loans to customers experiencing financial difficulties where a concession has been granted. All loan
modifications are made on a case-by-case basis. The majority of our loan modifications that are considered
restructured loans involve lowering the monthly payments on such loans through either a reduction in interest
rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk
premium reflected in the interest rate, or a combination of these two methods. These modifications rarely result
in the forgiveness of principal or interest. In addition, the Bank frequently obtains additional collateral or
guarantor support when modifying such loans.
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents information about restructured loans at December 31, 2010:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate:
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
($ in thousands)
$23,718
36,707
12,644
49,351
16,544
83
83
Total restructured loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
$89,696
Number of
Loans
18
14
5
19
5
2
2
44
At December 31, 2009, performing restructured loans totaled $19.1 million and consisted of 7 commercial
and industrial loans.
Impaired loans. Commercial and industrial loans and commercial real estate loans over a specific dollar
amount and all troubled debt restructured loans are individually evaluated for impairment. The value of an
impaired loan is measured based upon the underlying anticipated method of payment consisting of either the
present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the
collateral, if the loan is collateral dependent, and its payment is expected solely based on the underlying
collateral. If the value of an impaired loan is less than its carrying amount impairment is recognized through an
allowance estimate. Collateral dependent impaired loan balances are written down to the current fair value of
each loan’s underlying collateral resulting in an immediate charge-off to the allowance, excluding any
consideration for personal guarantees that may be pursued in the Bank’s collection process. If repayment is based
upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s
original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as a
specific valuation allowance in the allowance for credit losses.
Residential mortgage loans and consumer loans generally consist of smaller balance homogeneous loans
that are collectively evaluated for impairment, and are specifically excluded from the impaired loan portfolio,
except where the loan is classified as a troubled debt restructured loan.
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the information about impaired loans by loan portfolio class at December 31,
2010:
December 31, 2010
Commercial and industrial . . . . . . . . . . . . . . . . . .
Commercial real estate:
Commercial real estate . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate loans . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer loans . . . . . . . . . . . . . . . . . .
Recorded
Investment*
With
No Related
Allowance
Recorded
Investment*
With Related
Allowance
Total
Recorded
Investment*
(in thousands)
Unpaid
Contractual
Principal
Balance
Related
Allowance
$ 3,707
$ 28,590
$ 32,297
$ 42,940
$ 6,397
19,860
24,215
44,075
788
—
—
43,393
15,854
59,247
17,797
83
83
63,253
40,069
66,869
40,867
103,322
107,736
18,585
18,864
83
83
83
83
3,991
2,150
6,141
2,683
5
5
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,570
$105,717
$154,287
$169,623
$15,226
* Recorded investment equals to the aggregate carrying value of the applicable loans.
At December 31, 2009, impaired loans totaled $74.5 million and included $28.6 million of loans for which
there was no related allowance and $46.0 million of loans with a related allowance of $7.3 million.
The average balance of impaired loans was approximately $104.1 million, $49.8 million, and $25.3 million,
for the years ended December 31, 2010, 2009, and 2008 respectively. The amount of interest that would have
been recorded under the original terms for impaired loans was $4.1 million, $3.1 million, and $984 thousand, for
the years ended December 31, 2010, 2009, and 2008, respectively. Interest was not collected on these impaired
loans during these periods.
Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting
problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes.
Under Valley’s internal risk rating system,
loan relationships could be classified as “Special Mention”,
“Substandard”, “Doubtful”, and “Loss.” Substandard loans include loans that exhibit well-defined weakness and
are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not
corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the
added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing
facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered
uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses. Loans
that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories, but
pose weaknesses that deserve management’s close attention are deemed to be Special Mention. Loans rated as
“Pass” loans do not currently pose any identified risk and can range from the highest to average quality,
depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the risk category of loans by class of loans based on the most recent analysis
performed at December 31, 2010.
Credit exposure –
by internally assigned risk rating
Pass
Special
Mention
Substandard Doubtful
(in thousands)
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,638,939
3,175,333
324,292
$ 92,131
77,186
48,442
$ 93,920
125,733
55,498
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,138,564
$217,759
$275,151
$ 76
—
—
$ 76
For residential mortgages, automobile, home equity, and other consumer loan portfolio classes, Valley also
evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment
activity. The following table presents the recorded investment in those loans classes based on payment activity as
of December 31, 2010:
Credit exposure -
by payment activity
Performing
Loans
Non-Performing
Loans
(in thousands)
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,896,936
510,790
850,262
88,561
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,346,549
$28,494
1,955
539
53
$31,041
Valley evaluates the credit quality of its covered loan pools based on the expectation of the underlying cash
flows. At December 31, 2010, the balance of covered loan pools with an adverse change in the expected cash
flows was $27.2 million with impairment of $6.4 million. The impaired loan pools mainly consisted of
commercial and industrial loans.
ALLOWANCE FOR CREDIT LOSSES (Note 6)
The allowance for credit losses consists of the allowance for losses on non-covered loans, the reserve for
unfunded letters of credit, and the allowance for losses on covered loan related to credit impairment of certain
covered loan pools subsequent to acquisition. Management maintains the allowance for credit losses at a level
estimated to absorb probable loan losses of the loan portfolio and unfunded letter of credit commitments at the
balance sheet date. The allowance for losses on non-covered loans is based on ongoing evaluations of the
probable estimated losses inherent in the non-covered loan portfolio. See Note 1 for further details regarding
Valley’s allowance for credit losses methodology.
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the allowance for credit losses for the years ended December 31, 2010,
2009, and 2008:
2010
2009
2008
(in thousands)
Allowance for credit losses:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$103,655
$ 94,738
$ 74,935
Less net charge-offs:
Loans charged-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged-off loans recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision charged for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,659)
7,052
(26,607)
—
49,456
(42,465)
3,390
(39,075)
—
47,992
(22,663)
2,774
(19,889)
11,410
28,282
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$126,504
$103,655
$ 94,738
Components of allowance for credit losses:
Allowance for non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$118,326
6,378
$101,990
—
$ 93,244
—
Total allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . .
124,704
101,990
93,244
Allowance for unfunded letters of credit
. . . . . . . . . . . . . . . . . . . . . .
1,800
1,665
1,494
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$126,504
$103,655
$ 94,738
Components of provision for credit losses:
Provision for non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,943
6,378
$ 47,821
—
$ 29,059
—
Total provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . .
49,321
47,821
29,059
Provision for unfunded letters of credit
. . . . . . . . . . . . . . . . . . . . . . .
135
171
(777)
Total provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 49,456
$ 47,992
$ 28,282
Valley recorded a $6.4 million provision for covered loans (subject to our loss-sharing agreements with the
FDIC) during the fourth quarter of 2010 due to declines in the expected cash flows caused by credit impairment
in certain loan pools.
Loan charge-off policy. Loans identified as losses by management are charged-off. Loans are assessed for
full or partial charge-off when they are between 90 and 120 days past due. Furthermore, residential mortgage and
consumer loan accounts are charged-off automatically based on regulatory requirements.
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table represents the allocation of allowance for loan losses and the related loans by loan
portfolio segment disaggregated based on the impairment methodology at December 31, 2010.
Commercial
and Industrial
Commercial
Real Estate
Residential
Mortgage
Consumer Unallocated
Total
(in thousands)
December 31, 2010
Allowance for loan losses:
Individually evaluated for
impairment
. . . . . . . . . . . . . . . $
6,397 $
6,141 $
2,683 $
5
$ — $
15,226
Collectively evaluated for
impairment
. . . . . . . . . . . . . . .
50,032
23,776
6,445
14,494
8,353
103,100
Loans acquired with discounts
related to credit quality . . . . . .
5,538
492
348
—
—
6,378
Total
. . . . . . . . . . . . . . . . . . $
61,967 $
30,409 $
9,476 $
14,499
$8,353
$ 124,704
Loans:
Individually evaluated for
impairment
. . . . . . . . . . . . . . . $
32,297 $ 103,322 $
18,585 $
83
$ — $ 154,287
Collectively evaluated for
impairment
. . . . . . . . . . . . . . .
1,792,769
3,703,162
1,906,845
1,452,077
Loans acquired with discounts
related to credit quality . . . . . .
121,151
211,799
17,026
6,679
—
—
8,854,853
356,655
Total
. . . . . . . . . . . . . . . . . . $1,946,217 $4,018,283 $1,942,456 $1,458,839
$ — $9,365,795
PREMISES AND EQUIPMENT, NET (Note 7)
At December 31, 2010 and 2009, premises and equipment, net consisted of:
2010
2009
(in thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56,837
184,404
62,050
169,963
$ 56,304
180,609
58,215
163,109
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . .
473,254
(207,684)
458,237
(191,836)
Total premises and equipment, net . . . . . . . . . . . . . . . . . . . . .
$ 265,570
$ 266,401
Depreciation and amortization of premises and equipment included in non-interest expense for the years
ended December 31, 2010, 2009 and 2008 amounted to approximately $15.8 million, $15.3 million and $14.7
million, respectively.
LOAN SERVICING (Note 8)
VNB Mortgage Services, Inc. (“MSI”), a subsidiary of the Bank, is a servicer of residential mortgage loan
portfolios. MSI is compensated for loan administrative services performed for mortgage servicing rights
purchased in the secondary market and loans originated and sold by the Bank. The aggregate principal balances
of mortgage loans serviced by MSI for others approximated $1.3 billion at December 31, 2010 and 2009, and
$1.2 billion at December 31, 2008. The outstanding balance of loans serviced for others is not included in the
consolidated statements of financial condition.
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Bank is a servicer of SBA loans, and is compensated for loan administrative services performed for
SBA loans originated and sold by the Bank. The Bank serviced a total of $38.4 million, $37.8 million, and $47.4
million of SBA loans at December 31, 2010, 2009 and 2008, respectively, for third-party investors. The
outstanding balance of SBA loans serviced for others is not included in the consolidated statements of financial
condition.
The unamortized costs associated with acquiring loan servicing rights are included in other intangible assets
in the consolidated statements of financial condition. The following table summarizes the change in loan
servicing rights during the years ended December 31, 2010, 2009 and 2008:
2010
2009
2008
(in thousands)
Loan servicing rights:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and origination of loan servicing rights . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,722
4,182
(3,413)
$ 9,824
5,012
(3,114)
$12,191
990
(3,357)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,491
$11,722
$ 9,824
Valuation allowance:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (612)
(551)
$ (532)
(80)
$ —
(532)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,163)
$ (612)
$ (532)
Balance at end of year net of valuation allowance . . . . . . . . . . .
$11,328
$11,110
$ 9,292
Loan servicing rights are accounted for using the amortization method. See the “Loans Servicing Rights”
sections of Notes 1 and 3 for further details about the accounting policy and valuation method. Based on market
conditions at December 31, 2010, amortization expense related to the loan servicing rights is expected to
aggregate approximately $9.3 million through 2015.
GOODWILL AND OTHER INTANGIBLE ASSETS (Note 9)
The changes in the carrying amount of goodwill as allocated to our business segments, or reporting units
thereof, for goodwill impairment analysis were:
Business Segment / Reporting Unit*:
Wealth
Management
Consumer
Lending
Commercial
Lending
Investment
Management
Total
Balance at December 31, 2008 . . . . . . . . . . . . . .
Goodwill from business combinations . . . . .
Balance at December 31, 2009 . . . . . . . . . . . . . .
Goodwill from business combinations . . . . .
$18,185
793
18,978
1,468
$93,640
165
93,805
5,194
(in thousands)
$107,756
213
107,969
9,720
$75,565
107
75,672
5,085
$295,146
1,278
296,424
21,467
Balance at December 31, 2010 . . . . . . . . . . . . . .
$20,446
$98,999
$117,689
$80,757
$317,891
* Valley’s Wealth Management Division is comprised of trust, asset management, and insurance services. This
reporting unit is included in the Consumer Lending segment for financial reporting purposes.
In addition to the goodwill from business combinations during 2010 and 2009 disclosed in Note 2 to the
consolidated financial statements (which totaled $21.4 million and $1.2 million, respectively), Valley recorded
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$54 thousand and $67 thousand in additional goodwill during 2010 and 2009, respectively, from earn-out
payments resulting from an acquisition by Valley in 2006. The earn-out payments are based upon predetermined
profitability targets in accordance with the merger agreement. There was no impairment of goodwill during the
years ended December 31, 2010, 2009, and 2008.
The following table summarizes other intangible assets as of December 31, 2010 and 2009:
Gross
Intangible
Assets
Accumulated
Amortization
Valuation
Allowance
(in thousands)
Net
Intangible
Assets
December 31, 2010
Loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 65,701
27,144
6,121
$(53,210)
(17,312)
(1,631)
$(1,163)
—
—
$11,328
9,832
4,490
Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,966
$(72,153)
$(1,163)
$25,650
December 31, 2009
Loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 70,885
25,584
4,057
$(59,163)
(13,859)
(2,587)
$ (612)
—
—
$11,110
11,725
1,470
Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
$100,526
$(75,609)
$ (612)
$24,305
Core deposits are amortized using an accelerated method and have a weighted average amortization period
of 9 years. The line item labeled “other” included in the table above primarily consists of customer lists and
covenants not to compete, which are amortized over their expected lives generally using a straight-line method
and have a weighted average amortization period of 15 years. During 2010, Valley recorded $3.3 million in other
intangible assets as a result of assets acquired from S&M Klein Co. Inc.
Valley evaluates core deposits and other intangibles for impairment when an indication of impairment
exists. No impairment was recognized during the years ended December 31, 2010, 2009 and 2008.
Valley recognized amortization expense on other intangible assets, including net impairment charges on
loan servicing rights, of $7.7 million, $6.9 million, and $7.2 million for the years ended December 31, 2010,
2009 and 2008, respectively.
The following presents the estimated amortization expense of other intangible assets over the next five year
period:
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan
Servicing
Rights
Core
Deposits
(in thousands)
$3,051
2,455
1,858
1,262
782
$3,052
2,270
1,748
1,296
889
Other
$683
656
541
466
434
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
DEPOSITS (Note 10)
Included in time deposits at December 31, 2010 and 2009 are certificates of deposit over $100 thousand of
$1.2 billion and $1.4 billion, respectively. Interest expense on time deposits of $100 thousand or more totaled
approximately $8.8 million, $15.3 million, and $37.8 million in 2010, 2009 and 2008, respectively.
The scheduled maturities of time deposits as of December 31, 2010 are as follows:
Year
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$1,950,141
337,766
114,848
124,635
147,599
57,862
Total time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,732,851
Deposits from certain directors, executive officers and their affiliates totaled $54.0 million and $68.9
million at December 31, 2010 and 2009, respectively.
BORROWED FUNDS (Note 11)
Short-term borrowings at December 31, 2010 and 2009 consisted of the following:
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . .
Treasury tax and loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$183,295
9,023
$206,542
9,605
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
$192,318
$216,147
2010
2009
(in thousands)
The weighted average interest rate for short-term borrowings at December 31, 2010 and 2009 was 0.45
percent and 0.64 percent, respectively.
Long-term borrowings at December 31, 2010 and 2009 consisted of the following:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,176,665
655,000
100,000
2,193
$2,189,358
655,000
100,000
1,962
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . .
$2,933,858
$2,946,320
2010
2009
(in thousands)
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The long-term FHLB advances had a weighted average interest rate of 4.15 percent and 4.20 percent at
December 31, 2010 and 2009, respectively. These advances are secured by pledges of FHLB stock, mortgage-
backed securities and a blanket assignment of qualifying residential mortgage loans. Interest expense recorded on
FHLB advances totaled $91.5 million, $93.7 million, and $92.8 million for the years ended December 31, 2010,
2009 and 2008, respectively. The long-term FHLB advances are scheduled for repayment as follows:
Year
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$ 122,475
28,320
26,102
102
175,102
1,824,564
Total long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . .
$2,176,665
The majority of the long-term FHLB advances are callable by the issuer for redemption prior to their
scheduled maturity date. Advances with scheduled maturities beyond 2015 reported in the table above include
$1.8 billion in advances, which are callable during 2011 and have interest rates ranging from 1.16 percent to
5.11 percent.
The long-term borrowings for securities sold under
repurchase agreements to FHLB and other
counterparties totaled $655.0 million at December 31, 2010 and 2009. The weighted average interest rate of these
long-term borrowings was 4.27 percent at December 31, 2010 and 2009. Interest expense on long-term securities
sold under repurchase agreements amounted to $28.3 million, $28.9 million, and $28.0 million during the years
ended December 31, 2010, 2009 and 2008, respectively. The long-term borrowings for securities sold under
agreements to repurchase are scheduled for repayment as follows:
Year
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$ 85,000
—
—
—
125,000
445,000
Total long-term borrowings for securities sold under agreements to repurchase . . .
$655,000
On July 13, 2005, the Bank issued $100 million of 5.0 percent subordinated notes due July 15, 2015 with no
call dates or prepayments allowed. Interest on the subordinated notes is payable semi-annually in arrears at an
annual rate of 5.0 percent on January 15 and July 15 of each year.
The fair value of securities pledged to secure public deposits, treasury tax and loan deposits, repurchase
agreements, lines of credit, FHLB advances and for other purposes required by law approximated $1.5 billion
and $1.1 billion at December 31, 2010 and 2009, respectively.
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS (Note 12)
Valley established VNB Capital Trust I, a statutory trust, for the sole purpose of issuing trust preferred
securities and related trust common securities. The proceeds from such issuances were used by the trust to
purchase an equivalent amount of junior subordinated debentures of Valley. GCB Capital Trust III was
established by Greater Community prior to Valley’s acquisition of Greater Community, and the junior
subordinated notes issued by Greater Community to GCB Capital Trust III were assumed by Valley upon
completion of the acquisition on July 1, 2008. The junior subordinated debentures, the sole assets of the trusts,
are unsecured obligations of Valley, and are subordinate and junior in right of payment to all present and future
senior and subordinated indebtedness and certain other financial obligations of Valley. Valley wholly owns all of
the common securities of each trust. The trust preferred securities qualify, and are treated by Valley, as Tier 1
regulatory capital.
Valley elected to measure the junior subordinated debentures issued to VNB Capital Trust I at fair value,
with changes in fair value recognized as charges or credits to current earnings. Net trading gains and losses
included non-cash charges of $5.8 million and a $15.8 million for the years ended December 31, 2010 and 2009,
respectively, and a $15.2 million non-cash gain for the year ended December 31, 2008, for the change in the fair
value of the junior subordinated debentures issued to VNB Capital Trust I.
The table below summarizes the outstanding junior subordinated debentures and the related trust preferred
securities issued by each trust as of December 31, 2010:
Junior Subordinated Debentures:
Carrying value (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual principal balance . . . . . . . . . . . . . . . . . . . . . . . . .
Annual interest rate (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Initial call date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Preferred Securities:
Face value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual distribution rate (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution dates (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
VNB Capital
Trust I
GCB Capital
Trust III
$
$
($ in thousands)
161,734
157,024
$
$
7.75%
25,188
24,743
6.96%
December 15, 2031
November 7, 2006
July 30, 2037
July 30, 2017
$
152,313
$
7.75%
November 2001
Quarterly
24,000
6.96%
July 2007
Quarterly
(1)
(2)
The carrying value for GCB Capital Trust III includes an unamortized purchase accounting premium of
$445 thousand.
Interest on GCB Capital Trust III is fixed until July 30, 2017, then resets to 3-month LIBOR plus 1.4
percent. The annual interest rate excludes the effect of the purchase accounting adjustments.
The junior subordinated debentures issued to VNB Capital Trust I and GCB Capital Trust III had total
carrying values of $155.9 million and $25.3 million, respectively, and total contractual principal balances of
$157.0 million and $24.7 million, respectively, at December 31, 2009. The trust preferred securities issued by
VNB Capital Trust I and GCB Capital Trust III had total face values of $152.3 million and $24.0 million,
respectively, at December 31, 2009.
The trusts’ ability to pay amounts due on the trust preferred securities is solely dependent upon Valley
the junior
making payments on the related junior subordinated debentures. Valley’s obligation under
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
subordinated debentures and other relevant trust agreements, in aggregate, constitutes a full and unconditional
guarantee by Valley of the trusts’ obligations under the trust preferred securities issued. Under the junior
subordinated debenture agreements, Valley has the right to defer payment of interest on the debentures and,
therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity
date in the table above. Currently, Valley has no intention to exercise its right to defer interest payments on the
debentures.
The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of
the junior subordinated debentures at the stated maturity date or upon an earlier call date for redemption at par.
The junior subordinated debentures issued to VNB Capital Trust I are currently callable by Valley. No
debentures were called or redeemed during the years ended December 31, 2010 and 2009.
In 2008, Valley purchased, in open market transactions, approximately 307 thousand trust preferred shares
issued by VNB Capital Trust I for $7.3 million at an average cost of $23.64 per share. These trust preferred
securities and approximately 10 thousand shares of the trust’s common stock held by Valley were surrendered to
and cancelled by the trust in exchange for the redemption of 317 thousand junior subordinated debentures with a
total par value of $7.9 million. As a result of the redemption, Valley recognized a $417 thousand gain in other
non-interest income for the year ended December 31, 2008.
The trust preferred securities of VNB Capital Trust I and GCB Capital Trust III are included in Valley’s
consolidated Tier 1 capital and total capital for regulatory purposes at December 31, 2010 and 2009. In March
2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding
companies to continue to include qualifying trust preferred capital securities in their Tier 1 capital for regulatory
capital purposes, subject to a 25 percent limitation to all core (Tier 1) capital elements, net of goodwill less any
associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of
the limit could be included in total capital, subject to restrictions. The final rule originally provided a five-year
transition period, ending June 30, 2009, for application of the aforementioned quantitative limitation, however, in
March 2009, the Board of Governors of the Federal Reserve Board voted to delay the effective date until March
2011. As of December 31, 2010 and December 31, 2009, 100 percent of the trust preferred securities qualified as
Tier 1 capital under the final rule adopted in March 2005.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd- Frank Act”) was
signed into law on July 21, 2010. Under the Act, Valley’s outstanding trust preferred securities will continue to
count as Tier 1 capital but Valley will be unable to issue replacement or additional trust preferred securities,
which would count as Tier 1 capital.
BENEFIT PLANS (Note 13)
Pension Plan
The Bank has a non-contributory defined benefit plan (“qualified plan”) covering substantially all of its
employees. The benefits are based upon years of credited service and the employee’s highest average
compensation as defined. It is the Bank’s funding policy to contribute annually an amount that can be deducted
for federal income tax purposes. Additionally, the Bank has a supplemental non-qualified, non-funded retirement
plan (“non-qualified plan”) which is designed to supplement the pension plan for key officers.
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the change in projected benefit obligation, the change in fair value of plan
assets and the funded status and amounts recognized in Valley’s financial statements for the qualified and
non-qualified plans at December 31, 2010 and 2009:
Change in projected benefit obligation:
Projected benefit obligation at beginning of year . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
2009
(in thousands)
$ 97,532
5,544
5,709
13
2,243
(2,895)
$ 90,429
5,216
5,059
221
(440)
(2,953)
Projected benefit obligation at end of year . . . . . . . . . . . . . . . . . . . .
$108,146
$ 97,532
Change in fair value of plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74,005
7,731
5,096
(2,895)
$ 60,673
11,172
5,113
(2,953)
Fair value of plan assets at end of year* . . . . . . . . . . . . . . . . . . . . . .
$ 83,937
$ 74,005
Funded status of the plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (24,209)
$ (24,209)
$ 96,360
$(23,527)
$(23,527)
$ 86,377
* Includes accrued interest receivable of $299 thousand and $408 thousand as of December 31, 2010 and 2009,
respectively.
Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not
been recognized as a component of net periodic pension expense of Valley’s qualified and non-qualified plans
are presented in the following table. Valley expects to recognize approximately $1.4 million of the net actuarial
loss and $639 thousand of prior service cost reported in the following table as of December 31, 2010 and 2009 as
a component of net periodic pension expense during 2011.
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit
$ 25,805
2,351
(11,812)
$ 26,176
2,981
(12,224)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,344
$ 16,933
2010
2009
(in thousands)
The Bank’s non-qualified plan has accumulated benefit obligation in excess of plan assets was as follows:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
2009
(in thousands)
$9,851
9,583
—
$10,090
9,702
—
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In determining rate assumptions, management looks to current rates on fixed-income corporate debt
securities that receive a rating of Aa3 or higher from Moody’s. The weighted average discount rate and rate of
increase in future compensation levels used in determining the actuarial present value of benefit obligations for
the qualified and non-qualified plans as of December 31, 2010 and 2009 were as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future compensation increase rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.75% 6.00%
3.25
3.50
2010
2009
The net periodic pension expense included the following components for the years ended December 31,
2010, 2009, and 2008:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . .
Recognized prior service cost
. . . . . . . . . . . . . . . . . . . . . . .
Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
2009
2008
$ 5,544
5,709
(6,214)
643
1,098
(in thousands)
$ 5,216
5,059
(6,040)
640
858
$ 4,590
4,794
(5,900)
597
371
Total net periodic pension expense . . . . . . . . . . . . . . . . . . .
$ 6,780
$ 5,733
$ 4,452
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years
ended December 31, 2010 and 2009 were as follows:
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost
Amortization of prior service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
2009
$
(in thousands)
726
13
(643)
(1,098)
$(5,572)
221
(640)
(858)
Total recognized in other comprehensive income . . . . . . . . . . . . .
$(1,002)
$(6,849)
Total recognized in net periodic pension expense and other
comprehensive income (before tax) . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,778
$(1,116)
The benefit payments, which reflect expected future service, as appropriate, expected to be paid in future
years are presented in the following table:
Year
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 to 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$ 4,679
5,031
5,272
5,880
6,214
36,390
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average discount rate, expected long-term rate of return on assets and rate of compensation
increase used in determining Valley’s pension expense for the years ended December 31, 2010, 2009, and 2008
were as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.00% 5.75% 6.00%
8.00
8.00
3.50
3.50
8.50
3.75
2010
2009
2008
The expected rate of return on plan assets assumption is based on the concept that it is a long-term
assumption independent of the current economic environment and changes would be made in the expected return
only when long-term inflation expectations change, asset allocations change or when asset class returns are
expected to change for the long-term. The 2009 expected return was adjusted downward in light of the severe
negative impact of the financial crisis beginning in 2008 on the fair value of the qualified plan assets and the
asset classes available for investment and the expectation of future increases in inflationary pressure.
Valley’s qualified plan weighted-average asset allocations at December 31, 2010 and 2009, by asset
category were as follows:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
2009
49% 43%
17
14
11
4
3
2
17
19
10
4
5
2
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
In accordance with Section 402 (c) of ERISA, the qualified plan’s investment managers are granted full
discretion to buy, sell, invest and reinvest the portions of the portfolio assigned to them consistent with the
Bank’s Pension Committee’s policy and guidelines. The target asset allocation set for the qualified plan are
equity securities ranging from 25 percent to 65 percent and fixed income securities ranging from 35 percent to 75
percent. The absolute investment objective for the equity portion is to earn at least 7 percent cumulative annual
real return, after adjustment by the Consumer Price Index (CPI), over rolling five-year periods, while the relative
objective is to be above the S&P 500 Index over rolling three-year periods. For the fixed income portion, the
absolute objective is to earn at least a three percent cumulative annual real return, after adjustment by the CPI
over rolling five-year periods with a relative objective of above the Merrill Lynch Intermediate Government/
Corporate Index over rolling three-year periods. Cash equivalents will be invested in money market funds or in
other high quality instruments approved by the Trustees of the qualified plan.
In general, the plan assets of the qualified plan are investment securities that are well-diversified in terms of
industry, capitalization and asset class. The plan assets are mostly a conservative mix of U.S. Treasury securities,
U.S. government agency securities, mutual funds primarily indexed to the performance of Fortune 500 U.S.
companies, high quality corporate bonds, various types of domestic and foreign common equity securities, trust
preferred securities (mainly issued by VNB Capital Trust I – see Note 12), and a U.S. Treasury based money
market fund. The qualified plan’s exposure to a concentration of credit risk is limited by the Bank’s Pension
Committee’s diversification of the investments into various investment options with multiple asset managers.
The Pension Committee engages an investment management advisory firm that regularly monitors the
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
performance of the asset managers and ensures they are within compliance of the policies adopted by the
Trustees. If the risk profile and overall return of assets managed are not in line with the risk objectives or
expected return benchmarks for the qualified plan, the advisory firm may recommend the termination of an asset
manager to the Pension Committee.
The following table presents the qualified plan assets that are measured at fair value on a recurring basis by
level within the fair value hierarchy under ASC Topic 820. Financial assets are classified in their entirety based
on the lowest level of input that is significant to the fair value measurement. See Note 3 for further details
regarding the fair value hierarchy.
Fair Value Measurements at Reporting Date Using:
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant
Other Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2010
(in thousands)
Assets:
Investments:
Equity securities . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . .
$41,326
14,488
11,340
9,491
2,958
2,153
1,882
$83,638
$41,326
14,488
—
9,491
—
2,153
1,882
$69,340
$ —
—
11,340
—
2,958
—
—
$14,298
$—
—
—
—
—
—
—
$—
Fair Value Measurements at Reporting Date Using:
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2009
(in thousands)
Assets:
Investments:
Equity securities . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . .
$31,760
12,818
13,889
7,463
3,095
2,915
1,657
$73,597
$31,760
12,818
—
7,463
—
2,915
1,657
$56,613
$ —
—
13,889
—
3,095
—
—
$16,984
$—
—
—
—
—
—
—
$—
Equity securities, U.S. Treasury securities, money market funds, mutual funds, and trust preferred securities
are reported at fair value in the table above utilizing exchange quoted prices in active markets for identical
instruments (Level 1 inputs). Corporate bond and U.S. government agency securities are reported at fair value
utilizing Level 2 inputs. The prices for these instruments are derived from market quotations and matrix pricing
obtained through an independent pricing service. Such fair value measurements consider observable data that
may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade
execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions,
among other things.
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The qualified plan held 62,752 shares of VNB Capital Trust I preferred securities at December 31, 2010 and
2009. These shares had fair values of approximately $1.6 million at December 31, 2010 and 2009. Dividends
received on Valley trust preferred shares were $122 thousand for each of the years ended December 31, 2010 and
2009.
Valley expects to contribute approximately $5.0 million to the qualified plan during 2011 based upon
actuarial estimates.
Director Plans
Valley maintains a non-qualified, non-funded directors’ retirement plan. The projected benefit obligation
and discount rate used to compute the obligation was approximately $1.8 million and 5.75 percent, respectively,
at December 31, 2010, and $1.8 million and 6.00 percent, respectively, at December 31, 2009. As of
December 31, 2010 and 2009, the entire obligation was included in other liabilities and $419 thousand (net of a
$226 thousand tax benefit) and $434 thousand (net of a $234 thousand tax benefit), respectively, were recorded
in accumulated other comprehensive loss. An expense of $228 thousand, $250 thousand and $225 thousand has
been recognized for the Directors’ retirement plan in the years ended December 31, 2010, 2009 and 2008,
respectively.
Valley also maintains non-qualified plans for former directors of banks acquired, as well as a non-qualified
plan for former senior management of Merchants Bank of New York acquired in January of 2001. Valley did not
merge these plans into its existing non-qualified plans. Collectively, at December 31, 2010 and 2009, the
remaining obligations under these plans were $7.5 million and $8.5 million, respectively, of which $4.7 million
and $5.5 million, respectively, were funded. As of December 31, 2010 and 2009, the entire obligations were
included in other liabilities and $1.6 million (net of a $1.2 million tax benefit) and $1.8 million (net of a $1.3
million tax benefit), respectively, were recorded in accumulated other comprehensive loss. The $1.6 million in
accumulated other comprehensive loss will be reclassified to expense on a straight-line basis over the remaining
benefit periods of these non-qualified plans.
Bonus Plan
Valley National Bank and its subsidiaries may award incentive and merit bonuses to its officers and
employees based upon a percentage of the covered employees’ compensation as determined by the achievement
of certain performance objectives. Amounts charged to salary expense were $6.6 million, $2.4 million and $6.4
million during 2010, 2009 and 2008, respectively.
On February 17, 2009 the American Recovery and Reinvestment Act of 2009 was signed into law. This
Act and the regulations issued by the U.S. Treasury under the Act, among other things, prohibited the payment or
accrual of any bonus, retention award or incentive compensation to any of the five highest paid executive officers
of Valley named in Valley’s most recent Proxy Statement and its next 10 most highly compensated employees
during the period when the U.S. Treasury owned any debt or equity securities (excluding warrants) issued by
Valley under the TARP Capital Purchase Program. The prohibition exempted awards of long-term restricted
stock that did not exceed one-third of the total annual compensation of the executive and were subject to certain
vesting restrictions and claw back provisions. The prohibition ceased to apply to Valley on December 23, 2009
after Valley repurchased the remaining senior preferred shares issued to U.S. Treasury under the Capital
Purchase Program.
Savings Plan
Valley National Bank maintains a KSOP defined as a 401(k) plan with an employee stock ownership
feature. This plan covers eligible employees of the Bank and its subsidiaries and allows employees to contribute
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
a percentage of their salary, with the Bank matching a certain percentage of the employee contribution in cash
and invested in accordance with each participant’s investment elections. The Bank recorded $1.9 million, $1.4
million and $1.3 million in expense for contributions to the plan for the years ended December 31, 2010, 2009,
and 2008, respectively.
Stock-Based Compensation
Valley currently has one active employee stock option plan, the 2009 Long-Term Stock Incentive Plan (the
“Employee Stock Incentive Plan”), adopted by Valley’s Board of Directors on November 17, 2008 and approved
by its shareholders on April 14, 2009. The Employee Stock Incentive Plan is administered by the Compensation
and Human Resources Committee (the “Committee”) appointed by Valley’s Board of Directors. The Committee
can grant awards to officers and key employees of Valley. The purpose of the Employee Stock Incentive Plan is
to provide additional incentive to officers and key employees of Valley and its subsidiaries, whose substantial
contributions are essential to the continued growth and success of Valley, and to attract and retain competent and
dedicated officers and other key employees whose efforts will result in the continued and long-term growth of
Valley’s business.
Under the Employee Stock Incentive Plan, Valley may award shares to its employees for up to 6.7 million
shares of common stock in the form of incentive stock options, non-qualified stock options, stock appreciation
rights and restricted stock awards. The essential features of each award are described in the award agreement
relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair
value of Valley’s common stock on the last sale price reported for Valley’s common stock on such date or the
last sale price reported preceding such date. An incentive stock option’s maximum term to exercise is ten years
from the date of grant and is subject to a vesting schedule.
Valley recorded stock-based compensation expense for incentive stock options and restricted stock awards
of $4.8 million, $5.0 million and $5.5 million for the years ended December 31, 2010, 2009 and 2008,
respectively. These expenses included $1.3 million, $599 thousand, and $1.1 million, respectively, which was
immediately recognized for stock awards granted to retirement eligible employees. The fair values of all other
stock awards are expensed over the vesting period. As of December 31, 2010, the unrecognized amortization
expense for all stock-based compensation totaled approximately $5.2 million and will be recognized over an
average remaining vesting period of approximately 2 years.
Stock Options. The fair value of each option granted on the date of grant is estimated using a binomial
option pricing model. The fair values are estimated using assumptions for dividend yield based on the annual
dividend rate; stock volatility, based on Valley’s historical and implied stock price volatility; risk free interest
rates, based on the U.S. Treasury constant maturity bonds, in effect on the actual grant dates, with remaining
term of approximately the same as the expected term of the options; and expected exercise term calculated based
on Valley’s historical exercise experience.
Stock-based employee compensation cost under the fair value method was measured using the following
weighted-average assumptions for stock options granted in 2010, 2009, and 2008:
2010
2009
2008
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.29 - 2.92% 1.1 - 4.0% 1.1 - 4.0%
4.5%
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.0%
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . .
4.5%
24.0%
6.7
5.5%
35.0%
4.4
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of stock options activity as of December 31, 2010, 2009 and 2008 and changes during the years
ended on those dates is presented below:
2010
2009
2008
Stock Options
Outstanding at beginning of year . . . . . .
Granted* . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . .
Shares
3,320,869
128,746
(23,647)
(241,230)
Outstanding at end of year . . . . . . . . . . .
3,184,738
Exercisable at year-end . . . . . . . . . . . . .
2,723,570
Weighted-average fair value of options
Weighted
Average
Exercise
Price
$19
13
12
15
19
19
Weighted
Average
Exercise
Price
$18
11
11
15
19
19
Weighted
Average
Exercise
Price
$18
16
14
17
18
18
Shares
3,927,150
228,443
(523,572)
(111,051)
3,520,970
2,516,759
Shares
3,520,970
7,954
(5,250)
(202,805)
3,320,869
2,702,870
granted during the year
. . . . . . . . . . .
$
2.24
$
2.50
$
2.50
* During 2009, all stock options granted were to non-executive officers and employees.
The total intrinsic values of options exercised during the years ended December 31, 2010, 2009 and 2008
were $40 thousand, $9 thousand, and $2.9 million, respectively. As of December 31, 2010, there was $595
thousand of total unrecognized compensation cost related to non-vested stock options to be amortized over an
average remaining vesting period of approximately 2 years. Cash received from stock options exercised during
the years ended December 31, 2010, 2009 and 2008 was $290 thousand, $61 thousand, and $7.3 million,
respectively. Treasury stock and available authorized common shares were issued for stock options exercised.
The following table summarizes information about stock options outstanding at December 31, 2010:
Range of
Exercise
Prices
$11 - 16
16 - 17
17 - 19
19 - 20
20 - 22
Number of
Options Outstanding
Remaining
Contractual
Life in Years
Average
Exercise Price
301,937
635,289
497,678
507,962
1,241,872
3,184,738
6.7
4.6
2.3
4.8
4.5
4.4
$14
16
18
19
21
19
Number of
Options
Exercisable
114,669
466,557
489,503
507,685
1,145,156
2,723,570
Average
Exercise Price
$15
17
18
19
21
19
As of December 31, 2010, the aggregate intrinsic value of options exercisable was $4 thousand, with a
weighted average remaining contractual term of 3.9 years. As of December 31, 2010, the aggregate intrinsic
value of options outstanding was $184 thousand.
Restricted Stock. Restricted stock is awarded to key employees providing for the immediate award of our
common stock subject
the Employee Stock Incentive Plan.
Compensation expense is measured based on the grant-date fair value of the shares and is amortized into salary
expense on a straight-line basis over the vesting period.
to certain vesting and restrictions under
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the changes in restricted stock awards outstanding for the years ended
December 31, 2010, 2009 and 2008:
Restricted Stock Awards Outstanding
2010
2009
2008
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
503,729
196,845
(209,303)
(3,604)
542,597
166,325
(193,778)
(11,415)
446,234
270,290
(160,617)
(13,310)
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
487,667
503,729
542,597
The amount of compensation costs related to restricted stock awards included in salary expense amounted to
$3.9 million for each of the years ended December 31, 2010 and 2009, and $4.0 million for the year ended
December 31, 2008. As of December 31, 2010, there was $4.4 million of total unrecognized compensation cost
related to non-vested restricted shares to be amortized over the weighted average remaining vesting period of
approximately 2.2 years.
In 2005, Valley’s shareholders approved the 2004 Director Restricted Stock Plan. The plan provides the
non-employee members of the Board of Directors with the opportunity to forego some or their entire annual cash
retainer and meeting fees in exchange for shares of Valley restricted stock.
The following table sets forth the changes in director’s restricted stock awards outstanding for the years
ended December 31, 2010, 2009 and 2008:
Restricted Stock Awards Outstanding
2010
2009
2008
Outstanding at beginning of year
. . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,337
16,682
(30,103)
—
94,387
21,503
(7,232)
(321)
83,248
24,226
(13,087)
—
Outstanding at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
94,916
108,337
94,387
INCOME TAXES (Note 14)
Income tax expense for the years ended December 31, 2010, 2009, and 2008 consisted of the following:
2010
2009
2008
(in thousands)
Current expense:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,195
11,400
$ 49,790
12,592
$ 38,876
12,014
Deferred expense (benefit):
Federal and State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,176
(10,898)
(33,956)
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$55,771
$ 51,484
$ 16,934
35,595
62,382
50,890
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The tax effects of temporary differences that gave rise to the significant portions of the deferred tax assets
and liabilities as of December 31, 2010 and 2009 are as follows:
2010
2009
(in thousands)
Deferred tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State net operating loss carryforwards . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,118
5,009
8,080
6,535
3,875
59,267
18,413
$ 42,466
4,056
8,368
8,270
40,863
45,228
23,090
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
152,297
172,341
Deferred tax liabilities:
Purchase accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . .
20,636
26,406
47,042
4,562
33,300
37,862
Net deferred tax asset (included in other assets) . . . . . . . . . . . . . . . .
$105,255
$134,479
Valley’s state net operating loss carryforwards totaled approximately $1.0 billion at December 31, 2010 and
expire during the period from 2012 through 2030.
Based upon taxes paid and projections of future taxable income over the periods in which the net deferred
tax assets are deductible, management believes that it is more likely than not that Valley will realize the benefits
of these deductible differences and loss carryforwards.
Reconciliation between the reported income tax expense and the amount computed by multiplying
consolidated income before taxes by the statutory federal income tax rate of 35 percent for the years ended
December 31, 2010, 2009, and 2008 were as follows:
Federal income tax at expected statutory rate . . . . . . . . . . . . . . . . . .
(Decrease) increase due to:
Tax-exempt interest, net of interest incurred to carry
tax-exempt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income tax expense (benefit), net of federal tax effect . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction of valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
2010
2009
2008
$65,429
(in thousands)
$58,641
$38,684
(3,451)
(2,158)
629
(5,071)
—
393
(3,257)
(1,995)
(4)
(2,632)
—
731
(3,359)
(3,558)
(6,586)
(2,389)
(6,538)
680
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$55,771
$51,484
$16,934
A valuation allowance for deferred tax assets decreased $6.5 million in 2008 as a result of management’s
identification of a qualifying tax-planning strategy allowing the use of Valley’s capital loss carryforwards. The
qualifying tax planning strategy identified by management was 1) prudent and feasible, 2) a strategy that Valley
had the intent and ability to implement, and 3) a strategy that would result in the future realization of the capital
loss carryforwards.
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of Valley’s gross unrecognized tax benefits for 2010, 2009 and 2008 are presented in the
table below:
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . .
Additions based on tax positions related to prior years . . . . . . .
Reductions due to expiration of statute of limitations . . . . . . . .
2010
2009
2008
$21,965
—
732
(1,555)
(in thousands)
$21,261
484
762
(542)
$19,256
79
2,473
(547)
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,142
$21,965
$21,261
The total amount of net unrecognized tax benefits at December 31, 2010 that, if recognized, would affect the
tax provision and the effective income tax rate is $15 million.
Valley’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax
expense. Valley has accrued approximately $1.6 million and $1.4 million of interest associated with Valley’s
uncertain tax positions at December 31, 2010 and 2009, respectively.
Valley files income tax returns in the U.S. federal and various state jurisdictions. With few exceptions,
Valley is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before
2006. The statute of limitations could expire for certain tax returns over the next 12 months, which could result in
decreases to Valley’s unrecognized tax benefits associated with uncertain tax positions. Such adjustments are not
expected to have a material impact on Valley’s effective tax rate.
COMMITMENTS AND CONTINGENCIES (Note 15)
Lease Commitments
Certain bank facilities are occupied under non-cancelable long-term operating leases, which expire at
various dates through 2042. Certain lease agreements provide for renewal options and increases in rental
payments based upon increases in the consumer price index or the lessors’ cost of operating the facility.
Minimum aggregate lease payments for the remainder of the lease terms are as follows:
Year
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Gross
Rents
Sublease
Rents
Net Rents
$ 17,917
16,290
16,597
16,486
16,306
226,106
(in thousands)
$1,024
731
660
540
469
3,355
$ 16,893
15,559
15,937
15,946
15,837
222,751
Total lease commitments . . . . . . . . . . . . .
$309,702
$6,779
$302,923
Net occupancy expense for years ended December 31, 2010, 2009 and 2008 included net rental expense of
approximately $19.1 million, $17.6 million and $15.9 million, respectively, net of rental income of $2.1 million,
$2.3 million and $2.0 million, respectively, for leased bank facilities.
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial Instruments With Off-balance Sheet Risk
In the ordinary course of business of meeting the financial needs of its customers, Valley, through its
subsidiary Valley National Bank, is a party to various financial instruments, which are not reflected in the
consolidated financial statements. These financial instruments include standby and commercial letters of credit,
unused portions of lines of credit and commitments to extend various types of credit. These instruments involve,
to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated financial
statements. The commitment or contract amount of these instruments is an indicator of the Bank’s level of
involvement in each type of instrument as well as the exposure to credit loss in the event of non-performance by
the other party to the financial instrument. The Bank seeks to limit any exposure of credit loss by applying the
same credit underwriting standards, including credit review, interest rates and collateral requirements or personal
guarantees, as for on-balance sheet lending facilities.
The following table provides a summary of
financial
instruments with off-balance sheet
risk at
December 31, 2010 and 2009.
2010
2009
(in thousands)
Commitments under commercial loans and lines of credit . . . . .
Home equity and other revolving lines of credit . . . . . . . . . . . . .
Outstanding commercial mortgage loan commitments . . . . . . . .
Standby letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding residential mortgage loan commitments . . . . . . . . .
Commitments under unused lines of credit—credit card . . . . . .
Commercial letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments to sell loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,771,586
566,301
189,801
221,960
264,529
71,188
11,882
127,950
$2,073,003
585,977
250,650
177,768
100,977
76,500
6,547
96,611
Standby letters of credit represent the guarantee by the Bank of the obligations or performance of a
customer in the event the customer is unable to meet or perform its obligations to a third party. Obligations to
advance funds under commitments to extend credit, including commitments under unused lines of credit, are
agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments generally have specified expiration dates, which may be extended upon request, or other
termination clauses and generally require payment of a fee. These commitments do not necessarily represent
future cash requirements as it is anticipated that many of these commitments will expire without being fully
drawn upon. The Bank’s lending activity for outstanding loan commitments is primarily to customers within the
states of New Jersey, New York and Pennsylvania. Loan sale commitments represent contracts for the sale of
residential mortgage loans to third parties in the ordinary course of the Bank’s business. These commitments
require the Bank to deliver loans within a specific period to the third party. The risk to the Bank is its
non-delivery of loans required by the commitment, which could lead to financial penalties. The Bank has not
defaulted on its loan sale commitments.
Derivative Instruments and Hedging Activities
Valley is exposed to certain risks arising from both its business operations and economic conditions. Valley
principally manages its exposures to a wide variety of business and operational risks through management of its
core business activities. Valley manages economic risks, including interest rate, liquidity, and credit risk,
primarily by managing the amount, sources, and duration of its assets and liabilities and, from time to time, the
use of derivative financial instruments. Specifically, Valley enters into derivative financial instruments to
manage exposures that arise from business activities that result in the payment of future known and uncertain
cash amounts, the value of which are determined by interest rates. Valley’s derivative financial instruments are
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
used to manage differences in the amount, timing, and duration of Valley’s known or expected cash receipts and
its known or expected cash payments mainly related to certain variable-rate borrowings and fixed-rate loan
assets.
Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add
stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective,
Valley uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps
designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the
receipt of variable or fixed-rate amounts from a counterparty. Interest rate caps designated as cash flow hedges
involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the
contract in exchange for an up-front premium.
In October 2010, Valley entered into two forward starting interest rate swaps to hedge the change in cash
flows associated with certain prime-rate-indexed deposits, consisting of consumer and commercial money market
deposit accounts. The cash flow hedge interest rate swaps, with a total notional amount of $200 million, will
require the payment by Valley of fixed-rate amounts at approximately 4.73 percent in exchange for the receipt of
variable-rate payments at the prime rate starting in October 2011 and expiring in October 2016.
At December 31, 2010, Valley had two interest rate caps with an aggregate notional amount of $100
million, strike rates of 2.50 percent and 2.75 percent, and a maturity date of May 1, 2013. Hedge accounting was
not applied to these interest rate caps from January 1, 2009 until February 20, 2009 due to the termination of the
original hedging relationship in the fourth quarter of 2008. On February 20, 2009, Valley re-designated the
interest rate caps to hedge the variable cash flows associated with customer repurchase agreements and money
market deposit accounts products that have variable interest rate, based on the federal funds rate. The change in
fair value of these derivatives, while they were not designated as hedges, was a $369 thousand gain, which is
included in other non-interest income for the year ended December 31, 2009.
At December 31, 2010, Valley also had two interest rate caps designated as cash flow hedges, to reduce its
exposure to movements in interest rates above the caps’ strike rate based on the U.S. prime interest rate. The
interest rate caps have an aggregate notional amount of $100 million, strike rates of 6.00 percent and 6.25
percent, and a maturity date of July 15, 2015. The caps are used to hedge the total change in cash flows
associated with prime-rate-indexed deposits, consisting of consumer and commercial money market deposit
accounts, which have variable interest rates indexed to the prime rate.
Fair Value Hedge of a Fixed Rate Asset. Valley is exposed to changes in the fair value of certain of its
fixed rate assets due to changes in benchmark interest rates based on one month-LIBOR. From time to time,
Valley uses interest rate swaps to manage its exposure to changes in fair value. Interest rate swaps designated as
fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley
making fixed rate payments over the life of the agreements without the exchange of the underlying notional
amount. As of December 31, 2010, Valley had one interest rate swap with a notional amount of $9.1 million.
Non-designated Hedges. Valley does not use derivatives for speculative purposes. Derivatives not
designated as hedges are used to manage Valley’s exposure to interest rate movements and other identified risks
but do not meet the strict hedge accounting requirements under U.S. GAAP. During 2009, Valley entered into
and terminated three interest rate swaps not designated as hedges to potentially offset the change in fair value of
certain trading securities. During the fourth quarter of 2008, as mentioned above, two interest rate caps (due to
mismatches in index) no longer qualified for hedge accounting but were subsequently re-designated as cash flow
hedges in February 2009. During the year ended December 31, 2010, Valley had no derivatives that were not
designated in hedging relationships.
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s
derivative financial instruments were as follows:
Balance Sheet
Location
Fair Value at December 31,
2010
2009
(in thousands)
Asset Derivatives
Cash flow hedge interest rate caps and swaps on short-term
borrowings and deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets
Total derivatives designated as hedging instruments . . . . . . . . . . . .
Liability Derivatives
Fair value hedge commercial loan interest rate swap . . . . . . . . . . . . Other Liabilities
Total derivatives designated as hedging instruments . . . . . . . . . . . .
$8,414
$8,414
$1,379
$1,379
$7,124
$7,124
$1,018
$1,018
Gains (losses) included in the consolidated statements of income and in other comprehensive income (loss),
on a pre-tax basis, for the period related to interest rate derivatives designated as hedges of cash flows for the
years ended December 31, 2010, 2009, and 2008 were as follows:
2010
2009
2008
(in thousands)
Interest rate caps on short-term borrowings and deposit accounts:
Amount of loss reclassified from accumulated other comprehensive come
(loss) to interest on short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,967) $ (460) $ (105)
Amount of loss reclassified from accumulated other comprehensive income
(loss) to other non-interest expense* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of gain (loss) recognized in other comprehensive income (loss) . . . . .
—
1,494
—
3,475
(642)
(8,512)
* Represent accelerated amounts related to the total forecasted changes in cash flows that were deemed not
probable to occur at December 31, 2008.
Valley recognized a $205 thousand net loss and a $155 thousand net gain in other expense for hedge
ineffectiveness on the cash flow hedge interest rate caps for the years ended December 31, 2010 and 2009,
respectively. The accumulated net after-tax loss related to effective cash flow hedges included in accumulated
other comprehensive loss totaled $708 thousand and $2.7 million at December 31, 2010 and 2009, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are
reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities.
During the next twelve months, Valley estimates that approximately $3.1 million will be reclassified as an
increase to interest expense.
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Gains (losses) included in the consolidated statements of income related to interest rate derivatives
designated as hedges of fair value the years ended December 31, 2010, 2009, and 2008 were as follows:
Derivative
Commercial loan interest rate swap:
Interest income—Interest and fees on loans . . . . . . . . . . . . . . . . . . .
$(361)
$ 991
$(1,582)
2010
2009
2008
(in thousands)
Hedged item
Commercial loan:
Interest income—Interest and fees on loans . . . . . . . . . . . . . . . . . . .
361
(991)
1,582
Gains (losses) included in the consolidated statements of income related to derivative instruments not
designated as hedging instruments for the years ended December 31, 2010, 2009, and 2008 were as follows:
Non-designated hedge interest rate derivatives
Trading gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
—
$1,984
369
—
$ —
—
(2,422)
2010
2009
2008
(in thousands)
Credit Risk Related Contingent Features. By using derivatives, Valley is exposed to credit risk if
counterparties to the derivative contracts do not perform as expected. Management attempts to minimize
counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where
appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with
Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits
monitored by management are periodically reviewed and approved by the Board of Directors.
Valley has agreements with its derivative counterparties that contain a provision where if Valley defaults on
any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the
lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally,
Valley has an agreement with one of its derivative counterparties that contains provisions that require Valley’s
debt to maintain an investment grade credit rating from each of the major credit rating agencies. If Valley’s credit
rating is reduced below investment grade, then the counterparty could terminate the derivative positions, and
Valley would be required to settle its obligations under the agreements. As of December 31, 2010, Valley was in
compliance with the provisions of its derivative counterparty agreements.
As of December 31, 2010, the fair value of derivatives in a net liability position, which includes accrued
interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.5 million.
Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain
counterparties. No collateral has been assigned or posted by Valley or its counterparties under the agreements at
December 31, 2010.
Litigation
In the normal course of business, Valley may be a party to various outstanding legal proceedings and claims.
In the opinion of management, the consolidated statements of financial condition or results of operations of
Valley should not be materially affected by the outcome of such legal proceedings and claims.
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SHAREHOLDERS’ EQUITY (Note 16)
Capital Requirements
Valley and Valley National Bank are subject to the regulatory capital requirements administered by the
Federal Reserve Bank and the Office of the Comptroller of the Currency of the United States (“OCC”). Failure to
meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions
if undertaken, could have a direct material effect on Valley’s consolidated financial
by regulators that,
statements. Under capital adequacy guidelines Valley and Valley National Bank must meet specific capital
guidelines that involve quantitative measures of Valley’s assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and classification are also subject
to
qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley
National Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets, as defined in the regulations. As of December 31, 2010, Valley exceeded all
capital adequacy requirements to which it was subject.
At December 31, 2010, all of Valley National Bank’s ratios were above the minimum levels required to be
considered “well capitalized”, under the regulatory framework for prompt corrective action, which require Tier 1
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. To be categorized as well capitalized under the capital adequacy
guidelines set by the federal regulators, Valley and Valley National Bank must maintain minimum total risk-
based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.
Valley’s and Valley National Bank’s actual capital positions and ratios as of December 31, 2010 and 2009
are presented in the following table:
Actual
Minimum Capital
Requirements
To Be Well
Capitalized Under
Prompt Corrective
Action Provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
($ in thousands)
As of December 31, 2010
Total Risk-based Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . . .
$ 1,349,832
1,291,928
12.9% $ 836,268
834,728
12.4
8.0% $
8.0
N/A N/A%
1,043,410
10.0
Tier 1 Risk-based Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . . .
1,143,328
1,085,424
10.9
10.4
418,134
417,364
Tier 1 Leverage Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . . .
1,143,328
1,085,424
8.3
7.9
550,665
549,860
4.0
4.0
4.0
4.0
N/A N/A
6.0
626,046
N/A N/A
5.0
687,325
As of December 31, 2009
Total Risk-based Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . . .
$ 1,341,943
1,231,429
12.5% $ 856,178
854,648
11.5
Tier 1 Risk-based Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . . .
1,138,288
1,027,774
10.6
9.6
428,089
427,324
Tier 1 Leverage Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . . .
1,138,288
1,027,774
8.1
7.4
559,483
558,367
153
8.0% $
8.0
N/A N/A%
1,068,310
10.0
4.0
4.0
4.0
4.0
N/A N/A
6.0
640,986
N/A N/A
5.0
697,959
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Valley’s Tier 1 capital position included $176.3 million of its outstanding trust preferred securities issued by
capital trusts as of December 31, 2010 and 2009. In compliance with U.S. GAAP, Valley does not consolidate its
capital trusts. On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act imposes new
capital requirements on bank and thrift holding companies, including the phase out (through January 2016) of
trust preferred securities being permitted in Tier 1 capital for holding companies with consolidated assets of $15
billion or more. Based on our current interpretation of the Dodd-Frank Act, holding companies with less than $15
billion in consolidated assets, such as Valley, will continue to be permitted to include trust preferred securities
issued before May 19, 2010 in Tier 1 capital within regulatory limits even if its total assets exceed $15 billion in
the future. Based on this final law and regulatory guidelines, Valley included all of its outstanding trust preferred
securities in Tier 1 capital at December 31, 2010.
Dividend Restrictions
Valley National Bank, a national banking association, is subject to a limitation on the amount of dividends it
may pay to Valley, the Bank’s only shareholder. The prior approval of the OCC is required to the extent that the
total of all dividends to be declared by the Bank in any calendar year exceeds net profits, as defined, for that year
combined with its retained net profits from the preceding two calendar years, less any transfers to capital surplus.
However, declared dividends in excess of net profits in either of the preceding two years can be offset by retained
net profits in the third and fourth years preceding the current year when determining the Bank’s dividend
limitation. Under the foregoing dividend restrictions, and without adversely affecting the Bank’s ability to
maintain ratios above the minimum levels for the Bank to be considered “well capitalized”, the Bank could pay
aggregate dividends of approximately $79.8 million to Valley, without obtaining affirmative governmental
approvals, at December 31, 2010. In addition to dividends received from the Bank, Valley can satisfy its cash
requirements by utilizing its own funds, cash and sale of investments, as well as potential borrowed funds from
outside sources. In the event Valley would exercise the right to defer payments on the junior subordinated
debentures, and therefore distributions on its trust preferred securities, Valley would be unable to pay dividends
on its common stock until the deferred payments are made.
Treasury Stock
In 2007, Valley’s Board of Directors approved the repurchase of up to 4.3 million common shares.
Purchases of Valley’s common shares may be made from time to time in the open market or in privately
negotiated transactions generally not exceeding prevailing market prices. Repurchased shares are held in treasury
and are expected to be used for general corporate purposes or issued under the dividend reinvestment plan. Under
this repurchase plan, Valley made no purchases of its outstanding shares during the years ended December 31,
2010 and 2009.
Valley also purchases shares directly from its employees in connection with employee elections to withhold
taxes related to the vesting of restricted stock awards. During the year ended December 31, 2010, Valley
purchased approximately 29 thousand shares of its outstanding common stock at an average price of $13.23 for
such purpose.
Preferred Stock
On November 14, 2008, Valley issued 300,000 senior preferred shares, with a liquidation preference of $1
thousand per share, to the U.S. Department of Treasury under the TARP Capital Purchase Program. During 2009,
we incrementally repurchased all 300,000 shares of our senior preferred shares from the U.S. Treasury for an
the date of
aggregate purchase price of $300 million (excluding accrued and unpaid dividends paid at
redemption).
154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In connection with the issuance of senior preferred shares, Valley issued a ten year warrant (issued on
November 14, 2008) to purchase up to approximately 2.5 million of Valley common shares (at $17.77 per share,
adjusted for the 5 percent stock dividend issued on May 21, 2010). After negotiation with the U.S. Treasury, we
could not agree on a redemption price for the warrants with the U.S. Treasury. As a result, the U.S. Treasury sold
the warrants through a public auction completed on May 24, 2010. The warrants are currently traded on the
New York Stock Exchange under the ticker symbol “VLY WS”. Valley did not receive any of the proceeds of the
warrant offering and is no longer a participant in the TARP program.
Valley’s senior preferred shares, while outstanding, and the warrant issued under the TARP Capital
Purchase Program qualified and were accounted for as permanent equity on our balance sheet. Of the $300
million in issuance proceeds, $291.4 million and $8.6 million were allocated to the senior preferred shares and
the warrant, respectively, based upon their estimated relative fair values as of November 14, 2008. The discount
of $8.6 million recorded for the senior preferred shares was initially amortized to retained earnings over a five
year estimated life of the securities based on the likelihood of their redemption by Valley within that timeframe.
During 2009, the entire remaining unamortized discount of $8.5 million was charged to retained earnings as a
result of Valley’s redemption of the senior preferred shares.
Common Stock Issuances
Dividend Reinvestment Plan. Effective June 29, 2009, Valley may issue up to 10.0 million authorized and
previously unissued or treasury shares of Valley common stock for purchases under Valley’s dividend
reinvestment plan (“DRIP”). Under the DRIP, a shareholder may choose to have future cash dividends
automatically invested in Valley common stock and make voluntary optional cash payments of up to $100
thousand per quarter to purchase shares of Valley common stock. Shares purchased under this plan will be issued
directly from Valley or in open market transactions. During 2010 and 2009, 618 thousand and 389 thousand of
common shares, respectively were reissued from treasury stock under the DRIP for net proceeds totaling $8.4
million and $4.5 million, respectively.
Common Equity Offerings. During 2009, Valley raised net proceeds of approximately $71.6 million from
an “at-the-market” common equity offering of 6.0 million shares of newly issued common stock and net
proceeds of $63.7 million through an additional registered direct offering of 5.3 million shares of newly issued
common stock to several institutional investors. Valley did not have any common equity offerings during the
year ended December 31, 2010.
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Note 17)
March 31
June 30
Sept 30
Dec 31
Quarters Ended 2010
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . .
Non-interest income:
$
169,949
55,098
114,851
12,611
$
(in thousands, except for share data)
170,586
$
52,852
117,734
9,308
171,187
54,161
117,026
12,438
$
165,090
51,949
113,141
15,099
Gains on securities transactions, net . . . . . .
Net impairment losses on securities
recognized in earnings . . . . . . . . . . . . . . .
Trading (losses) gains, net . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common
863
3,656
112
6,967
(2,593)
(3,030)
20,437
78,354
39,563
12,200
27,363
(2,049)
838
20,031
79,973
47,091
14,081
33,010
—
(2,627)
19,843
78,947
46,807
14,168
32,639
—
(2,078)
30,957
80,408
53,480
15,322
38,158
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,363
33,010
32,639
38,158
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . . .
Average common shares outstanding:
0.17
0.17
0.18
0.21
0.21
0.18
0.20
0.20
0.18
0.24
0.24
0.18
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,792,127
160,794,667
160,961,240
160,965,366
161,121,214
161,122,351
161,358,150
161,360,945
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31
June 30
Sept 30
Dec 31
Quarters Ended 2009
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . .
Non-interest income (loss):
(Losses) gains on securities transactions,
$
183,075
73,511
109,564
9,981
$
(in thousands, except for share data)
177,281
$
62,213
115,068
12,722
180,821
67,708
113,113
13,064
$
171,007
59,438
111,569
12,225
net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(37)
288
(5)
7,759
Net impairment losses on securities
recognized in earnings . . . . . . . . . . . . . . .
Trading gains (losses), net . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock and accretion . . . .
Net income available to common
(2,171)
13,219
19,974
76,946
53,622
16,238
37,384
4,224
(2,434)
(18,631)
20,388
78,106
21,554
6,557
14,997
5,789
(743)
(3,474)
21,300
73,892
45,532
13,950
31,582
5,983
(1,004)
(1,548)
19,370
77,084
46,837
14,739
32,098
3,528
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,160
9,208
25,599
28,570
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . . .
Average common shares outstanding:
0.22
0.22
0.18
0.06
0.06
0.18
0.17
0.17
0.18
0.18
0.18
0.18
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148,864,216
148,864,225
148,894,236
148,895,153
152,305,288
152,305,671
156,547,672
156,549,123
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
PARENT COMPANY INFORMATION (Note 18)
Condensed Statements of Financial Condition
December 31,
2010
2009
(in thousands)
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
32,415
48,134
6,207
1,413,158
13,900
$
2,824
125,133
6,887
1,319,683
13,394
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,513,814
$1,467,921
Liabilities
Dividends payable to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures issued to capital trusts (includes fair value of
$161,734 at December 31, 2010 and $155,893 at December 31, 2009 for VNB
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Trust I)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
29,063
$
28,116
186,922
2,624
218,609
181,150
5,801
215,067
Stockholders’ equity
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,041
1,178,325
79,803
(5,719)
(14,245)
54,293
1,178,992
73,592
(19,816)
(34,207)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,295,205
1,252,854
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,513,814
$1,467,921
158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Income
Years Ended December 31,
2010
2009
2008
(in thousands)
Income
Dividends from subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on securities transactions, net . . . . . . . . . . . . . . . . . . . . . . .
Trading (losses) gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . .
Other interest and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,000
332
106
(5,841)
—
830
$120,000
2,069
—
(15,828)
(434)
437
$110,000
1,192
(678)
15,243
(79)
429
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,427
16,388
106,244
16,267
126,107
15,875
Income before income tax (benefit) expense and equity in undistributed
(over distributed) earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,039
(7,365)
89,977
(10,541)
110,232
14
Income before equity in undistributed (over distributed) earnings of
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed (over distributed) earnings of subsidiary . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock and accretion . . . . . . . . . . . . . . . . . . . . . . . .
51,404
79,766
131,170
—
100,518
15,543
116,061
19,524
110,218
(16,627)
93,591
2,090
Net Income Available to Common Stockholders . . . . . . . . . . . . . . . . . . . . . .
$131,170
$ 96,537
$ 91,501
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Years Ended December 31,
2010
2009
2008
(in thousands)
$ 131,170
$ 116,061
$ 93,591
Equity in (undistributed) over distributed earnings of subsidiary . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of premiums and accretion of discounts on
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gains) losses on securities transactions, net . . . . . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . .
Net change in:
Fair value of borrowings carried at fair value . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(79,766)
30
4,830
(15,543)
30
5,049
16,627
43
5,531
(51)
(106)
—
5,841
(538)
(3,363)
(54)
—
434
(17)
678
79
15,828
(3,052)
(954)
(15,243)
1,448
4,560
Net cash provided by operating activities . . . . . . . . . . . . . . .
58,047
117,799
107,297
Cash flows from investing activities:
Investment securities available for sale:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities, calls and principal repayments . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired in acquisition . . . . . . . . . . . . . . . .
Capital contributions to subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . .
Cash flows from financing activities:
Redemption of junior subordinated debentures . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock and a warrant
. . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . .
Common stock issued, net of cancellations . . . . . . . . . . . . . . . . . . . . . .
—
94
1,250
—
—
1,344
—
—
—
—
(115,190)
—
8,391
—
—
—
—
—
—
—
—
(300,000)
(12,980)
(109,005)
—
140,008
(68)
8,756
—
1,621
(50,000)
(39,691)
(7,689)
300,000
—
—
(102,517)
106
1,993
Net cash (used in) provided by financing activities . . . . . . . .
(106,799)
(281,977)
191,893
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . .
(47,408)
127,957
(164,178)
292,135
259,499
32,636
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . .
$ 80,549
$ 127,957
$ 292,135
160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BUSINESS SEGMENTS (Note 19)
lending,
We have four business segments that we monitor and report on to manage our business operations. These
investment management, and corporate and other
segments are consumer lending, commercial
adjustments. Lines of business and actual structure of operations determine each segment. Each is reviewed
routinely for its asset growth, contribution to income before income taxes and return on average interest earning
assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount).
Expenses related to the branch network, all other components of retail banking, along with the back office
departments of our subsidiary bank are allocated from the corporate and other adjustments segment to each of the
other three business segments. Interest expense and internal transfer expense (for general corporate expenses) are
allocated to each business segment utilizing a “pool funding” methodology, whereas each segment is allocated a
uniform funding cost based on each segments’ average earning assets outstanding for the period. The financial
reporting for each segment contains allocations and reporting in line with our operations, which may not
necessarily be comparable to any other financial institution. The accounting for each segment includes internal
accounting policies designed to measure consistent and reasonable financial reporting, and may not necessarily
conform to U.S. GAAP.
The consumer lending segment is mainly comprised of residential mortgages, home equity loans and
automobile loans. The duration of the loan portfolio is subject to movements in the market level of interest rates
and forecasted residential mortgage prepayment speeds. The average weighted life of the automobile loans
within the portfolio is relatively unaffected by movements in the market level of interest rates. However, the
average life may be impacted by the availability of credit within the automobile marketplace. Consumer lending
segment also includes the Wealth Management Division, comprised of trust, asset management, insurance
services, and asset-based lending support services.
The commercial lending segment is mainly comprised of floating rate and adjustable rate commercial and
industrial loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s
interest rate characteristics, commercial lending is Valley’s most sensitive business segment to movements in
market interest rates.
The investment management segment is mainly comprised of fixed rate investments, trading securities, and,
depending on our liquid cash position, federal funds sold and interest-bearing deposits with banks (primarily the
Federal Reserve Bank of New York). The fixed rate investments are one of Valley’s least sensitive assets to
changes in market interest rates. However, as we continue to shift the composition of the investment portfolio to
shorter-duration securities, the sensitivity to market interest rate will increase. Net gains and losses on the change
in fair value of trading securities and net impairment losses on securities are reflected in the corporate and other
adjustments segment.
The corporate and other adjustments segment represents income and expense items not directly attributable
to a specific segment, including trading and securities gains (losses), and net impairment losses on securities not
interest expense related to the junior
reported in the investment management segment discussed above,
subordinated debentures issued to capital trusts, the change in fair value of Valley’s junior subordinated
debentures carried at fair value, interest expense related to $100 million in subordinated notes, as well as income
and expense from derivative financial instruments.
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables represent the financial data for Valley’s four business segments for the years ended
December 31, 2010, 2009 and 2008:
Year Ended December 31, 2010
Consumer
Lending
Commercial
Lending
Investment
Management
Corporate
and Other
Adjustments
Total
Average interest earning assets . . . . . . . . . .
$3,321,124
$6,153,870
($ in thousands)
$3,204,762
$
— $12,679,756
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Net interest income (loss)
Provision for credit losses . . . . . . . . . . . . . .
Net interest income (loss) after provision
for credit losses . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . .
Internal expense transfer . . . . . . . . . . . . . . .
180,432
51,240
129,192
14,598
114,594
52,545
49,758
53,050
355,565
94,944
260,621
34,858
225,763
7,927
42,131
97,704
146,851
49,445
97,406
—
(6,036)
18,431
(24,467)
—
97,406
6,166
992
51,258
(24,467)
24,689
224,801
(202,012)
676,812
214,060
462,752
49,456
413,296
91,327
317,682
—
Income (loss) before income taxes . . . . . . .
$
64,331
$
93,855
$
51,322
$ (22,567) $
186,941
Return on average interest earning assets
(pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . .
1.94%
1.53%
1.60%
N/A
1.47%
Year Ended December 31, 2009
Consumer
Lending
Commercial
Lending
Investment
Management
Corporate
and Other
Adjustments
Total
Average interest earning assets . . . . . . . . . .
$3,775,689
$5,930,220
($ in thousands)
$3,325,737
$
— $13,031,646
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Net interest income (loss)
Provision for credit losses . . . . . . . . . . . . . .
Net interest income (loss) after provision
for credit losses . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . .
Internal expense transfer . . . . . . . . . . . . . . .
213,310
70,822
142,488
21,176
121,312
48,233
47,916
56,575
340,358
111,235
229,123
26,816
202,307
7,465
40,190
88,043
162,834
62,382
100,452
—
100,452
5,699
675
50,102
(4,318)
18,431
(22,749)
—
(22,749)
10,854
217,247
(194,720)
712,184
262,870
449,314
47,992
401,322
72,251
306,028
—
Income (loss) before income taxes . . . . . . .
$
65,054
$
81,539
$
55,374
$ (34,422) $
167,545
Return on average interest earning assets
(pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . .
1.72%
1.37%
1.67%
N/A
1.29%
162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Year Ended December 31, 2008
Consumer
Lending
Commercial
Lending
Investment
Management
Corporate
and Other
Adjustments
Total
Average interest earning assets . . . . . . . . . .
$4,213,524
$5,173,463
($ in thousands)
$2,997,638
$
— $12,384,625
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Net interest income (loss)
. . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . .
Net interest income (loss) after provision
for credit losses . . . . . . . . . . . . . . . . . . . .
Non-interest income (loss) . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . .
Internal expense transfer . . . . . . . . . . . . . . .
250,108
99,017
151,091
15,156
135,935
39,122
45,538
57,472
315,194
121,575
193,619
8,061
185,558
7,818
38,074
70,008
170,060
70,444
99,616
—
(5,668)
17,859
(23,527)
5,065
99,616
10,270
827
39,878
(28,592)
(53,954)
200,809
(167,358)
729,694
308,895
420,799
28,282
392,517
3,256
285,248
—
Income (loss) before income taxes . . . . . . .
$
72,047
$
85,294
$
69,181
$(115,997) $
110,525
Return on average interest earning assets
(pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . .
1.71%
1.65%
2.31%
N/A
0.89%
163
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Valley National Bancorp:
We have audited the accompanying consolidated statements of financial condition of Valley National
Bancorp and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated
statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2010. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Valley National Bancorp and subsidiaries as of December 31, 2010 and 2009, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2010, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 and Note 4 to the consolidated financial statements, the Company changed its
method of evaluating other-than-temporary impairments of debt securities due to the adoption of new accounting
requirements issued by the Financial Accounting Standards Board, as of January 1, 2009.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2010, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 28, 2011 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Short Hills, New Jersey
February 28, 2011
164
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Valley maintains “disclosure controls and procedures” which, consistent with Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended, is defined to mean controls and other procedures that are designed
to ensure that information required to be disclosed in the reports that Valley files or submits under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is
accumulated and communicated to Valley’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Valley’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of Valley’s disclosure controls and procedures. Based on such evaluation, Valley’s
Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures
were effective as of December 31, 2010 (the end of the period covered by this Annual Report on Form 10-K).
Valley’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect
that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the
objectives of the control system are met. The design of a control system reflects resource constraints and the
benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if
any, within Valley have been or will be detected. These inherent limitations include the realities that judgments
in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls is based in part upon certain assumptions about the
likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals
under all future conditions; over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There have been no changes in Valley’s internal control over financial reporting during the quarter ended
December 31, 2010 that have materially affected, or are reasonably likely to materially affect, Valley’s internal
control over financial reporting.
165
Management’s Report on Internal Control Over Financial Reporting
Valley’s management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Valley’s internal control over financial reporting is a process designed to provide reasonable
assurance to Valley’s management and Board of Directors regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2010 management assessed the effectiveness of Valley’s internal control over financial
reporting based on the criteria for effective internal control over financial reporting established in Internal
Control—Integrated Framework, issued by the Committee of Sponsoring Organizations (“COSO”) of the
Treadway Commission. Management’s assessment included an evaluation of the design of Valley’s internal
control over financial reporting and testing of the operating effectiveness of its internal control over financial
reporting. Management reviewed the results of its assessment with the Audit and Risk Committee.
Based on this assessment, management determined that, as of December 31, 2010 Valley’s internal control
over financial reporting was effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
KPMG LLP, the independent registered public accounting firm that audited Valley’s December 31, 2010
consolidated financial statements included in this Annual Report on Form 10-K, has issued an audit report on the
effectiveness of Valley’s internal control over financial reporting as of December 31, 2010 The report, which
expresses an opinion on the effectiveness of Valley’s internal control over financial reporting as of December 31,
2010 is included in this item under the heading “Report of Independent Registered Public Accounting Firm.”
166
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Valley National Bancorp:
We have audited Valley National Bancorp and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management of
the Company is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures, as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Valley National Bancorp and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2010, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated statements of financial condition of Valley National Bancorp and subsidiaries as
of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2010, and our report
dated February 28, 2011 expressed an unqualified opinion on those consolidated financial statements.
Short Hills, New Jersey
February 28, 2011
167
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Certain information regarding executive officers is included under the section captioned “Executive
Officers” in Item 1 of this Annual Report on Form 10-K. The information set forth under the captions “Director
Information”, “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the
2011 Proxy Statement is incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the caption “Executive Compensation” in the 2011 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
The information set forth under the captions “Equity Compensation Plan Information” and “Stock
Ownership of Management and Principal Shareholders” in the 2011 Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information set
the captions “Compensation Committee Interlocks and Insider
Participation”, “Certain Transactions with Management” and “Corporate Governance” in the 2011 Proxy
Statement is incorporated herein by reference.
forth under
Item 14. Principal Accountant Fees and Services
The information set forth under the caption “Independent Registered Public Accounting Firm” in the 2011
Proxy Statement is incorporated herein by reference.
168
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedules:
PART IV
The following Financial Statements and Supplementary Data are filed as part of this annual report:
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
All financial statement schedules are omitted because they are either inapplicable or not required, or because
the required information is included in the Consolidated Financial Statements or notes thereto.
(b) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
A. Purchase and Assumption Agreement—Whole Bank; All Deposits, among the Federal Deposit
Insurance Corporation, receiver of LibertyPointe Bank, the Federal Deposit Insurance Corporation
and Valley National Bank, dated as of March 11, 2010, incorporated herein by reference to the
Registrant’s Form 8-K Current Report filed on March 16, 2010.
B. Purchase and Assumption Agreement—Whole Bank; All Deposits, among the Federal Deposit
Insurance Corporation, receiver of The Park Avenue Bank,
the Federal Deposit Insurance
Corporation and Valley National Bank, dated as of March 12, 2010, incorporated herein by
reference to the Registrant’s Form 8-K Current Report filed on March 16, 2010.
(3) Articles of Incorporation and By-laws:
A. Restated Certificate of Incorporation of the Registrant, incorporated herein by reference to the
Registrant’s Form 8-K Current Report filed on May 21, 2010.
B. By-laws of the Registrant, as amended, incorporated herein by reference to the Registrant’s
Form 8-K Current Report filed on January 31, 2011.
(4)
Instruments Defining the Rights of Security Holders:
A. First Supplemental Indenture, dated as of July 1, 2008, by and among Wilmington Trust
Company, as Trustee, Valley National Bancorp and Greater Community Bancorp, incorporated
herein by reference to the Registrant’s Form 8-K Current Report filed on July 1, 2008.
B. Warrant Agreement between Valley and American Stock Transfer & Trust Company, LLC,
incorporated herein by reference to Appendix B of the Registrant’s Form S-4/A Registration
Statement filed on May 20, 2008.
C. Form of Warrant Certificate for the purchase of Valley Common Stock, incorporated herein by
reference to the Registrant’s Form S-3 Registration Statement filed on July 2, 2008.
D.
Junior Subordinated Indenture between Greater Community Bancorp and Wilmington Trust
Company, as Trustee, dated July 2, 2007, incorporated herein by reference to Exhibit 4.7 to
Greater Community Bancorp’s Form 10-Q Quarterly Report filed on August 9, 2007.
E. Amended and Restated Trust Agreement among Greater Community Bancorp, as Depositor,
Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware
Trustee, and the Administrative Trustees named therein, dated July 2, 2007, incorporated herein
by reference to Exhibit 4.8 to Greater Community Bancorp’s Form 10-Q Quarterly Report filed on
August 9, 2007.
169
F. Guarantee Agreement between Greater Community Bancorp, as Guarantor, and Wilmington Trust
Company, as Guarantee Trustee, dated July 2, 2007,
incorporated herein by reference to
Exhibit 4.9 to Greater Community Bancorp’s Form 10-Q Quarterly Report filed on August 9,
2007.
G. Warrant Agreement, dated May 18, 2010, between Valley and American Stock Transfer & Trust
Company, LLC, incorporated herein by reference to the Exhibit 4.1 of the Company’s Form 8-A
filed on May 18, 2010.
H. Form of Warrant for the purchase of Valley Common Stock, incorporated herein by reference to
Exhibit 4.2 of the Company’s Form 8-A filed on May 18, 2010.
(10) Material Contracts:
A. Amended and Restated Change in Control Agreements among Valley National Bank, Valley and
Gerald H. Lipkin, Peter Crocitto, Albert L. Engel, Alan D. Eskow, Robert M. Meyer, dated
January 22, 2008, incorporated herein by reference to the Registrant’s Form 8-K Current Report
filed on January 28, 2008.+
B. Amended and Restated Change in Control Agreements among Valley National Bank, Valley and
Stephen P. Davey, Elizabeth E. DeLaney, Kermit R. Dyke, Robert A. Ewing, Richard P. Garber,
Eric W. Gould, and Russell Murawski, dated February 11, 2008, incorporated herein by reference
to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2007.+
C.
D.
“The Valley National Bancorp 1999 Long-Term Stock Incentive Plan” dated January 19, 1999, as
amended, incorporated herein by reference to the Registrant’s Form 10-K Annual Report for the
year ended December 31, 2009.+
“Severance Agreement” dated January 22, 2008 between Valley, Valley National Bank and Peter
Crocitto, Albert L. Engel, Alan D. Eskow, Robert M. Meyer is incorporated herein by reference to
the Registrant’s Form 8-K Current Report filed on January 28, 2008.+
E. Amended and Restated Declaration of Trust of VNB Capital Trust I, dated as of November 7,
2001, is incorporated herein by reference to the Registrant’s Form 10-K Annual Report for the
year ended December 31, 2006.
F.
Indenture among VNB Capital Trust I, The Bank of New York as Debenture Trustee, and Valley,
dated November 7, 2001, is incorporated herein by reference to the Registrant’s Form 10-K
Annual Report for the year ended December 31, 2006.
G. Preferred Securities Guarantee Agreement among VNB Capital Trust I, The Bank of New York,
as Guarantee Trustee, and Valley, dated November 7, 2001, is incorporated herein by reference to
the Registrant’s Form 10-K Annual Report for the year ended December 31, 2006.
H. Directors Deferred Compensation Plan, dated June 1, 2004, incorporated herein by reference to
the Registrant’s Form 10-K Annual Report for the year ended December 31, 2009.+
I.
J.
Fiscal and Paying Agency Agreement between Valley National Bank and Wilmington Trust
Company, as fiscal and paying agent, dated July 13, 2005.*
The Valley National Bancorp, Benefit Equalization Plan, as Amended and Restated, dated
January 1, 2009, is incorporated herein by reference to the Registrant’s Form 10-K Annual Report
for the year ended December 31, 2008.+
K. Participant Agreement for the Benefit Equalization Plan are incorporated herein by reference to
the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2006.+
L. The Valley National Bancorp 2004 Director Restricted Stock Plan, as amended, incorporated by
reference to the Registrant’s Form 10-Q Quarterly Report filed on May 11, 2009.+
M. Form of Restricted Stock Award Agreement used in connection with Valley National Bancorp
2004 Director Restricted Stock Plan.*
170
N. Amendment No. 1 to the Valley National Bank Benefit Equalization Plan dated February 20,
2009, is incorporated herein by reference to Registrant’s Form 8-K Current Report filed on
February 26, 2009.+
O. Amendment to the Amended and Restated Change in Control Agreement between Valley, Valley
National bank and Peter Crocitto, dated February 20, 2008, is incorporated herein by reference to
the Registrant’s Form 8-K Current Report filed on February 26, 2009.+
P. Valley National Bancorp 2009 Long-Term Stock Incentive Plan, incorporated herein by reference
to the Registrant’s Form 8-K Current Report filed on April 24, 2009.+
Q. Form of Valley National Bancorp Incentive Stock Option Agreement, incorporated herein by
reference to the Registrant’s Form 8-K Current Report filed on May 27, 2009.+
R. Form of Valley National Bancorp Non-Qualified Stock Option Agreement, incorporated herein by
reference to the Registrant’s Form 8-K Current Report filed on May 27, 2009.+
S.
T.
Form of Valley National Bancorp Restricted Stock Award Agreement, incorporated herein by
reference to the Registrant’s Form 8-K Current Report filed on May 27, 2009.+
Form of Valley National Bancorp Escrow Agreement for Restricted Stock Award, incorporated
herein by reference to the Registrant’s Form 8-K Current Report filed on May 27, 2009.+
U. Equity Distribution Agreement, dated June 8, 2009, by and among Valley National Bancorp,
Stifel, Nicolaus & Company and RBC Capital Markets Corporation, incorporated herein by
reference to the Registrant’s Form 8-K Current Report filed on June 9, 2009.
V. Form of Purchase Agreement between Valley National Bancorp and each Purchaser, dated
December 7, 2009, incorporated herein by reference to the Registrant’s Form 8-K Current Report
filed on December 7, 2009.
W. Amended and Restated Change in Control Agreements among Valley National Bank, Valley and
Bernadette Mueller, Robert E. Farrell and Robert J. Mulligan, dated January 20, 2010,
incorporated herein by reference to the Registrant’s Form 10-K Annual Report for the year ended
December 31, 2009.+
X. Amended and Restated Change in Control Agreements among Valley National Bank, Valley and
Ira D. Robbins, incorporated herein by reference to the Registrant’s Form 10-K Annual Report for
the year ended December 31, 2009.+
Y.
“Severance Agreement” dated February 8, 2011 between Valley, Valley National Bank and
Gerald H. Lipkin, which replaced in full all predecessor severance and guaranteed retirement
agreements.*+
Z. Valley National Bancorp 2010 Executive Incentive Plan, incorporated herein by reference to the
Registrant’s Form 8-K Current Report filed on April 19, 2010.+
AA. Underwriting Agreement, dated May 18, 2010, among Valley, the United States Department of
the Treasury, and Deutsche Bank Securities Inc. as Underwriter, incorporated herein by reference
to the Registrant’s Form 8-K Current Report filed on May 24, 2010.
(12.1) Computation of Ratios of Earnings to Fixed Charges.*
(12.2) Computation of Ratios of Earnings to Fixed Charges Including Preferred Stock Dividends.*
171
(21) List of Subsidiaries:
Name
(a) Subsidiaries of Valley:
Valley National Bank
VNB Capital Trust I
GCB Capital Trust III
(b) Subsidiaries of Valley National Bank:
BNV Realty Incorporated (BNV)
Greater Community Redevelopment LLC
Hallmark Capital Management, Inc.
Highland Capital Corp.
Masters Coverage Corp.
New Century Asset Management, Inc.
Shrewsbury State Investment Co., Inc.
Valley 747 Acquisition, LLC
Valley Commercial Capital, LLC
Valley National Title Services, Inc.
VN Investments, Inc. (VNI)
VNB Loan Services, Inc.
VNB Mortgage Services, Inc.
VNB Route 23 Realty, LLC
18th & 8th LLC
VNB New York Corp.
(c) Subsidiaries of BNV:
SAR I, Inc.
SAR II, Inc.
(d) Subsidiaries of Masters Coverage Corp.:
RISC One, Inc.
Life Line Planning, Inc.
(e) Subsidiary of VNI:
VNB Realty, Inc.
(f) Subsidiary of VNB Realty, Inc.:
VNB Capital Corp.
(g) Subsidiary of Shrewsbury State Investment
Co., Inc.:
Shrewsbury Capital Corporation
(h) Subsidiary of Shrewsbury Capital Corporation:
GCB Realty, LLC
(i) Subsidiary of Greater Community
Redevelopment LLC:
Thirteen Van Houten LLC
(j) Subsidiary of Thirteen Van Houten LLC:
Congdon Mill Realty LLC
Jurisdiction of
Incorporation
United States
Delaware
Delaware
New Jersey
New Jersey
New Jersey
New Jersey
New York
New Jersey
New Jersey
New York
New Jersey
New Jersey
New Jersey
New York
New Jersey
New Jersey
New York
New York
New Jersey
New Jersey
New York
New York
New Jersey
New York
New Jersey
New Jersey
New Jersey
New Jersey
(23.1) Consent of KPMG LLP.*
(24) Power of Attorney of Certain Directors and Officers of Valley.*
172
Percentage of Voting
Securities Owned by the
Parent
Directly or Indirectly
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
25%
(31.1) Certification of Gerald H. Lipkin, Chairman, President and Chief Executive Officer of the Company,
pursuant to Securities Exchange Rule 13a-14(a).*
(31.2) Certification of Alan D. Eskow, Executive Vice President and Chief Financial Officer of the
Company, pursuant to Securities Exchange Rule 13a-14(a).*
(32) Certification, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by Gerald H. Lipkin, Chairman, President and Chief Executive
Officer of the Company and Alan D. Eskow, Executive Vice President and Chief Financial Officer of
the Company.*
(101) Interactive Data File.*, **
Filed herewith
*
** As provided in Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933 and is deemed not
filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to
liability under these sections.
+ Management contract and compensatory plan or arrangement
173
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
VALLEY NATIONAL BANCORP
By:
/s/ GERALD H. LIPKIN
Gerald H. Lipkin, Chairman of the Board,
President and Chief Executive Officer
By:
/s/ ALAN D. ESKOW
Alan D. Eskow,
Senior Executive Vice President
and Chief Financial Officer
Dated: February 28, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities indicated.
Signature
Title
Date
/S/ GERALD H. LIPKIN
Gerald H. Lipkin
/S/ ALAN D. ESKOW
Alan D. Eskow
/S/ MITCHELL L. CRANDELL
Mitchell L. Crandell
ANDREW B. ABRAMSON*
Andrew B. Abramson
PAMELA R. BRONANDER*
Pamela R. Bronander
ERIC P. EDELSTEIN*
Eric P. Edelstein
MARY J. STEELE GUILFOILE*
Mary J. Steele Guilfoile
GRAHAM O. JONES*
Graham O. Jones
WALTER H. JONES, III*
Walter H. Jones, III
Chairman of the Board, President
February 28, 2011
and Chief Executive Officer and
Director
Senior Executive Vice President,
February 28, 2011
Chief Financial Officer
(Principal Financial Officer), and
Corporate Secretary
First Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
174
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
Signature
Title
Date
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
February 28, 2011
GERALD KORDE*
Gerald Korde
MICHAEL L. LARUSSO*
Michael L. LaRusso
MARC J. LENNER*
Marc J. Lenner
ROBINSON MARKEL*
Robinson Markel
RICHARD S. MILLER*
Richard S. Miller
BARNETT RUKIN*
Barnett Rukin
SURESH L. SANI*
Suresh L. Sani
ROBERT C. SOLDOVERI*
Robert C. Soldoveri
*
/S/ ALAN D. ESKOW
Alan D. Eskow, attorney-in fact.
Director
Director
Director
Director
Director
Director
Director
Director
175
Printed on Recycled Paper
for a quality environment.
Branch List
NEW JERSEY
BERGEN
Bogota, 325 Palisade Avenue
Edgewater, 46 Promenade, The City Place
Elmwood Park, 80 Broadway
Englewood, 145 South Dean Street
Englewood, 80 West Street
Fair Lawn, 20-24 Fair Lawn Avenue
Fair Lawn, 139 Lincoln Avenue
Fair Lawn, 31-00 Broadway
Fort Lee, 1372 Palisade Avenue
Fort Lee, 2160 Lemoine Avenue
Glen Rock, 175 Rock Road
Hackensack, 20 Court Street
Hackensack, 111 Hackensack Avenue
Hasbrouck Heights, 284 Boulevard
Hillsdale, 24 Broadway
Ho-Ho-Kus, 18 Sycamore Avenue
Little Ferry, 100 Washington Avenue
Lodi, 147 Main Street
Lyndhurst, 456 Valley Brook Avenue
Montvale, 24 South Kinderkamack Road
Moonachie, 199 Moonachie Road
New Milford, 243 Main Street
North Arlington, 629 Ridge Road
Northvale, 151 Paris Avenue
Oakland, 350 Ramapo Valley Road
Oradell, 350 Kinderkamack Road
Paramus, 80 East Ridgewood Avenue
Paramus, 410 Bergen Town Center
Paramus, East 58 Midland Avenue
Ramsey, 10 South Franklin Turnpike
Ridgefi eld, 868 Broad Avenue
Ridgewood, 103 Franklin Avenue
River Vale, 670 Westwood Avenue
Rochelle Park, 405 Rochelle Avenue
Tenafl y, 85 County Road
Waldwick, 67 Franklin Turnpike
Wallington, 100 Midland Avenue
Wood Ridge, 207 Hacksensack Street
Wyckoff, 356 Franklin Avenue
ESSEX
Belleville, 22 Bloomfi eld Avenue
Belleville, 237 Washington Avenue
Belleville, 381 Franklin Avenue
Bloomfi eld, 548 Broad Street
Bloomfi eld, 1422 Broad Street
Caldwell, 15 Roseland Avenue
Cedar Grove, 491 Pompton Avenue
Fairfi eld, One Passaic Avenue
Fairfi eld, 167 Fairfi eld Road
Livingston, 66 West Mount Pleasant Avenue
Livingston, 73 South Livingston Avenue
Livingston, 270 South Livingston Avenue
Livingston, 531 South Livingston Avenue
Maplewood, 142 Maplewood Avenue
Maplewood, 740 Irvington Avenue
Millburn, 183 Millburn Avenue
Newark, 167 Bloomfi eld Avenue
Newark, 289 Ferry Street
Newark, 784 Mount Prospect Avenue
Nutley, 171 River Road
Nutley, 371 Franklin Avenue
South Orange, 115 Valley Street
Upper Montclair, 539 Valley Road
West Caldwell, 1059 Bloomfi eld Avenue
West Orange, 637 Eagle Rock Avenue
HUDSON
Bayonne, 522 Broadway
East Newark, 710 Frank E. Rodgers Boulevard North
Harrison, 433 Harrison Avenue
Hoboken, 305 River Street
Jersey City, 46 Essex Street
Jersey City, 311 Marin Boulevard
Kearny, 72-80 Midland Avenue
Kearny, 110 Central Avenue, Suite 100
Kearny, 256 Kearny Avenue
North Bergen, 8901 Kennedy Boulevard
Secaucus, 40 Meadowlands Parkway
Union City, 4405 Bergenline Avenue
West New York, 5712 Bergenline Avenue
MIDDLESEX
Edison, 2084 Route 27/Lincoln Highway
North Brunswick, 1100 Livingston Avenue
North Brunswick, 2818 Route 27 North
Piscataway, 501 Stelton Road
South Plainfi eld, 100 Durham Avenue
Woodbridge, 540 Rahway Avenue
MONMOUTH
Atlantic Highlands, 1 Bayshore Plaza
Freehold, 3495 Route 9
Highlands, 301 Shore Drive
Holmdel, 2124 Highway 35 South
Keansburg, 201 Main Street
Keyport, 416 Main Street & Route 36 East
Little Silver, 140 Markham Place
Manalapan, 801 Tennent Road
Middletown, 760 Highway 35 & Twinbrooks Avenue
Oakhurst, 777 West Park Avenue
Red Bank, 74 Broad Street
Red Bank, 362 Broad Street
Sea Bright, 1173 Ocean Avenue
Shrewsbury, 465 Broad Street
MORRIS
Budd Lake, 202 Route 46 West & Mount Olive Road
Butler, 1481 Route 23 South
Chatham, 375 Main Street
Chester, 2 Main Street
Denville, 6 Bloomfi eld Avenue
Dover, 100 East Blackwell Street
East Hanover, 240 Route 10 West & Murray Road
Florham Park, 30 Columbia Turnpike
Florham Park, 187 Columbia Turnpike
Jefferson Township, 715 Route 15 South
Landing, 115 Center Street
Lincoln Park, 31 Beaverbrook Road
Mine Hill, 271-273 Route 46 West
Morris Plains, 51 Gibraltar Drive
Morristown, 10 Madison Avenue
Mount Olive, 342 Route 46 West
Parsippany, Arlington Plaza, 800 Route 46 West
Parsippany, 120 Baldwin Avenue
Parsippany, 320 New Road
Succasunna, 250 Route 10 West
Whippany, 54 Whippany Road
PASSAIC
Clifton, 6 Main Avenue
Clifton, 505 Allwood Road
Clifton, 925 Allwood Road
Clifton, 535 Getty Avenue
Clifton, 1006 Route 46 West
Little Falls, 171 Browertown Road
Little Falls, 115 Main Street
Little Falls, 126 Newark Pompton Turnpike
North Haledon, 5 Sicomac Road
North Haledon, 475 High Mountain Road
Passaic, 128 Market Street
Passaic, 211 Main Avenue
Passaic, 506 Van Houten Avenue
Passaic, 545 Paulison Avenue
Passaic, 615 Main Avenue
Paterson, 490 Chamberlain Avenue
Pompton Lakes, 516 Wanaque Avenue
Totowa, 100 Furler Street
Totowa, 55 Union Boulevard
Wayne, 64 Mountain View Boulevard
Wayne, 200 Black Oak Ridge Road
Wayne, 1200 Preakness Avenue
Wayne, 1400 Valley Road
Wayne, 1445 Valley Road
Wayne, 1445 Route 23 South
Wayne, 1501 Hamburg Turnpike
Wayne, 1504 Route 23 North
SOMERSET
Bound Brook, 466 West Union Avenue
Green Brook, 302-306 Route 22 West
Hillsborough, 323 Route 206 North
North Plainfi eld, 1334 Route 22 East
North Plainfi eld, 672-6 Somerset Street
SUSSEX
Branchville, Branchville Square, 1 Wantage Avenue
Franklin, 288 Route 23 North
Fredon, 410 Route 94 at Willows Road
Sparta, 7 Woodport Road
Tranquility, Route 517 at Kennedy Road
Vernon, Vernon Plaza, 538 Route 515
UNION
Clark, 68 Central Avenue
Cranford, 117 South Avenue West
Hillside, 1300 Liberty Avenue
Mountainside, 882 Mountain Avenue
Roselle Park, 1 West Westfi eld Avenue
Scotch Plains, 1922 Westfi eld Avenue
Springfi eld, 223 Mountain Avenue
Union, 1432 Morris Avenue
Union, 2784 Morris Avenue
Westfi eld, 801 Central Avenue
WARREN
Belvidere, 540 County Route 519, Suite 9
Blairstown, 152 Route 94 South
Hackettstown, 105 Mill Street
NEW YORK
MANHATTAN
120 Broadway at Cedar Street
90 Franklin Street at Church Street
93 Canal Street between Christie & Eldridge
170 Hudson at Laight Street
434 Broadway at Howard Street
111 Fourth Avenue at 12th Street
159 Eighth Avenue at 18th Street
924 Broadway between 21st & 22nd Street
776 Avenue of the Americas at 26th Street
295 Fifth Avenue at 30th Street
1040 Sixth Avenue at 39th Street
275 Madison Avenue at 40th Street
62 West 47th Street between 5th & 6th Avenue
350 Park Avenue between 51st & 52nd Street
1328 Second Avenue between 70th & 71st Street
1569 Third Avenue at 88th Street
BROOKLYN
207 Brighton Beach Avenue, Brighton Beach
1212 Avenue M at East 13th Street, Midwood
1505 Avenue J at East 15th Street, Midwood
1633 Sheepshead Bay Road, Sheepshead Bay
61-17 18th Avenue at 61st Street, Bensonhurst
4501 13th Avenue at 45th Street, Borough Park
2902 Avenue U at East 29th Street, Homecrest
7726 Third Avenue at 77th Street, Bay Ridge
QUEENS
64-01 Grand Avenue at 64th Street, Maspeth
69-20 80th Street, Middle Village
76-09 Main Street, Flushing
94-05 63rd Drive, Rego Park
107-01 Liberty Avenue at 107th Street, Ozone Park
1455 Valley Road
Wayne, NJ 07470
973-305-3380
www.valleynationalbank.com
© 2011 Valley National Bank. Member FDIC. Equal Opportunity Lender.