2011 ANNUAL REPORT
Corporate Campus
At Valley, our mission is to provide superior banking services in a prompt, accurate and courteous
manner and to optimize shareholder returns through this endeavor.
Historical Financial Data 1991 - 2011
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
2011 $14,245 $133.7
$0.79
0.94%
10.20%
$0.69
5/11 - 5%
Stock Dividend
Dollars in millions, except for share data.
2010
14,144
131.2 (2)
0.78
0.93
10.32
2009
14,284
116.1 (2)
0.61
2008
14,718
93.6 (2)
0.61
2007
12,749
153.2 (2)
1.05
2006
12,395
163.7 (2)
1.10
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
1.12
1.11
1.10
1.06
0.89
0.86
0.81
0.78
0.71
0.62
0.57
0.63
0.61
0.48
0.35
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
5/10 - 5%
Stock Dividend
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
0.69
0.69
0.69
0.69
0.67
0.65
0.63
0.60
0.57
0.54
0.50
0.48
0.43
0.38
0.34
0.32
0.30
0.24
0.21
0.20
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
$12.2 million, $2.9 million, $4.0 million, $49.9 million, $10.4 million, and $3.0 million for years ended 2011, 2010, 2009,
2008, 2007, and 2006, respectively.
VALLEY NATIONAL BANCORP 1
Our core values of community involvement,
superior customer service and strong leadership
have enabled us to weather these challenging
times and provide our shareholders with a
valuable investment.
To our Shareholders
Valley National Bancorp, the holding
company for Valley National Bank,
was founded in 1927 as a small,
community-focused bank called the
Passaic Park Trust Company. Through
a series of highly focused acquisitions,
the bank prospered and in 1976 the
name Valley National Bank was chosen.
Today, Valley operates 211 branches in
147 communities serving 16 counties
throughout northern and central New
Jersey, Manhattan, Brooklyn, Queens
and Long Island. With approximately $16
billion in assets as of January 1, 2012,
Valley is one of the largest commercial
banks headquartered in New Jersey.
Valley is committed to providing an
experienced and knowledgeable staff
with a high priority towards convenient
and friendly customer service 24
hours a day, 7 days a week. Although
the name has changed over the past
84 years, the goals and purpose have
remained the same; meeting the diverse
fi nancial needs of the communities
we serve in an approachable, friendly
and personalized manner. Today’s
Valley National Bancorp has been
able to maintain shareholder value
by developing personalized fi nancial
solutions the same way it did back in
1927 by putting the customer fi rst.
At Valley National Bank, every offi cer
and employee has worked tirelessly
to maintain what matters to you most:
long-term shareholder value. In a time
of unprecedented economic turmoil,
your management team has been able
to successfully navigate the treacherous
pitfalls plaguing the fi nancial landscape.
Despite high unemployment, a historic
housing market devaluation, an increase
in regulatory oversight and costs, and
negative national media coverage of the
fi nancial services industry, we continue
to report solid core earnings.
Our 2011 net income for the year
ended December 31, 2011 was $133.7
million, or $0.79 per diluted common
share, compared to 2010 earnings of
$131.2 million, or $0.78 per diluted
common share.
Valley’s management team found
opportunities for growth in light of
adverse economic conditions. By
focusing on what community banking
means to our organization and, more
importantly, to our customers, we were
able to reaffi rm our strong ties to the
neighborhoods we serve and to establish
new relationships with customers who
have become disillusioned with large
regional and money center bank
competitors. Our core values of
community involvement, superior
customer service and strong leadership
have enabled us to weather these
challenging times and provide our
shareholders with a valuable investment.
Our traditional lending practices
continue to sustain our business model
in these trying times. We have proven
that we possess the discipline to walk
away from riskier loans rather than
pursuing growth for its own sake. While
some of our competitors did not share
these same lending standards, we
were able to maintain solid credit
metrics which are a hallmark of our
institution. The residential mortgage
and home equity loan portfolios
totaling over 23,000 individual loans
had only 272 loans past due 30 days
or more, representing only 1.62
percent of the $2.8 billion in total loans
within these categories. Even more
impressive, at year end we had only 82
residential loans in foreclosure. Total
loan delinquencies as a percentage of
total loans were 1.69 percent at
December 31, 2011 as compared to
1.77 percent at December 31, 2010.
Fundamental to Valley’s success
is the simple mission of giving our
customers exactly what they expect
from a bank. We have been able to
establish comprehensive banking
relationships with consumers and
businesses by offering valuable and
convenient services to improve their
fi nancial situation. Our very successful
Home Mortgage Refi nance Program
continues to drive residential mortgage
loan growth while providing valuable
economic stimulus to our beleaguered
economy. Customers who take
advantage of this low-cost refi nancing
program for homes located in New York,
New Jersey and Pennsylvania see an
immediate increase in their disposable
income, spurring consumer spending
which is vital to economic recovery
efforts. Our home refi nance program is
just one more example of how Valley has
remained at the forefront of efforts to
assist the communities we serve, help
our customers and stimulate economic
growth throughout our market.
From basic business checking to
remote deposit capture and healthcare
industry fi nancing, we continue to
serve the diverse needs of business
customers. We understand that one
company’s “business as usual” is not
the same as the company that operates
across the street. Our commercial
lending professionals take the time
to understand our business clients’
needs and to work with them to custom-
tailor a fi nancial plan that can take
their companies exactly where they
want to be.
We have not retreated in the face of
economic uncertainty. In fact, our
business has managed to expand into a
new market. On January 1, 2012, Valley
acquired State Bancorp, Inc. and its
principal subsidiary, State Bank of Long
Island, with approximately $1.6 billion
in assets and 16 branches located
throughout Nassau, Suffolk, Queens
and Manhattan. We are very excited
about the benefi ts that we expect
from integrating the two companies.
Our expansion into this attractive Long
Island market should provide many
additional lending, retail, and wealth
management service opportunities
to further strengthen our New York
Metropolitan operations in 2012.
Given the expected synergies from the
acquisition, strengthening commercial
loan demand, and recent signs of a
steadily improving economy, we are
optimistic about the year ahead and
our ability to grow the Valley Brand to
further benefi t our shareholders.
Much of Valley’s success can be
attributed directly to a Valley National
Bank workforce that is dedicated,
loyal and tireless in its pursuit of the
goals we have set. Our professional
banking associates worked hard to
complete the conversion of State
Bank’s branch operations in order to
deliver our wide array of banking
services and our unique brand of
superior customer service to the Long
Island market. Our employees made
this transition appear seamless to
State Bank’s customers.
Valley’s prospects for continued
growth are explicitly linked to the
underlying health of the communities
we serve. When we claim that we are
a community bank, it is not a cliché.
We embrace the opportunity to better
the communities we serve. No better
example underscores this commitment
more than “Valley Goes Pink,” our
breast cancer fundraising event. This
year marked our third annual event
and we have cumulatively managed
to raise more than $315,000 towards
breast cancer research.
Predictions for the prospects of our
economy may remain mixed. However,
Valley remains the same conservative,
well-capitalized bank in which our
investors have placed their trust and
confi dence for 84 years. Valley is well
positioned to achieve our objectives
of sustained growth and profi tability
through the establishment of strong
relationships with our customers and
the communities we serve.
On behalf of our management team
and The Board of Directors, we thank
you for your support and trust in Valley
National Bank. We will continue to work
to earn that trust in 2012.
Gerald H. Lipkin
Chairman, President & CEO
2
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 3
Senior Executive Management Team
Standing left to right:
Alan D. Eskow
Senior Executive Vice President,
Chief Financial Officer & Secretary
Gerald H. Lipkin
Chairman of the Board, President
& Chief Executive Officer
Peter Crocitto
Senior Executive Vice President
& Chief Operating Officer
Sitting left to right:
Robert J. Mulligan
Executive Vice President
& Chief Administrative Offi cer
Bernadette M. Mueller
Executive Vice President
& Director of Sales and
Client Development
Standing left to right:
Robert E. Farrell
Executive Vice President
& Chief Credit Offi cer
Robert M. Meyer
Executive Vice President
& Chief Commercial
Lending Offi cer
James G. Lawrence
Executive Vice President
Albert L. Engel
Executive Vice President
& Chief Retail Lending 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
Commercial Mortgage 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
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
Ira Robbins
First Senior Vice President
Treasurer
4
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 5
Thomas Sparkes
First Senior Vice President
Consumer Lending
Maureen Zegler
First Senior Vice President
New York Division Manager
Board of Directors
Standing left to right
Alan D. Eskow
Senior Executive Vice President
Chief Financial Offi cer & Secretary
Board Member since 2011
Richard S. Miller
President
Williams, Caliri, Miller & Otley, P.C.
Board Member since 1999
Suresh L. Sani
President
First Pioneer Properties, Inc.
Board Member since 2007
Gerald H. Lipkin
Chairman of the Board
President & CEO
Board Member since 1986
Michael L. LaRusso
Financial Consultant
Board Member since 2004
Robinson Markel
Investor
Board Member since 2001
Sitting left to right
Gerald Korde
President
Birch Lumber Company
Board Member since 1989
Mary J. Steele Guilfoile
Chairman
MG Advisors, Inc.
Board Member since 2003
Marc J. Lenner
CEO & CFO
Lester M. Entin Associates
Board Member since 2007
Standing left to right
Barnett Rukin
CEO
SLX Capital Management
Board Member since 1991
Walter H. Jones, III
Retired
Former Chairman, Hoke, Inc.
Board Member since 1997
Robert C. Soldoveri
CEO
Solan Management, LLC
Board Member since 2008
Andrew B. Abramson
President/CEO
The Value Group, Inc.
Board Member since 1994
Graham O. Jones
Partner
Jones & Jones, Esqs
Board Member since 1997
Peter Crocitto
Senior Executive Vice President
& Chief Operating Offi cer
Board Member since 2011
Sitting left to right
Pamela R. Bronander
Vice President
KMC Mechanical, Inc.
Board Member since 1993
Eric P. Edelstein
Consultant
Former EVP & CFO,
Griffon Corporation
Board Member since 2003
Jack Kay
Retired
Director Emeritus
since 2005
6
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 7
We partnered with the Harlem Wizards in 2011 to sponsor charity basketball games
held at local community centers. Together, we helped raise funds for charitable
organizations, schools and foundations in the local neighborhoods.
Being part of a community resonates at the heart of our corporate culture.
Our employees are active in community organizations providing leadership
and supporting causes that matter most to our neighbors and customers.
Helping people in the communities we serve
Supporting charitable initiatives resonates at the heart of our corporate culture and strengthens
our ties within the local community.
In 2011, we continued to serve the diverse needs of our communities by contributing time, talent and charitable donations.
Whether it is providing credit for affordable housing projects or supporting local charitable causes, we feel that it is our civic
responsibility to give back to the neighborhoods that have embraced Valley’s brand of community banking.
We raised over $115,000 through our third “Valley Goes Pink!” breast cancer event. The event took place on Saturday, October
1st and featured games, music, food and a 50/50 raffl e. All of the proceeds raised are donated to the Memorial Sloan-Kettering
Cancer Center through the Cure Breast Cancer Foundation (CBCF).
Valley National Bank acts as a concerned corporate citizen in every community that we
serve. We strive to establish deep ties with the local community by participating and
supporting local activities and events.
Every year we host an annual blood drive with the American Red Cross.
In 2011, Valley employees donated over 40 pints of blood which is
equivalent to saving 135 lives.
8
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 9
Shred-it Days are held at various branches throughout the year
to help customers dispose of their sensitive information in a safe
and secure manner. Many of our employees offer fraud prevention
tips to make our customers aware of common fraud schemes.
Our employees contribute to various charitable initiatives throughout the year. Some of these
efforts include partnering with the Salvation Army to host an annual toy and coat drive to help
those less fortunate.
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 $2,027,197 at December 31, 2011 and
$1,898,872 at December 31, 2010
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 $160,478
at December 31, 2011 and $161,734 at December 31, 2010 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 220,974,508 shares; issued 170,209,090
shares at December 31, 2011 and 170,131,085 shares at December 31, 2010
Surplus
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (34,776 common shares at December 31, 2011 and
597,459 common shares at December 31, 2010)
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
December 31,
$
2011
372,566
6,483
$
2010
302,629
63,657
1,958,916
566,520
21,938
2,547,374
25,169
9,527,797
271,844
(133,802)
9,665,839
265,475
303,867
52,527
5,903
74,390
317,962
20,818
586,134
$ 14,244,507
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
$ 2,781,597
$ 2,524,299
4,390,121
2,501,384
9,673,102
212,849
2,726,099
185,598
5,903
174,708
12,978,259
4,106,464
2,732,851
9,363,614
192,318
2,933,858
186,922
6,028
165,881
12,848,621
---
---
59,955
1,179,135
90,011
(62,441)
57,041
1,178,325
79,803
(5,719)
(412)
1,266,248
$ 14,244,507
(14,245)
1,295,205
$ 14,143,826
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
Years ended December 31,
2011
$ 547,365
2010
$ 543,009
2009
$
561,252
108,129
11,273
6,655
402
673,824
19,876
48,291
1,154
129,692
199,013
474,811
53,335
421,476
7,523
15,627
22,610
32,068
(42,775)
22,807
(19,968)
2,271
4,337
10,699
426
7,380
13,403
15,921
112,297
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
176,106
61,765
13,719
7,721
10,137
4,052
44,182
317,682
186,941
55,771
$ 131,170
---
131,170
$
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
$
Trading gains (losses), 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
176,307
Salary and employee benefi ts expense
64,364
Net occupancy and equipment expense
12,759
FDIC insurance assessment
9,315
Amortization of other intangible assets
15,312
Professional and legal fees
8,373
Advertising
50,158
Other
336,588
Total non-interest expense
Income Before Income Taxes
197,185
Income tax expense
63,532
Net Income $ 133,653
Dividends on preferred stock and accretion
---
Net income available to common stockholders
133,653
Earnings Per Common Share:
$
Basic
Diluted
Cash Dividends Declared Per Common Share
Weighted Average Number of Common Shares Outstanding:
Basic
Diluted
$ 0.79 $
0.79
0.69
$
0.78
0.78
0.69
0.61
0.61
0.69
169,928,460
169,929,590
169,112,901
169,121,584
159,259,476
159,260,229
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
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
Robert Devino
B. Devino Construction Co.
Donald N. Dinallo
Terminal Construction Corporation
Robert Israel
Kentshire Galleries, Ltd.
George Dominguez
Sunrise House Foundation, Inc.
Peter Jakobson, Jr.
Jakobson Properties, LLC
Bernard Dorfman, Esq.
Attorney-at-Law
Gerhardt Drechsel
Eagle American Realty, Inc.
Kenneth Jayson
Jayson Oil Company
Sanford Kalb
Private Investor
Kenneth Elkin
Summit Stainless Steel, LLC
Richard Kalikow
Manchester Real Estate
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.
Charles R. Hockey
Shamrock Stage Coach
Charles B. Hummel
Hummel Machine & Tool Co.
Charles Infusino
Little Falls Shop-Rite, Inc.
Terry Ingram
Consultant
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.
Alan Lambiase
River Terminal Development Co.
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
Stewart C. Libes
Consultant
Robert Lieberman
All-Ways Advertising Company
Seymour Litwin
Prudential New Jersey Properties
Joseph A. Lobosco
Lobosco Insurance Group, LLC
Nathan Lubow
Consultant
Frank Luccarelli
Dearborn Farms, Inc.
Gerald A. Lustig
Acura of Denville &
Autosport Honda
Samuel Magarino
Magarino Ford,
Lincoln Mercury, LLC
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
Alan Mirken
Aaron Publishing Group
Frank Misischia
FLM Graphics Corporation
Jeffrey Moll
Community Healthcare
Associates LLC
Michael Moskowitz
Catanio, Moskowitz &
Gutwetter, PC
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
Charles B. Moss, Jr.
Bow-Tie Building Times Square
Ben Sher
Consultant
Patrick Mucci, Jr.
Group Advisory, Inc.
John Nakashian
H.H. Nakashian & Sons
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
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.
Barry G. Novin
Barry Novin Associates
Peter A. Spina
Wayne Motors, Inc.
Peter Nussbaum, M.D.
Associates in Ophthalmology
Martin Statfeld
Brown & Brown Insurance
Steven Nussbaum
PF Pasbjerg Development Company
David Stavola
Stavola Companies
Dennis C. Oberle
Mahwah Sales & Service, Inc.
David Taub
Palm Bay Imports, Inc.
David Oostdyk
Royal Pontiac & Oldsmobile, Inc.
Marcia Toledano
990 AvAmericas Associates
Larry Pantirer
BNE Associates
Pasquale P. Tremonte
Fulton Building Co., Inc.
Richard Tully
Kearny Shop-Rite
John Usdan
Midwood Management
Corporation
Salvatore Valente
Bildisco Door
Manufacturing Co., Inc.
Marvin Van Dyk
Van Dyk Health Care, Inc.
William Van Ness, Sr.
Van Ness Plastic Molding Co.
Warren Waters
River Development, LLC
Arthur M. Weis
Capintec, Inc.
John V. Werner
Werners Dodge
Eric Witmondt
Woodmont Properties, LLC
Brett Woodward
Woodward Construction Co.
J. Scott Wright
Graphic Management, Inc.
Scott R. Yagoda, Esq.
Attorney-at-Law
Professionals Group
Advisory Council for
New Jersey (PGAC–NJ)
Rand M. Agins, Esq.
Lasser Hochman, L.L.C.
Thomas J. Angell, CPA
Rothstein, Kass & Company, P.C.
Fredric F. Azrak, Esq.
Azrak & Associates, LLC
Spiros Backos, CPA
Backos & Associates, PC
Joseph L. Basralian, Esq.
Winne, Banta, Hetherington,
Basralian & Kahn, P.C.
Michael Belfer, CPA
Anchin Block & Anchin
Thomas J. Benedetti, Esq.
Azzolini & Benedetti, LLC
Michael V. Benedetto, Esq.
Ansell Grimm & Aaron, PC
Gary D. Bennett, Esq.
Koch Koch & Bennett
Saul G. Berkowitz, CPA
McGladrey & Pullen, LLP
Robert J. Blackwell, CPA
Levine Jacobs & Company, L.L.C.
Marc Blumenthal, CPA
Sax, Macy, Fromm & Co., PC
Joseph W. Boyle, CPA
Meisel, Tuteur & Lewis, P.C.
Milton Brown, PA
Accountant
Robert Burney, Esq.
Lindabury, McCormick, Estabrook,
& Cooper, PC
Frank A. Carlet, Esq.
Carlet, Garrison,
Klein & Zaretsky, L.L.P.
Frederick L. Cohen, CPA
Weiser Mazars, LLP
Donna M. Conroy, Esq.
Frieri Conroy & Lombardo, LLC
Nino A. Coviello, Esq.
Saiber LLC
Robert J. Crigler, CPA
WithumSmith+Brown, PC
Bruce Nadler, CPA
Klingher Nadler, LLP
Santo Chiarelli, CPA
ACSB & Co., LLP
H. Michael Lynch, Esq.
Lynch & Associates
Vincent Oliva, CPA
Hertz, Herson & Company, LLP
Lance D. Christensen, CPA
Margolin, Winer & Evens, LLP
Bruce A. Madnick, CPA
Friedman, LLP
Roger J. Desiderio, Esq.
Bendit Weinstock, P.A.
Michael L. Ostrowsky, Esq.
Bressler, Amery & Ross, P.C.
Lowell A. Citron, Esq.
Lowenstein Sandler, PC
Michael Dunne, Esq.
Day Pitney, LLP
Carol O. Egan, CPA
Cowan, Gunteski & Co., PA
John D. Fanburg, Esq.
Brach Eichler, LLC
W. Raymond Felton, Esq.
Greenbaum, Rowe,
Smith & Davis, LLP
Wilfredo Fernandez, CPA
Citrin Cooperman & Company, LLP
Robert A. Fodera, CPA
ParenteBeard LLC
Paul A. Fried, CPA
Smolin, Lupin & Co., PA
Michael A. Gallo, Esq.
Schenck, Price, Smith & King, LLP
James M. Garry, CPA
McGovern Garry LLC
John A. Giunco, Esq.
Giordano, Halleran & Ciesla, P.C.
Milton E. Kahn, CPA
Eisner Amper, LLP
Lynne Z. Karinja, CPA
Lynne Karinja & Associates, LLC
Timothy J. King, CPA
Bederson & Company LLP
Herbert C. Klein, Esq.
Nowell Amoroso Klein Bierman, PA
Michael A. Kurzer, CPA
The Kurzer Group, LLC
Michael LaForge, CPA
Sobel & Company, LLC
Diane M. Lavenda, Esq.
Sills, Cummis & Gross PC
Larry Leaf, CPA
Leaf, Saltzman, Manganelli,
Pfeil & Tendler, 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, Lazris &
Discenza, P.C.
Robert C. Masessa, Esq.
Masessa & Cluff
Michael McLafferty, CPA
Eisner Amper, LLC.
William C. McNamara, CPA
Cowan, Gunteski & Co., PA
Daniel J. Meehan, CPA
JH Cohn, LLP
Alan Merker, CPA
Morris Merker & Co., L.L.C.
Sheila Mints, Esq.
Coughlin Duffy, LLP
John M. Mortenson, CPA
WithumSmith+Brown, PC
Anthony Panico, CPA
WithumSmith+Brown, PC
Dilip S. Patel, CPA
Dilip Patel & Company, LLP
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
Richard Puzo, CPA
J.H. Cohn, LLP
Mark S. Rattner, Esq.
Riker Danzig, LLP
Kenneth Lowell Rose, Esq.
Attorney-at-Law
Ira Rosenbloom, CPA
Optimum Strategies, LLC
Gerald R. Salerno, Esq.
Aronsohn Weiner & Salerno, PC
Nicholas San Filippo, IV, Esq.
Lowenstein Sandler, PC
Elliot Scher, Esq.
Benenson & Scher
Theodore E. Schiller, Esq.
Schiller & Pittenger, P.C.
Gerald Shanker, CPA
Kreinces Rollins & Shanker, LLC
Barry D. Shapiro, CPA
WithumSmith+Brown, PC
William S. Taylor, Esq.
Attorney-at-Law
Robert Traphagen, CPA
Traphagen & Traphagen CPAs, LLP
Richard H. Weisinger, Esq.
Attorney-at-Law
Roberta S. Weisinger, Esq.
Attorney-at-Law
H. Edward Wilkin, CPA
Wilkin & Guttenplan, PC
Peter R. Yarem, Esq.
Scarinci Hollenbeck
Professionals Group
Advisory Council for
New York (PGAC–NY)
Howard D. Bader, Esq.
BallonStollBader&Nadler, P.C.
Daniel M. Bagatta, Esq.
CULLENandDYKMAN LLP
Thomas J. Bonfiglio, Esq.
Bonfi glio & Asterita, LLC
Frank J. Candia, CPA
Holtz Rubenstein Reminick
Jonathan S. Caplan, Esq.
Kramer Levin Naftalis &
Frankel LLP
Robert H. Charron, CPA
Friedman, LLP
Michael J. Clain, Esq.
Windels Marx Lane &
Mittendorf, LLP
Steven L. Marcus, CPA
Gettry Marcus Stern & Lehrer,
CPA, P.C.
Robinson Markel, Esq.
Katten Muchin Rosenman LLP
Terri A. Coffel, CPA
Citrin Cooperman & Co., LLP
Steven J. Mayer, CPA
J.H. Cohn, LLP
Bruce M. Cohen, Esq.
Cohen & Frenkel, LLP
Jonathan T.K. Cohen, Esq.
Law Offi ces of
Jonathan T.K. Cohen
Michael W. Creasy, CPA
Grant Thornton, LLP
Robert C. Creighton, Esq.
Farrell Fritz, P.C.
Thomas P. Dobbins, CPA
O’Connor Davies Munns &
Dobbins, llp
Jonathan L. Mechanic, Esq.
Fried, Frank, Harris, Shriver &
Jacobson, LLP
Steven M. Merdinger, CPA
KMR LLP
Joseph Michaels, IV, Esq.
Dunnington Bartholow &
Miller LLP
Stanley H. Nasberg, CPA
Nasberg CPA, PLLC
Stephen W. O’Connell, Esq.
Hartman & Craven, LLP
Edward S. Feldman, Esq.
Feldman & Associates, PLLC
Robert S. Peare, CPA
Fuoco Group LLP
Mark B. Feldstein, CPA
Wiss & Company, LLP
Robert M. Pesce, CPA
Marcum LLP
Ted Felix
ParenteBeard, LLP
Lawrence E. Fenster, Esq.
Bressler Amery & Ross, P.C.
Hugh P. Finnegan, Esq.
Sullivan & Worcester LLP
William R. Fried, Esq.
Herrick, Feinstein LLP
Victor Gartenstein, Esq.
Victor Gartenstein, 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
Geri A. Gregor, CPA
Grassi & Co.
Roy Hoffman, CPA
J.H. Cohn, LLP
Ronald H. Janis, Esq.
Day Pitney, LLP
Timothy I. Kahler, Esq.
Troutman Sanders LLP
Brian Karnofsky, CPA
Eisner Amper LLP
Harvey M. Katz, Esq.
Fox Rothschild, LLP
David B. Kaufman, CPA
Rothstein Kass & Company, P.C
Thomas Kesoglou, Esq.
McCarter & English, 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
RSM McGladrey Inc.
Douglas A. Phillips, CPA
Weiser Mazars, LLP
James C. Ricca, Esq.
Forchelli, Curto, Deegan, Schwartz,
Mineo, Cohn & Terrana, LLP
Richard P. Romeo, Esq.
Salon Marrow Dyckman
Newman & Broudy LLP
Michael Rosenbaum, CPA
Berdon, LLP
Jonathan B. Rosenbloom, Esq.
Riemer & Braunstein LLP
Frank A. Schettino, CPA
Anchin Block & Anchin, 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.
Blank Rome LLP
Jay L. Silverberg, Esq.
Sills Cummis & Gross, PC
Raphy Soussan, CPA
CBIZ MHM, LLC
Allan Starr, Esq.
Starr Associates, LLP
Richard L. Sussman, Esq.
Rosenberg & Estis, PC
Marc Taub, CPA
MBAF-ERE, LLP
Ellen M. Walker, Esq.
Granoff, Walker & Forlenza, P.C.
Natasha Ziabkina, Esq.
Riker Danzig Scherer Hyland
& Perretti LLP
12 VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 13
Sussex
Passaic
NEW JERSEY
Warren
Bergen
NEW YORK
Morris
Essex
Manhattan
Hunterdon
Somerset
Union
Hudson
CURRENT
LOCATIONS
Queens
Brooklyn
Middlesex
Monmouth
ESSEX
Belleville, 22 Bloomfield Avenue
Belleville, 237 Washington Avenue
Belleville, 381 Franklin Avenue
Bloomfield, 548 Broad Street
Bloomfield, 1422 Broad Street
Caldwell, 15 Roseland Avenue
Cedar Grove, 491 Pompton Avenue
Fairfield, One Passaic Avenue
Fairfield, 167 Fairfield 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 Bloomfield 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 Bloomfield Avenue
West Orange, 637 Eagle Rock Avenue
HUDSON
Bayonne, 522 Broadway
East Newark, 710 Frank E. Rodgers Boulevard North
Harrison, 433 Harrison Avenue
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
Milltown, 94 North Main Street
North Brunswick, 1100 Livingston Avenue
North Brunswick, 2818 Route 27 North
Piscataway, 501 Stelton Road
South Plainfield, 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 Bloomfield Avenue
Dover, 100 East Blackwell Street
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
NEW JERSEY
BERGEN
Bogota, 325 Palisade Avenue
Edgewater, 46 Promenade, The City Place
Elmwood Park, 80 Broadway
Englewood, 80 West Street
Englewood, 145 South Dean Street
Fair Lawn, 20-24 Fair Lawn Avenue
Fair Lawn, 31-00 Broadway
Fair Lawn, 139 Lincoln Avenue
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
Ridgefield, 868 Broad Avenue
Ridgewood, 103 Franklin Avenue
River Vale, 670 Westwood Avenue
Rochelle Park, 405 Rochelle Avenue
Tenafly, 85 County Road
Waldwick, 67 Franklin Turnpike
Wallington, 100 Midland Avenue
Wood Ridge, 207 Hacksensack Street
Wyckoff, 356 Franklin Avenue
Parsippany, 320 New Road
Succasunna, 250 Route 10 West
Whippany, 54 Whippany Road
PASSAIC
Clifton, 6 Main Avenue
Clifton, 505 Allwood Road
Clifton, 535 Getty Avenue
Clifton, 925 Allwood Road
Clifton, 1421 Van Houten Avenue
Little Falls, 115 Main Street
Little Falls, 126 Newark Pompton Turnpike
Little Falls, 171 Browertown Road
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, 55 Union Boulevard
Totowa, 100 Furler Street
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 Plainfield, 672-6 Somerset Street
North Plainfield, 1334 Route 22 East
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 Westfield Avenue
Scotch Plains, 1922 Westfield Avenue
Springfield, 223 Mountain Avenue
Union, 1432 Morris Avenue
Union, 2784 Morris Avenue
Westfield, 801 Central Avenue
WARREN
Belvidere, 540 County Route 519, Suite 9
Blairstown, 152 Route 94 South
Hackettstown, 105 Mill Street
NEW YORK
MANHATTAN
62 West 47th Street between 5th & 6th Avenue
90 Franklin Street at Church Street
93 Canal Street between Christie & Eldridge
111 Fourth Avenue at 12th Street
120 Broadway at Cedar Street
159 Eighth Avenue at 18th Street
170 Hudson at Laight Street
275 Madison Avenue at 40th Street
295 Fifth Avenue at 30th Street
350 Park Avenue between 51st & 52nd Street
434 Broadway at Howard Street
776 Avenue of the Americas at 26th Street
924 Broadway between 21st & 22nd Street
Long Island E x p y
Long Island
1040 Sixth Avenue at 39th Street
1328 Second Avenue between 70th & 71st Street
1569 Third Avenue at 88th Street
BROOKLYN
61-17 18th Avenue at 61st Street, Bensonhurst
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
2902 Avenue U at East 29th Street, Homecrest
4501 13th Avenue at 45th Street, Borough Park
7726 Third Avenue at 77th Street, Bay Ridge
QUEENS
49-01 Grand Avenue, Queens
64-01 Grand Avenue at 64th Street, Maspeth
69-20 80th Street, Middle Village
75-20 Astoria Boulevard, Flushing
76-09 Main Street, Flushing
94-05 63rd Drive, Rego Park
107-01 Liberty Avenue at 107th Street, Ozone Park
NASSAU COUNTY
Garden City South, 339 Nassau Boulevard
Jericho, 501 North Broadway
Mineola, 222 Old Country Road
New Hyde Park, 699 Hillside Avenue
Oyster Bay, 135 South Street
Port Washington, 960 Port Washington Boulevard
Rockville Centre, 55 Maple Avenue
Westbury, 1055 Old Country Road
SUFFOLK COUNTY
East Setauket, 234 Route 25A
Farmingdale, 27 Smith Street
Hauppauge, 740 Veterans Memorial Highway
Holbrook, 4250 Veterans Memorial Highway
Huntington Station, 580 East Jericho Turnpike
14 VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 15
Shareholder Relations
Corporate Headquarters
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470
(973) 305-8800
Form 10-K
You may obtain a copy
of Valley National Bancorp’s
2011 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 shareholder
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.
(877) 681-8028
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 & Public 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 18, 2012
10:00 AM
Teaneck Marriott at Glenpointe
100 Frank W. Burr Boulevard
Teaneck, New Jersey 07666
16 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, 2011
‘ 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 the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
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)
‘
Accelerated filer
Smaller reporting company ‘
is a shell company (as defined in Rule 12b-2 of the Exchange
Indicate by check mark whether the registrant
Act) Yes ‘ No Í
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2.2 billion on
June 30, 2011.
There were 187,587,473 shares of Common Stock outstanding at February 23, 2012.
Documents incorporated by reference:
Certain portions of the registrant’s Definitive Proxy Statement (the “2012 Proxy Statement”) for the 2012 Annual
Meeting of Shareholders to be held April 18, 2012 will be incorporated by reference in Part III. The 2012 proxy statement will
be filed within 120 days of December 31, 2011.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 Comprehensive 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
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Item 9B.
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
3
20
31
31
32
33
36
39
86
87
87
88
89
90
91
93
167
168
168
171
171
171
171
171
171
PART IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172
177
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, 2011, Valley had consolidated total assets of $14.2 billion, total loans of
$9.8 billion, total deposits of $9.7 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 211 branches in 147 communities serving 16 counties throughout northern and
central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, as well as Long Island,
New York. 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:
•
•
•
•
•
•
•
•
•
an all-line insurance agency offering property and casualty, life and health insurance;
asset management advisors which are Securities and Exchange Commission (“SEC”) registered
investment advisors;
a title insurance agency;
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;
a subsidiary which specializes in health care equipment and other commercial equipment leases; and
a subsidiary which owns and services New York commercial loans.
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.
Recent Acquisitions
Valley has grown significantly in the past five years primarily through both de novo branch expansion and
bank acquisitions, including the following recent bank transactions:
In July 2008, we acquired Greater Community Bancorp, the holding company of Greater Community Bank,
a commercial bank with approximately $1.0 billion in assets, $812 million in loans (mostly commercial real
estate loans), $715 million in deposits and 16 branches in northern New Jersey. The purchase price of $167.8
million was paid through a combination of Valley’s common stock (10.1 million shares) and 918 thousand
warrants. Each warrant is entitled to 1.1576 Valley common shares issuable upon exercise at $16.42 per share.
The warrants have an expiration date of June 30, 2015, and to date, all of the warrants issued remain outstanding.
In March 2010, the Bank acquired $688.1 million in certain assets, including loans totaling $412.3 million
(primarily commercial and commercial real estate loans), and assumed all of the deposits totaling $654.2 million,
excluding certain brokered deposits and borrowings, of The Park Avenue Bank and LibertyPointe Bank, both
New York State chartered banks, from the Federal Deposit Insurance Corporation (“FDIC”). The deposits from
both FDIC-assisted transactions were acquired at a 0.15 percent premium. 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. The valuation and settlement of the equity appreciation instrument
did not significantly impact Valley’s consolidated financial statements.
In connection with both of the FDIC-assisted transactions, the Bank entered into loss-share agreements with
the FDIC. Under the terms of the loss-sharing agreements, the Bank will share in the losses on assets and other
real estate owned (referred to as “covered loans” and “covered OREO”, together “covered assets”). The Bank
may sell the acquired loans (with or without recourse) but in such case, the FDIC loss-sharing agreements will
cease to be effective for any losses incurred on such loans. Additionally, any related FDIC loss-share receivable
would be uncollectable and written-off upon settlement of the sale. The commercial and single family
(residential) loan loss-sharing agreements with the FDIC expire in March of 2015 and 2020, respectively. The
Company expects approximately 75 percent of the covered loans to mature, substantially paydown under
contractual loan terms or work through our collection process on or before the expiration of the related loss-
sharing agreements. See Note 2 to the consolidated financial statements for further details regarding these
transactions. As of December 31, 2011, the Company had approximately $272 million in covered loans, which
comprised 2.8 percent of its total loan portfolio.
Acquisition of State Bancorp, Inc.
On January 1, 2012, Valley acquired State Bancorp. Inc. (“State Bancorp”), the holding company for State
Bank of Long Island, a commercial bank with approximately $1.6 billion in assets, $1.1 billion in loans, and $1.4
billion in deposits and 16 branches in Nassau, Suffolk, Queens, and Manhattan at December 31, 2011. The
acquired branch offices located mostly in Long Island and Queens are expected to complement Valley’s other
New York City locations, including five branches in Queens, and lay a foundation for future expansion efforts
into these attractive markets. The shareholders of State Bancorp received a fixed one- for- one exchange ratio for
Valley National Bancorp common stock. The total consideration for the acquisition totaled $208 million. As a
condition to the closing of the merger, State Bancorp redeemed $36.8 million of its outstanding Fixed Rate
Cumulative Series A Preferred Stock from the U.S. Treasury. The stock redemption was funded by a $37.0
million short-term loan from Valley to State Bancorp. The outstanding loan, included in Valley’s consolidated
financial statements at December 31, 2011, was subsequently eliminated as of the acquisition date.
4
In connection with the acquisition, Valley acquired all of the voting and common shares of State Capital
Trust I and State Capital Trust II, which are wholly-owned subsidiaries established for the sole purpose of issuing
trust preferred securities and related trust common securities. These capital trusts, similar to our aforementioned
capital trust subsidiaries, are not consolidated for financial statement purposes.
Additionally, a warrant issued by State Bancorp (in connection with its preferred stock issuance) to the U.S.
Treasury in December 2008 was assumed by Valley as of the acquisition date. The ten-year warrant to purchase
up to 466 thousand of Valley common shares has an exercise price of $11.87 per share, and is exercisable on a
net exercise basis. Valley has calculated an internal value for the warrants, and may negotiate their redemption
with the U.S. Treasury. However, if Valley elects not to negotiate or an agreement cannot be reached with the
U.S. Treasury, the warrants will be sold at public auction and remain outstanding. See further details regarding
the acquisition of State Bancorp in Note 2 to the consolidated financial statements.
Business Segments
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 21 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. Commercial and industrial loans, including $83.7 million of covered
loans, totaled approximately $2.0 billion and represented 20.0 percent of the total loan portfolio at December 31,
2011. 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 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 generally granted to the Bank’s most credit worthy borrowers. At
December 31, 2011, unsecured commercial and industrial loans totaled approximately $338 million. 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 Loans. Commercial real estate loans and construction loans, including $167.6
million of covered loans, totaled $4.2 billion and represented 42.4 percent of the total loan portfolio at
December 31, 2011. 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.
With respect to construction loans to developers and builders, we originate and manage such loans structured on
5
either a revolving or non-revolving basis, depending on the nature of the underlying development project. Our
construction loans totaling $411.0 million at December 31, 2011 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 us 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.
Consumer Lending Segment
Residential Mortgage Loans. Residential mortgage loans, including $15.5 million of covered loans, totaled
$2.3 billion and represented 23.5 percent of the total loan portfolio at December 31, 2011. We 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 a branch presence and contiguous counties (including the State of Pennsylvania). We occasionally make
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 generally adhered to for loan requests of conforming and
non-conforming amounts. The weighted average loan-to-value ratio of all residential mortgage originations in
2011 was 54 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 (which totaled
approximately $24.5 million at December 31, 2011) 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. See “Credit Risk Management and Underwriting Approach” section below for further
details.
Other Consumer Loans. Other consumer loans, including $4.9 million of covered loans, totaled $1.4 billion
and represented 14.1 percent of the total loan portfolio at December 31, 2011. 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 an auto lender in New Jersey,
New York, Pennsylvania, and Connecticut offering indirect 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. Although we offer home equity loans to all qualified homeowners, these loans are
generally provided as a convenience to our new and existing 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. At December 31, 2011, unsecured consumer loans totaled approximately $66.5 million, including $9.1
million of credit card loans.
Wealth Management. Our Wealth Management Division provides coordinated and integrated delivery of
asset management advisory, trust, general insurance, title insurance, 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.
6
Investment Management Segment
Although we are primarily focused on our lending and wealth management services, a large portion of our
income is generated through investments in various types of 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), as part of our asset/liability management strategies. As of December 31, 2011, our total investment
securities and interest bearing deposits with banks were $2.5 billion and $6.5 million, respectively. See the
“Investment Securities Portfolio” section of “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” (MD&A) and Note 4 to the consolidated financial statements for additional
information concerning our investment securities.
Changes in Loan Portfolio Composition
Approximately 69 percent of Valley’s $9.8 billion total loan portfolio consists of non-covered (i.e., loans
which are not subject to loss-sharing agreements with the FDIC) commercial real estate, including construction
loans, residential mortgage, and home equity loans at December 31, 2011. Of the remaining 31 percent,
approximately 28 percent consists of different categories of non-covered loans and approximately 3 percent
consists of loans covered by the FDIC loss-sharing agreements. Valley has no internally planned changes that
will significantly impact the current composition of our loan portfolio by loan type. However, many external
factors outlined in “Item 1A. Risk Factors”, the “Executive Summary” section of our MD&A, and elsewhere in
this report may impact our ability to maintain the current composition of our loan portfolio. See the “Loan
Portfolio” section of our MD&A in this report for further discussion of our loan composition and concentration
risks.
The following table presents the loan portfolio segments by state as an approximate percentage of each
applicable segment and our percentage of total loans by state at December 31, 2011.
December 31, 2011
Percentage of Loan Portfilo Segment:
Commercial
and Industrial
Commercial
Real Estate
Residential Consumer
% of Total
Loans
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51%
34
2
2
2
9
64%
30
1
1
—
4
83%
9
4
1
—
3
61%
17
19
1
—
2
65%
24
4
1
—
6
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
100%
100%
* Includes states with less than 1 percent of loans in each loan portfolio segment.
Credit Risk Management and Underwriting Approach
Credit risk management. For all loan types, we adhere 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 a 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 us to manage the portfolio’s risk across business sectors and through cyclical economic
circumstances.
7
Our historical and current loan underwriting practice prohibits the origination of payment option ARMs
which allow for negative interest amortization and subprime loans. At December 31, 2011, our residential loan
portfolio included approximately $22 million of loans that could be identified by us as non-conforming loans
commonly referred to as either “alt-A,” “stated income,” or “no doc” loans. These loans were mostly originated
prior to 2008 and had a weighted average loan-to-value ratio of 70 percent at the date of origination. Virtually all
of our loan originations in recent years have conformed to rules requiring documentation of income, assets
sufficient to close the transactions and debt to income ratios that support the borrower’s ability to repay under the
loan’s proposed terms and conditions. These rules are applied to all loans originated for retention in our portfolio
or for sale in the secondary market.
Loan documentation. Loans are well documented in accordance with specific and detailed underwriting
policies and verification procedures. General underwriting guidance is consistent across all loan types with
variations in procedures and due diligence is dictated by the specifics of each loan request. Due diligence
standards require acquisition and verification of sufficient financial information to determine a borrower’s or
guarantor’s credit worthiness, capital support, capacity to repay, collateral support, and character. Credit
worthiness is generally verified using personal or business credit reports from independent credit reporting
agencies. Capital support is determined by acquisition of independent verifications of deposits, investments or
other assets. Capacity to repay the loan is based on verifiable liquidity and earnings capacity as shown on
financial statements and/or tax returns, banking activity levels, operating statements, rent rolls or independent
verification of employment. Finally, collateral valuation is determined via appraisals from independent, bank-
approved, certified or licensed property appraisers or readily available market resources.
Types of collateral. Loan collateral, when required, may consist of any one or a combination of the
following asset types depending upon the loan type and intended purpose: commercial or residential real estate;
general business assets including working assets such as accounts receivable, inventory, or fixed assets such as
equipment or rolling stock; marketable securities or other forms of liquid assets such as bank deposits or cash
surrender value of life insurance; automobiles; or other assets wherein adequate protective value can be
established and/or verified by reliable outside independent appraisers. In addition to these types of collateral, we,
in many cases, will obtain the personal guarantee of the borrower’s principals to mitigate the risk of certain
commercial and industrial loans and commercial real estate loans.
Many times, we will underwrite loans to legal entities formed for the limited purpose of the business which
is being financed. Credit granted to these entities and the ultimate repayment of such loans is primarily based on
the cash flow generated from the property securing the loan or the business that occupies the property. The
underlying real property securing the loans is considered a secondary source of repayment, and normally such
loans are also supported by guarantees of the legal entity members. Absent such guarantees or approval by our
credit committee, our policy requires that the loan to value ratio (at origination) be 50 percent or less of the
estimated market value of the property as established by an independent licensed appraiser.
Reevaluation of collateral values. Commercial loan renewals, refinancing and other subsequent transactions
that include the advancement of new funds or result in the extension of the amortization period beyond the
original term, require a new or updated appraisal. Renewals, refinancing and other subsequent transactions that
do not include the advancement of new funds (other than for reasonable closing costs) or, in the case of
commercial loans, the extension of the amortization period beyond the original term, do not require a new
appraisal unless management believes there has been a material change in market conditions or the physical
aspects of the property which may negatively impact collectability of our loan. In general, the period of time an
appraisal continues to be relevant will vary depending upon the circumstances affecting the property and the
marketplace. Examples of factors that could cause material changes to reported values include the passage of
time, the volatility of the local market, the availability of financing, the inventory of competing properties, new
improvements to, or lack of maintenance of, the subject or competing surrounding properties, changes in zoning
and environmental contamination.
8
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 for such loans are typically estimated using 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.
All refinanced residential mortgage loans require new appraisals for loans held in our loan portfolio and
loans originated for sale. Additionally, all loan types are assessed for full or partial charge-off when they are
between 90 and 120 days past due based upon their estimated net realizable value.
See Note 5 to our consolidated financial statements for additional information concerning our loan portfolio
risk elements, credit risk management and our loan charge-off policy.
Loan Renewals and Modifications
In the normal course of our lending business, we may renew loans to existing customers upon maturity of
the existing loan. These renewals are granted provided that the new loan meets our standard underwriting criteria
for such loan type. While our traditional underwriting approach has always been conservative, the underwriting
criteria for certain loan types are stricter in light of the current economic environment.
Additionally, on a case-by-case basis, we may extend, restructure, or otherwise modify the terms of existing
loans from time to time to remain competitive and retain certain profitable customers, as well as assist customers
who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a
concession has been made at the time of such modification, the loan is classified as a troubled debt restructured
loan. Substantially all of our loan modifications related to customers experiencing financial difficulties that are
considered troubled debt 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 accrued interest. In addition, we frequently obtain
additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated
performance under the previous terms and our underwriting process shows the borrower has the capacity to
continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing
restructured loans may be returned to accrual status when there has been a sustained period of repayment
performance (generally six consecutive months of payments) and both principal and interest are deemed
collectible. For restructured or modified loans for profitable customers, we generally take these actions based on
numerous factors, including the quality and longevity of the customer relationship, the creditworthiness of the
customer and the nature of the loan.
Extension of Credit to Past Due Borrowers
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. Valley’s historic and current policy prohibits the
advancement of additional funds on non-accrual and other impaired loans (i.e., troubled debt restructured loans),
except under certain workout plans if such extension of credit is intended to mitigate losses.
Loans Originated by Third Parties
From time to time, the Bank purchases residential mortgage and automobile loans originated by, and
sometimes serviced by, other financial institutions based on several factors, including current secondary market
rates, excess liquidity and other asset/liability management strategies. Purchased residential mortgage loans and
automobile loans (excluding covered loans purchased from the FDIC in March 2010) totaled approximately
9
$233.7 million and $72.1 million, respectively, at December 31, 2011 representing 10.2 percent and 9.3 percent
of our total residential mortgage and automobile loan portfolios, respectively. Of the $233.7 million in purchased
residential mortgage loans, $174.1 million were originated by board-approved independent mortgage bankers.
The underwriting documentation for such loans is carefully reviewed on an individual loan-by-loan basis by
Valley prior to purchase to ensure each loan meets Valley’s normal credit underwriting standards. All of the
purchased automobile loans are also selected using Valley’s normal underwriting criteria at the time of purchase.
At December 31, 2011, the independent mortgage banker originated mortgage loans had loans past due 30 days
or more totaling 2.6 percent of these loans as compared to 1.8 percent for our total residential mortgage portfolio,
including all delinquencies. Overall, the purchased residential mortgage and automobile portfolios had loans past
due 30 days or more totaling 5.4 percent and 0.4 percent of the total loans within each respective portfolio at
December 31, 2011.
Competition
Valley National Bank is one of the largest commercial banks headquartered in New Jersey, with its primary
markets located in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and
Queens, as well as Long Island, New York. Valley ranked 16th in competitive ranking and market share based on
the deposits reported by 239 FDIC-insured financial institutions in the New York, Northern New Jersey and
Long Island deposit market as of June 30, 2011. The FDIC also ranked Valley eighth in the state of New Jersey
based on deposits as of June 30, 2011. Despite our favorable FDIC rankings, the market for banking and bank-
related services is highly competitive and we face substantial competition in all phases of our operations. In
addition to the FDIC-insured commercial banks in our principal metropolitan markets, we also compete with
other providers of financial services such as 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. Many of these competitors may have fewer regulatory
constraints, broader geographic service areas, greater capital, and, in some cases, lower cost structures.
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 has heightened the level of
competitive pressure in our primary markets over the last several years. In addition, competition has further
intensified as a result of recent changes in regulation, advances in technology and product delivery systems, and
bank failures. Web-based and other internet companies are providing non-traditional, but increasingly strong,
competition for our borrowers, depositors, and other customers. Within our New Jersey and the New York
metropolitan markets, we compete with some of the largest financial institutions in the world that are able to
offer a large range of products and services at competitive rates and prices. Nevertheless, we believe we can
compete effectively as a result of utilizing various strategies including our long history of local customer service
and convenience as part of a relationship management culture, in conjunction with the pricing of loans and
deposits. Our customers are influenced by the convenience, quality of service from our knowledgeable staff,
personal contacts and attention to customer needs, as well as availability of products and services and related
pricing. We provide such convenience through our banking network of 211 branches in 147 communities, an
extensive ATM network, and our 24-hour telephone and on-line banking systems.
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.
Personnel
At December 31, 2011, Valley National Bank and its subsidiaries employed 2,754 full-time equivalent
persons. Management considers relations with its employees to be satisfactory.
10
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 . . . . . . . . .
Eric W. Gould . . . . . . . . . .
Russell C. Murawski . . . . .
John H. Noonan . . . . . . . .
Ira D. Robbins . . . . . . . . . .
Stephen P. Davey . . . . . . .
Robert A. Ewing . . . . . . . .
Age at
December 31,
2011
Executive
Officer
Since
Office
70
54
63
63
65
68
65
53
64
47
64
43
62
65
37
56
57
1975
Chairman of the Board, President and Chief Executive
1991
1993
Officer of Valley and Valley National Bank
Director, Senior Executive Vice President, Chief
Operating Officer of Valley and Valley National Bank
Director, 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
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
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.
Available Information
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, and Valley’s Corporate Governance
Guidelines.
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.
11
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
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, 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:
• Gave the Federal Reserve the authority to establish rules regarding interchange fees charged for
electronic debit transactions by payment card issuers, such as Valley National Bank. In June 2011, the
FRB adopted regulations setting the maximum permissible interchange fee as the sum of 21 cents per
12
transaction and 5 basis points multiplied by the value of the transaction, with an additional adjustment
of up to one cent per transaction if the issuer implements certain fraud-prevention standards;
• 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) at the enactment
date 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 (See “Consumer Financial Protection Bureau
Supervision” section below);
• 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;
• 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 also authorized the SEC to promulgate rules that would allow shareholders to
nominate and solicit votes for their own candidates using a company’s proxy materials. However, on July 21,
2011, the United States Court of Appeals for the District of Columbia Circuit struck down the SEC’s proposed
proxy access rules.
13
The Dodd-Frank Act authorized the FRB to adopt enhanced supervision and prudential standards for, among
others, bank holding companies with total consolidated assets of $50 billion or more (often referred to as
“systemically important financial institutions” or “SIFI”), and authorized the FRB to establish such standards
either on its own or upon the recommendations of the Financial Stability Oversight Council (“FSOC”), a new
systemic risk oversight body created by the Dodd-Frank Act. In December 2011, the FRB issued for public
comment a notice of proposed rulemaking establishing enhanced prudential standards responsive to these
provisions for (i) risk-based capital requirements and leverage limits, (ii) stress testing of capital, (iii) liquidity
requirements (iv) overall risk management requirements (v) resolution plan and credit exposure reporting and
(vi) concentration/credit exposure limits. Comments on these proposed rules (the “Proposed SIFI Rules”), are
due by March 31, 2012. The Proposed SIFI Rules address a wide, diverse array of regulatory areas, each of
which is highly complex. Most of the Proposed SIFI Rules will not apply to Valley for so long as its total
consolidated assets remain below $50 billion. However, two aspects of the Proposed SIFI Rules - requirements
for annual stress testing of capital under one base and two stress scenarios and certain corporate governance
provisions requiring, among other things, that each bank holding company establish a risk committee of its board
of directors and that that committee include a “risk expert” - apply to bank holding companies with total
consolidated assets of $10 billion or more, including Valley.
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 continue 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, remains very unpredictable at this time.
Consumer Financial Protection Bureau Supervision
As a financial institution with more than $10 billion in assets, Valley National Bank is supervised by the
CFPB for consumer protection purposes. The CFPB’s regulation of Valley National Bank will focus on risks to
consumers and compliance with the federal consumer financial laws and will include regular examinations of the
bank.
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
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.
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. See additional information regarding the warrants at Note 17 to the consolidated financial
statements.
14
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
shareholders, 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,
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.
15
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; 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
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
permissible, including insurance underwriting;
allows insurers and other financial services companies to acquire banks;
16
•
•
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.
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 has not elected to become a financial holding company.
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
applied against
the actual quarterly assessments until exhausted, and may not be applied to any special
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, 2011 was $21.6 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 eliminated
the adjustment for secured borrowings, including Federal Home Loan Bank (“FHLB”) advances, and made
certain other changes to the impact of unsecured borrowings and brokered deposits on an institution’s deposit
insurance assessment. The final rule also revised the assessment rate schedule to provide initial base assessment
rates ranging from 5 to 35 basis points and total base assessment rates ranging from 2.5 to 45 basis points after
adjustment. The final rule became effective on April 1, 2011.
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.
17
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 are no longer eligible for the
unlimited guarantee. Unlike the original TAG Program, which allowed banks to opt in, the extended program
applies to all FDIC-insured institutions and is no longer funded by separate premiums. The FDIC accounts 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.
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
18
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, 2011.
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.
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.
19
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 yet to propose regulations implementing Basel III. 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.
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 may 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.
Our financial results and condition may be adversely impacted by weak economic conditions, particularly if
unemployment does not improve or increases.
While the United States continues to experience modest economic growth, the rate of growth has been slow
and unemployment remains at very high levels and is not expected to significantly improve in the near future.
Much of Valley’s lending is in northern and central New Jersey, and Manhattan, Brooklyn, Queens and Long
Island, 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.
Further downgrades of the U.S. credit rating and uncertain political, credit and financial market conditions
may affect the stability of our $1.6 billion in securities issued or guaranteed by the federal government,
which may affect the liquidity or valuation of our investment securities portfolio and may increase our
future borrowing costs.
As a result of the uncertain domestic political, credit and financial market conditions, investments in
financial instruments issued or guaranteed by the federal government pose liquidity and credit risks. Given that
future deterioration in the United States credit and financial markets is a possibility, no assurance can be made
that losses or significant deterioration in the fair value of our investments will not occur. At December 31, 2011,
we had approximately $100.0 million, $90.7 million and $1.4 billion invested in U.S. Treasury securities, U.S.
government agency securities, and residential mortgage-backed securities issued or guaranteed by Ginnie Mae
and government-sponsored enterprises, respectively. On August 5, 2011, Standard and Poor’s downgraded the
20
United States credit rating from its AAA rating to AA+. Further downgrades in the future could affect the
stability of securities issued or guaranteed by the federal government. These factors could affect the liquidity or
valuation of our portfolio of such investment securities, and could result
in our counterparties requiring
additional collateral for our borrowings. Further, unless and until the current United States political, credit and
financial market conditions have been sufficiently resolved, it may increase our future borrowing costs.
We could recognize other-than-temporary impairment charges on investment securities due to adverse
economic and market conditions.
As of December 31, 2011, we had approximately $2.0 billion and $566.5 million in held to maturity and
available for sale securities, respectively. We may be required to record impairment charges in earnings related to
credit losses on these 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.
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.
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. We recognized other-than-temporary impairment charges on securities of
$20.0 million, $4.6 million, and $6.4 million in 2011, 2010, and 2009, respectively, attributable to credit as a
reduction of non-interest income on the consolidated statements of income mainly due to impaired trust preferred
and private label mortgage-backed securities. 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.
We may reduce or eliminate the cash dividend on our common stock, which could adversely affect the
market price of our common stock.
Our common cash dividend payout per common share was approximately 87 percent of our earnings per
share for the year ended December 31, 2011. Our low retention rate resulted from earnings being negatively
impacted by several factors, including, but not limited to higher net impairment losses on certain investment
securities, the sustained low level of market interest rates for interest earning assets, and higher operating costs
and lower fee income caused by increased banking regulation. 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.
21
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. Additionally, as a
bank holding company, our ability to declare and pay dividends is dependent on federal regulatory policies and
regulations including the supervisory policies and guidelines of the OCC and the FRB regarding capital adequacy
and dividends. Among other things, consultation of the FRB supervisory staff is required in advance of our
declaration or payment of a dividend that exceeds our earnings for a period in which the dividend is being paid.
The regulatory guidelines will also increase our minimum capital requirements in the future as outlined in the
“Basel III” section of Item 1 above.
A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the
real estate market could adversely affect our asset quality and profitability for those loans secured by real
property and increase the number of defaults and the level of losses within our loan portfolio.
A significant portion of our loan portfolio is secured by real estate. As of December 31, 2011, over 70
percent of our total loans 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
could 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 prolonged economic recovery and elevated levels
of unemployment could drive losses beyond that which is provided for in our allowance for loan losses. In that
event, our earnings could be adversely affected.
The secondary market for residential mortgage loans, for the most part, is limited to conforming Fannie Mae
and Freddie Mac loans. The effects of this limited mortgage market, 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
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.
Higher charge-offs and weak credit conditions could require us to increase our allowance for credit losses
through a provision charge to earnings.
We maintain an allowance for credit losses based on our assessment of credit losses inherent in our loan
portfolio (including unfunded credit commitments). The process for determining the amount of the allowance is
critical to our financial results and conditions. It requires difficult, subjective and complex judgments about the
future, including the impact of national and regional economic conditions on the ability of our borrowers to repay
their loans. If our judgment proves 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
22
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 reduce our interest income and increase our net loan
charge-offs, provision for loan losses, and operating expenses.
As a result of the prolonged economic downturn, we are facing historically high levels of delinquencies on
our loans. Our non-accrual loans increased from 0.33 percent at December 31, 2008 to 0.98 percent, 1.12 percent,
1.27 percent of total loans at December 31, 2009, 2010 and 2011, 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
interest income relating to an increase in non-performing loans. Non-performing assets (including non-accrual
loans, other real estate owned, other repossessed assets, and non-accrual debt securities) totaled $167.4 million at
December 31, 2011. These non-performing assets can adversely affect our net income mainly through increased
operating expenses incurred to maintain such assets or loss charges related to subsequent declines in the
estimated fair value of foreclosed assets. 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.
Changes in interest rates could reduce our net interest income and earnings.
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). 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.
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
including Valley and the Bank. Among the Dodd-Frank Act’s
and will
significant regulatory changes, it created 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 certain federal
consumer protection laws. The Bureau also has exclusive supervision over examinations of our compliance with
institutions,
23
those specific laws, and implementing rules and regulations, supplementing the compliance examinations that
will be made by the Comptroller of the Currency. Moreover, the Dodd-Frank Act authorizes states’ attorneys
general 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
may significantly increase our regulatory compliance burden and costs and may introduce additional restrictions
on the financial products and services we offer to our customers.
The Dodd-Frank Act 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.
The Dodd-Frank Act also amended the Electronic Fund Transfer Act to, among other things, give the FRB
the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment
card issuers, such as Valley National Bank. In June 2011, the Federal Reserve issued a final rule that establishes
standards for determining whether an interchange fee received or charged by an issuer with respect to an
electronic debit transaction is reasonable and proportional to the cost incurred by the issuer with respect to the
transaction. Effective October 1, 2011, these new standards imposed debit card interchange fee limits which were
largely responsible for a $880 thousand reduction in our debit card interchange fees recognized in other
non-interest income for the fourth quarter of 2011 as compared to the third quarter of 2011. Although debit card
interchange fees vary based on our customer activity levels, we have estimated the new regulation will reduce
such fees by $3.0 million to $3.5 million on an annual basis before the impact of any potential mitigating actions
by us in the future.
Because many of the Dodd-Frank Act’s provisions require future 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.
Extensive regulation and supervision may have a negative impact on our ability to compete in a cost
effective manner and subject us to material compliance costs and penalties.
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 laws and regulations affect
Valley’s lending practices, capital structure, investment practices, dividend policy and growth, among other
things. They encourage Valley to ensure a satisfactory level of 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.
24
Changes in accounting policies or accounting standards could cause us to change the manner in which we
report our financial results and condition in adverse ways and could subject us to additional costs and
expenses.
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 (“U.S. GAAP”), such as the FASB, SEC, banking regulators and
Valley’s independent
registered public accounting firm, 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.
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. Conversely, a decrease in the market quoted price of such securities
will result in a decrease in the liability recorded for the debentures with an offsetting non-cash gain recognized in
earnings. We recognized non-cash gains of $1.3 million ($816 thousand after taxes) during 2011 as compared to
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 determined by
the market price of the trust preferred securities. The non-cash gains and 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.
An increase in bank failures could increase our FDIC assessments and adversely affect our results of
operations and financial condition.
The economic downturn since 2008 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.
25
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 estimated assessment fees
totaling $45.5 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 required to recognize losses on certain financial transactions due to the credit default or
liquidation 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.
We may be unable to adequately manage our liquidity risk, which could affect our ability to meet our
obligations as they become due, capitalize on growth opportunities, or pay regular dividends on our
common stock.
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 on our common stock 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 have a detrimental
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.
The loss of or decrease in lower-cost funding sources within our deposit base may adversely impact our net
interest income and net income.
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
26
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 comparatively lower cost source of funds,
increasing its funding costs and reducing Valley’s net interest income and net income.
If our subsidiaries are unable to make dividends and distributions to us, we may be unable to make dividend
payments to our common shareholders or interest payments on our junior subordinated debentures issued
to capital trusts.
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.
Our market share and income may be adversely affected by our inability to successfully compete against
larger and more diverse financial service providers.
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 may lose market share and its income generated from
loans, deposits, and other financial products may decline.
title agencies, asset managers,
Future offerings of common stock, debt or other securities may adversely affect the market price of our
stock and dilute the holdings of existing shareholders.
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 and debt securities. Upon 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, mergers and acquisitions involve a number of additional risks and challenges,
including:
•
Potential exposure to asset quality issues or unknown contingent liabilities of the banks, businesses,
assets and liabilities we acquire;
27
• 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.
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. Additionally, 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.
Loans acquired in our FDIC-assisted transactions may not be covered by the loss-sharing agreements if the
FDIC determines that we have not adequately managed these agreements, which could require a reduction
in the carrying value of these loans.
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. At December 31, 2011, our FDIC loss-share receivable totaled $74.4
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 implement our growth strategies could cause us to incur substantial costs and
expenses which may not be recouped and adversely affect our future profitability.
Although our de novo branching activities were insignificant in 2011, over the past several years we have
implemented a conservative de novo branch strategy to expand our physical presence in Brooklyn and Queens, as
well as add locations within our New Jersey and Manhattan markets. We may also expand our branch network
into markets outside of these areas. Effective January 1, 2012, we acquired State Bancorp headquartered in Long
Island, New York (See Note 2 to the consolidated financial statements). Valley has opened a combined total of
13 branch locations within Brooklyn and Queens since starting its initiative in these new markets during 2007.
Additionally, the 2012 acquisition of State Bancorp added 16 branches in Nassau, Suffolk, Queens, and
Manhattan. Valley’s ability to successfully execute in these markets depends upon a variety of factors, including
the continued availability of desirable business
its ability to attract and retain experienced personnel,
28
opportunities and locations, the competitive responses from other financial institutions in the new market areas,
and the ability to manage growth. These initiatives, specifically non-acquisition related de novo branch activity,
could cause Valley’s expenses to increase faster than revenues. Valley can provide no assurances that it will
successfully implement or continue these initiatives.
There are considerable initial and on-going costs related to de novo 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.
We may not keep pace with technological change within the financial services industry, negatively affecting
our ability to remain competitive and profitable.
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
in technological
operations. Many of Valley’s competitors have substantially greater resources to invest
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.
We rely on our systems, employees and certain service providers, and if our system fails or if our security
measures are compromised, our operations could be disrupted or the data of our customers could be
improperly divulged.
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.
29
We may also be subject to disruptions of our systems arising from events that are wholly or partially beyond
our control (including, for example, electrical or telecommunications outages), which may give rise to losses in
service to customers and to financial loss or liability. Furthermore, many other financial institutions and
companies engaged in data processing have reported significant breaches in the security of their websites or other
systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access
to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the
introduction of computer viruses or malware, cyber attacks and other means. Although to date we have not
experienced any material losses relating to such cyber attacks or other information security breaches, there can be
no assurance that we will not suffer such losses in the future. Additionally, our risk exposure to security matters
may remain elevated or increase in the future due to, among other things, the increasing size and prominence of
Valley in the financial services industry, our expansion of Internet and mobile banking tools and products based
on customer needs, and the system and customer account conversions associated with the integration of merger
targets (including State Bancorp, Inc.). 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 internal controls, (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.
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 ability to conduct
our business.
A significant portion of our primary markets is 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. Many areas in Northern New Jersey in which our branches operate are subject to severe
flooding and significant weather related disruptions may become common events in the future. 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 and regularly test 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 which could have a material
adverse effect on our financial condition and results of operations.
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 ability to use or sell
30
the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect
to existing laws may increase our exposure to environmental 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.
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,
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 8,200 individual residential mortgages totaling
approximately $1.5 billion. During this same period, we have received only 11 loan repurchase requests. The
majority of the repurchases occurred during 2011 with several loans being subsequently re-sold at a premium. As
of December 31, 2011, no reserves pertaining to loans sold were established on our financial statements. While
we currently believe our
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.
repurchase risk remains low based upon our careful
Claims and litigation pertaining to our fiduciary responsibility could result in losses and damage to our
reputation.
From time to time as part of Valley’s normal course of business, customers and former employees 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 211 retail banking centers locations, with 167 in northern and central New
Jersey and 44 in the New York City metropolitan area. We own 96 of our banking center facilities. The other
facilities are leased for various terms. Additionally, we have two 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 2012.
31
The following table summarizes our retail banking centers in New Jersey and the New York City
metropolitan area:
Number of
banking centers % of Total
New Jersey:
Northern . . . . . . . . . . . . . . . . . . . . . . .
Central . . . . . . . . . . . . . . . . . . . . . . . . .
New York:
Manhattan . . . . . . . . . . . . . . . . . . . . . .
Brooklyn . . . . . . . . . . . . . . . . . . . . . . .
Queens . . . . . . . . . . . . . . . . . . . . . . . .
Long Island . . . . . . . . . . . . . . . . . . . . .
74
93
16
8
7
13
35%
44
8
4
3
6
Total
. . . . . . . . . . . . . . . . . . . . . .
211
100%
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. We also lease a
residential mortgage loan production office in Bethlehem, Pennsylvania.
The total net book value of our premises and equipment (including land, buildings, leasehold improvements
and furniture and equipment) was $265.5 million at December 31, 2011. 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.
32
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14.22
13.96
14.13
12.83
$12.50
12.79
9.57
10.00
$0.17
0.17
0.17
0.17
$14.38
15.42
14.29
13.86
$11.70
12.88
11.74
11.87
$0.17
0.17
0.17
0.17
Year 2011
Year 2010
High
Low
Dividend
High
Low
Dividend
There were 8,516 shareholders of record as of December 31, 2011.
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 the “Liquidity”
section of our MD&A of this Annual Report. In addition, under the terms of the trust preferred securities issued by
our capital trusts, 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.
33
Performance Graph
The following graph compares the cumulative total return on a hypothetical $100 investment made on
December 31, 2006 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
12/06
12/07
12/08
12/09
12/10
12/11
12/06
12/07
12/08
12/09
12/10
12/11
$ 100.00 $ 78.43 $ 91.32 $ 71.17 $ 79.64 $ 76.46
56.55
100.00
98.76
100.00
78.05
105.49
63.56
66.47
49.53
84.06
59.63
96.74
s
r
a
l
l
o
D
160
140
120
100
80
60
40
Valley
KBW 50
S&P 500
34
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, 2011:
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, 2011 to October 31, 2011 . . . . . .
November 1, 2011 to November 30, 2011 . .
December 1, 2011 to December 31, 2011 . .
—
36,963(2)
549(2)
$ —
11.84
11.82
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,512
—
—
—
—
3,916,633
3,916,633
3,916,633
(1) On January 17, 2007, Valley publicly announced its intention to repurchase up to 4.5 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, 2011.
(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.
35
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,
2011
2010
2009
2008
2007
(in thousands, except for share data)
Summary of Operations:
Interest income—tax equivalent basis (1) . . . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
679,901 $
199,013
682,402 $
214,060
717,411 $
262,870
735,153 $
308,895
Net interest income—tax equivalent basis (1) . . . . . . . . . . . .
Less: tax equivalent adjustment . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . .
480,888
6,077
474,811
53,335
468,342
5,590
462,752
49,456
454,541
5,227
449,314
47,992
426,258
5,459
420,799
28,282
731,188
343,322
387,866
6,181
381,685
11,875
Net interest income after provisions for credit
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
421,476
413,296
401,322
392,517
369,810
Non-interest income:
Net impairment losses on securities recognized in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading gains (losses), 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 . . . . . . . . . . . . .
(19,968)
2,271
426
129,568
112,297
12,759
—
323,829
336,588
197,185
63,532
133,653
—
(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
Net income available to common stockholders . . . . . . . . . . $
133,653 $
131,170 $
96,537 $
91,501 $
(17,949)
7,399
16,051
83,527
89,028
1,003
2,310
250,599
253,912
204,926
51,698
153,228
—
153,228
Per Common Share (2):
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible book value (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
0.79 $
0.79
0.69
7.44
5.45
0.78 $
0.78
0.69
7.64
5.61
0.61 $
0.61
0.72
7.43
5.53
0.61 $
0.61
0.70
6.86
4.80
1.05
1.05
0.68
6.51
5.11
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,928,460 169,112,901 159,259,476 150,995,804 146,176,683
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,929,590 169,121,584 159,260,230 151,078,917 146,609,570
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,244,507 $ 14,143,826 $ 14,284,153 $ 14,718,129 $ 12,748,959
8,423,557
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,091,004
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
949,060
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
0.94%
10.20
13.80
9.19
6.67
57.33
87.34
0.93%
10.32
13.97
9.00
6.90
57.34
88.89
10,050,446
9,232,923
1,363,609
9,268,081
9,547,285
1,252,854
9,241,091
9,363,614
1,295,205
9,665,839
9,673,102
1,266,248
11.44%
13.18
9.10
10.92%
12.75
8.07
10.94%
12.91
8.31
10.64%
12.54
8.14
1.25%
16.43
21.17
7.58
5.94
53.94
65.35
9.55%
11.35
7.62
See Notes to the Selected Financial Data that follow.
36
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 20, 2011, 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:
2011
2010
2009
2008
2007
At December 31,
Common shares outstanding . . .
170,174,314
Shareholders’ equity . . . . . . . . .
Less: Preferred stock . . . . .
Less: Goodwill and other
intangible assets . . . . . . .
Tangible common shareholders’
equity . . . . . . . . . . . . . . . . . . .
Tangible book value per
common share . . . . . . . . . . . .
$
$
$
1,266,248
—
338,780
927,468
5.45
$
$
$
(in thousands, except for share data)
168,669,163
169,533,626
156,307,194
1,295,205
—
$
1,252,854
—
$
1,363,609
291,539
343,541
320,729
321,100
951,664
$
932,125
$
750,970
5.61
$
5.53
$
4.80
145,680,247
$
$
$
949,060
—
204,547
744,513
5.11
(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,
2011
2010
2009
2008
2007
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 133,653
$ 131,170
($ in thousands)
$ 116,061
$
93,591
$153,228
Average shareholders’ equity . . . . . . . . . . . . . .
1,310,939
1,270,778
1,342,790
1,071,358
932,637
Less: Average goodwill and other
intangible assets . . . . . . . . . . . . . . . . . .
342,122
331,667
319,756
262,613
208,797
Average tangible shareholders’ equity . . . . . . .
$ 968,817
$ 939,111
$1,023,034
$ 808,745
$723,840
Return on average tangible shareholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.80%
13.97%
11.34%
11.57%
21.17%
37
(5)
Tangible common shareholders’ equity to tangible assets, which is a non-GAAP measure, is computed by
dividing tangible shareholders’ equity (shareholders’ equity less preferred stock, and less goodwill and other
intangible assets) by tangible assets, as follows:
2011
2010
2009
2008
2007
At December 31,
($ in thousands)
Tangible common shareholders’
equity . . . . . . . . . . . . . . . . . . . . . . . .
$
927,468
$
951,664
$
932,125
$
750,970
$
744,513
Total assets . . . . . . . . . . . . . . . . . . . . .
14,244,507
14,143,826
14,284,153
14,718,129
12,748,959
Less: Goodwill and other
intangible assets . . . . . . . . . . . .
338,780
343,541
320,729
321,100
204,547
Tangible assets . . . . . . . . . . . . . . . . . .
$13,905,727
$13,800,285
$13,963,424
$14,397,029
$12,544,412
Tangible common shareholders’
equity to tangible assets . . . . . . . . .
6.67%
6.90%
6.68%
5.22%
5.94%
(6)
The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total
non-interest income.
38
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 severe decline in the general economic conditions of New Jersey and the New York Metropolitan
area;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
declines in value in our investment portfolio, including additional other-than-temporary impairment
charges on our investment securities;
higher than expected increases in our allowance for loan losses;
higher than expected increases in loan losses or in the level of nonperforming loans;
unexpected changes in interest rates;
higher than expected tax rates, including increases resulting from changes in tax laws, regulations and
case law;
a continued or unexpected decline in real estate values within our market areas;
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 that 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;
39
•
•
•
•
•
•
•
•
our inability to promptly adapt to technological changes;
our internal controls and procedures may not be adequate to prevent losses;
claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters;
the inability to realize expected cost savings and revenue synergies from the merger of State Bancorp
with Valley in the amounts or in the timeframe anticipated;
costs or difficulties relating to the integration of State Bancorp’s systems might be greater than
expected;
inability to retain State Bancorp’s customers and employees;
lower than expected cash flows from covered loan pools 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 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.
40
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.
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 $133.8 million at December 31, 2011.
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 $9.4 million and increased $10.6 million, respectively, at December 31, 2011.
41
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, 2011.
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 $2.1 million, while if each non-classified credit were rated one grade better there would be no
change in the level of the allowance as of December 31, 2011. 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 $6.4 million, respectively, at December 31, 2011.
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, 2011,
such allowances were 5.7 percent of the total allowance. If such allowances were ten percent higher or lower, the
total allowance would have increased or decreased by $772 thousand, respectively, at December 31, 2011.
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 or loss. 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 $20.0 million, $4.6 million, and
$6.4 million, in 2011, 2010, and 2009, 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
including goodwill and other intangible assets, at fair value as of the
acquiree in purchase acquisitions,
acquisition date, and expense all acquisition related costs as incurred as required by ASC Topic 805, “Business
Combinations.” Goodwill totaling $318.0 million at December 31, 2011 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 $20.8 million at December 31, 2011 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
42
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
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, 2011, the impact of a five percent impairment charge would result in a reduction in net income of
approximately $16.9 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, 2011, 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.
43
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.
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
Annual Results. Net income totaled $133.7 million, or $0.79 per diluted common share, for the year ended
December 31, 2011 compared to $131.2 million in 2010, or $0.78 per diluted common share. (All common share
data is adjusted to reflect a five percent common stock dividend issued on May 20, 2011). The increase in net
income was largely due to: (i) 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, (ii) a 23 percent increase in non-interest income resulting primarily
from increased gains on sales of investment securities, post-acquisition date increases in our FDIC loss-share
receivable, and an increase in net trading gains mainly due to higher non-cash mark to market gains on our junior
subordinated debentures carried at fair value, partially offset by (iii) an increase in other-than-temporary
impairment charges mainly due to the impairment of securities related to one trust preferred security issuer,
higher advertising expense related to the successful promotion of our low one-price residential mortgage
refinance program, as well as increases in professional and legal fees and other non-interest expense due, in part,
to additional expenses related to our acquisition of State Bancorp (completed on January 1, 2012) and OREO and
other expenses related to assets acquired in the FDIC-assisted acquisitions. See the “Net Interest Income,” “Non-
Interest Income,” and “Non-Interest Expense” sections below for more details on the items above impacting our
2011 annual results.
Recent Development. In January 2012, we completed our acquisition of State Bancorp, Inc. and its
principal subsidiary, State Bank of Long Island, a commercial bank with approximately $1.6 billion in assets and
16 branches located in Nassau, Suffolk, Queens and Manhattan. We believe our expansion into this attractive
area of the Long Island market should provide many additional lending, retail, and wealth management service
opportunities to further strengthen our New York Metropolitan operations and grow the Valley Brand in 2012.
State Bank of Long Island was immediately merged into Valley National Bank with full integration of its
systems completed during the first quarter of 2012. See additional details in Note 2 to the consolidated financial
statements.
Economic Overview and Indicators. The 2011 economy reflected sluggish growth and low consumer
confidence for most of the year due to several factors, including, but not limited to, persistently high U.S.
unemployment, U.S. budget deficit and credit downgrading concerns (including Standard and Poor’s downgrade
of the U.S. credit rating in August 2011), the impact of Japan’s tsunami and nuclear disaster on the automobile
sector during the second quarter of 2011, the continual slide in existing home prices and the European Union’s
sovereign debt crisis threatening the future health of the global markets. Unemployment, one of the primary
economic deterrents to our ability to sustain loan growth and asset quality, ranged from a high of 9.0 percent in
January 2011 to a low of 8.1 percent in April 2011 for the majority of our primary markets (including northern
New Jersey and the New York City Metropolitan area), and remained at an elevated level of 8.2 percent in
December 2011. From a national perspective, U.S. unemployment fell to 8.3 percent in January 2012, the lowest
level since early 2009.
44
Despite the promising decrease reflected in U.S. unemployment figure released in January 2012, various other
indicators make it more difficult to assess the overall state of the economic recovery and where it may be headed in
2012. It should be noted that the number of individuals who are underemployed (only work part-time, but would
prefer full-time work) or have stopped looking for employment remains at a very high level. Many economists
believe the economy is fundamentally weak, as personal incomes did not grow in most regions of the U.S. during
2011 and consumer spending was still restrained through year end. The percentage of consumers with new
bankruptcies and foreclosures in New Jersey and New York also remained at historically high levels as last reported
during the fourth quarter of 2011, but were moderately better compared to one year ago. Additionally, 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 January 2012, the Federal Reserve indicated that the anticipated economic
conditions will likely warrant these exceptionally low levels for the federal funds rate through late 2014. We believe
a low-rate, high unemployment environment, which is reflective of our current operating environment, will continue
to challenge our business operations and results in many ways during 2012 and the foreseeable future, as
highlighted throughout the remaining MD&A discussion below.
The following economic indicators are just a few of many factors that may be used to assess the market
conditions in our primary markets of northern and central New Jersey and the New York City metropolitan area.
Generally, market conditions have improved from one year ago, however as outlined above, economic
uncertainty, persistent unemployment, slumping home prices, as well as high vacancy rates may continue to put
pressure on the performance of some borrowers and the level of new loan demand within our area.
For the Month Ended
December 31,
2011
September 30,
2011
June 30,
2011
March 31,
2011
December 31,
2010
Key Economic Indicators:
Unemployment rate:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York Metro Region* . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . .
8.50%
8.20%
9.00%
8.00%
9.10%
8.30%
9.20%
8.00%
9.20%
8.60%
9.50%
8.00%
8.80%
8.40%
9.30%
8.00%
9.40%
8.10%
9.10%
8.20%
Three Months Ended
December 31,
2011
September 30,
2011
June 30,
2011
March 31,
2011
December 31,
2010
($ in millions)
Personal income:
New Jersey . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . .
New consumer bankruptcies:
New Jersey . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . .
Change in home prices:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York Metro Region* . . . . . . . . . . . .
New consumer foreclosures:
New Jersey . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . .
Rental vacancy rates:
NA
NA
NA
NA
NA
NA
NA
NA
New Jersey . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . .
10.80%
6.30%
$468,039
$975,882
$467,394
$974,882
$463,495
$972,127
$453,049
$946,566
0.10%
0.09%
0.10%
0.72%
0.07%
0.06%
9.50%
7.40%
0.17%
0.12%
3.60%
0.01%
0.06%
0.06%
7.90%
6.40%
0.17%
0.10%
-4.20%
-2.10%
0.12%
0.07%
6.70%
5.90%
0.18%
0.11%
-3.60%
-2.80%
0.20%
0.09%
8.10%
7.00%
NA—not available
* As reported by the Bureau of Labor Statistics for the NY-NJ-PA Metropolitan Statistical Area.
Sources: Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve Bank of New York, S&P
Indices, and the U.S. Census Bureau.
45
Loans. Non-covered loans (i.e., loans not subject to loss-sharing agreements with the FDIC) increased
$518.7 million, or 5.8 percent, to approximately $9.5 billion at December 31, 2011 as compared December 31,
2010. The residential mortgage loan portfolio contributed $360.2 million to the increase from 2010 mainly
because of our mortgage refinance program fueled, in part, by the low level of market interest rates throughout
2011, and our reduction of the amount of mortgage loans originated for sale during the year. During 2011, we
originated approximately $1.2 billion in new and refinanced residential mortgage loans and retained 69 percent
of these loans in our loan portfolio as compared to $977 million and 62 percent, respectively, in 2010. A
significant portion of the mortgage loans retained for investment in 2011 were used to offset a $234.6 million
decline in our holdings of certain residential mortgage-backed securities, mainly issued by Freddie Mac and
Fannie Mae, as we sold many securities which we believed had an increase in prepayment risk during 2011. The
commercial real estate loan portfolio, exclusive of construction loans, was another bright spot for Valley during
2011, as the portfolio grew by $195.8 million, or 5.8 percent, to $3.6 billion at December 31, 2011 compared to
one year ago primarily due to our stronger business emphasis on co-op and multifamily loan lending in our
primary markets. Commercial and industrial loans totaling $1.9 billion at December 31, 2011 were relatively flat
as compared to December 31, 2010, exclusive of a $37.0 million short-term loan to State Bancorp (used to
repurchase all of State’s Series A Preferred Stock issued under the Treasury’s Capital Purchase Program prior to
being acquired by Valley in 2012). Soft loan demand caused by the slow economic recovery coupled with strong
competition for quality credits continued to challenge our ability to achieve significant commercial loan growth
during 2011. Automobile, home equity and construction loans declined throughout 2011 due to several factors,
including the challenging economic environment and the level of our credit underwriting standards. These factors
may continue to constrain the levels of our loan originations within these categories during the first quarter of
2012 and the foreseeable future.
Total covered loans (i.e., loans subject to our loss-sharing agreements with the FDIC) decreased to $271.8
million, or 2.8 percent of our total loans, at December 31, 2011 as compared to $356.7 million, or 3.8 percent of
total loans, at December 31, 2010 mainly due to normal payment activity. See further details on our loan
activities, including the covered loan portfolio, under the “Loan Portfolio” section below.
Asset Quality. Given the current weakened economy, unemployment and the higher delinquency rates
reported throughout the banking industry, we believe our loan portfolio’s credit performance remained at an
acceptable level at December 31, 2011. Total loans past due in excess of 30 days decreased 0.08 percent to 1.69
percent of our total loan portfolio of $9.8 billion as of December 31, 2011 compared to 1.77 percent of total loans
at December 31, 2010 mainly due to loan growth during 2011 and a slight decline in past due loans as compared
to 2010 caused by a decrease in the 30 to 89 days past due loan category for all loan types. However, non-accrual
loans increased $19.2 million to $124.3 million, or 1.27 percent of total loans at December 31, 2011 as compared
to $105.1 million, or 1.12 percent of total loans at December 31, 2010. The increase was mostly due to a higher
level of non-accrual commercial and industrial loans and commercial real estate loans caused, in part, by two
loan relationships totaling $15.4 million added to non-accrual status during the fourth quarter of 2011. 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 and
we remain optimistic regarding the overall future performance of our loan portfolio. However, due to the
potential for future credit deterioration caused by the unpredictable direction of the economy and high levels of
unemployment, management cannot provide assurance that our non-performing assets will remain at the levels
reported as of December 31, 2011. See the “Non-performing Assets” section below for further analysis of our
credit quality.
Investments. During the year ended December 31, 2011, we recognized net gains on securities transactions
of $32.1 million as compared to $11.6 million in 2010 mainly due to the sale of $578.1 million in certain
residential mortgage-backed securities issued by Ginnie Mae and government sponsored enterprises classified as
available for sale. As previously noted, we reduced our holdings of many residential mortgage-backed securities
with increased prepayment risk, as well as reduced our credit risk related to these issuers. Other-than-temporary
impairment charges attributable to credit totaled $20.0 million in 2011. Of the $20.0 million impairment charge,
46
$19.1 million was recognized in earnings during the fourth quarter of 2011 mostly due to the impairment of trust
preferred securities issued by one bank holding company deferring interest on such securities. After the credit
impairment charges, the trust preferred securities had a combined adjusted amortized cost of $46.4 million and a
fair value of $23.5 million at December 31, 2011. Subsequent to the impairment analysis, we no longer had a
positive intent to hold these securities to their maturity due to the significant deterioration in the securities’ value
caused by the credit of the issuer. However, we do plan on holding these securities until they recover in value
above their present value. Accordingly, we transferred the securities from held to maturity to the available for
sale portfolio at December 31, 2011. See further details regarding these impaired securities in the “Investment
Securities Portfolio” section below and Note 4 to the consolidated financial statements.
Deposits and Other Borrowings. The mix of total deposits continued to shift away from time deposits to
the other deposit categories during 2011 due to the low level of rates that we offered on certificates of deposit
during the year and the maturity of higher cost time deposits. See further discussion of our average interest
bearing liabilities under the “Net Interest Income” section below. In November and December 2011, we modified
the terms of $435 million in FHLB advances within our long-term borrowings at December 31, 2011. The
modifications resulted in a reduction of the interest rate on these funds, an extension of their maturity dates to 10
years from the date of modification, and a conversion of the advances to non-callable for periods ranging from 3
to 4 years. We similarly modified the terms of an additional $150 million in FHLB advances during January
2012. After the modifications, the weighted average interest rate on these borrowings declined by 0.86 percent to
3.99 percent. There were no gains, losses, penalties, or fees incurred in the modification transactions.
Operating Environment. The financial markets continue to work through a period marked by
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.
Annual Period 2011. The net interest margin was 3.75 percent, for the year ended December 31, 2011, an
increase of 6 basis points compared to 2010. As a continuation of 2010, our 2011 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, if renewed, also repriced at
lower interest rates. Additionally, lower rates on customer repos balances mostly contributed to a 9 basis point
decline in the cost of short-term borrowings during 2011. A $134.5 million increase in average earning assets,
mainly caused by residential mortgage and commercial real estate loan growth, contributed to the increase in net
interest income during 2011. Offsetting some of the positive impact of the lower costs of funds and higher loan
averages, the yield on average earning assets decreased by 7 basis points to 5.31 percent for 2011 as compared to
the prior year. The decline in yield continued during all of 2011 as new assets repriced at lower market interest
rates. The level of interest rates remained low during 2011 due to, in part, the Federal Reserve’s continued efforts
to support the U.S. economic recovery 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. Additionally, our fourth quarter of 2011 net
interest income and net interest margin declined from the third quarter of 2011 mainly driven by lower yields on
47
average taxable investments and loans, as well as a decline in average taxable investment balances in the fourth
quarter. See further discussion in the “Fourth Quarter 2011” section below of our net interest margin and certain
measures taken by Valley at year-end and the first quarter of 2012 to help counteract the negative impact of the
prolonged low level of interest rates.
Net interest income on a tax equivalent basis increased $12.5 million to $480.9 million for 2011 compared
with $468.3 million for 2010. During 2011, a 13 basis point decline in interest rates paid on average interest
bearing liabilities, lower average interest bearing liabilities, and higher average loan balances positively impacted
our net interest income, but were partially offset by a 22 basis point decline in the yield on average total
investments and a 3 basis point decline in the yield on average loans as compared to 2010. Market interest rates
on interest bearing deposits continued to trend lower in 2011 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 2011. Additionally, average
non-interest bearing deposit balances increased $183.1 million to $2.6 billion for 2011 as compared to 2010 as
many borrowers shifted balances from interest bearing accounts or were less apt to move these deposits to other
investment alternatives due to the low level of interest rates. Our cost of total deposits declined to 0.70 percent
for 2011 as compared to 0.79 percent for 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 3.20 percent in 2010 to 2.76 percent in
2011, negatively impacting our yield on average loans as new and renewed fixed-rate loans were originated at
lower interest rates in 2011. 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, in the unlikely event that the prime
rate begins to move upward in 2012, 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
income on
approximately $1.0 billion of our residential mortgage-backed securities with unamortized purchase premiums
totaling $42.9 million could improve if and when 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.
Conversely, increases in the prepayment speeds due to declining interest rates will increase the amount of
premium amortization expense recognized against interest income related to these securities (as we experienced
during the fourth quarter of 2011).
level above the U.S. prime rate. Additionally,
interest
Average loans totaling $9.6 billion for the year ended December 31, 2011 increased $133.5 million as
compared to 2010 mainly due to increases in our residential mortgage and commercial real estate loan portfolios.
The increase in average loan balances during 2011, partially offset by a 3 basis point decline in yield on such
loans, contributed to a $4.4 million increase in interest income on a tax equivalent basis for loans for the year
ended December 31, 2011 compared with 2010. Average investment securities decreased only $3.5 million in
2011. However, principal repayments on higher yielding securities and securities sold totaled $1.4 billion during
2011 and were mostly reinvested in residential mortgage-backed securities issued by Ginnie Mae and municipal
securities classified as held to maturity. The 2011 reinvestments in the mortgage-backed securities and other
taxable securities at low current market rates partially offset by higher yielding municipal security purchases,
primarily lead to a $6.8 million decrease in interest income on a tax equivalent basis for investment securities as
compared to 2010.
Average interest bearing liabilities decreased $79.6 million to $10.3 billion for the year ended December 31,
2011 from the same period in 2010 mainly due to the maturity of higher cost time deposits and long-term FHLB
advances. Partially offsetting these decreases was an increase in average savings, NOW, and money market
48
account balances as compared to 2010 mainly due to additional retail deposits generated from our 21 de novo
branches opened over the last four year period and other existing branches as household savings appeared to
remain strong during 2011. The cost of time deposits, and short-term borrowings and long-term borrowings
decreased 16, 9, and 7 basis points, respectively, during 2011 due to the low level of market interest rates
throughout the year and, as applicable, the aforementioned maturity of higher cost funds. Additionally, we expect
that maturing higher cost time deposits will continue to have some benefit to our interest margin in the first
quarter of 2012.
The net interest margin on a tax equivalent basis was 3.75 percent for the year ended December 31, 2011
compared with 3.69 percent for the year ended December 31, 2010. 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 loan balances, partially offset by lower yields on average investments and loans. The yield on average
interest earning assets decreased 7 basis points while average interest rates paid on interest bearing liabilities
decreased 13 basis points causing a 6 basis point increase in our net interest margin as compared to the year
ended December 31, 2010.
Fourth Quarter 2011. Net interest income on a tax equivalent basis was $120.1 million for the fourth
quarter of 2011, a $3.6 million decrease from the third quarter of 2011. The linked quarter decrease was mainly
driven by lower yields on average taxable investments and loans caused by the historically low interest rate
environment, as well as a $130.2 million decline in average taxable investment balances for the fourth quarter of
2011. Average taxable investment balances declined due to normal repayment activity on higher yielding
securities (including accelerated premium amortization on certain mortgage-backed securities) and lower
reinvestment in new securities. Alternatively, we used the security repayments to fund higher yielding loan
growth and maintained additional excess balances in overnight interest bearing deposits with correspondent
banks, primarily the Federal Reserve Bank of New York. Interest income on loans declined during the fourth
quarter mainly due to lower rates on refinanced loans and a decrease in both loan prepayment fees and interest
recoveries on non-accrual loans.
The net interest margin on a tax equivalent basis was 3.74 percent for the fourth quarter of 2011, a decrease
of 12 basis points from 3.86 percent in the linked third quarter of 2011. The yield on average interest earning
assets decreased by 17 basis points on a linked quarter basis mainly as a result of lower yields on both average
taxable investments and loans caused by the activity described above. The cost of average interest bearing
liabilities declined three basis points from the third quarter of 2011 mainly due to a $197.3 million decline in
average time deposits caused principally by maturing deposits that were not renewed by customers due to lower
rates offered on most of our certificates of deposit products. The maturing deposits contributed to a seven basis
point decrease in the cost of the average time deposits during the fourth quarter of 2011. During the fourth
quarter of 2011, net interest income on a tax equivalent basis decreased $3.6 million and the net interest margin
declined 12 basis points when compared with the third quarter of 2011.
We believe our margin may continue to face the risk of compression into the foreseeable future due to the
current low level of interest rates on most interest earning asset alternatives combined with the repricing risk related
to large percentage of our interest earning assets with short durations (see the “Interest Rate Sensitivity Analysis”
table below). Additionally, our interest income on loans may increase or decrease each period due to prospective
yield adjustments resulting from unexpected changes in the actual cash flows from covered loans pools (see
discussion under the “Covered Loans” section below). However, we continue to tightly manage our balance sheet
and our cost of funds to optimize our returns. During the fourth quarter of 2011, we continued to reduce the interest
rates on many of our deposit products, including time deposits, and we were able to lower the interest rates paid on
certain modified long-term FHLB borrowings as previously discussed in the “Executive Summary” section above.
We have yet to fully realize the benefits of these recent reductions. Although we cannot make any guarantees as to
the potential future benefits to our net interest margin, we believe these actions and other asset/liability strategies
will partially temper the negative impact of the current interest rate environment. The acquisition and assumption of
financial assets and liabilities in connection with the acquisition of State Bancorp on January 1, 2012 is expected to
have a positive, but immaterial impact on our net interest margin for the first quarter of 2012.
49
The following table reflects the components of net interest income for each of the three years ended
December 31, 2011, 2010 and 2009:
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
2011
2010
2009
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
($ in thousands)
Assets
Interest earning assets:
Loans (1)(2)
Taxable investments (3)
Tax-exempt investments (1)(3)
Federal funds sold and other interest
. . . . . . . . . . . . . . . . . . . . . . $ 9,608,480 $547,371
114,784
17,344
. . . . . . . . . . . .
. . . . . . .
2,615,140
429,004
5.70% $ 9,474,994 $543,017
123,021
2,641,869
4.39
15,948
405,730
4.04
5.73% $ 9,705,909 $561,265
2,700,744 140,305
4.66
14,896
3.93
272,520
5.78%
5.20
5.47
bearing deposits . . . . . . . . . . . . . . . .
161,612
402
Total interest earning assets . . . . . . . .
12,814,236 679,901
0.25
5.31
157,163
416
12,679,756
682,402
0.26
5.38
352,473
945
13,031,646
717,411
0.27
5.51
Allowance for loan losses . . . . . . . . . .
Cash and due from banks . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on securities
available for sale, net . . . . . . . . . . . .
(136,432)
366,159
1,209,732
16,594
Total assets . . . . . . . . . . . . . . . . . . . . . $14,270,289
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Savings, NOW and money market
(110,776)
310,908
1,225,837
13,505
$14,119,230
(99,716)
249,877
1,113,420
(17,270)
$14,277,957
deposits . . . . . . . . . . . . . . . . . . . . . . $ 4,399,031 $ 19,876
48,291
Time deposits . . . . . . . . . . . . . . . . . . .
2,728,354
0.45% $ 4,171,782 $ 19,126
55,798
2,897,793
1.77
0.46% $ 3,836,709 $ 24,894
93,403
3,325,800
1.93
0.65%
2.81
Total interest bearing deposits . . . . . . .
Short-term borrowings . . . . . . . . . . . .
Long-term borrowings (4) . . . . . . . . . . .
7,127,385
192,392
2,964,555
68,167
1,154
129,692
Total interest bearing liabilities . . . . . .
10,284,332 199,013
0.96
0.60
4.37
1.94
7,069,575
194,587
3,099,807
74,924
1,345
137,791
10,363,969
214,060
1.06
0.69
4.45
2.07
7,162,509
270,776
118,297
4,026
3,152,515 140,547
10,585,800
262,870
1.65
1.49
4.46
2.48
Non-interest bearing deposits . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . .
2,611,207
63,811
1,310,939
Total liabilities and shareholders’
2,428,089
56,394
1,270,778
2,251,784
97,583
1,342,790
equity . . . . . . . . . . . . . . . . . . . . . . . $14,270,289
$14,119,230
$14,277,957
Net interest income/interest rate
spread (5)
. . . . . . . . . . . . . . . . . . . . .
Tax equivalent adjustment
. . . . . . . . .
Net interest income, as reported . . .
Net interest margin (6)
. . . . . . . . . . . . .
Tax equivalent effect . . . . . . . . . . . . . .
Net interest margin on a fully tax
equivalent basis (6) . . . . . . . . . . . . . .
480,888
3.37%
468,342
3.31%
454,541
3.03%
(6,077)
$474,811
(5,590)
$462,752
(5,227)
$449,314
3.71%
0.04
3.75%
3.65%
0.04
3.69%
3.45%
0.04
3.49%
(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.
50
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,
2011 Compared to 2010
2010 Compared to 2009
Change
Due to
Volume
Change
Due to
Rate
Total
Change
Change
Due to
Volume
Change
Due to
Rate
Total
Change
(in thousands)
$ 7,618
(1,234)
932
$(3,264) $ 4,354
(8,237)
(7,003)
1,396
464
$(13,266) $ (4,982) $(18,248)
(17,284)
(14,281)
1,052
(4,930)
(3,003)
5,982
Interest income:
Loans* . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable investments . . . . . . . . . . . . . . . . .
Tax-exempt investments* . . . . . . . . . . . . .
Federal funds sold and other interest
bearing deposits . . . . . . . . . . . . . . . . . .
12
(26)
(14)
(517)
(12)
(529)
Total increase (decrease) in interest
income . . . . . . . . . . . . . . . . . . . . . . . . .
7,328
(9,829)
(2,501)
(10,804)
(24,205)
(35,009)
Interest expense:
Savings, NOW and money market
deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . .
Long-term borrowings and junior
1,030
(3,152)
(15)
(280)
(4,355)
(176)
750
(7,507)
(191)
2,028
(10,923)
(924)
(7,796)
(26,682)
(1,757)
(5,768)
(37,605)
(2,681)
subordinated debentures . . . . . . . . . . . .
(5,942)
(2,157)
(8,099)
(2,344)
(412)
(2,756)
Total decrease in interest expense . . . . . .
(8,079)
(6,968)
(15,047)
(12,163)
(36,647)
(48,810)
Increase (decrease) in net interest
income . . . . . . . . . . . . . . . . . . . . . . . . .
$15,407
$(2,861) $ 12,546
$ 1,359
$ 12,442
$ 13,801
* Interest income is presented on a fully tax equivalent basis using a 35 percent federal tax rate.
51
Non-Interest Income
The following table presents the components of non-interest income for the years ended December 31, 2011,
2010, and 2009:
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 gains (losses), net:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures carried at fair value . . . . . . . . . . . . . . . . . .
Total trading gains (losses), 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2011
2010
2009
$
7,523
15,627
22,610
32,068
(19,968)
(in thousands)
$ 7,665
11,334
25,691
11,598
(4,642)
$ 6,906
10,224
26,778
8,005
(6,352)
1,015
1,256
2,271
4,337
10,699
426
7,380
13,403
15,921
(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
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112,297
$91,327
$ 72,251
Non-interest income represented 14 percent and 12 percent of total interest income plus non-interest income
for 2011 and 2010, respectively. For the year ended December 31, 2011, non-interest income increased $21.0
million compared with 2010 mainly due to increases in the net gains on securities transactions, net trading gains
and other income recognized for the change in the FDIC loss-share receivable due to post-acquisition items,
partially offset by an increase in other-than-temporary impairment charges recognized in earnings during 2011.
Insurance commissions increased $4.3 million for the year ended December 31, 2011 as compared to 2010
mainly due to additional commissions generated from our subsidiary’s insurance agency asset acquisition during
December 2010. See Note 2 to the consolidated financial statements for more details on this business
combination.
Service charges on deposit accounts decreased $3.1 million to $22.6 million for 2011 as compared to 2010
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 by the Federal Reserve in July 2010.
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. Many of our customers did “opt in” to our standard overdraft practice
since the rule took effect, which helped partially mitigate the negative impact of this rule change on our service
charge fees. However, we can provide no assurance that the change in regulation will not reduce our ability to
generate these fees in future periods.
Net gains on securities transactions increased $20.5 million to $32.1 million for the year ended
December 31, 2011 as compared to $11.6 million for 2010. The increase was mainly due to gains on the sale of
certain residential mortgage-backed securities issued by Ginnie Mae and government sponsored enterprises
totaling $320.7 million and $257.4 million, respectively, classified as available for sale during 2011. We elected
to sell these securities based on a total rate of return analysis for each security based on their increased risk of
52
accelerated prepayment due to the low level of market interest rates and the U.S. Government’s modification and
extension of the Home Affordable Refinance Program (“HARP”) program designed to allow certain qualifying
borrowers with low home values to refinance their mortgages. Additionally, the sales of the Freddie Mac and
Fannie Mae residential mortgage-backed securities reduced our exposure to these government sponsored
enterprises, and allowed us to reinvest the net proceeds mainly in Ginnie Mae mortgage-backed securities, which
are fully guaranteed by the U.S. Government and do not require related regulatory capital to be held by our bank
subsidiary.
Net
impairment
losses on securities increased $15.3 million to $20.0 million for the year ended
December 31, 2011 as compared to $4.6 million in 2010 primarily due to the impairment of trust preferred
securities issued by one bank holding company during the fourth quarter of 2011. See the “Investment Securities
Portfolio” section of this MD&A and Note 4 to the consolidated financial statements for further details on our
investment securities impairment analysis and the other than temporarily impaired securities impacting the net
impairment losses on securities reflected in the table above.
Net trading gains and losses primarily 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
gains increased $9.2 million to a gain of $2.3 million for the year ended December 31, 2011 as compared to a
$6.9 million loss for 2010 mainly due to the non-cash mark to market adjustments on our trust preferred
debentures carried at fair value. See Note 3 to the consolidated financial statements for a full description of the
valuation techniques that were used to mark to market our trading securities and debentures carried at fair value.
Net gains on sales of loans decreased $1.9 million to $10.7 million during the year ended December 31,
2011 as compared to $12.6 million in gains recognized during 2010. The decrease was primarily due to a total
gain of $3.9 million recognized on the sale of approximately $83 million of conforming residential mortgage
loans 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 low level of
market interest rates. Additionally, we elected to hold a greater percentage of our mortgage loan originations for
investment purposes rather than selling them in the secondary market during 2011, reducing our ability to
generate gains on sales of loans during the period. See further discussion of our 2011 residential mortgage loan
origination activity under “Loans” in the executive summary section of this MD&A above.
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 completed 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. Within the non-interest income category, we may recognize income or expense
related to the change in the FDIC loss-share receivable resulting from (i) a change in the estimated credit losses
on the pools of covered loans, (ii) income from reimbursable expenses incurred during the period, (iii) accretion
of the discount resulting from the present value of the receivable recorded at the acquisition dates, and
(iv) prospective recognition of decreases in the receivable attributable to better than originally expected cash
flows on certain covered loan pools. Valley recognized approximately $13.4 million and $6.3 million in
non-interest income for the years ended December 31, 2011 and 2010, respectively, largely due to additional
estimated credit losses on the covered loan pools during both periods. See “FDIC Loss-Share Receivable Related
to Covered Loans and Foreclosed Assets” section below in this MD&A and Note 5 to the consolidated financial
statements for further details.
In June 2011, the FRB approved a final debit card interchange rule that caps an issuer’s base fee at 21 cents
per transaction and allows an additional 5 basis point charge per transaction to help cover fraud losses. The FRB
also approved an interim final rule that allows a fraud prevention adjustment of 1 cent per transaction
conditioned upon an issuer adopting effective fraud prevention policies and procedures. The final and interim
final rules on the pricing and routing restrictions, commonly referred to as the “Durbin Amendment,” became
53
effective on October 1, 2011. Other non-interest income includes debit card interchange fees of approximately
$5.1 million for the year ended December 31, 2011 as compared to $5.8 million for 2010. During the fourth
quarter of 2011, our debit card interchange fees declined $880 thousand as compared to the third quarter of 2011
mainly due to the implementation of the Durbin Amendment rules. Although debit card interchange fees vary
based on our customer activity levels, we expect the new regulation to reduce such fees by $3.0 million to $3.5
million on an annual basis.
See the “Results of Operations—2010 Compared to 2009” section later in this MD&A for the discussion
and analysis of changes in our non-interest income from 2009 to 2010.
Non-Interest Expense
The following table presents the components of non-interest expense for the years ended December 31,
2011, 2010, and 2009:
Salary and employee benefits expense . . . . . . . . . . . . .
Net occupancy and equipment expense . . . . . . . . . . . .
FDIC insurance assessment . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets . . . . . . . . . . . .
Professional and legal fees . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2011
$176,307
64,364
12,759
9,315
15,312
8,373
50,158
2010
(in thousands)
$176,106
61,765
13,719
7,721
10,137
4,052
44,182
2009
$163,746
58,974
20,128
6,887
7,907
3,372
45,014
Total non-interest expense . . . . . . . . . . . . . . . . . .
$336,588
$317,682
$306,028
Non-interest expense increased $18.9 million to $336.6 million for the year ended December 31, 2011 from
$317.7 million for 2010. The increase in 2011 was mainly attributable to increases in professional and legal fees,
other non-interest expense, advertising expense, and net occupancy and equipment expense.
Net occupancy and equipment expense increased $2.6 million to $64.4 million for the year ended
December 31, 2011 as compared to $61.8 million for 2010. The increase was mainly due to higher seasonal
maintenance and building repairs mostly during the first quarter of 2011, higher depreciation expense and
additional expenses related to one de novo branch opened in 2011, partially offset by the expense reductions
related to the closure of five branch offices located in New Jersey during 2011 and the full year cost savings
related to the closure of five of seven branches acquired in FDIC-assisted transactions in the second quarter of
2010. The customer service for the closed branches was transferred to existing Valley branches within very close
proximity of each location.
Amortization of other intangible assets primarily consists of amortization related to loan servicing rights
(largely generated from loan servicing that we retained on residential mortgage loan originations sold to Freddie
Mac and Fannie Mae); amortization of core deposits, customer lists and covenants not to compete obtained
through acquisitions; and net impairment charges or recoveries related to valuation allowances established for
certain stratified groups of loan servicing rights (See Notes 1, 8 and 9 to the consolidated financial statements for
more information). Amortization of other intangible assets increased by $1.6 million in 2011 largely due to the
recognition of $1.5 million in impairment charges, net of recoveries, on certain loan servicing rights during 2011
as compared to $551 thousand during 2010. Additionally, the 2011 period includes $416 thousand of additional
amortization mainly related to customer lists and covenants not to compete acquired by the Bank’s insurance
subsidiary in an agency asset acquisition during December 2010. See Note 2 to the consolidated financial
statements for more details on this 2010 acquisition.
54
Professional and legal fees increased $5.2 million during 2011 as compared to 2010. This increase was
mainly due to general increases in legal expenses related to assets acquired in the two FDIC-assisted transactions
in March 2010, $1.6 million in fees related to our acquisition of State Bancorp completed on January 1, 2012, as
well as increases from other general corporate matters during 2011.
Advertising expense increased $4.3 million to $8.4 million for the year ended December 31, 2011 as
compared to $4.1 million in 2010 mainly due to our expanded use of television and radio ad campaigns to
promote better name recognition throughout our primary markets, as well as our residential mortgage refinance
programs by state. We expect advertising expense to remain elevated in the future periods as we continue to
promote Valley and our lending operations, including our one price residential mortgage refinance programs in
New Jersey, New York and Pennsylvania.
Other non-interest expense increased $6.0 million for the year ended December 31, 2011 from $44.2 million
in 2010 partly due to general increases in several items within this category and a $1.5 million increase in other
real estate owned (“OREO”) expenses and other expenses related to assets acquired in the two FDIC-assisted
transactions. The increase was also related to the valuation write downs of $479 thousand and $838 thousand
relating to a repossessed aircraft and an OREO commercial property, respectively, in 2011.
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
City boroughs of Manhattan, Brooklyn and Queens. We opened three de novo branches during the past two
years, excluding the branches acquired in the FDIC-assisted transactions. Also in 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, 2011 was 57.33 percent and remained
relatively unchanged as compared to 2010. 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.
See the “Results of Operations—2010 Compared to 2009” section below for the discussion and analysis of
changes in our non-interest expense from 2009 to 2010.
Income Taxes
Income tax expense was $63.5 million for the year ended December 31, 2011, reflecting an effective tax rate
of 32.2 percent, compared with $55.8 million for the year ended December 31, 2010, reflecting an effective tax
rate of 29.8 percent. The effective tax rate increased by 2.4 percent as compared to 2010 largely due to a
one-time tax provision of $8.5 million related to a change in state tax law during the second quarter of 2011,
partially offset by our increased investment in additional tax credits during 2011.
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 quarter in which it occurs, rather than being
recognized as a change in effective tax rate for the current year. Our adherence to these tax guidelines may result
in volatile effective income tax rates in future quarterly and annual periods. Factors that could impact
management’s judgment include changes in income, tax laws and regulations, and tax planning strategies. For
2012, we anticipate that our effective tax rate will approximate 32 percent.
55
Business Segments
lending,
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. 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 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 21 to the consolidated financial statements for segments’ financial data.
Consumer lending. This segment is mainly comprised of residential mortgage loans, home equity loans and
automobile loans. The duration of the residential mortgage loan portfolio, which including covered loans
represented 23.5 percent of our loan portfolio at December 31, 2011, is subject to movements in the market level
of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans
(representing 7.9 percent of total loans at December 31, 2011) is relatively unaffected by movements in the
market level of interest rates. However, the average life may be impacted by new loans as a result of the
availability of credit within the automobile marketplace and consumer demand for purchasing new or used
automobiles.
Average interest earning assets in this segment increased $73.0 million to approximately $3.4 billion for the
year ended December 31, 2011 as compared to 2010. The increase was mainly due to the strong growth in our
non-covered residential mortgage loans caused by the sustained low level of market interest rates during 2011,
our aggressive promotion of our mortgage refinance programs, and our decision to hold for investment many of
our new loan originations rather than sell them into the secondary market based on the current yields available on
other investment alternatives and the composition of our balance sheet. The increase in residential mortgage
loans was partially offset by lower automobile and home equity loan balances which have declined throughout
most of the past two years for several reasons, including the weak economy, high unemployment, and strong
competition for quality loan credits.
Income before income taxes generated by the consumer lending segment decreased $13.1 million to $51.2
million for the year ended December 31, 2011 as compared to 2010. The decrease was mainly a result of declines
totaling $6.7 million and $5.1 million in non-interest income and net interest income, respectively, in 2011. Net
interest income decreased due to the negative impact of the lower yields on new and renewed loans during 2011
despite being partially offset by the positive impact of higher average loan balances and a decrease in our cost of
funds. Additionally, non-interest expense and internal transfer expense increased $7.1 million and $2.0 million,
respectively, during 2011 as compared to 2010. The negative impact of these items was partially offset by a $7.8
million decline in the provision for loan losses as compared to year ended December 31, 2010 due, in part, to
lower levels of loan charge-offs caused by our high underwriting standards, as well a strong used car market in
2011 supporting repossessed auto valuations coupled with the aforementioned declines in automobile and home
equity loan portfolios.
The net interest margin for the segment decreased 23 basis points to 3.66 percent for 2011 as a result of a 36
basis point decrease in interest yield on average loans due to the sustained low level of market interest rates,
partially offset by a 13 basis point decrease in cost associated with our funding sources. The decrease in our cost
56
of funds was mainly due to the maturity of higher cost time deposits and long-term FHLB advances, and lower
interest rates on all renewed time deposits and other interest bearing deposits outstanding during 2011.
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 business segment that is most
sensitive to movements in market interest rates. Commercial and industrial loans, including $83.7 million of
covered loans, totaled approximately $2.0 billion and represented 20.0 percent of the total loan portfolio at
December 31, 2011. Commercial real estate loans and construction loans, including $167.6 million of covered
loans, totaled $4.2 billion and represented 42.4 percent of the total loan portfolio at December 31, 2011.
Average interest earning assets in this segment increased $60.5 million to $6.2 billion for the year ended
December 31, 2011 as compared to 2010. This increase mainly reflects higher commercial real estate loan
volumes due to our increased emphasis on co-op and multifamily loan lending in our markets, as well as a
moderate increase in loan demand from our existing commercial customers as compared to year ended
December 31, 2010.
For the year ended December 31, 2011, income before income taxes for the commercial lending segment
increased $16.2 million to $110.1 million compared to 2010 primarily due to increases in net interest income and
non-interest income, partially offset by an increase in the provision for loan losses and non-interest expense.
Higher average loan balances, increased yields on loans, and a lower cost of funds all contributed to a $27.7
million increase in net interest income as compared to the 2010 period. The provision for loan losses increased
$11.7 million during 2011 largely due to a $15.1 million increase in the provision for covered loans caused by
additional estimated credit losses on certain covered loan pools acquired in the FDIC-assisted transactions during
March 2010, as well as higher loan charge-offs primarily in the non-covered commercial real estate portfolio.
Non-interest income increased approximately $9.1 million to $17.0 million for 2011 as compared to $7.9 million
for 2010 mainly due to an $8.0 million increase in income related to post acquisition adjustments to our FDIC
loss-share receivable based on the experience of our covered loan pools. See additional information in Note 5 to
the consolidated financial statements.
The net interest margin for this segment increased 40 basis points to 4.64 percent during 2011 mainly as a
result of a 27 basis point increase in the yield on average loans and a 13 basis point decrease in the cost of our
funding sources as compared to 2010. The return on average interest earning assets before income taxes was 1.77
percent for 2011 compared to 1.53 percent for the prior year period.
Investment management. The investment management segment generates a large portion of our income
through investments in various types of securities. These securities are 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), as part of our asset/liability management
strategies.
The fixed rate investments are one of Valley’s assets that are least sensitive assets to changes in market
interest rates. However, a sizeable portion of the investment portfolio is invested in shorter-duration securities to
maintain the overall asset sensitivity of our balance sheet (see the “Asset/Liability Management” section below
for further analysis). 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.
Average investments remained relatively unchanged during 2011 as compared with the same period one
year ago. Principal repayments on higher yielding securities and securities sold during 2011 were mostly
reinvested in residential mortgage-backed securities issued by Ginnie Mae and municipal securities classified as
held to maturity.
57
For the year ended December 31, 2011, income before income taxes for the investment management
segment decreased $9.2 million to $42.1 million compared to $51.3 million for the same period of 2010 primarily
due to a $10.1 million decline in net interest income, partially offset by a $1.2 million increase in non-interest
income. The segment’s net interest income was negatively impacted by normal principal paydowns and sales of
certain higher yielding securities mostly replaced with lower yielding residential mortgage-backed securities and
other taxable securities which were only partially offset by higher yielding municipal security purchases.
The net interest margin for the segment decreased 32 basis points to 2.72 percent during the year ended
December 31, 2011 as compared to the same period one year ago as a result of a 45 basis point decrease in the
yield on investments, partially offset by a 13 basis point decrease in the cost associated with our funding sources.
The return on average interest earning assets before income taxes was 1.31 percent for 2011 compared to 1.60
percent for the prior year period.
Corporate and other adjustments. The amounts disclosed as “corporate and other adjustments” represent
income and expense items not directly attributable to a specific segment, including net 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 certain
subordinated notes, as well as income and expense from derivative financial instruments.
The pre-tax net loss for the corporate segment decreased $16.5 million to $6.1 million for the year ended
December 31, 2011 from a $22.6 million for the same period one year ago driven by a $17.4 million increase in
non-interest income. The increase in non-interest income was mainly due to an increase in net gains on securities
transactions and net trading gains. Net gains on securities transactions increased $20.5 million largely due to the
sale of certain residential mortgage-backed securities issued by Ginnie Mae and government sponsored
enterprises with increased prepayment risk during 2011. Net trading gains increased approximately $9.2 million
primarily due to the effect of the mark to market valuation of our junior subordinated debentures carried at fair
value and our small portfolio of trading securities. The positive effect of these items was partially negated by a
$15.3 million increase in net
losses on securities primarily related to other-than-temporary
impairment charges on trust preferred securities issued by one bank holding company. See the “Investment
Securities Portfolio” section of this MD&A and Note 4 to the consolidated financial statements for further
details.
impairment
58
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, 2011. 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, 2011. 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, 2011. Although the size of Valley’s balance sheet is forecasted to remain static as of December 31,
2011 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 2011. The model utilizes an immediate parallel
shift in the market interest rates at December 31, 2011.
The following table reflects management’s expectations of the change in our net interest income over the
next twelve- month period in light of the aforementioned assumptions:
Changes in Interest Rates
(in basis points)
+200
+100
-100
Estimated Change in
Future Net Interest Income
Dollar
Change
$
11,463
3,758
(774)
($ in thousands)
Percentage
Change
2.65%
0.87
(0.18)
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 interest rates to optimize the net interest
in response to actual or potential changes in interest rates.
income, while structuring the balance sheet
income is impacted by the level of competition within our marketplace.
Additionally, our net
interest
59
Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits,
which may result in 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 on 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 an increase in interest rates under a scenario with an
immediate parallel change in the level of market interest rates than a decrease in interest rates under the same
assumptions. A 100 basis point immediate increase in interest rates is projected to moderately increase net
interest income over the next twelve months by 0.87 percent. Our lack of balance sheet sensitivity to such a move
in interest rates, is slightly lower 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. Due to
its current level above the U.S. prime rate, the Valley prime rate is not projected to increase under the 100 basis
points immediate increase scenario in our simulation. 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 have 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 cash flow
hedge interest rate caps with a $300 million notional value, which protect us from upward increases in interest
rates on certain deposits and short-term borrowings. During the third quarter of 2011, two of the cash flow hedge
interest rate swaps with a notional amount of $200 million began to pay fixed and receive floating rates. The
other two swaps totaling $100 million will begin to pay fixed and receive floating rates in July 2012. The floating
rate leg of the transaction is indexed to the U.S. prime rate as reported by The Wall Street Journal. Additionally,
we utilize interest rate swaps at times to effectively convert fixed rate loans and deposits to floating rate
instruments. Most of these actions are expected to benefit our net interest income in a rising interest rate
environment. However, due to the current low level of interest rates, the strike rate of these instruments, and the
forward effective date applicable to the swaps, the cash flow hedge interest rate caps and swaps are expected to
have little immediate impact over the next twelve month period on our net interest income. See Note 15 to the
consolidated financial statements for further details on our derivative transactions.
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were
outstanding at December 31, 2011 and their associated fair values. The expected cash flows are categorized
based on each financial instrument’s anticipated maturity or interest rate reset date in each of the future periods
presented.
60
INTEREST RATE SENSITIVITY ANALYSIS
Rate
2012
2013
2014
2015
2016
Thereafter Total Balance Fair Value
($ in thousands)
Interest sensitive assets:
Interest bearing deposits with
banks . . . . . . . . . . . . . . . . . . . . 0.25% $
6,483 $
— $
— $ — $ — $
— $
6,483 $
6,483
Investment securities held to
maturity . . . . . . . . . . . . . . . . . . 3.89
705,072
285,720
171,346
99,661
53,644
643,473
1,958,916
2,027,197
Investment securities available
for sale . . . . . . . . . . . . . . . . . . . 4.34
Trading securities . . . . . . . . . . . . 8.23
Loans held for sale . . . . . . . . . . . 3.83
Loans . . . . . . . . . . . . . . . . . . . . . . 5.21
242,103
—
25,169
4,178,972
75,291
—
—
1,573,448
50,222
—
—
1,097,059
29,071
—
—
801,697
14,202
—
—
644,984
155,631
21,938
—
1,503,481
566,520
21,938
25,169
9,799,641
566,520
21,938
25,169
9,779,319
Total interest sensitive assets . . . . 4.35% $5,157,799 $1,934,459 $1,318,627 $930,429 $712,830 $2,324,523
Interest sensitive liabilities:
Deposits:
$12,378,667 $12,426,626
Savings, NOW and money
market
. . . . . . . . . . . . . . . 0.29% $1,497,456 $ 845,008 $ 845,008 $400,883 $200,441 $ 601,325
191,944
—
1,857,599
154,307
261,530
—
—
— 400,000
1,470,791
212,849
28,000
166,276
—
414,500
256,536
—
26,000
$ 4,390,121 $ 4,390,121
2,557,119
215,179
3,154,150
2,501,384
212,849
2,726,099
Time . . . . . . . . . . . . . . . . . . . 1.68
Short-term borrowings . . . . . . . . 0.25
Long-term borrowings . . . . . . . . . 4.00
Junior subordinated
debentures . . . . . . . . . . . . . . . . 7.65
—
—
—
—
—
185,598
185,598
186,098
Total interest sensitive
liabilities . . . . . . . . . . . . . . . . . 1.78% $3,209,096 $1,127,544 $1,106,538 $955,190 $781,217 $2,836,466
$10,016,051 $10,502,667
Interest sensitivity gap . . . . . . . . .
$1,948,703 $ 806,915 $ 212,089 $ (24,761) $ (68,387) $ (511,943) $ 2,362,616 $ 1,923,959
Ratio of interest sensitive assets
to interest sensitive
liabilities . . . . . . . . . . . . . . . . .
1.61:1
1.72:1
1.19:1
0.97:1
0.91:1
0.82:1
1.24:1
1.18:1
The above table provides an approximation of the projected re-pricing of assets and liabilities at
December 31, 2011 on the basis of contractual maturities, adjusted for anticipated prepayments of principal
(including anticipated call dates on long-term borrowings and junior subordinated debentures), and scheduled
rate adjustments. 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. For non-maturity deposit liabilities, in accordance with standard industry practice and our historical
experience, we used prepayment and decay rates 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, 2011 was a positive $1.9 billion, representing a ratio
of interest sensitive assets to interest sensitive liabilities of 1.61:1. Current market prepayment speeds and balance sheet
management strategies implemented throughout 2011 have allowed us to maintain our asset sensitivity level reported
in the table above comparable to December 31, 2010. 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,
2011. 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, 2011 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.
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
61
and to take advantage of interest rate opportunities in the marketplace. Liquidity management is monitored by
our Asset/Liability Management Committee and the Investment Committee of the Board of Directors of Valley
National Bank (the “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.
The Bank has no required regulatory liquidity ratios to maintain; however, it adheres to an internal liquidity
policy. The current 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 deposit $100 thousand and over, federal funds
purchased, repurchase agreements and FHLB advances) greater than 50 percent of total assets. The Bank was in
compliance with the foregoing policies at December 31, 2011.
On the asset side of the balance sheet, the Bank has 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 that are maturing within 90 days or would otherwise qualify as maturities
if sold (i.e., 85 percent of original cost basis has been repaid ), investment securities available for sale, trading
securities, loans held for sale, and, from time to time, federal funds sold and receivables related to unsettled
securities transactions. These liquid assets totaled approximately $1.2 billion, representing 9.80 percent of
earning assets, at December 31, 2011 and $1.6 billion, representing 12.6 percent of earning assets, at
December 31, 2010. The decrease in liquid assets in 2011 is largely due to the reduction in the investment
securities available for sale portfolio during 2011. Of the $1.2 billion of liquid assets at December 31, 2011,
approximately $389 million of various investment securities were pledged to counterparties to support our
earning asset funding strategies. We anticipate the receipt of approximately $687 million in principal from
securities in the total investment portfolio during 2012 due to normally scheduled principal repayments and
expected prepayments of certain securities, primarily residential mortgage-backed securities.
Additional
liquidity is derived from scheduled loan payments of principal and interest, as well as
prepayments received. Loan principal payments (including loans held for sale at December 31, 2011) are
projected to be approximately $3.5 billion over the next twelve months. As a contingency plan for significant
funding needs, liquidity could also be derived from the sale of conforming residential mortgages from our loan
portfolio, or 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 $8.6 billion
and $8.3 billion for the years ended December 31, 2011 and 2010, respectively, representing 67.0 percent and
65.8 percent of average earning assets at December 31, 2011 and 2010, 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,
2011:
Less than three months . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three to six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six to twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
More than twelve months . . . . . . . . . . . . . . . . . . . . . . . . .
2011
(in thousands)
$ 226,835
155,267
211,947
479,674
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,073,723
62
Additional funding may be provided from short-term liquidity borrowings through deposit gathering
networks and 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, management
believes that we could borrow approximately $1.0 billion for a short time from these banks on a collective basis.
The Bank is also a member of the Federal Home Loan Bank of New York and has the ability to borrow from
them in the form of FHLB advances secured by pledges of certain eligible collateral, including but not limited to
U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien
mortgage loans, consisting of both residential mortgage and commercial real estate loans. Furthermore, we are
able to obtain overnight borrowings from the Federal Reserve Bank via the discount window as a contingency for
additional liquidity. At December 31, 2011, our borrowing capacity under the Fed’s discount window was
approximately $880 million.
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”). Our short-term borrowings increased $20.5 million to
$212.8 million at December 31, 2011 as compared to $192.3 million at December 31, 2010 mainly as a result of
an increase in repos. At December 31, 2011, all short-term repos represent customer deposit balances being
swept into this vehicle overnight.
The following table sets forth information regarding Valley’s short-term repos at the dates and for the years
ended December 31, 2011, 2010, and 2009:
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 . . . . . . . . . . . . . . .
$177,232
212,849
212,849
$184,021
186,633
183,295
$203,585
215,182
206,542
0.45%
0.25
0.72%
0.47
0.91%
0.67
2011
2010
2009
($ in thousands)
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 the Bank, along with cash flows from investment securities held
at the holding company. 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. 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.
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 or redeem its callable junior subordinated
debentures issued to VNB Capital Trust I, 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 or loss, net of tax. Available for sale securities are not considered trading account securities, but rather
63
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 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, 2011, our investment portfolio was comprised of U.S Treasury securities, U.S.
government agencies,
issues of states and political subdivisions, residential mortgage-backed
securities (including 17 private label mortgage-backed securities), single-issuer trust preferred securities
principally issued by bank holding companies (including 3 pooled securities), corporate bonds (most of which
were purchased prior to the financial crisis in 2008 and 2009) 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 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 economic conditions and its potential
negative effect on the future performance of the security issuers and, if applicable, the underlying mortgage loan
collateral of the security.
Investment securities at December 31, 2011, 2010, and 2009 were as follows:
2011
2010
2009
(in thousands)
Held to maturity
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 100,018
433,284
1,180,104
193,312
52,198
$ 100,161
387,280
1,114,469
269,368
52,715
$
—
313,360
936,385
281,836
52,807
Total investment securities held to maturity (amortized cost) . . . . .
$1,958,916
$1,923,993
$1,584,388
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
90,748
20,214
310,137
63,858
39,610
$ 276,285
—
33,411
940,505
36,412
19,042
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
524,567
41,953
987,474
47,808
1,305,655
46,826
Total investment securities available for sale (fair value)
. . . . . . . .
$ 566,520
$1,035,282
$1,352,481
Trading
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total trading securities (fair value) . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
21,938
21,938
$
$
31,894
31,894
$
$
32,950
32,950
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,547,374
$2,991,169
$2,969,819
64
As of December 31, 2011, our investment securities classified as available for sale decreased $468.8 million
to $566.5 million as compared to December 31, 2010. The decrease was mainly driven by sales of certain
residential mortgage-backed securities issued by Ginnie Mae and government sponsored enterprises totaling
$320.7 million and $257.4 million, respectively, as well as maturities and sales of all U.S Treasury securities
classified as available for sale that were previously held at December 31, 2010. During 2011, many of the
residential mortgage-backed securities were sold due to increased prepayment risk that may result from the low
level of mortgage interest rates and the U.S. Government’s modification and extension of the HARP program
through December 31, 2013. The HARP program is designed to allow many homeowners to refinance into low
mortgage interest rates even if their property has decreased in value, and to help bolster the economic recovery.
The HARP program was also extended until December 31, 2013. Additionally, we continued to lower our
exposure to Freddie Mac and Fannie Mae during 2011, as it is an asset class we are currently not interested in
maintaining, and increased our holdings of residential mortgage-backed securities issued by Ginnie Mae, which
are fully guaranteed by the U.S. Government.
At December 31, 2011, we had $1.2 billion and $310.1 million of residential mortgage-backed securities
classified as held to maturity and available for sale securities, respectively. Approximately 97 percent and 57
percent of these residential mortgage-backed securities, respectively, were issued and guaranteed by Ginnie Mae.
The residential mortgage-backed securities also include $2.6 million and $72.7 million of private label mortgage-
backed securities classified as held to maturity and available for sale, respectively. The remainder of our
outstanding residential mortgage-backed security balances at December 31, 2011 was issued by either Freddie
Mac or Fannie Mae.
Our trading securities portfolio consisted of 3 and 4 single-issuer bank trust preferred securities at
December 31, 2011 and 2010, respectively. During 2011, one trading security was called for early redemption.
65
The following table presents the maturity distribution schedule with its corresponding weighted-average
yields of held to maturity and available for sale debt securities at December 31, 2011:
0-1 year
1-5 years
5-10 years
over 10 years
Total
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
($ in thousands)
Held to maturity (1)
U.S. Treasury securities . . . . . . . .
Obligations of states and political
subdivisions (3) . . . . . . . . . . . . .
Residential mortgage-backed
securities (4)
. . . . . . . . . . . . . . .
Trust preferred securities . . . . . . .
Corporate and other debt
securities . . . . . . . . . . . . . . . . .
$ —
— % $ —
— % $ 66,597
3.25% $
33,421
3.70% $ 100,018
3.40%
129,498
2.12
16,555
5.27
107,653
5.30
179,578
5.26
433,284
4.33
—
—
—
—
12
—
10.50
—
10,157
—
4.62
—
1,169,935
193,312
3.12
6.94
1,180,104
193,312
3.13
6.94
25
6.55
28,191
5.87
15,000
8.50
8,982
7.39
52,198
6.88
Total . . . . . . . . . . . . . . . . . . . . . . .
$129,523
2.12% $44,758
5.65% $199,407
4.82% $1,585,228
3.86% $1,958,916
3.89%
Available for sale
U.S. government agency
securities . . . . . . . . . . . . . . . . .
Obligations of states and political
subdivisions (3) . . . . . . . . . . . . .
Residential mortgage-backed
securities (4)
. . . . . . . . . . . . . . .
Trust preferred securities . . . . . . .
Corporate and other debt
securities . . . . . . . . . . . . . . . . .
$ —
— % $ —
— % $ 55,681
1.43% $
35,067
3.34% $
90,748
2.17%
455
5.59
1,748
7.45
15,371
2.08
2,640
13.71
20,214
4.14
105
—
6.97
—
4,132
—
6.08
—
45,165
—
5.11
—
260,735
63,858
4.17
1.84
310,137
63,858
4.34
1.84
—
—
802
2.72
26,209
4.83
12,599
4.68
39,610
4.74
Total (5) . . . . . . . . . . . . . . . . . . . . .
$
560
5.85% $ 6,682
6.03% $142,426
3.29% $ 374,899
3.78% $ 524,567
3.68%
(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
66
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.
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 or loss. The total other-than-temporary impairment loss is presented
in the statement of income, less the portion recognized in other comprehensive income or loss. 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 loss. 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, Valley
considers several factors that include, but are not limited to the following:
• The severity and duration of the decline, including the causes of the decline in fair value, such as credit
problems, interest rate fluctuations, or market volatility;
• Adverse conditions specifically related to the security, an industry, or geographic area;
•
Failure of the issuer of the security to make scheduled interest or principal payments;
• Any changes to the rating of the security by a rating agency or, if applicable, any regulatory actions
impacting the security issuer;
• Recoveries or additional declines in fair value after the balance sheet date;
• 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. See “Other-Than-Temporary Impairment
Analysis” section of Note 4 to the consolidated financial statements for additional information regarding our
quarterly impairment analysis by security type.
67
The investment grades in the table below reflect the most current independent analysis performed by third
parties of each security as of the date presented and not necessarily the investment grades at the date of our
purchase of the securities. 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.
The following table presents the held to maturity and available for sale investment securities portfolios by
investment grades at December 31, 2011:
Amortized
Cost
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Held to maturity
Investment grades*
AAA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,406,207 $71,324
11,690
AA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,226
A Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,868
BBB Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Non-investment grade . . . . . . . . . . . . . . . . . . . . . . . . . .
812
Not rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,572
49,212
148,969
19,464
174,492
$
(161) $1,477,370
172,261
50,339
153,693
13,102
160,432
(1)
(99)
(3,144)
(6,362)
(14,872)
Total investment securities held to maturity . . . . . $1,958,916 $92,920
$(24,639) $2,027,197
Available for sale
Investment grades*
AAA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 319,374 $12,777
1,183
AA Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,141
A Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
666
BBB Rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,185
Non-investment grade . . . . . . . . . . . . . . . . . . . . . . . . . .
476
Not rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,303
43,425
74,103
80,823
68,809
$
(243) $ 331,908
13,485
34,796
63,472
76,543
46,316
(1)
(9,770)
(11,297)
(5,465)
(22,969)
Total investment securities available for sale . . . . $ 598,837 $17,428
$(49,745) $ 566,520
* 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 investments with non-investment grade ratings with amortized costs
and unrealized losses totaling $19.5 million and $6.4 million, respectively, at December 31, 2011. The unrealized
losses for this category mostly relate to one single-issuer trust preferred security and one corporate debt security.
The held to maturity portfolio also includes $174.5 million in investments not rated by the rating agencies with
aggregate unrealized losses of $14.9 million at December 31, 2011. The unrealized losses for this category relate
mainly to 5 single-issuer bank trust preferred securities with a combined amortized cost of $45.9 million. All
single-issuer bank trust preferred and corporate debt securities classified as held to maturity, including the
aforementioned seven securities, are paying in accordance with their terms, 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 at December 31, 2011, 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.
68
The available for sale portfolio includes investments with non-investment grade ratings with amortized costs
and fair values totaling $80.8 million and $76.5 million, respectively, at December 31, 2011. The $5.5 million in
unrealized losses for this category mainly relate to 5 private label mortgage-backed securities and 2 pooled trust
preferred securities. Six of the seven securities were initially found to be other-than-temporarily impaired prior to
2011, while one of the private label mortgage-backed securities was impaired for the first time at December 31,
2011. The available for sale portfolio also includes investments not rated by the rating agencies totaling $68.8
million with aggregate unrealized losses of $23.0 million at December 31, 2011. The unrealized losses for this
category almost entirely are attributable to trust preferred securities issued by one bank holding company that
were other-than-temporarily impaired and transferred from the held to maturity portfolio to available for sale
portfolio at December 31, 2011. See the “Other-than-Temporarily Impaired Securities” section below and Note 4
to the consolidated financial statements for further details.
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 and Note 1 to the consolidated financial statements for further discussion of this policy.
The following table provides information regarding our other-than-temporary impairment
losses on
securities recognized in earnings for the years ended December 31, 2011, 2010 and 2009.
2011
2010
2009
(in thousands)
Held to maturity
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . .
$18,314
$ —
$ —
Available for sale
Residential mortgage-backed securities . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
829
825
—
2,265
2,377
—
5,735
183
434
Net impairment losses on securities recognized in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,968
$4,642
$6,352
Impaired Trust Preferred Securities. During the fourth quarter of 2011, Valley recognized credit
impairment charges totaling $18.3 million related to the trust preferred securities of two issuances by one bank
holding company, which were classified as held to maturity. In August and October of 2009, the issuer was
required to defer its scheduled interest payments on each respective security issuance based upon an operating
agreement with its bank regulators. From the dates of deferral up to and including the bank holding company’s
most recent regulatory filing, the bank issuer continued to accrue and capitalize the interest owed, but not
remitted to its trust preferred security holders, and at the holding company level it reported cash and cash
equivalents in excess of the cumulative amount of accrued but unpaid interest owed on all of its junior
subordinated debentures related to trust preferred securities. Additionally, the issuer reported that it raised new
common capital and increased all its bank regulatory risk ratios, and that it has consistently met the minimum
well-capitalized requirements (each quarter) since the date of the interest deferral on both issuances. However, in
assessing whether a credit loss exists for the securities of the deferring issuer, Valley considers numerous other
limited to, such factors highlighted in the “Other-Than-Temporary Impairment
factors,
Analysis” section above. While the issuer has reported reasonably consistent financial performance in its recent
regulatory filings, Valley lengthened its estimate of the timeframe over which it could reasonably anticipate
receiving the expected cash flows and, as a result, concluded that the securities were other-than-temporarily
impaired at December 31, 2011. The total impairment loss of $41.2 million on these securities consisted of the
aforementioned $18.3 million attributable to credit and $22.9 million attributable to factors other than credit.
including but not
69
After recognition of the credit impairment charges, the trust preferred securities had a combined amortized cost
of $46.4 million and a fair value of $23.5 million at December 31, 2011. In connection with its impairment
analysis at year end 2011, Valley determined that it no longer had a positive intent to hold these securities to their
maturity due to the significant decline in the securities’ fair value caused by the deterioration in the
creditworthiness of the issuer. As a result, these securities were transferred from the held to maturity portfolio to
the available for sale portfolio at December 31, 2011. However, 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.
The other-than-temporary impairment charges on trust preferred securities classified as available for sale
reported in the table above all relate to two pooled trust preferred securities with a combined amortized cost and
fair value of $5.4 million and $3.7 million, respectively, at December 31, 2011, after recognition of all credit
impairments. These securities were initially found to be other-than-temporarily impaired in 2008, as each of
Valley’s tranches in the securities had projected cash flows below their future contractual principal and interest
payments. Additional estimated credit losses were recognized on one or both of these securities during 2009
through 2011, as higher default rates decreased the expected cash flows from the securities.
All of the impaired trust preferred securities discussed above are not accruing interest as of December 31,
2011. As disclosed in Note 1, Valley discontinues the recognition of interest on debt securities if the securities
meet both of the following criteria: (i) regularly scheduled interest payments have not been paid or have been
deferred by the issuer, and (ii) full collection of all contractual principal and interest payments is not deemed to
be the most likely outcome, resulting in the recognition of other-than-temporary impairment of the security.
Impaired Residential Mortgage-Backed Securities. During 2011, Valley recognized an initial impairment
charge of $829 thousand on one of the 17 individual private label mortgage-backed securities classified as
available for sale at December 31, 2011. Five other private label mortgage-backed securities were impaired
during 2010. Of the five securities impaired during 2010, four were also impaired during 2009 and responsible
for the total other-than-temporary impairment losses on residential mortgage-backed securities for 2009 in the
table above. At December 31, 2011, the six impaired private label mortgage-backed securities had a combined
amortized cost of $52.3 million and fair value of $50.2 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.
Impaired Equity Securities. During the year ended December 31, 2009, Valley recognized other-than-
temporary impairment charges of $434 thousand on equity securities classified as available for sale, which relates
to one common equity security issued by a bank. 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. At December 31, 2011, the security had a carrying value of $940 thousand and
an unrealized gain of $217 thousand.
70
Loan Portfolio
The following table reflects the composition of the loan portfolio for the years indicated.
2011
2010
2009
2008
2007
At December 31,
($ in thousands)
. . . . . . . . . . . . .
$1,878,387
$1,825,066
$1,801,251
$ 1,965,372
$1,563,150
Non-covered loans
Commercial and industrial
Commercial real estate:
Commercial real estate . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . .
3,574,089
411,003
3,378,252
428,232
3,500,419
440,046
3,324,082
510,519
2,370,345
402,806
Total commercial real estate . . . . . . . . . . . .
3,985,092
3,806,484
3,940,465
3,834,601
2,773,151
Residential mortgage . . . . . . . . . . . . . . . . . .
Consumer:
2,285,590
1,925,430
1,943,249
2,269,935
2,063,242
Home equity . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . .
469,604
772,490
136,634
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
Total consumer loans . . . . . . . . . . . . . . . . .
1,378,728
1,452,160
1,685,106
2,073,782
2,096,678
Total non-covered loans . . . . . . . . . . . . . . .
9,527,797
9,009,140
9,370,071
10,143,690
8,496,221
Covered loans (1)
. . . . . . . . . . . . . . . . . . . . .
271,844
356,655
—
—
—
Total loans (2) . . . . . . . . . . . . . . . . . . . . . . . .
$9,799,641
$9,365,795
$9,370,071
$10,143,690
$8,496,221
As a percent of total loans:
Commercial and industrial
. . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . .
Covered loans . . . . . . . . . . . . . . . . . . . . . . .
19.2%
40.6
23.3
14.1
2.8
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
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
100.0%
100.0%
100.0%
(1) Covered loans primarily consist of commercial real estate loans and commercial and industrial loans.
(2)
Total loans are net of unearned discount and deferred loan fees totaling $7.5 million, $9.3 million, $8.7
million, $4.8 million, and $3.5 million at December 31, 2011, 2010, 2009, 2008, and 2007, respectively.
Non-covered Loans
Non-covered loans (loans not subject to loss-sharing agreements with the FDIC) increased $518.7 million to
$9.5 billion at December 31, 2011 from December 31, 2010. The increase was mainly attributable to growth in
residential mortgage, commercial real estate (including construction), commercial and industrial, and other
consumer loans of $360.2 million, $178.6 million, $53.3 million, and $48.0 million respectively, partially offset
by decreases of $78.3 million and $43.1 million in automobile and home equity loans, respectively.
Commercial and industrial loans increased from December 31, 2010 largely due to a $37.0 million short-
term loan to State Bancorp. The funds were used by State Bancorp to repurchase all of its Series A Preferred
Stock issued under the Treasury’s Capital Purchase Program prior to being acquired by Valley effective
January 1, 2012. The loan was subsequently eliminated at the acquisition date. Exclusive of the merger related
loan, soft loan demand for most of the year coupled with strong competition for quality credits challenged our
ability to achieve significant loan growth in this category during 2011. Additionally, many of our stronger
borrowers used their liquidity to prepay loans rather than earn nominal interest on their excess funds in the
current low interest rate environment. Although, we have seen pockets of loan growth opportunities in our
primary markets, the low level of interest rates and strong competition for quality credits may continue to
challenge the level of our organic commercial loan growth into the foreseeable future.
71
Total commercial real estate loans, including construction loans, increased from December 31, 2010 to $4.0
billion at December 31, 2011. The increase was primarily caused by our stronger focus on co-op and multifamily
loan lending in our primary markets during 2011, coupled with a slight increase in non-construction loan demand
mainly from existing borrowers. However, our construction loans continued to paydown during the year, as loan
demand has remained tepid due to the slow economic recovery and slumping new housing markets.
The increase in residential mortgage loans during 2011 was mainly due to the success of our affordable one
low price refinance program in New Jersey, as well as New York and eastern Pennsylvania. The programs’
success during the year was partly due to the low level of market interest rates and our television and radio ad
campaigns. We originated approximately $1.2 billion in new and refinanced residential mortgage loans and
retained 69 percent of these loans in our loan portfolio. A significant portion of the mortgage loans retained for
investment in 2011 were used, in part, to offset the decline in our holdings of residential mortgage-backed
securities, as we sold many securities which we believed had an increase in prepayment risk during the year. Our
decision to retain certain mortgage originations is based on credit criteria and loan to value levels, the overall
composition of our interest earning assets and interest bearing liabilities and our ability to manage the interest
rate risk associated with certain levels of these instruments.
Our total consumer loan portfolio declined $73.4 million from December 31, 2010 primarily due to the
persistent decrease in automobile and home equity loans during each quarter of 2011. The decrease in auto loans
is attributable to several factors, including our tight underwriting standards, and the high level of unemployment.
Additionally, in an attempt to build market share, some large competitors have continued to offer rates and terms
that we have elected not to match for most of 2011. The sustained decline in home equity loans was driven by
continued refinancing of first mortgages at low rates and the borrowers’ rollover of many home equity loan
balances into the new first mortgages. Additionally, home equity line of credit usage remained low during 2011
mainly due to the low level of consumer confidence in the economic recovery. The factors listed above may
continue to constrain the levels of our auto and home equity loan originations during the first quarter of 2012 and
the foreseeable future.
Despite the overall loan growth in 2011, we may not experience significant organic loan growth in many of
our loan categories during the first quarter of 2012 and beyond due to the slow economic recovery, elevated
unemployment levels, increased competition for new and existing borrowers, or a change in asset/liability
management strategy. Additionally, an unexpected increase in market interest rates (particularly on residential
mortgage loans) could impact our ability to generate the same volume of new loans.
Much of our lending is in northern and central New Jersey, New York City and Long Island, with the
exception of smaller auto and residential mortgage loan portfolios derived mainly from the neighboring state of
Pennsylvania, which could present a geographic and credit risk if there was 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 slow economic recovery, sustained elevated unemployment
levels in our region during 2011, and low interest rate environment 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.
72
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, 2011:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 517,018
655,251
53,014
102,876
$267,812
339,416
86,757
168,356
$43,614
55,276
—
—
$ 828,444
1,049,943
139,771
271,232
$1,328,159
$862,341
$98,890
$2,289,390
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 via a new appraisal from an independent, bank approved, certified or licensed property
appraiser or readily available market resources. 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 $271.8 million at December 31, 2011 as compared to $356.7 million
at December 31, 2010. Under ASC Subtopic 310-30, the covered loans were aggregated and accounted for as
pools of loans based on common risk characteristics. A pool is accounted for as one asset with a single composite
interest rate, an aggregate fair value and expected cash flows.
For loan pools accounted for under ASC Subtopic 310-30, the difference between the contractually required
payments due and the cash flows expected to be collected, considering the impact of prepayments, is referred to
as the non-accretable difference. The contractually required payments due represent the total undiscounted
amount of all uncollected principal and interest payments. Contractually required payments due may increase or
decrease for a variety of reasons, e.g. when the contractual terms of the loan agreement are modified, when
interest rates on variable rate loans change, or when principal and/or interest payments are received. The Bank
estimates the undiscounted cash flows expected to be collected by incorporating several key assumptions
including probability of default, loss given default, and the amount of actual prepayments after the acquisition
dates. The non-accretable difference, which is neither accreted into income nor recorded on our consolidated
balance sheet, reflects estimated future credit losses and uncollectable contractual interest expected to be incurred
over the life of the loans. The excess of the undiscounted cash flows expected at the acquisition date over the
carrying amount (fair value) of the covered loans is referred to as the accretable yield. This amount is accreted
into interest income over the remaining life of the loans, or pool of loans, using the level yield method. The
accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment
assumptions, and changes in expected principal and interest payments over the estimated lives of the loans.
Prepayments affect the estimated life of covered loans and could change the amount of interest income, and
possibly principal, expected to be collected.
At both acquisition and subsequent quarterly reporting dates Valley uses a third party service provider to
assist with determining the contractual and estimated cash flows. Valley provides the third party with updated
loan-level information derived from Valley’s main operating system, contractually required loan payments and
expected cash flows for each loan pool individually reviewed by Valley. Using this information, the third party
provider determines both the contractual cash flows and cash flows expected to be collected. The loan-level
information used to reforecast the cash flows is subsequently aggregated on a pool basis. The expected payment
73
data, discount rates, impairment data and changes to the accretable yield received back from the third party are
reviewed by Valley to determine whether this information is accurate and the resulting financial statement effects
are reasonable.
Similar to contractual cash flows, we reevaluate expected cash flows on a quarterly basis. Unlike contractual
cash flows which are determined based on known factors, significant management assumptions are necessary in
forecasting the estimated cash flows. We attempt to ensure the forecasted expectations are reasonable based on
the information currently available; however, due to the uncertainties inherent in the use of estimates, actual cash
flow results may differ from our forecast and the differences may be significant. To mitigate such differences, we
carefully prepare and review the assumptions utilized in forecasting estimated cash flows.
At the time of acquisition, the estimated cash flows on our covered loans were derived based on observable
market information, as well as Valley’s own specific assumptions regarding each loan. Valley performed credit
due diligence on approximately 75 percent of the loans acquired in our FDIC-assisted transactions. In addition,
Valley engaged a third party to perform credit valuations and expected cash flow forecasts on the acquired loans.
The initial expected cash flows for loans accounted for under ASC Subtopic 310-30 were prepared on a loan-
level basis utilizing the assumptions developed by Valley in conjunction with the third party. In accordance with
ASC Subtopic 310-30, the individual loan-level cash flow assumptions were then aggregated on the basis of
pools of loans with similar risk characteristics. Thereafter, on a quarterly basis, Valley analyzes the actual cash
flow versus the forecasts at the loan pool level and variances are reviewed to determine their cause. In
reforecasting future estimated cash flow, Valley will adjust the credit loss expectations for loan pools, as
necessary. These adjustments are based, in part, on actual loss severities recognized for each loan type, as well as
changes in the probability of default. For periods in which Valley does not reforecast estimated cash flows, the
prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events
which transpired during the current reporting period.
The following table summarizes the changes in the carrying amount of covered loans, net of the allowance
for losses on covered loans, and accretable yield on those loans for the years ended December 31, 2011 and 2010.
2011
2010
Carrying Amount,
Net
Accretable
Yield
Carrying Amount,
Net
Accretable
Yield
(in thousands)
Balance beginning of year . . . . . . . . . . . . . . . . . . . . .
Addition from FDIC-assisted transactions . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments received . . . . . . . . . . . . . . . . . . . . . . .
Net increase in expected cash flows . . . . . . . . . .
Transfers to other real estate owned . . . . . . . . . .
Provision for losses on covered loans . . . . . . . .
$ 350,277
—
40,345
(108,157)
—
(2,639)
(21,510)
$101,052
—
(40,345)
—
6,017
—
—
$ —
412,331
20,547
(69,929)
—
(6,294)
(6,378)
$ —
69,659
(20,547)
—
51,940
—
—
Balance end of year . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 258,316
$ 66,724
$350,277
$101,052
During 2011 and 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 provision for losses on covered loans totaling $21.5 million and $6.4 million for 2011 and 2010,
respectively, as a component of our provision of credit losses in the consolidated statement of income. The
provision for losses on covered loans was partially offset by increases in our FDIC loss-share receivable of $19.5
million and $5.1 million for 2011 and 2010, respectively, for the FDIC’s portion of the additional estimated
credit losses under the loss sharing agreements (see table in the next section below). This increase in FDIC loss-
share receivable is recorded as a component of non-interest income on the consolidated financial statements.
74
Although we recognized credit impairment for certain pools, on an aggregate basis the acquired pools of
covered loans are performing better than originally expected. Based on our current estimates, we expect to
receive more future cash flows than originally modeled at the acquisition dates. For the pools with better than
expected cash flows, the forecasted increase is recorded as a prospective adjustment to our interest income on
these loan pools over future periods. Decrease in the FDIC loss-share receivable due to the increase in expected
cash flows for these loan pools is recognized on a prospective basis over the shorter period of the lives of the
loan pools and the loss-share agreements accordingly. The prospective adjustments for FDIC loss-share
receivable amounted to $10.6 million during 2011.
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
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 dates for the two FDIC-assisted transactions, we recorded an aggregate
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. Actual or expected losses in excess of the
acquisition date estimates, accretion of the acquisition date present value discount, and other reimbursable
expenses covered by the FDIC loss-sharing agreements will result in an increase in the FDIC loss-share
receivable and the immediate recognition of non-interest income in our financial statements, together with an
increase in the non-accretable difference. A decrease in expected losses would generally result in a corresponding
decline in the FDIC loss-share receivable and the non-accretable difference. Reductions in the FDIC loss-share
receivable due to actual or expected losses that are 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.
The following table presents changes in the FDIC loss-share receivable for the years ended December 31,
2011and 2010:
Balance, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount accretion of the present value at the acquisition dates . . . . . . . . . . . . . . . . . .
Effect of additional cash flows on covered loans (prospective recognition) . . . . . . . . .
Increase due to impairment on covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursements from the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
(in thousands)
$ 89,359
—
582
(10,592)
19,520
3,893
(28,372)
$ —
108,000
1,166
—
5,102
2,561
(27,470)
Balance, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74,390
$ 89,359
Valley recognized approximately $13.4 million and $6.3 million in non-interest income for the years ended
December 31, 2011 and 2010, respectively, related to discount accretion and the post-acquisition adjustments to
the FDIC loss-share receivable included in the table above.
See Notes 2 and 5 to the consolidated financial statements for further details on our covered loans, FDIC
loss-share receivable, and the FDIC-assisted transactions.
75
Non-performing Assets
Non-performing assets (not including covered loans) include non-accrual loans, OREO, non-accrual debt
securities, and other repossessed assets, which consist of automobiles, as well as one aircraft at December 31,
2011. Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to
payment of principal or interest. Exceptions to the non-accrual policy may be permitted if the loan is well
collateralized and in the process of collection. OREO is acquired through foreclosure on loans secured by land or
real estate. OREO and other repossessed assets are reported at the lower of cost or fair value, less cost to sell at
the time of acquisition and at the lower of fair value, less estimated costs to sell, or cost thereafter. See Note 1 to
the consolidated financial statements for details about our impaired and non-accrual loan, and non-accrual debt
securities accounting policies. Given the state of the economic recovery, and relative to many of our peers, the
level of non-performing assets remained relatively low at December 31, 2011 even though it has increased
significantly since 2008 as shown in the table below.
The following tables set forth by loan category, accruing past due and non-performing assets on non-
covered loans on the dates indicated in conjunction with our asset quality ratios:
At December 31,
2011
2010
2009
2008
2007
($ in thousands)
Accruing past due loans (1)
30 to 89 days past due
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . $
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 30 to 89 days past due . . . . . . . . . . . . . . . . . . . . . . . . . .
90 or more days past due
4,347 $ 13,852 $11,949 $13,299 $ 5,839
5,233
4,539
13,115
12,047
1,834
2,652
6,486
12,462
8,496
16,210
22,835
8,975
45,815
53,619
37,585
14,563
2,804
12,682
14,638
58,539
5,005
5,456
12,189
23,275
59,224
814
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . $
1,407
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
3,154
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,592
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,495
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total 90 or more days past due . . . . . . . . . . . . . . . . . . . . . . .
8,462
Total accruing past due loans . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,601 $ 61,026 $58,744 $74,781 $54,277
12 $ 2,191 $
—
196
1,556
723
2,487
657 $
422
1,823
763
351
4,016
4,257
3,156
5,323
1,957
15,557
250
—
1,421
1,263
5,125
864 $
Non-accrual loans (1)
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . $ 26,648 $ 13,721 $17,424 $10,511 $10,931
15,940
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
833
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,693
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . .
226
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,623
Total non-accrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
609
. . . . . . . . . . . . . . . . . .
Other real estate owned (“OREO”) (2)
1,466
Other repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accrual debt securities (3)
—
. . . . . . . . . . . . . . . . . . . . . . . .
Total non-performing assets (“NPAs”) . . . . . . . . . . . . . . . . . $167,438 $117,260 $98,398 $45,668 $32,698
32,981
27,312
28,494
2,547
105,055
10,498
1,707
—
42,186
19,874
31,646
3,910
124,264
15,227
796
27,151
29,844
19,905
22,922
1,869
91,964
3,869
2,565
—
14,895
877
6,195
595
33,073
8,278
4,317
—
Performing troubled debt restructured loans . . . . . . . . . . . . . $100,992 $ 89,696 $19,072 $ 7,628 $ 8,363
Total non-accrual loans as a % of loans . . . . . . . . . . . . . . . . .
Total accruing past due and non-accrual loans as a % of
1.12% 0.98% 0.33% 0.36%
1.27%
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.69
1.77
1.61
1.06
1.00
Allowance for losses on non-covered loans as a % of
non-accrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96.79
112.63
110.90
281.93
237.29
76
(1)
(2)
(3)
Past due loans and non-accrual loans exclude loans that were acquired as part of the FDIC-assisted
transactions. These loans are accounted for on a pool basis.
This table excludes OREO properties related to the FDIC-assisted transactions totaling $6.4 million and
$7.8 million at December 31, 2011 and 2010, respectively, and is subject to the loss-sharing agreements
with the FDIC.
Includes other-than-temporarily impaired trust preferred securities classified as available for sale, which are
presented at carrying value (net of unrealized losses totaling $24.6 million) at December 31, 2011.
Total NPAs increased $50.2 million to $167.4 million at December 31, 2011 compared to $117.3 million at
December 31, 2010. The increase is mainly due to an increase in non-accrual loans and $27.2 million related to
non-accrual debt securities (consisting of other than temporarily impaired trust preferred securities classified as
available for sale—see additional information at the “Investment Securities Portfolio” section of this MD&A).
Approximately 75 percent of the total non-accrual loans are comprised of commercial real estate, construction
and residential mortgage loans. Although loan charge-offs related to these loan categories increased in 2011,
Valley continues to have very low loss rates on such loans due to its conservative underwriting standards,
including conservative loan to value ratios.
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 increased $1.5 million to $4.0 million at December 31, 2011
compared to $2.5 million one year ago primarily due to larger loan balances on a small number of loans in the
commercial and industrial loan, commercial real estate, and construction loan categories for 2011. All of the
loans past due 90 days or more and still accruing are considered to be well secured and in the process of
collection.
Non-accrual loans increased $19.2 million to $124.3 million at December 31, 2011 as compared to $105.1
million at December 31, 2010. Non-accrual commercial and industrial loans increased $12.9 million from
December 31, 2010 due, in part, to one additional loan collateralized by an aircraft totaling $8.0 million in 2011
as well as several smaller borrowers impacted by the current economic conditions. Non-accrual commercial real
estate and construction loans, consisting of 76 and 16 credit relationships, respectively, totaled a combined $62.1
million at December 31, 2011 and relate to customers negatively impacted by the slow economic recovery and
the slumping real estate markets. Non-accrual residential mortgage loans were 1.38 percent of the residential
mortgage loan portfolio at December 31, 2011. Although this percentage declined 0.10 percent from 1.48 percent
at December 31, 2010 and is relatively low compared to the delinquencies recently reported by many financial
institutions, the loans in this category remain relatively high for us due to certain borrowers’ inability to sell
homes quickly in the soft real estate markets, the high levels of unemployment, as well as the time necessary for
us to foreclose on loans collateralized by properties primarily in the State of New Jersey.
Although the timing of collection is uncertain, management believes that most of the non-accrual loans are
well secured and largely collectible based on, in part, our quarterly review of impaired loans. Our impaired loans
(mainly consisting of non-accrual and troubled debt restructured commercial and industrial loans and commercial
real estate loans) totaled $184.1 million at December 31, 2011 and had $23.2 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 $6.9 million, $7.9 million and $6.5 million for the years
ended December 31, 2011, 2010, and 2009, respectively; none of these amounts were included in interest income
during these periods. Interest income recognized on a cash basis for loans classified as non-accrual totaled $1.6
million (including $1.1 million in interest income on impaired loans) for the year ended December 31, 2011. See
Note 5 to the consolidated financial statements for further analysis of our impaired loans.
OREO (which consists of 17 commercial and residential properties) and other repossessed assets, excluding
OREO subject to loss-sharing agreements with the FDIC, totaled a combined $16.0 million at December 31,
2011 as compared to $12.2 million at December 31, 2010. The increase during 2011 was largely due to one
commercial property with a carrying value of $3.5 million transferred to OREO during the third quarter of 2011.
77
Our residential mortgage loan foreclosure activity remains low due to the nominal amount of individual loan
delinquencies within the residential mortgage and home equity portfolios. These portfolios totaling over 23,000
individual loans had only 272 loans past due 30 days or more at December 31, 2011.
In the first quarter of 2011, we evaluated our
foreclosure documentation procedures, given the
announcements made by other financial institutions regarding their foreclosure activities. The results of our
review, and our foreclosure experience subsequent to the review, indicate that our procedures for reviewing and
validating the information in our documentation are sound and we believe our foreclosure affidavits are accurate.
Troubled debt restructured loans (“TDRs”) represent
loan modifications for customers experiencing
financial difficulties where a concession has been granted. Performing TDRs (i.e., TDRs not reported as
non-accrual loans) totaled $101.0 million at December 31, 2011 and consisted of 60 loans (primarily in the
commercial and industrial loan and commercial real estate portfolios) as compared to 44 loans totaling $89.7
million at December 31, 2010. On an aggregate basis, the $101.0 million in performing TDRs at December 31,
2011 had a modified weighted average interest rate of approximately 4.93 percent as compared to a
pre-modification weighted average interest rate of 6.11 percent. There were no loans past due 90 days or more
and still accruing classified as TDRs as of December 31, 2011.
During the third quarter of 2011, we adopted the provisions of ASU No. 2011-02, “Receivables
(Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” As a
result of this adoption, we reassessed all loan restructurings that occurred on or after January 1, 2011 for
identification as TDRs. This reassessment and the adoption of ASU No. 2011-02 did not materially impact the
number of TDRs identified by us, or the specific reserves for such loans included in our allowance for loan losses
at December 31, 2011. See Note 5 to the consolidated financial statements for additional disclosures regarding
our TDRs.
Although we believe that substantially all risk elements at December 31, 2011 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 $105.6
million and $47.9 million in potential problem loans at December 31, 2011 and 2010, 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 concerns about the ability of such borrowers to comply with the 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. At December 31, 2011, the potential
problem loans consist of various types of performing commercial credits internally risk rated substandard because
the loans exhibit well-defined weaknesses and require additional attention by management. See further discussion
regarding our internal loan classification system at Note 4 to the consolidated financial statements. There can be no
assurance that Valley has identified all of its potential problem loans at December 31, 2011.
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
loans, commercial real estate loans, and construction loans, a separate credit
commercial and industrial
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, including $183.2 million of covered loans, represent over 70 percent of total loans at
December 31, 2011. 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
78
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 2011 was 54 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, 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:
Years Ended December 31,
2011
2010
2009
2008
2007
($ in thousands)
Average loans outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,608,480 $9,474,994 $9,705,909 $9,386,987 $8,261,111
Beginning balance—Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,504 $ 103,655 $
94,738 $
74,935 $
74,718
Loans charged-off:
Commercial and industrial(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged-off loans recovered:
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,229)
(6,305)
(4,053)
(3,222)
(5,906)
(48,715)
2,365
134
197
129
2,236
5,061
(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
(6,760)
(500)
—
(501)
(14,902)
(22,663)
627
6
—
—
2,141
2,774
(5,808)
(1,596)
—
(103)
(7,628)
(15,135)
1,427
254
—
17
1,779
3,477
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision charged for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(43,654)
53,335
—
(26,607)
49,456
—
(39,075)
47,992
—
(19,889)
28,282
11,410
(11,658)
11,875
—
Ending balance—Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,185 $ 126,504 $ 103,655 $
94,738 $
74,935
Components of allowance for credit losses:
Allowance for non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,274 $ 118,326 $ 101,990 $
Allowance for covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,528
6,378
—
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133,802
124,704
101,990
Allowance for unfunded letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,383
1,800
1,665
93,244 $
—
93,244
1,494
72,664
—
72,664
2,271
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,185 $ 126,504 $ 103,655 $
94,738 $
74,935
Components of provision for credit losses:
Provision for losses on non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Provision for losses on covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,242 $
21,510
42,943 $
6,378
47,821 $
—
29,059 $
—
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,752
49,321
47,821
29,059
12,751
—
12,751
Provision for unfunded letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
583
135
171
(777)
(876)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
53,335 $
49,456 $
47,992 $
28,282 $
11,875
Ratio of net charge-offs of non-covered loans to average loans outstanding . . . . . . . . . . . .
Ratio of net charge-offs during the period to average loans outstanding . . . . . . . . . . . . . . .
Allowance for non-covered loan losses as a % of non-covered loans . . . . . . . . . . . . . . . . . .
Allowance for credit losses as a % of total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.30%
0.45
1.26
1.39
0.28%
0.28
1.31
1.35
0.40%
0.40
1.09
1.11
0.21%
0.21
0.92
0.93
0.14%
0.14
0.86
0.88
(1)
Includes covered loan charge-offs totaling $14.4 million during 2011. There were no charge-offs of covered loans during 2010.
79
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 $250 thousand
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. (See the “Assets and
Liabilities Measured on Non-recurring Basis” section of Note 3 to the consolidated financial statements for
further details). 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
losses. At
December 31, 2011, a $23.2 million specific valuation allowance was included in the allowance for credit losses
related to $184.1 million in impaired loans that had such an allowance. See Note 5 to the consolidated financial
statements for more details regarding impaired loans.
is recorded as a specific valuation allowance in the allowance for credit
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.
80
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 2008 economic recession and the economy’s slow paced recovery since 2010. During this five-year period,
our net charge-offs were at a high of 0.45 percent of average loans during 2011 and a low of 0.14 percent in
2007. During 2011, our net charge-offs increased $17.0 million to $43.7 million as compared to 2010 mainly due
to $14.3 million of charge-offs on impaired covered loans (included in the commercial and industrial loan
category in the table above). The charge-offs on impaired covered loans are substantially covered by loss-sharing
agreements with the FDIC. The remaining increase was mainly due to higher charge-offs on our impaired
non-covered commercial and industrial loans and commercial real estate loans. Despite the recent signals of
improving economy, there can be no assurance that our levels of net-charge-offs will improve during 2012, and
not deteriorate in the future.
The provision for credit losses was $53.3 million in 2011 compared to $49.5 million in 2010. For the year
ended December 31, 2011, 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 $31.8 million, as well as a provision for covered loan losses of $21.5 million due to
credit impairment within certain pools of covered loans acquired in FDIC-assisted transactions. The decrease of
$11.7 million in provision for non-covered loans reflects, among other factors, lower loss factors applied to most
loan categories due, in part, to stabilization of our credit quality indicators and loan delinquencies as well as
improved economic outlook during 2011.
The following table summarizes the allocation of the allowance for credit losses to specific loan portfolio
categories for the past five years:
2011
2010
2009
2008
2007
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Percent
of Loan
Category
to total
loans
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Allowance
Allocation
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Allowance
Allocation
($ in thousands)
Loan Category:
Commercial and industrial* . . $ 65,076
Commercial real estate:
19.2% $ 58,229
19.5% $ 50,932
19.2% $44,163
19.4% $31,638
18.4%
Commercial real
estate . . . . . . . . . . . . . .
Construction . . . . . . . . . .
Residential mortgage . . . . . . .
Consumer . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . .
Allowance for non-covered
19,222
12,905
9,058
8,677
7,719
36.4
4.2
23.3
14.1
—
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
—
loans . . . . . . . . . . . . . . . . . .
122,657
120,126
103,655
Allowance for covered
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
—
loans . . . . . . . . . . . . . . . . . .
13,528
2.8
6,378
3.8
—
—
—
—
—
—
Total allowance for credit
losses . . . . . . . . . . . . . . $136,185
100.0% $126,504
100.0% $103,655
100.0% $94,738
100.0% $74,935
100.0%
* Includes the allowance for unfunded letters of credit.
The allowance for credit losses on non-covered loans (including the reserve for unfunded letters of credit)
amounted to $122.7 million or 1.28 percent of non-covered loans at December 31, 2011 as compared to 1.33 at
December 31, 2010. During 2011, loss experience and the outlook for the automobile portfolio continued to
improve within consumer loans but was mostly negated by increased reserves for commercial and industrial
loans and commercial real estate loans on a few large customers. Our allocated reserves for the commercial and
81
industrial and commercial real estate loan portfolios increased $9.1 million from December 31, 2010 mainly due
to higher specific reserves for impaired loans driven by higher levels of non-accrual commercial real estate and
construction loans and performing troubled debt restructured loans caused in part, by the impact of the slow
economic recovery and high unemployment. The average balance of impaired loans during 2011, 2010, and 2009
was approximately $170.7 million, $104.1 million, and $49.8 million, respectively. Management believes that the
unallocated allowance is appropriate given the uncertain economic outlook, the size of the loan portfolio and
level of loan delinquencies at December 31, 2011. See Note 6 to the consolidated financial statements for
additional information regarding our allowance for loan losses.
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,
substitute other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such
loans. No reserves pertaining to loans sold were established on our financial statements at December 31, 2011
and 2010. See “Item 1A. Risk Factors – We may incur future losses in connection with repurchases and
indemnification payments related to mortgages that we have sold into the secondary market” of this Annual
Report for additional information.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At December 31,
2011 and December 31, 2010, shareholders’ equity totaled approximately $1.3 billion, or 8.9 percent and 9.2
percent of total assets, respectively. During the year ended December 31, 2011, total shareholders’ equity
decreased by approximately $29.0 million. This net decrease was related to cash dividends declared on common
stock totaling $117.1 million and a $56.7 million increase in our accumulated other comprehensive loss, partially
offset by net income of $133.7 million, net proceeds of $8.2 million from the reissuance of treasury stock or
authorized common shares issued under our dividend reinvestment plan, and a $3.0 million increase attributable
to the effect of our stock incentive plan. See Note 18 to the consolidated financial statements for more
information regarding the changes in our accumulated other comprehensive loss during 2011.
In 2009, Valley filed a shelf registration statement on Form S-3 with the SEC, which was declared effective
immediately. This shelf registration statement allowed 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 provided
Valley with capital raising flexibility and enabled 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. Although the shelf registration statement expired in February 2012, Valley intends to file a new
immediately effective shelf registration statement shortly after filing this Annual Report on Form 10-K. 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
the slow moving U.S. economic recovery. See Note 17 to the consolidated financial statements for additional
information on Valley’s stock issuances, DRIP, and repurchase plan.
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 deferred tax assets, 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
82
Tier 1 capital position included $176.3 million of its outstanding trust preferred securities issued by capital trusts
as of December 31, 2011 and 2010. In compliance with U.S. GAAP, Valley does not consolidate its capital
trusts. See Note 12 to the consolidated financial statements for additional information.
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 12.8 percent for total risk-based capital at December 31,
2011. The comparable ratios at December 31, 2010 were 10.9 percent for Tier 1 capital and 12.9 percent for total
risk-based capital. At December 31, 2011 and 2010, Valley was in compliance with the leverage requirement
having Tier 1 leverage ratios of 8.1 percent and 8.3 percent, respectively. The Bank’s ratios at December 31,
2011 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) per
common share. Our retention ratio was approximately 12.66 percent and 11.11 percent for the years ended
December 31, 2011 and 2010, respectively. During 2011, the retention ratio was positively impacted by net gains
on securities transactions and net trading gains (mainly consisting of non-cash mark to market gains on the fair
value of junior subordinated debentures), and the change in our FDIC loss-share receivable, largely offset by net
impairment losses recognized in earnings and higher income tax expense caused by a one-time tax provision
related to a change in tax law during 2011. While we expect that our rate of earnings retention to remain at
acceptable levels in future periods, potential future mark to market losses on our junior subordinated debentures,
net impairment losses on securities, and other deterioration in earnings and our balance sheet resulting from the
weak economic conditions may negatively impact our future earnings and ability to maintain our dividend at
current levels.
Cash dividends declared amounted to $0.69 per common share for both the years ended December 31, 2011
and 2010. The Board continued the cash dividend, which remained unchanged for 2011 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.
Off-Balance Sheet Arrangements
Contractual Obligations and Commitments. In the ordinary course of operations, Valley enters into
various financial obligations, including contractual obligations that may require future cash payments. As a
financial services provider, we routinely enter into commitments to extend credit, including loan commitments,
standby and commercial letters of credit. 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.
83
The following table summarizes the Valley’s contractual obligations and other commitments to make future
payments as of December 31, 2011. Payments for deposits, borrowings and debentures do not include interest.
Payments related to leases, capital expenditures, other purchase obligations and commitments to sell loans are
based on actual payments specified in the underlying contracts. Commitments to extend credit and standby letters
of credit are presented at contractual amounts; however, since many of these commitments are expected to expire
unused or only partially used based upon our historical experience, the total amounts of these commitments do
not necessarily reflect future cash requirements.
Note to
Financial
Statements
One Year
or Less
One to
Three Years
Three to
Five Years
Over Five
Years
Total
(in thousands)
Contractual obligations:
Time deposits . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . .
Junior subordinated debentures
issued to capital trusts (1) . . . . . . .
Operating leases . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . .
Other purchase obligations (2) . . . . .
10
11
12
15
$1,489,692 $ 250,636 $ 258,768 $ 502,288 $2,501,384
2,726,099
1,946,032
724,839
26,674
28,554
—
18,318
2,036
11,251
—
37,565
—
642
—
36,837
—
—
181,767
258,052
—
—
181,767
350,772
2,036
11,893
Total . . . . . . . . . . . . . . . . . . . .
$1,549,851 $ 315,517 $1,020,444 $2,888,139 $5,773,951
Other commitments:
Commitments to extend credit . . . .
Standby letters of credit . . . . . . . . .
Commitments to sell loans . . . . . . .
15
15
15
$1,574,715 $1,279,011 $
6,731 $
108,897
85,000
14,824
—
113,483
—
76,884 $2,937,341
237,279
85,000
75
—
Total . . . . . . . . . . . . . . . . . . . .
$1,768,612 $1,293,835 $ 120,214 $
76,959 $3,259,620
(1) Amounts presented consists of the contractual principal balances. Carrying values and call dates are set forth
in Note 12 to the consolidated financial statements.
This category primarily consists of contractual obligations for communication and technology costs.
(2)
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.
Derivative Instruments and Hedging Activities. We are exposed to certain risks arising from both its
business operations and economic conditions. We principally manage our exposures to a wide variety of business
and operational risks through management of its core business activities. We manage economic risks, including
interest rate and liquidity risks, 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, we enter 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. Our derivative
financial instruments are used to manage differences in the amount, timing, and duration of our known or
expected cash receipts and our known or expected cash payments mainly related to certain variable-rate
borrowings and fixed-rate loan assets. 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.
84
Results of Operations—2010 Compared to 2009
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, re-priced at lower interest rates in 2010.
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
in 2010 as compared to the year ended
investment securities increased $74.3 million, or 2.5 percent
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
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.
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, partially offset by decreases in net trading losses, net
impairment losses on securities and service charges.
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.
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.
85
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 were recognized during the fourth
quarter of 2010 primarily due to the sale of certain residential mortgage-backed securities classified as available
for sale, as well as gains realized on $15 million in trust preferred securities that were called for early
redemption.
Net
impairment
losses on securities also 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
impairment charges on private label mortgage-backed securities classified as available for sale as
credit
compared to 2009, partially offset by a $2.2 million increase in credit impairment charges on two previously
impaired pooled trust preferred securities.
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.
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 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. In addition, the net occupancy and
equipment expense, and professional and legal fees increased $2.8 million and $2.3 million, respectively. These
increases were partially offset by a $6.4 million decrease in the FDIC insurance assessment. Our FDIC insurance
assessment decreased 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.
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.
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.”
86
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 $2,027,197 at December 31, 2011 and $1,898,872 at
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2011
2010
(in thousands except for
share data)
372,566 $
6,483
302,629
63,657
1,958,916
566,520
21,938
2,547,374
25,169
9,527,797
271,844
(133,802)
9,665,839
1,923,993
1,035,282
31,894
2,991,169
58,958
9,009,140
356,655
(124,704)
9,241,091
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265,570
304,956
59,126
6,028
89,359
317,891
25,650
417,742
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,244,507 $14,143,826
265,475
303,867
52,527
5,903
74,390
317,962
20,818
586,134
Liabilities
Deposits:
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,781,597 $ 2,524,299
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 $160,478 at
December 31, 2011 and $161,734 at December 31, 2010 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 220,974,508 shares; issued 170,209,090 shares at
December 31, 2011 and 170,131,085 shares at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . .
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (34,776 common shares at December 31, 2011 and 597,459 common
4,390,121
2,501,384
9,673,102
212,849
2,726,099
4,106,464
2,732,851
9,363,614
192,318
2,933,858
185,598
5,903
174,708
12,978,259
186,922
6,028
165,881
12,848,621
—
—
59,955
1,179,135
90,011
(62,441)
57,041
1,178,325
79,803
(5,719)
(14,245)
shares at December 31, 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,295,205
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,244,507 $14,143,826
(412)
1,266,248
See accompanying notes to consolidated financial statements.
87
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
2011
2010
2009
(in thousands, except for share data)
547,365 $
543,009 $
561,252
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 (loss) income (before taxes) . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading gains (losses), 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,129
11,273
6,655
402
673,824
19,876
48,291
1,154
129,692
199,013
474,811
53,335
421,476
7,523
15,627
22,610
32,068
(42,775)
22,807
(19,968)
2,271
4,337
10,699
426
7,380
13,403
15,921
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,297
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176,307
64,364
12,759
9,315
15,312
8,373
50,158
336,588
197,185
63,532
133,653
—
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
—
131,792
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
Net Income Available to Common Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
133,653 $
131,170 $
96,537
Earnings Per Common Share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average Number of Common Shares Outstanding:
0.79 $
0.79
0.69
0.78 $
0.78
0.69
0.61
0.61
0.69
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169,928,460
169,929,590
169,112,901
169,121,584
159,259,476
159,260,229
See accompanying notes to consolidated financial statements.
88
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
2011
2010
2009
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $133,653
Other comprehensive (loss) income, net of tax:
Unrealized gains and losses on securities available for sale
(in thousands)
$131,170
$116,061
Net gains arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . .
Less reclassification adjustment for gains included in net income . . .
1,513
(19,674)
12,637
(7,330)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18,161)
5,307
47,351
(5,003)
42,348
Non-credit impairment losses on available for sale and held to maturity
securities
Net change in non-credit impairment losses on securities . . . . . . . .
Less reclassification adjustment for credit impairment losses
(26,656)
3,328
(2,774)
included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,633
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,023)
Unrealized gains and losses on derivatives (cash flow hedges)
Net (losses) gains on derivatives arising during the period . . . . . . .
Less reclassification adjustment for losses included in net income .
(14,157)
1,780
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,377)
Pension benefit adjustment
(11,161)
2,741
6,069
866
1,142
2,008
713
3,767
993
2,017
267
2,284
4,095
Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(56,722)
14,097
49,720
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,931
$145,267
$165,781
See accompanying notes to consolidated financial statements.
89
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Number
of Common
Shares
Outstanding
Preferred
Stock
Common
Stock
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders’
Equity
156,307
$ 291,539
(in thousands)
$48,228 $1,047,085 $ 85,234
$(60,931)
$(47,546)
$1,363,609
Balance - December 31, 2008 . .
Cumulative effect of adoption of
a new accounting principle
(ASC Topic 320) . . . . . . . . . . .
Balance - January 1, 2009 . . . . .
Net income . . . . . . . . . . . . . . . . . .
Other comprehensive income, net
of tax . . . . . . . . . . . . . . . . . . . .
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
. . . . . . . . . . . . . . . . . . . . . .
191
Common stock dividend
declared . . . . . . . . . . . . . . . . . .
Common stock dividend paid . . .
Common stock issued . . . . . . . . .
Fair value of stock options
—
—
12,171
granted . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
8,605
156,307
291,539
—
—
(300,000)
8,461
—
—
—
—
—
—
—
48,228
—
1,047,085
93,839
— 116,061
—
—
—
—
—
—
—
—
—
—
—
(8,461)
(11,063)
— (110,101)
(32)
1,725
(2,121)
—
2,363
3,734
(101,051)
98,650
131,562
—
—
(4,562)
—
1,021
—
168,669
—
$
— $54,293 $1,178,992 $ 73,592
— 131,170
—
—
$(19,816)
$(34,207)
—
—
$1,252,854
131,170
Balance - December 31, 2009 . .
Net income . . . . . . . . . . . . . . . . . .
Other comprehensive income, net
of tax . . . . . . . . . . . . . . . . . . . .
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 . .
Net income . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of
tax . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared on
common stock . . . . . . . . . . . . .
Effect of stock incentive plan,
—
216
—
—
649
—
—
—
—
—
—
—
—
— (116,137)
65
1,322
(2,603)
—
2,683
—
—
(110,848)
108,015
—
844
—
—
(6,219)
—
169,534
—
$
— $57,041 $1,178,325 $ 79,803
— 133,653
—
—
—
—
—
—
—
—
(56,722)
— (117,071)
—
—
—
—
—
—
net
. . . . . . . . . . . . . . . . . . . . . .
(39)
Common stock dividend
declared . . . . . . . . . . . . . . . . . .
Common stock dividend paid . . .
Common stock issued . . . . . . . . .
—
—
679
61
3,095
(396)
—
2,831
22
(109,675)
106,844
546
—
—
(5,978)
Balance - December 31, 2011 . .
170,174
$
— $59,955 $1,179,135 $ 90,011
$(62,441)
$
(412)
$1,266,248
See accompanying notes to consolidated financial statements.
90
(8,605)
(69,536)
—
49,720
—
—
—
—
—
—
—
—
—
—
—
(47,546)
—
1,363,609
116,061
—
—
—
—
—
4,319
—
—
9,020
49,720
(300,000)
—
(11,063)
(110,101)
3,891
(101,051)
101,013
139,754
—
1,021
14,097
14,097
—
—
—
—
—
(116,137)
5,313
4,097
—
—
14,649
(110,848)
110,698
8,430
—
844
$ (5,719)
$(14,245)
—
—
—
—
—
—
$1,295,205
133,653
(56,722)
(117,071)
—
—
—
210
2,970
—
—
13,623
(109,675)
109,675
8,213
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
2011
2010
2009
(in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 133,653
$
131,170
$ 116,061
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
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in the FDIC loss-share receivable (excluding reimbursements) . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,380
3,156
53,335
11,871
9,315
(32,068)
19,968
366,769
(10,699)
(322,281)
(426)
(13,403)
(15,285)
9,956
(1,256)
(7,380)
(3,069)
(34,977)
7,778
15,850
4,830
49,456
12,443
7,721
(11,598)
4,642
385,997
(12,591)
(323,710)
(619)
(6,268)
20,176
1,056
5,841
(6,166)
93
9,569
(8,878)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
191,337
279,014
Cash flows from investing activities:
Net loan (originations) repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held to maturity:
(444,207)
(33,293)
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities, calls and principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(683,056)
582,999
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
Reimbursements from the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents acquired (paid) in acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(473,119)
552,486
280,046
8,469
4,864
(16,402)
28,372
—
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(192,841)
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 preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued, net
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
309,488
20,531
—
(207,000)
—
—
(116,779)
8,027
14,267
12,763
366,286
359,117
(52,279)
(993,407)
644,810
(321,318)
425,473
327,316
5,241
4,601
(14,599)
—
44,228
429,183
(837,871)
(36,517)
50,681
(72,742)
—
—
(115,190)
8,391
(1,003,248)
(295,051)
661,337
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)
104,553
734,544
—
(967,904)
526,637
(503,483)
326,096
333,041
1,727
3,713
(25,282)
—
(285)
428,804
314,362
(424,157)
—
(60,755)
(300,000)
(12,980)
(109,005)
140,008
(452,527)
80,830
580,507
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 379,049
$
366,286
$ 661,337
See accompanying notes to consolidated financial statements.
91
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
Years ended December 31,
2011
2010
2009
(in thousands)
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal and state income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$199,565
60,186
$217,102
50,636
$288,858
63,021
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,452
—
—
83,162
Acquisitions:
Non-cash assets acquired:
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC loss-share receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-cash assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures issued to capital trusts . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73,743
412,331
133
2,788
21,413
4,884
108,000
22,558
645,850
654,200
12,688
10,559
—
12,631
690,078
Net non-cash (liabilities) assets acquired . . . . . . . . . . . . . . . . . . . .
$ —
$ (44,228)
Cash and cash equivalents acquired (paid) in acquisitions . . . . . . . . . . . . . . . . . . . . . . .
$ —
$ 44,228
$
$
—
—
—
—
—
—
726
224
—
—
950
—
—
—
—
665
665
285
(285)
See accompanying notes to consolidated financial statements.
92
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, the New York City boroughs of Manhattan, Brooklyn and Queens, as well as
Long Island, New York. 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:
•
•
•
•
•
•
•
•
•
an all-line insurance agency offering property and casualty, life and health insurance;
asset management advisors which are Securities and Exchange Commission (“SEC”) registered
investment advisors;
a title insurance agency;
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;
a subsidiary which specializes in health care equipment and other commercial equipment leases; and
a subsidiary which owns and services New York commercial loans.
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 subsidiary must have 100 or
more shareholders to qualify as a REIT, each REIT subsidiary has issued less than 20 percent of its 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 (“U.S. 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.
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
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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; 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 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.
Effective January 1, 2012, Valley acquired State Bancorp, Inc. (“State Bancorp”), the holding company for
State Bank of Long Island, a commercial bank. See Note 2 for further details regarding this acquisition.
On May 20, 2011, Valley issued a five percent common stock dividend to shareholders of record on May 6,
2011. 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.
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.
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 $19.2 million and $16.8 million at
December 31, 2011 and 2010, 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 or loss, 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 gains (losses), net. Realized gains or losses on the sale of securities are recognized by the specific
identification method and are included in net gains (losses) on securities transactions and net trading gains
(losses) for available for sale and trading securities, respectively. Investments in Federal Home Loan Bank and
Federal Reserve Bank stock, which have limited marketability, are carried at cost in other assets.
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 the issuer’s inability to pay interest or dividends, the 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 neither of these circumstances applies to a security, but Valley does not
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 portion related to
other factors is recognized in other comprehensive income or loss. The total other-than-temporary impairment
loss is presented in the statement of income, less the portion recognized in other comprehensive income or loss.
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, Valley considers factors that
include, among others, 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. For debt securities, the primary consideration
in determining whether impairment is other-than-temporary is whether or not it is probable that current and/or
future contractual cash flows have been or may be impaired. See the “Other-Than-Temporary Impairment
Analysis” section of Note 4 for further discussion.
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. Valley discontinues the recognition of
interest on debt securities if the securities meet both of the following criteria: (i) regularly scheduled interest
payments have not been paid or have been deferred by the issuer, and (ii) full collection of all contractual
principal and interest payments is not deemed to be the most likely outcome, resulting in the recognition of other-
than-temporary impairment of the security.
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
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.
Loans are deemed to be past due when the contractually required principal and interest payments 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 nonaccrual 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.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 allowance for loan losses. 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 an allowance for loan losses. 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. Therefore, 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).
Covered loans that may have been classified as non-performing loans by an acquired bank are no longer
classified as non-performing because these loans are accounted for on a pooled basis. Management’s judgment is
required in classifying loans in pools 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.
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. As
discussed under the “Loans Acquired Through Transfer” section above, the allowance for credit losses includes
reserves for impairment of covered loans subsequent to their acquisition date. 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
other loans based on historical loss factors, (iv) reserves based on general economic conditions and other
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
individually evaluates non-accrual
The Credit Risk Management Department
(non-homogeneous)
commercial and industrial loans and commercial real estate loans over $250 thousand 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 a provision to the allowance for loan losses.
Collateral dependent impaired loan balances are written down to the current fair value, less costs to sell, 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 loan losses. Accrual of interest is discontinued on an impaired loan
when management believes, after considering collection efforts and other factors, the borrower’s financial
condition is such that collection of interest is doubtful. Cash collections on impaired loans are generally credited
to the loan balance, and no interest income is recognized on these loans until the principal balance has been
determined to be fully collectible. Residential mortgage loans and consumer loans usually 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.
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. 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 or sooner if deemed uncollectible. Furthermore, residential mortgage and consumer loan accounts
are charged-off in accordance with regulatory requirements.
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.
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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 amortized 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
residential mortgage-backed securities issued by government sponsored enterprises, and Ginnie Mae. 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 $22.4 million and $12.2 million
(including $6.4 million and $7.8 million of OREO related to the FDIC-assisted transactions, which is subject to
the loss-sharing agreements) at December 31, 2011 and 2010, respectively.
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 loss-sharing payments are received from the FDIC for realized losses on
covered loans and other real estate owned. Actual or expected losses in excess of the acquisition date estimates
result in an increase in the FDIC loss-share receivable. However, a reduction in the FDIC loss-share receivable
due to actual or expected losses that are less than the acquisition date estimates is recognized prospectively over
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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.
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.
If the carrying value of a reporting unit exceeds its estimated fair value, a second step in the analysis is
performed to determine the amount of impairment, if any. The second step compares the implied fair value of the
reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying value of a reporting unit
exceeds the implied fair value of the goodwill, an impairment charge is recorded equal to the excess amount 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 (largely generated from loan servicing
retained by the Bank on residential mortgage loan originations sold in the secondary market to government
sponsored enterprises), 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. See further details regarding loan servicing rights below.
Loan Servicing Rights
Loan servicing rights are recorded when purchased or when originated mortgage loans are sold, with
servicing rights retained. Valley initially records the loan servicing rights at fair value. Subsequently, the loan
servicing rights are carried at the lower of unamortized cost or market (i.e., fair value). The fair values of the loan
servicing rights are determined using a method which utilizes servicing income, discount rates, prepayment
speeds and default rates specifically relative to Valley’s portfolio for originated mortgage servicing rights.
The unamortized costs associated with acquiring loan servicing rights, net of any valuation allowances, 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 unamortized 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
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Fair Value Measurements
In general, fair values of financial instruments are based upon quoted market prices, where available. When
observable market prices and parameters are not fully available, management uses valuation techniques based
upon internal and third party models requiring more management judgment to estimate the appropriate fair value
measurements. 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.
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 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
Comprehensive income is defined as the change in equity of a business entity during a period due to
transactions and other events and circumstances, excluding those resulting from investments by and distributions
to shareholders. Comprehensive income consists of net income and other comprehensive income or loss. Valley’s
components of other comprehensive (loss) income, net of deferred tax, include: (i) unrealized gains and losses on
securities available for sale (including the non-credit portion of other-than-temporary impairment charges
relating to these securities); (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. Upon
early adoption of Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220) –
Presentation of Comprehensive Income”, as amended, at December 31, 2011, Valley presents comprehensive
income and its components in the consolidated statements of comprehensive income on a retrospective basis for
all periods presented. See Note 18 for additional disclosures.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
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, 2011, 2010 and 2009:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: dividends on preferred stock and accretion . . . . . . . . .
Net income available to common stockholders . . . . . . . . . . . . . .
Basic weighted-average number of common shares
2011
2010
2009
(in thousands, except for share data)
$
$
133,653
—
133,653
$
$
131,170
—
131,170
$
$
116,061
19,524
96,537
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Common stock equivalents . . . . . . . . . . . . . . . . . . . . .
169,928,460
1,130
169,112,901
8,683
159,259,476
753
Diluted weighted-average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169,929,590
169,121,584
159,260,229
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.79
0.79
$
$
0.78
0.78
$
$
0.61
0.61
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 6.4 million, 6.9 million, and 7.2 million common shares for the years ended December 31,
2011, 2010, and 2009, 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 one thousand dollars 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.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
interest rates. Valley also uses derivatives not designated as hedges for non-speculative purposes to manage its
exposure to interest rate movements related to a service for certain customers. Derivatives used to hedge the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk,
such as interest rate risk, are considered fair value 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.
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 or loss 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. Derivatives not
designated as hedges do not meet the hedge accounting requirements under U.S. GAAP. Changes in fair value of
derivatives not designated in hedging relationships are recorded directly in earnings.
New Authoritative Accounting Guidance
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 measurements 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 related to the gross
presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair
value hierarchy became effective for Valley on January 1, 2011. The other disclosure requirements and
clarifications made by ASU No. 2010-06 became effective for Valley on January 1, 2010. All of the applicable new
disclosures have been included in Note 3.
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 became effective for Valley’s financial statements as of December 31, 2010, as it relates to
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting
period generally became effective for Valley’s financial statements beginning on January 1, 2011. The effective
date for disclosures related to troubled debt restructurings was deferred to coincide with the July 1, 2011
effective date of ASU No. 2011-02, “Receivables (Topic 310)—A Creditor’s Determination of Whether a
Restructuring Is a Troubled Debt Restructuring,” which is further discussed below. Since the provisions of ASU
No. 2010-20 are only disclosure related, Valley’s adoption of this guidance changed its disclosures but did not
have a significant impact on its consolidated financial statements. See Notes 5 and 6 for the related disclosures.
ASU No. 2010-29, “Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma
Information for Business Combinations,” relates to disclosure of pro forma information for business
combinations that have occurred in the current reporting period. It requires that an entity presenting comparative
financial statements include revenue and earnings of the combined entity as though the combination had occurred
as of the beginning of the comparable prior annual period only. This guidance was effective prospectively for
business combinations for which the acquisition date was on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. The adoption of this guidance did not have an impact on
Valley’s consolidated financial statements.
ASU No. 2011-02, “Receivables (Topic 310)—A Creditor’s Determination of Whether a Restructuring Is a
Troubled Debt Restructuring,” provides clarifying guidance intended to assist creditors in determining whether a
modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both
for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating
whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of
the following exist: (i) the restructuring constitutes a concession to the debtor; and (ii) the debtor is experiencing
financial difficulties. ASU No. 2011-02 was adopted in 2011 and it applies retrospectively to restructurings
occurring on or after January 1, 2011. The adoption of ASU No. 2011-02 did not have a significant impact on
Valley’s consolidated financial statements.
ASU No. 2011-04, “Fair Value Measurements (Topic 820)—Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” was issued as a result of the effort to
develop common fair value measurement and disclosure requirements in U.S. GAAP and International Financial
Reporting Standards (“IFRS”). While ASU No. 2011-04 is largely consistent with existing fair value measurement
principles in U.S. GAAP, it expands the existing disclosure requirements for fair value measurements and clarifies
the existing guidance or wording changes to align with IFRS No. 13. Many of the requirements for the amendments
in ASU No. 2011-04 do not result in a change in the application of the requirements in Topic 820. ASU
No. 2011-04 will be effective for Valley for all interim and annual periods beginning after December 15, 2011.
Valley’s adoption of ASU No. 2011-04 is not expected to have a significant impact on its consolidated financial
statements.
ASU No. 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income,” requires
an entity to present components of comprehensive income either in a single continuous statement of comprehensive
income or in two separate consecutive statements. These amendments will make the financial statement
presentation of other comprehensive income more prominent by eliminating the alternative to present
comprehensive income within the statement of equity. As originally issued, ASU 2011-05 required entities to
present reclassification adjustments out of accumulated other comprehensive income by component in the statement
in which net income is presented and the statement in which other comprehensive income is presented (for both
interim and annual financial statements). This requirement was deferred by ASU 2011-12, “Comprehensive Income
(Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out
of Accumulated Other Comprehensive Income in Accounting Standards”. ASU No. 2011-05 is effective for all
interim and annual periods beginning on or after December 15, 2011 with early adoption permitted, and must be
applied retrospectively. Valley has early adopted ASU No. 2011-05 and presented comprehensive income in a
separate consolidated statement of comprehensive income for the years 2011, 2010, and 2009.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ASU No. 2011-08, “Intangibles—Goodwill and Other (Topic 350) Testing Goodwill for Impairment,”
provides the option of performing a qualitative assessment of whether it is more likely than not that a reporting
unit’s fair value is less than its carrying amount, before applying the current two-step goodwill impairment test.
If the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, the entity would be required to conduct the current two-step goodwill impairment test. Otherwise, the
entity would not need to apply the two-step test. ASU No. 2011-08 will be effective for Valley for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early
adoption permitted. ASU No. 2011-08 is not expected to have a significant impact on Valley’s consolidated
financial statements.
BUSINESS COMBINATIONS AND DISPOSITIONS (Note 2)
Acquisition of State Bancorp, Inc.
On January 1, 2012, Valley acquired State Bancorp, Inc. (“State Bancorp”), the holding company for State
Bank of Long Island, a commercial bank with approximately $1.6 billion in assets, $1.1 billion in loans, and $1.4
billion in deposits and 16 branches in Nassau, Suffolk, Queens, and Manhattan at December 31, 2011. The
shareholders of State Bancorp received a fixed one- for- one exchange ratio for Valley National Bancorp
common stock. This fixed exchange ratio was determined after consideration of Valley’s five percent stock
dividend, paid on May 20, 2011. The total consideration for the acquisition was $208 million. As a condition to
the closing of the merger, State Bancorp redeemed $36.8 million of its outstanding Fixed Rate Cumulative Series
A Preferred Stock from the U.S. Treasury. The stock redemption was funded by a $37.0 million short-term loan
from Valley to State Bancorp. The outstanding loan, included in Valley’s consolidated financial statements at
December 31, 2011, was subsequently eliminated as of the acquisition date. Valley also assumed junior
subordinated debentures issued to capital trusts with combined contractual principal balances totaling $20.6
million.
Additionally, a warrant issued by State Bancorp (in connection with its preferred stock issuance) to the U.S.
Treasury in December 2008 was assumed by Valley as of the acquisition date. The ten-year warrant to purchase
up to 466 thousand of Valley common shares has an exercise price of $11.87 per share, and is exercisable on a
net exercise basis. Valley has calculated an internal value for the warrants, and may negotiate their redemption
with the U.S. Treasury. However, if Valley elects not to negotiate or an agreement cannot be reached with the
U.S. Treasury, the warrants will be sold at public auction and remain outstanding.
Professional and legal fees, salary and employee benefits expense, and other non-interest expense include
$1.7 million, $640 thousand, and $290 thousand, respectively, of State Bancorp merger related expenses for the
year ended December 31, 2011.
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.
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,
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
In the event the losses under the loss-sharing agreements fail to reach expected levels, the Bank has agreed
to make a cash payment to the FDIC, on approximately the tenth anniversary following the transactions’
closings, pursuant to each loss-sharing agreement. There was no payable to the FDIC recorded at December 31,
2011.
In addition, as part of the consideration for The Park Avenue Bank FDIC-assisted transaction, the Bank
issued a cash-settled equity appreciation instrument to the FDIC. 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 financial condition or results of operations.
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.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES (Note 3)
Accounting Standards Codification (“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
Level 2
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.
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).
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, 2011 and 2010. 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,
2011
(in thousands)
Assets
Investment securities:
Available for sale:
U.S. government agency securities . . . . . . . . . . . . . . . . $ 90,748
20,214
Obligations of states and political subdivisions . . . . . .
310,137
Residential mortgage-backed securities . . . . . . . . . . . .
63,858
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . .
39,610
Corporate and other debt securities . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,953
Total available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
566,520
21,938
25,169
5,211
$ —
—
—
19,576
30,603
23,506
73,685
—
—
—
$ 90,748
20,214
259,977
17,131
9,007
18,447
415,524
21,938
25,169
5,211
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $618,838
$ 73,685
$467,842
Liabilities
Junior subordinated debentures issued to VNB Capital Trust I (3)
Other liabilities (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . $160,478
21,854
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $182,332
106
$160,478
—
$160,478
$ —
21,854
$ 21,854
$ —
—
50,160
27,151
—
—
77,311
—
—
—
$77,311
$ —
—
$ —
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements at Reporting Date Using:
December 31,
2010
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Assets
Investment securities:
Available for sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . $ 163,810
88,800
U.S. government agency securities . . . . . . . . . . . . . . .
29,462
Obligations of states and political subdivisions . . . . .
610,358
Residential mortgage-backed securities . . . . . . . . . . .
41,083
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . .
53,961
Corporate and other debt securities . . . . . . . . . . . . . .
47,808
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035,282
31,894
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,958
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (1)
8,414
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(2)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,134,548
Liabilities
. . $ 161,734
Junior subordinated debentures issued to VNB Capital Trust I (3)
1,379
Other liabilities(2)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 163,113
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$163,810
—
—
—
20,343
41,046
28,227
253,426
9,991
—
—
$263,417
$161,734
—
$161,734
$ —
88,800
29,462
514,711
—
—
10,228
643,201
—
58,958
8,414
$710,573
$ —
1,379
1,379
$
$ —
—
—
95,647
20,740
12,915
9,353
138,655
21,903
—
—
$160,558
$ —
—
$ —
(1)
Loans held for sale (which consists of residential mortgages) are carried at fair value and had contractual unpaid
principal balances totaling approximately $24.3 million and $58.4 million at December 31, 2011 and 2010, respectively.
(2) Derivative financial instruments are included in this category.
(3)
The junior subordinated debentures had contractual unpaid principal obligations totaling $157.0 million at both
December 31, 2011 and 2010.
The changes in Level 3 assets measured at fair value on a recurring basis for the years ended December 31,
2011 and 2010 are summarized below:
2011
2010
Trading
Securities
Available
For Sale
Securities
Trading
Securities
Available
For Sale
Securities
(in thousands)
Balance, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,903
$138,655
$ 32,950
$156,612
Transfers into Level 3:
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . .
—
8,798
—
Transfers out of Level 3:
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers from held-to-maturity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net (losses) gains for the period included in:
—
(21,903)
—
—
—
(44,771)
(17,397)
(12,914)
(9,353)
23,452
—
(10,567)
—
—
—
—
—
(532)
(852)
—
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(1,654)
765
—
(8,270)
$ — $ 77,311
(480)
—
—
—
$ 21,903
—
9,626
3,517
(29,716)
$138,655
Net losses included in net income for the
period relating to assets held at year end (2) . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ (19,968)(4)$
(480)(3)$ (4,642)(4)
(1) Represents impaired trust preferred securities issued by one bank holding company transferred at fair value from
held-to-maturity to available-for-sale at December 31, 2011.
(2) Represents net losses that are due to changes in economic conditions and management's estimates of fair value.
Included in trading gains (losses), net within the non-interest income category on the consolidated statements of income.
(3)
(4) Represents the net impairment losses on securities recognized in earnings for the period, including $18.3 million related
to trust preferred securities transferred from held-to-maturity at December 31, 2011.
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Transfers into and out of Level 3 assets are generally made in response to a decrease or an increase,
respectively, in the availability of observable market data used in the securities’ pricing obtained primarily
through independent pricing services or dealer market participants. See further details regarding the valuation
techniques used for the fair value measurement of the financial instruments below.
During 2011, there were no transfers of assets between Level 1 and Level 2.
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 certain trust preferred securities) are
reported at fair values utilizing Level 1 inputs. The majority of the other accruing investment securities in which
Valley has not previously recognized an other-than-temporary impairment charges 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 provider to 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 an independent pricing service, may be derived from unobservable market information
(Level 3 inputs). In these instances, Valley evaluates the appropriateness and quality of the assumption and the
resulting price. In addition, Valley reviews the volume and level of activity for all available for sale and trading
securities and attempts 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 utilizes 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 utilizes the best information that is
both reasonable and available without undue cost and effort.
In calculating the fair value for the available for sale securities under Level 3, Valley prepared present value
cash flow models for trust preferred securities, and certain private label mortgage-backed securities. 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. 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.
For the two available for sale pooled trust preferred 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 fair value calculations for both
securities are received from an independent valuation advisor. In validating the fair value calculation from an
independent valuation advisor, Valley reviews accuracy of the inputs and the appropriateness of the unobservable
inputs utilized in the valuation to ensure the fair value calculation is reasonable from a market participant
perspective.
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For certain 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.
The fair value of corporate debt securities under Level 3 at December 31, 2010 was calculated based on the
estimated future cash flows 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 were weighted with the internal price
estimate to determine the fair value of each instrument.
For the fair value of certain trading securities, consisting of trust preferred securities, under Level 3 at
December 31, 2010, 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.
Loans held for sale. The conforming residential mortgage loans originated for sale are reported at fair value
using Level 2 inputs. The fair values were calculated utilizing quoted prices for 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. 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, 2011 and 2010 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, 2011 and 2010.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair value of Valley’s
derivatives are determined using third party prices that are based on discounted cash flow analyses using
observed market interest rate curves and volatilities. 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, 2011 and 2010.
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 an impairment loss is recognized). 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.
The following table summarizes assets measured at fair value on a non-recurring basis in 2011 and 2010 that
were still held in the balance sheet at each respective year end:
Significant
Unobservable
Inputs (Level 3)
As of December 31,
2011
2010
(in thousands)
Collateral dependent impaired loans* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$66,854
9,078
15,874
$53,330
11,328
19,986
* Excludes pooled covered loans acquired in the FDIC-assisted transactions.
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 estimated using Level 3 inputs, consisting of individual appraisals that are
significantly adjusted based on customized discounting criteria. During the years ended December 31, 2011 and
2010, 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 $16.9
million and $8.3 million for the years ended December 31, 2011 and 2010, respectively. At December 31, 2011,
collateral dependent impaired loans (mainly consisting of commercial and industrial, commercial real estate, and
construction loans) with a recorded investment of $74.3 million were reduced by specific valuation allowance
allocations totaling $7.4 million to a reported net carrying amount of $66.9 million. At December 31, 2010,
collateral dependent impaired loans with a recorded investment of $54.4 million were reduced by specific
valuation allowance allocations totaling $1.1 million to a reported net carrying amount of $53.3 million.
Loan servicing rights. Fair values for each risk-stratified group of loan servicing rights 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.
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 amortized cost of a risk-stratified group of
loan servicing rights exceeds the estimated fair value. For the years ended December 31, 2011 and 2010, Valley
recognized net impairment charges of $1.5 million and $551 thousand, respectively, on loan servicing rights.
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 adjusted based on customized discounting criteria. During the years ended December 31, 2011 and 2010,
foreclosed assets measured at fair value upon initial recognition and subsequent re-measurement totaled $15.9
million and $20.0 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 $3.9
million and $8.1 million during 2011 and 2010, respectively. During 2011, the re-measurement of foreclosed
assets at fair value subsequent to initial recognition resulted in losses of $1.3 million included in non-interest
expense.
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,
2011, 2010 and 2009:
Reported in
Consolidated Statements
of Financial Condition
Reported in
Consolidated Statements
of Income
Gains (Losses) on Change in Fair Value
2011
2010
2009
(in thousands)
Assets:
Available for sale securities
Trading securities
Loans held for sale
Liabilities:
Junior subordinated debentures
Net impairment losses on securities . . . $(19,968)* $ (4,642) $ (6,352)
5,394
Trading gains (losses), net
8,937
Gains on sales of loans, net
. . . . . . . . .
. . . . . . . .
(1,056)
12,591
1,015
10,699
issued to capital trusts
Trading gains (losses), net
. . . . . . . . .
1,256
(5,841)
(15,828)
$ (6,998) $ 1,052
$ (7,849)
* Includes $18.3 million related to impaired trust preferred securities transferred from held-to-maturity to
available for sale at December 31, 2011.
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.
111
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,
2011 and 2010:
Financial assets
2011
2010
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(in thousands)
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposits 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 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 372,566
6,483
1,958,916
566,520
21,938
25,169
9,665,839
52,527
$ 372,566
6,483
2,027,197
566,520
21,938
25,169
9,645,517
52,527
$ 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
129,669
5,211
129,669
5,211
139,778
8,414
139,778
8,414
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
$160,478 at December 31, 2011 and $161,734 at
December 31, 2010 for VNB Capital Trust I) . . . . .
Accrued interest payable (2) . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(2)
Included in other assets.
Included in accrued expenses and other liabilities.
7,171,718
2,501,384
212,849
2,726,099
7,171,718
2,557,119
215,179
3,154,150
6,630,763
2,732,851
192,318
2,933,858
6,630,763
2,783,680
195,360
3,201,090
185,598
3,798
21,854
186,098
3,798
21,854
186,922
4,344
1,379
187,480
4,344
1,379
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial instruments with off-balance sheet risk, consisting of loan commitments and standby letters of
credit, had immaterial estimated fair values at December 31, 2011 and 2010.
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 because of the short maturity of these items.
Investment securities held to maturity. Fair values are based on prices obtained through an independent
pricing service or dealer market participants with 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 evaluates the appropriateness and quality of each price.
Additionally, Valley reviews the volume and level of activity for all classes of held to maturity securities and
attempts 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 based on Level 3 inputs. If
applicable, the adjustment to fair value is 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 due to the short-term nature of these items.
Federal Reserve Bank and Federal Home Loan Bank stock. The redeemable carrying amount of these
securities with limited marketability approximates their fair value.
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.
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
INVESTMENT SECURITIES (Note 4)
As of December 31, 2011, Valley had approximately $2.0 billion, $566.5 million, and $21.9 million in held
to maturity, available for sale, and trading investment securities, respectively. Valley records impairment charges
on its investment securities when the decline in fair value is considered other-than-temporary. Numerous factors,
including lack of liquidity for re-sales of certain investment securities; decline in the creditworthiness of the
issuer; absence of reliable pricing information for investment securities; adverse changes in business climate;
adverse actions by regulators; prolonged decline in value of equity investments; 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 (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 unpredictable nature of the U.S. economy and its potential
negative effect on the future performance of the security issuers and, if applicable, the underlying mortgage loan
collateral of the security.
Held to Maturity
The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at
December 31, 2011 and 2010 were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair
Value
December 31, 2011
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . . .
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . .
$ 100,018
433,284
1,180,104
193,312
52,198
$13,841
19,931
51,041
4,308
3,799
$ — $ 113,859
453,201
1,230,993
174,753
54,391
(14)
(152)
(22,867)
(1,606)
Total investment securities held to maturity . . . . . . . . . . .
$1,958,916
$92,920
$(24,639) $2,027,197
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
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The age of unrealized losses and fair value of related securities held to maturity at December 31, 2011 and
2010 were as follows:
Less than
Twelve Months
More than
Twelve Months
Total
Fair Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thousands)
December 31, 2011
Obligations of states and political subdivisions . . . $
Residential mortgage-backed securities . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . .
1,854 $
33,520
35,527
14,756
50 $
(13) $
(152)
—
(730) 55,612
7,560
(192)
(1) $
—
(22,137)
(1,414)
1,904 $
33,520
91,139
22,316
(14)
(152)
(22,867)
(1,606)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,657 $(1,087) $63,222 $(23,552) $148,879 $(24,639)
December 31, 2010
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . $ 57,027 $ (909) $ — $ — $ 57,027 $
Obligations of states and political subdivisions . . .
Residential mortgage-backed securities . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . .
50
—
(250) 75,477
8,761
(13)
— 123,449
— 226,135
89,629
16,732
123,399
226,135
14,152
7,971
(59,115)
(213)
(3,467)
(3,081)
(909)
(3,467)
(3,081)
(59,365)
(226)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $428,684 $(7,720) $84,288 $(59,328) $512,972 $(67,048)
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,
2011 was 28 as compared to 153 at December 31, 2010.
At December 31, 2011, the unrealized losses reported for trust preferred securities mostly related to 12
single-issuer securities, issued by bank holding companies. Of the 12 trust preferred securities, 5 were investment
grade, 2 were non-investment grade, and 5 were not rated.
At December 31, 2011, Valley recorded $18.3 million of other-than-temporary impairment charges
attributable to credit factors on trust preferred securities issued by one bank holding company. After the credit
impairment charges, the trust preferred securities had a combined adjusted amortized cost of $46.4 million and a
fair value of $23.5 million at December 31, 2011. In connection with its impairment analysis at year end 2011,
Valley determined that it no longer had a positive intent to hold these securities to their maturity due to the
significant decline in the securities’ fair value caused by the deterioration in creditworthiness of the issuer. As a
result, and in accordance with ASC 320, management transferred the securities from the held to maturity
portfolio to the available for sale portfolio at December 31, 2011. See “Other-Than-Temporarily Impaired
Securities” section below for further details.
All single-issuer bank trust preferred securities classified as held to maturity are paying in accordance with
their terms, have no deferrals of interest or defaults and, if applicable, the issuers meet the regulatory capital
requirements to be considered “well-capitalized institutions” at December 31, 2011.
Management does not believe that any individual unrealized loss as of December 31, 2011 included in the
table above represents other-than-temporary impairment as management mainly attributes the declines in fair
value to changes in interest rates, widening credit spreads, 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.
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2011, 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 $1.1 billion.
The contractual maturities of investments in debt securities held to maturity at December 31, 2011 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, 2011
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 . . . . . . . . . . .
$ 129,523
44,746
189,250
415,293
1,180,104
$ 129,775
45,839
210,535
410,055
1,230,993
Total investment securities held to maturity . . . .
$1,958,916
$2,027,197
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 3.6 years at December 31, 2011.
Available for Sale
The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at
December 31, 2011 and 2010 were as follows:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
(in thousands)
December 31, 2011
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,748
20,214
310,137
63,858
39,610
41,953
Total investment securities available for sale . . . . . . . . . . . . . . $ 598,837 $17,428 $(49,745) $ 566,520
89,787 $ 1,204 $
18,893
304,631
96,956
40,638
47,932
(243) $
(1)
(5,444)
(33,176)
(3,582)
(7,299)
1,322
10,950
78
2,554
1,320
December 31, 2010
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162,404 $ 1,406 $ — $ 163,810
88,800
U.S. government agency securities . . . . . . . . . . . . . . . . . . . . . . . . . .
29,462
Obligations of states and political subdivisions . . . . . . . . . . . . . . . .
610,358
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . .
41,083
Trust preferred securities* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,961
Corporate and other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
47,808
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available for sale . . . . . . . . . . . . . . $1,014,006 $42,248 $(20,972) $1,035,282
(152)
(3)
(2,940)
(14,119)
(2,030)
(1,728)
88,926
28,231
578,282
54,060
53,379
48,724
26
1,234
35,016
1,142
2,612
812
* Includes three pooled trust preferred securities, principally collateralized by securities issued by banks and
insurance companies.
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The age of unrealized losses and fair value of related securities available for sale at December 31, 2011 and
2010 were as follows:
December 31, 2011
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less than
Twelve Months
More than
Twelve Months
Total
Fair
Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thousands)
$ 7,980
$ (243) $ — $ — $
7,980
$
(243)
141
41,673
23,962
3,243
20,570
$97,569
—
(1)
22,639
(1,655)
38,191
(1,061)
6,567
(173)
(4,430)
12,551
$(7,563) $ 79,948
—
(3,789)
(32,115)
(3,409)
(2,869)
141
64,312
62,153
9,810
33,121
$(42,182) $177,517
(1)
(5,444)
(33,176)
(3,582)
(7,299)
$(49,745)
$66,157
$ (152) $ — $ — $ 66,157
$
(152)
1,146
11,439
1,262
—
1,538
$81,542
(3)
(350)
(153)
—
(243)
—
46,206
33,831
7,944
13,736
$ (901) $101,717
—
(2,590)
(13,966)
(2,030)
(1,485)
1,146
57,645
35,093
7,944
15,274
$(20,071) $183,259
(3)
(2,940)
(14,119)
(2,030)
(1,728)
$(20,972)
The total number of security positions in the securities available for sale portfolio in an unrealized loss
position at both December 31, 2011 and 2010 was 43.
Within the residential mortgage-backed securities category of
the available for sale portfolio at
December 31, 2011, of the total $5.4 million unrealized losses, $2.3 million relate to five private label mortgage-
backed securities that were other-than-temporarily impaired prior to 2011, with the exception of one, which was
found to be other-than-temporarily impaired during the fourth quarter of 2011. See the “Other-Than-Temporarily
Impaired Securities” section below for further details. The remaining $3.1 million of unrealized losses relate
mainly to one investment grade private label mortgage-backed security.
The unrealized losses for trust preferred securities at December 31, 2011, in the table above relate to 3
pooled trust preferred and 15 single-issuer bank issued trust preferred securities. The unrealized losses include
$22.9 million attributable to trust preferred securities issued by one bank holding company with an amortized
cost of $46.4 million and a fair value of $23.5 million, and $8.2 million attributable to 3 pooled trust preferred
securities with an amortized cost of $20.0 million and a fair value of $11.8 million. The two trust preferred
issuances by one bank holding company, previously classified as a held to maturity, were found be other-than-
temporarily impaired during the fourth quarter of 2011 and subsequently transferred to the available for sale
portfolio. The three pooled trust preferred securities included one security with an unrealized loss of $6.6 million
and an investment grade rating at December 31, 2011. The other two pooled trust preferred securities had
non-investment grade ratings and were initially other-than-temporarily impaired in 2008 with additional
estimated credit losses recognized during the period 2009 through 2011. See “Other-Than-Temporarily Impaired
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Securities” section below for more details. All of the remaining single-issuer trust preferred securities are all
paying in accordance with their terms and have no deferrals of interest or defaults.
Unrealized losses existing for more than twelve months reported for corporate and other debt securities at
December 31, 2011 relate almost entirely to one investment grade bank-issued corporate bond with a $10.0
million amortized cost and a $3.4 million unrealized loss that is paying in accordance with its contractual terms.
The unrealized losses on equity securities, including those existing for more than twelve months, are related
primarily to three perpetual preferred security positions with a combined $35.0 million amortized cost and a $7.2
million unrealized loss. At December 31, 2011, 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, 2011 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,
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, 2011, 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 $385 million.
The contractual maturities of investments securities available for sale at December 31, 2011, 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, 2011
Amortized
Cost
Fair
Value
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(in thousands)
452
2,599
94,440
148,783
304,631
47,932
455
2,550
97,261
114,164
310,137
41,953
Total investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$598,837
$566,520
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, 2011 was 3.6 years.
Other-Than-Temporary Impairment Analysis
To determine whether a security’s impairment is other-than-temporary, Valley considers several factors that
include, but are not limited to the following:
• The severity and duration of the decline, including the causes of the decline in fair value, such as an
issuer’s credit problems, interest rate fluctuations, or market volatility;
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
• Adverse conditions specifically related to the issuer of the security, an industry, or geographic area;
•
Failure of the issuer of the security to make scheduled interest or principal payments;
• Any changes to the rating of the security by a rating agency or, if applicable, any regulatory actions
impacting the security issuer;
• Recoveries or additional declines in fair value after the balance sheet date;
• 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.
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 or loss. The total other-
than-temporary impairment
less the portion
recognized in other comprehensive income or loss. Subsequent assessments may result in additional estimated
credit
losses are recorded as
from the portion of other-than-temporary impairment previously recognized in other
reclassifications
comprehensive income or loss to earnings in the period of such assessments. The amortized cost basis of an
impaired debt security is reduced by the portion of the total impairment related to credit loss.
losses on previously impaired securities. These additional estimated credit
loss is presented in the consolidated statements of income,
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 is identified to
determine whether other-than-temporary impairment exists.
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. Over the past several years, an increasing number of banking institutions have been required
to defer trust preferred payments and various banking institutions have been put in receivership by the FDIC. A
deferral event by a bank holding company for which Valley holds trust preferred securities may require the
recognition of an other-than-temporary impairment charge if Valley determines that it is more likely than not that
all contractual interest and principal cash flows may not be collected. Among other factors, the probability of the
collection of all interest and principal determined by Valley in its impairment analysis declines if there is an
increase in the estimated deferral period of the issuer. Additionally, a FDIC receivership for any single-issuer
would result in an impairment and significant loss. Including the other factors outlined above, Valley analyzes
the performance of the issuers on a quarterly basis, including a review of performance data from the issuers’
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’ had capital ratios at December 31, 2011 that were 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 of the trust preferred securities. However, Valley lengthened the estimate of
the timeframe over which it could reasonably anticipate receiving the expected cash flows from one deferring
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
bank holding company issuer at December 31, 2011 resulting in the $18.3 million credit impairment charge noted
in the “Held to Maturity” section above. See “Other-Than-Temporarily Impaired Securities” section below for
further details.
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 affects the cash flows projected for
the tranche held by Valley, 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
during 2009 and 2010. One of the two pooled trust preferred securities had additional estimated credit losses
recognized during the first quarter of 2011. 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,
2011. 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
losses on
securities recognized in earnings for the years ended December 31, 2011, 2010 and 2009.
2011
2010
2009
(in thousands)
Held to maturity:
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,314
$ — $ —
Available for sale:
Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
829
825
—
2,265
2,377
—
5,735
183
434
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . . . . . . .
$19,968
$4,642
$6,352
Impaired Trust Preferred Securities. During the fourth quarter of 2011, Valley recognized credit
impairment charges totaling $18.3 million related to the trust preferred securities of two issuances by one bank
holding company, which were classified as held to maturity. In August and October of 2009, the issuer was
required to defer its scheduled interest payments on each respective security issuance based upon an operating
agreement with its bank regulators. From the dates of deferral up to and including the bank holding company’s
most recent regulatory filing, the bank issuer continued to accrue and capitalize the interest owed, but not
remitted to its trust preferred security holders, and at the holding company level it reported cash and cash
equivalents in excess of the cumulative amount of accrued but unpaid interest owed on all of its junior
subordinated debentures related to trust preferred securities. Additionally, the issuer reported that it raised new
common capital and increased all its bank regulatory risk ratios, and that it has consistently met the minimum
well-capitalized requirements (each quarter) since the date of the interest deferral on both issuances. However, in
assessing whether a credit loss exists for the securities of the deferring issuer, Valley considers numerous other
limited to, such factors highlighted in the “Other-Than-Temporary Impairment
factors,
Analysis” section above. While the issuer has reported reasonably consistent financial performance in its recent
including but not
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
regulatory filings, Valley lengthened its estimate of the timeframe over which it could reasonably anticipate
receiving the expected cash flows and, as a result, concluded that the securities were other-than-temporarily
impaired at December 31, 2011. The total impairment loss of $41.2 million on these securities consisted of the
aforementioned $18.3 million attributable to credit and $22.9 million attributable to factors other than credit.
After recognition of the credit impairment charges, the trust preferred securities had a combined amortized cost
of $46.4 million and a fair value of $23.5 million at December 31, 2011. In connection with its impairment
analysis at year end 2011, Valley determined that it no longer had a positive intent to hold these securities to their
maturity due to the significant decline in the securities’ fair value caused by the deterioration in the
creditworthiness of the issuer. As a result, these securities were transferred from the held to maturity portfolio to
the available for sale portfolio at December 31, 2011. However, 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.
The other-than-temporary impairment charges on trust preferred securities classified as available for sale
reported in the table above all relate to two pooled trust preferred securities with a combined amortized cost and
fair value of $5.4 million and $3.7 million, respectively, at December 31, 2011, after recognition of all credit
impairments. These securities were initially found to be other-than-temporarily impaired in 2008, as each of
Valley’s tranches in the securities had projected cash flows below their future contractual principal and interest
payments. Additional estimated credit losses were recognized on one or both of these securities during 2009
through 2011, as higher default rates decreased the expected cash flows from the securities.
All of the impaired trust preferred securities discussed above are not accruing interest as of December 31,
2011. As disclosed in Note 1, Valley discontinues the recognition of interest on debt securities if the securities
meet both of the following criteria: (i) regularly scheduled interest payments have not been paid or have been
deferred by the issuer, and (ii) full collection of all contractual principal and interest payments is not deemed to
be the most likely outcome, resulting in the recognition of other-than-temporary impairment of the security.
Impaired Residential Mortgage-Backed Securities. During 2011, Valley recognized an initial impairment
charge of $829 thousand on one of the 17 individual private label mortgage-backed securities classified as
available for sale at December 31, 2011. Five other private label mortgage-backed securities were impaired
during 2010. Of the five securities impaired during 2010, four were also impaired during 2009 and responsible
for the total other-than-temporary impairment losses on residential mortgage-backed securities for 2009 in the
table above. At December 31, 2011, the six impaired private label mortgage-backed securities had a combined
amortized cost of $52.3 million and fair value of $50.2 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.
Impaired Equity Securities. During the year ended December 31, 2009, Valley recognized other-than-
temporary impairment charges of $434 thousand on equity securities classified as available for sale, which relates
to one common equity security issued by a bank. 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. At December 31, 2011, the security had a carrying value of $940 thousand and
an unrealized gain of $217 thousand.
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Realized Gains and Losses
Gross gains (losses) realized on sales, maturities and other securities transactions included in earnings for
the years ended December 31, 2011, 2010 and 2009 were as follows:
Sales transactions:
Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,456
—
$ 8,615
(96)
$8,006
(36)
2011
2010
2009
(in thousands)
Maturities and other securities transactions:
Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,456
$ 8,519
$7,970
$
$
623
(11)
612
$ 3,158
(79)
$ 3,079
$
$
79
(44)
35
Gains on securities transactions, net
. . . . . . . . . . . . . . . . . . . . . . . . . .
$32,068
$11,598
$8,005
During year ended December 31, 2011, Valley recognized $31.5 million of gross gains on sales transactions
mainly due to the sales of certain residential mortgage-backed securities classified as available for sale issued by
Ginnie Mae and government sponsored enterprises totaling $651.7 million. Valley recorded trade date
receivables of approximately $141.1 million for unsettled sales of securities classified as available for sale, which
are included in other assets at December 31, 2011.
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 or loss for the years ended December 31, 2011, 2010, and 2009:
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,500 $ 6,119 $ 549
Additions:
Initial credit impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsequent credit impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,143
825
124
4,518
2,171
3,747
Reductions:
Accretion of credit loss impairment due to anincrease in expected cash flows . . . .
(1,398)
(261)
(348)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,070 $10,500 $6,119
2011
2010
2009
(in thousands)
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 each period 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.
122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Trading Securities
The fair value of trading securities (consisting of 3 and 4 single-issuer bank trust preferred securities at
December 31, 2011 and 2010, respectively) was $21.9 million and $31.9 million at December 31, 2011 and 2010,
respectively. Interest income on trading securities totaled $2.1 million, $2.6 million, and $3.8 million for the
years ended December 31, 2011, 2010 and 2009, respectively.
LOANS (Note 5)
The detail of the loan portfolio as of December 31, 2011 and 2010 was as follows:
2011
2010
(in thousands)
Non-covered loans:
Commercial and industrial
Commercial real estate:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,878,387
$1,825,066
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,574,089
411,003
3,378,252
428,232
Total commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,985,092
3,806,484
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,285,590
1,925,430
469,604
772,490
136,634
512,745
850,801
88,614
Total consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,378,728
1,452,160
Total non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,527,797
9,009,140
Covered loans:
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
83,742
160,651
6,974
15,546
4,931
271,844
$ 121,151
195,646
16,153
17,026
6,679
356,655
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,799,641
$9,365,795
Total non-covered loans are net of unearned discount and deferred loan fees totaling $7.5 million and $9.3
million at December 31, 2011 and 2010, respectively. Covered loans had outstanding contractual principal
balances totaling approximately $398.2 million and $497.0 million at December 31, 2011 and 2010, respectively.
Valley purchased approximately $33 million of loans almost entirely consisting of automobile loans during
the year ended December 31, 2011. There were no sales of loans, other than from the held for sale loan portfolio,
or transfers from loans held for investment to loans held for sale during the year ended December 31, 2011.
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), and 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 initial carrying amount (fair value) of the covered loans, or the
“accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool.
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, as a loss accrual or a
valuation allowance. See the “Loans Acquired Through Transfer (Including Covered Loans)” section of Note 1
for further details regarding accounting policies for covered loans.
The Bank periodically evaluates the remaining contractual required payments due and estimates of cash
flows expected to be collected. These evaluations, performed quarterly, require the continued use of key
assumptions and estimates, similar to the initial estimate of fair value. Changes in the contractual required
payments due and estimated cash flows expected to be collected may result in changes in the accretable yield and
non-accretable difference or reclassifications between accretable yield and the non-accretable difference. During
2011, on an aggregate basis the acquired pools of covered loans performed better than originally expected, and
based on our current estimates, we expect to receive more future cash flows than originally modeled at the
acquisition dates. For the pools with better than expected cash flows, the forecasted increase is recorded as an
additional accretable yield that
income on loans.
Additionally, the FDIC loss-share receivable is prospectively reduced by the guaranteed portion of the additional
cash flows expected to be received, with a corresponding reduction to non-interest income.
is recognized as a prospective increase to our interest
Changes in the accretable yield for covered loans were as follows for the year ended December 31, 2011 and
2010:
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101,052
—
(40,345)
6,017
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net reclassification from non-accretable difference . . . . . . . . . . .
$ —
69,659
(20,547)
51,940
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,724
$101,052
2011
2010
(in thousands)
Valley reclassified $6.0 million and $51.9 million during 2011 and 2010, respectively,
from the
non-accretable difference for covered loans due to increases in expected cash flows for certain pools of covered
loans. This amount is recognized prospectively as an adjustment to yield over the life of the individual pools.
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 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.
Changes in FDIC loss-share receivable for the years ended December 31, 2011 and 2010 were as follows:
2011
2010
(in thousands)
Balance, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,359
—
582
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount accretion of the present value at the acquisition dates . .
Effect of additional cash flows on covered loans (prospective
recognition) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to impairment on covered loans . . . . . . . . . . . . . . . .
Other reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursements from the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,592)
19,520
3,893
(28,372)
Balance, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,390
$ —
108,000
1,166
—
5,102
2,561
(27,470)
$ 89,359
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Valley recognized approximately $13.4 million and $6.3 million in non-interest income for the years ended
December 31, 2011 and 2010, respectively, related to discount accretion and the post-acquisition adjustments to
the FDIC loss-share receivable included in the table above.
Related Party Loans
In the ordinary course of business, Valley has granted loans to certain directors, executive officers and their
affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable transactions with other
unaffiliated persons and do not involve more than normal risk of collectability.
The following table summarizes the changes in the total amounts of loans and advances to the related parties
during the year ended December 31, 2011:
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . .
New loans and advances . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
(in thousands)
$198,750
18,012
(23,190)
(230)
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
$193,342
All loans to related parties are performing as of December 31, 2011.
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 management review process by providing management with frequent reports concerning
loan production,
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.
loan quality, concentrations of credit,
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.
Unsecured loans, when made, are generally granted to the Bank’s most credit worthy borrowers. Unsecured
commercial and industrial loans totaled $337.7 million and $451.7 million at December 31, 2011 and 2010,
respectively.
Commercial real estate loans. Commercial real estate loans are subject to underwriting standards and
processes similar to commercial and industrial loans. Commercial real estate loans are viewed primarily as cash
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 based on underwriting standards
that comply with Fannie Mae and/or Freddie Mac requirements. 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 regulatory requirements and guidance issued by 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, the 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. In deciding whether to originate each residential mortgage, Valley
considers the qualifications of the borrower as well as the value of the underlying property.
Home equity loans. Home equity lending consists of both fixed and variable interest rate products. 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. 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.
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other consumer loans. Valley’s other consumer loan portfolio includes direct consumer term loans, both
secured and unsecured. The other consumer loan portfolio includes 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 loans and lines of credit was not significant at December 31, 2011. Unsecured
consumer loans totaled approximately $66.5 million and $30.7 million including $9.1 million and $9.7 million of
credit card loans at December 31, 2011 and 2010, respectively.
Credit Quality
The following tables present past due, non-accrual and current non-covered loans by loan portfolio class at
December 31, 2011 and 2010:
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)
. . .
$ 4,347
$ 657
$ 26,648
$ 31,652
$1,846,735
$1,878,387
December 31, 2011
Commercial and industrial
Commercial real estate:
Commercial real estate . .
Construction . . . . . . . . . .
13,115
2,652
Total commercial real estate
loans . . . . . . . . . . . . . . . . . .
15,767
Residential mortgage . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . .
Automobile . . . . . . . . . . .
Other consumer . . . . . . . .
Total consumer loans . . . . . . .
8,496
989
7,794
192
8,975
422
1,823
2,245
763
13
303
35
351
42,186
19,874
62,060
31,646
2,700
461
749
3,910
55,723
24,349
3,518,366
386,654
3,574,089
411,003
80,072
3,905,020
3,985,092
40,905
2,244,685
2,285,590
3,702
8,558
976
465,902
763,932
135,658
469,604
772,490
136,634
13,236
1,365,492
1,378,728
Total
. . . . . . . . . . . . . . . .
$37,585
$4,016
$124,264
$165,865
$9,361,932
$9,527,797
December 31, 2010
Commercial and industrial
Commercial real estate:
. . .
$13,852
$
12
$ 13,721
$ 27,585
$1,797,481
$1,825,066
Commercial real estate . .
Construction . . . . . . . . . .
14,563
2,804
Total commercial real estate
loans . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . .
Automobile . . . . . . . . . . .
Other consumer . . . . . . . .
Total consumer loans . . . . . . .
17,367
12,682
1,045
13,328
265
14,638
—
196
196
1,556
—
686
37
723
32,981
27,312
60,293
28,494
1,955
539
53
2,547
47,544
30,312
3,330,708
397,920
3,378,252
428,232
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
* Past due loans and non-accrual
loans exclude loans that were acquired as part of the FDIC-assisted
transactions. These loans are accounted for on a pooled basis.
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
If interest on non-accrual loans had been accrued in accordance with the original contractual terms, such
interest income would have amounted to approximately $6.9 million, $7.9 million and $6.5 million for the years
ended December 31, 2011, 2010, and 2009, respectively; none of these amounts were included in interest income
during these periods. Interest income recognized on a cash basis for loans classified as non-accrual totaled $1.6
million (including $1.1 million of interest income on impaired loans) for the year ended December 31, 2011.
Interest income recognized on cash basis was immaterial for the years ended December 31, 2010, and 2009.
Impaired loans. Impaired loans consisting of non-accrual commercial and industrial loans and commercial
real estate loans over $250 thousand and all troubled debt restructured loans are individually evaluated for
impairment. See the “Allowance for Credit Losses” section of Note 1 for details regarding the accounting policy
for impaired loans.
The following table presents the information about impaired loans by loan portfolio class at December 31,
2011 and 2010:
December 31, 2011
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
Unpaid
Contractual
Principal
Balance
Related
Allowance
(in thousands)
$ 6,193
$ 48,665
$ 54,858
$ 71,111
$11,105
26,741
4,253
30,994
998
—
—
56,978
19,998
76,976
20,007
242
242
83,719
24,251
91,448
28,066
107,970
119,514
21,005
22,032
242
242
242
242
7,108
1,408
8,516
3,577
45
45
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$38,185
$145,890
$184,075
$212,899
$23,243
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 . . . . . . . . . . . . . . . .
$ 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
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents, by loan portfolio class, the average recorded investment and interest income
recognized on impaired loans for the year ended December 31, 2011:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate:
December 31, 2011
Average
Recorded
Investment
Interest
Income
Recognized
(in thousands)
$ 43,095
$1,457
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,542
31,897
Total commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,439
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,015
109
109
3,043
1,141
4,184
706
3
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$170,658
$6,350
The average balance of impaired loans was approximately $104.1 million and $49.8 million for the years
ended December 31, 2010, and 2009, respectively. Interest income recognized on total impaired loans during the
years ended December 31, 2010 and 2009 was immaterial.
Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify
the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well
as assist other customers who maybe experiencing financial difficulties. If the borrower is experiencing financial
difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled
debt restructured loan (“TDR”). Purchased impaired loans, consisting of Valley’s covered loans, are excluded
from the TDR disclosures below because they are evaluated for impairment on a pool by pool basis. When a loan
within the pool is modified as a TDR, it is not removed from its pool.
The majority of the concessions made for TDRs involve lowering the monthly payments on 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. The
concessions rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains
additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated
performance under the previous terms and Valley’s underwriting process shows the borrower has the capacity to
continue to perform under the restructured terms,
the loan will continue to accrue interest. Non-accruing
restructured loans may be returned to accrual status when there has been a sustained period of repayment
performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
As a result of the adoption of ASU 2011-02 during the third quarter of 2011, Valley reassessed all loan
restructurings that occurred on or after January 1, 2011 for potential identification as TDRs and concluded that
the adoption did not materially impact the number of TDRs identified by Valley, or the specific reserves for such
loans included in our allowance for loan losses.
Performing TDRs (not reported as non-accrual loans) totaled $101.0 million and $89.7 million as of
December 31, 2011 and 2010, respectively. Non-performing TDRs totaled $15.5 million and $9.4 million as of
December 31, 2011 and 2010, respectively. All TDRs are classified as impaired loans and are included in the
impaired loans section above.
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents non-covered loans by loan class modified as TDRs during the year ended
December 31, 2011. The pre-modification and post-modification outstanding recorded investments disclosed in
the table below represent the loan carrying amounts immediately prior to the modification and the carrying
amounts at December 31, 2011, respectively.
Troubled Debt
Restructurings
December 31, 2011
Number of
Contracts
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstading
Recorded Investment
($ in thousands)
Commercial and industrial* . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate:
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
$29,142
7
2
9
5
1
12,890
3,422
16,312
1,237
58
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
$46,749
$28,866
12,777
3,422
16,199
1,223
58
$46,346
*
Includes 9 finance leases with pre and post-modification outstanding recorded investments totaling
$372 thousand and $294 thousand, respectively.
The majority of the TDR concessions made during the year ended December 31, 2011 involved an extension
of the loan term and/or an interest rate reduction. The TDRs presented in the table above had allocated specific
reserves for loan losses totaling $9.0 million at December 31, 2011. These specific reserves are included in the
allowance for loan losses for loans individually evaluated for impairment disclosed in Note 6. There were no
charge-offs resulting from loans modified as TDRs during the year ended December 31, 2011.
Non-covered loans modified as TDRs within the 12 months previous to December 31, 2011, for which there
was a subsequent default (90 days or more past due) consisted of one commercial loan and two residential
mortgages with recorded investments of $1.9 million and $399 thousand at December 31, 2011, respectively.
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 as 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.
130
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, 2011 and 2010.
Credit exposure - by internally assigned risk rating
Pass
Special
Mention
Substandard Doubtful
Total
(in thousands)
December 31, 2011
Commercial and industrial . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,669,943
3,350,475
329,848
$ 95,726
82,612
42,845
$112,186
141,002
38,114
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,350,266
$221,183
$291,302
December 31, 2010
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
$532
—
196
$728
$ 76
—
—
$ 76
$1,878,387
3,574,089
411,003
$5,863,479
$1,825,066
3,378,252
428,232
$5,631,550
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 and by payment activity. The following table
presents the recorded investment in those loan classes based on payment activity as of December 31, 2011 and
2010:
Credit exposure - by payment activity
December 31, 2011
Performing
Loans
Non-Performing
Loans
Total
Loans
(in thousands)
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,253,944
466,904
772,029
135,885
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,628,762
December 31, 2010
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,896,936
510,790
850,262
88,561
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,346,549
$31,646
2,700
461
749
35,556
$28,494
1,955
539
53
$31,041
$2,285,590
469,604
772,490
136,634
3,664,318
$1,925,430
512,745
850,801
88,614
$3,377,590
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Valley evaluates the credit quality of its covered loan pools based on the expectation of the underlying cash
flows, derived from the aging status and by payment activity. The following table presents the recorded
investment in covered loans by class based on individual loan payment activity as of December 31, 2011 and
2010.
Credit exposure - by payment activity
December 31, 2011
Performing
Loans
Non-Performing
Loans
Total
Loans
(in thousands)
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 67,424
112,047
623
10,118
4,931
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,143
December 31, 2010
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 97,319
149,817
6,411
13,894
6,679
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$274,120
$16,318
48,604
6,351
5,428
—
76,701
$23,832
45,829
9,742
3,132
—
$82,535
$ 83,742
160,651
6,974
15,546
4,931
271,844
$121,151
195,646
16,153
17,026
6,679
$356,655
ALLOWANCE FOR CREDIT LOSSES (Note 6)
The allowance for credit losses consists of the allowance for losses on non-covered loans and allowance for
losses on covered loans related to credit impairment of certain covered loan pools subsequent to acquisition, as well
as the allowance for unfunded letters of credit. 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.
The following table summarizes the allowance for credit losses for the years ended December 31, 2011 and
2010:
Components of allowance for credit losses:
Allowance for non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$120,274
13,528
$118,326
6,378
Total allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for unfunded letters of credit
133,802
2,383
124,704
1,800
Total allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$136,185
$126,504
2011
2010
(in thousands)
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the provision for credit losses for the periods indicated:
Components of provision for credit losses:
Provision for non-covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,242
21,510
$42,943
6,378
$47,821
—
Total provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for unfunded letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,752
583
49,321
135
47,821
171
Total provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,335
$49,456
$47,992
2011
2010
2009
(in thousands)
The following table details the activity in the allowance for loan losses by portfolio segment for the years
ended December 31, 2011 and 2010, including both covered and non-covered loans:
Commercial
and
Industrial
Commercial
Real Estate
Residential
Mortgage
Consumer Unallocated
Total
(in thousands)
December 31, 2011
Allowance for loan losses:
Beginning balance . . . . . . . . . . . . . . . . . .
Loans charged-off (1) . . . . . . . . . . . .
Charged-off loans recovered . . . . . .
Net charge-offs . . . . . . . . . . . .
Provision for loan losses (2) . . . . . . .
$ 61,967
(29,229)
2,365
(26,864)
38,546
$ 30,409
(10,358)
331
(10,027)
14,255
$ 9,476
(3,222)
129
(3,093)
2,737
$ 14,499
(5,906)
2,236
$8,353
—
—
(3,670)
(2,152)
—
(634)
$124,704
(48,715)
5,061
(43,654)
52,752
Ending balance . . . . . . . . . . . . . . . . . . . .
$ 73,649
$ 34,637
$ 9,120
$ 8,677
$7,719
$133,802
December 31, 2010
Allowance for loan losses:
Beginning balance . . . . . . . . . . . . . . . . . .
Loans charged-off . . . . . . . . . . . . . .
Charged-off loans recovered . . . . . .
Net charge-offs . . . . . . . . . . . .
Provision for loan losses (2) . . . . . . .
$ 49,267
(15,475)
4,121
(11,354)
24,054
$ 25,516
(3,561)
156
(3,405)
8,298
$ 5,397
(3,741)
97
(3,644)
7,723
$ 15,480
(10,882)
2,678
(8,204)
7,223
$6,330
—
—
—
2,023
$101,990
(33,659)
7,052
(26,607)
49,321
Ending balance . . . . . . . . . . . . . . . . . . . .
$ 61,967
$ 30,409
$ 9,476
$ 14,499
$8,353
$124,704
(1)
(2)
The allowance for covered loans was reduced by loan charge-offs totaling $14.4 million during 2011. There
were no charge-offs of covered loans during 2010. See Note 1 for Valley’s loan charge-off policies for
covered and non-covered loans.
The provision for covered loan losses totaled $21.5 million and $6.4 million for the years ended
December 31, 2011 and 2010, respectively.
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table represents the allocation of the allowance for loan losses and the related loans by loan
portfolio segment disaggregated based on the impairment methodology for the years ended December 31, 2011
and 2010. Loans individually evaluated for impairment represent Valley’s impaired loans. Loans acquired with
discounts related to credit quality represent Valley’s covered loans.
Commercial
and
Industrial
Commercial
Real Estate
Residential
Mortgage Consumer Unallocated
Total
(in thousands)
December 31, 2011
Allowance for loan losses:
Individually evaluated for impairment . . . . . . . $
Collectively evaluated for impairment . . . . . . .
Loans acquired with discounts related to credit
quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,105 $
51,588
8,516 $
23,611
3,577 $
5,481
45
8,632
$ —
7,719
$
10,956
2,510
62
—
—
23,243
97,031
13,528
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
73,649 $
34,637 $
9,120 $
8,677
$7,719
$ 133,802
Loans:
54,858 $ 107,970 $
21,005 $
1,823,529
3,877,122
2,264,585
242
1,378,486
$ —
—
$ 184,075
9,343,722
Individually evaluated for impairment . . . . . . . $
Collectively evaluated for impairment . . . . . . .
Loans acquired with discounts related to credit
quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,931
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,962,129 $4,152,717 $2,301,136 $1,383,659
167,625
15,546
83,742
—
271,844
$ —
$9,799,641
December 31, 2010
Allowance for loan losses:
Individually evaluated for impairment . . . . . . . $
Collectively evaluated for impairment . . . . . . .
Loans acquired with discounts related to credit
quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,397 $
6,141 $
50,032
23,776
2,683 $
6,445
5
14,494
$ —
8,353
$
15,226
103,100
5,538
492
348
—
—
6,378
61,967 $
30,409 $
9,476 $
14,499
$8,353
$ 124,704
Loans:
32,297 $ 103,322 $
18,585 $
1,792,769
3,703,162
1,906,845
83
1,452,077
$ —
—
$ 154,287
8,854,853
Individually evaluated for impairment . . . . . . . $
Collectively evaluated for impairment . . . . . . .
Loans acquired with discounts related to credit
quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,679
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,946,217 $4,018,283 $1,942,456 $1,458,839
211,799
121,151
17,026
—
356,655
$ —
$9,365,795
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
PREMISES AND EQUIPMENT, NET (Note 7)
At December 31, 2011 and 2010, premises and equipment, net consisted of:
2011
2010
(in thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,630
189,782
64,191
176,801
$ 56,837
184,404
62,050
169,963
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . .
488,404
(222,929)
473,254
(207,684)
Total premises and equipment, net . . . . . . . . . . . . . . . . . . . . .
$ 265,475
$ 265,570
Depreciation and amortization of premises and equipment included in non-interest expense for the years
ended December 31, 2011, 2010 and 2009 amounted to approximately $16.4 million, $15.8 million, and $15.3
million, respectively.
LOAN SERVICING (Note 8)
The Bank is a servicer of residential mortgage and SBA loan portfolios, and it 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 residential mortgage loans serviced by the
Bank for others approximated $1.3 billion at each of December 31, 2011, 2010 and 2009. The SBA loans
serviced by the Bank for third-party investors totaled $33.1 million, $38.4 million, and $37.8 million at
December 31, 2011, 2010 and 2009, respectively. The outstanding balance of all 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, 2011, 2010 and 2009:
2011
2010
2009
(in thousands)
Loan servicing rights
Balance at beginning of year . . . . . . . . . . . . . . . . . . .
Origination of loan servicing rights . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . .
$12,491
4,483
(4,074)
$11,722
4,182
(3,413)
$ 9,824
5,012
(3,114)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . .
$12,900
$12,491
$11,722
Valuation allowance
Balance at beginning of year . . . . . . . . . . . . . . . . . . .
Impairment adjustment . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,163)
(1,507)
$ (612)
(551)
$ (532)
(80)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,670)
$ (1,163)
$ (612)
Balance at end of year net of valuation allowance . . .
$10,230
$11,328
$11,110
Loan servicing rights are accounted for using the amortization method. See Note 9 for further details about
the amortization expense related to loan servicing rights.
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2009 . . . . . . . . . . . . . . .
Goodwill from business combinations . . . . . . . . .
Balance at December 31, 2010 . . . . . . . . . . . . . . .
Goodwill from business combinations . . . . . . . . .
$18,978
1,468
20,446
71
$93,805
5,194
98,999
—
(in thousands)
$107,969
9,720
117,689
—
$75,672
5,085
80,757
—
$296,424
21,467
317,891
71
Balance at December 31, 2011 . . . . . . . . . . . . . . .
$20,517
$98,999
$117,689
$80,757
$317,962
*
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 goodwill from business combinations during 2010 shown in the above table and disclosed in
Note 2 to the consolidated financial statements, Valley recorded $71 thousand in goodwill from a final earn-out
payment related to an acquisition by Valley in 2006. This earn-out payment was based upon predetermined
profitability targets in accordance with the merger agreement. There was no impairment of goodwill during the
years ended December 31, 2011, 2010, and 2009.
The following tables summarize other intangible assets as of December 31, 2011 and 2010:
December 31, 2011
Loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross
Intangible
Assets
Accumulated
Amortization
Valuation
Allowance
(in thousands)
Net
Intangible
Assets
$52,046
27,144
6,121
$(39,146)
(20,363)
(2,314)
$(2,670)
—
—
$10,230
6,781
3,807
Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$85,311
$(61,823)
$(2,670)
$20,818
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
Core deposits are amortized using an accelerated method and have a weighted average amortization period
of 10 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 16 years.
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, 2011, 2010 and 2009.
Valley recognized amortization expense on other intangible assets, including net impairment charges on
loan servicing rights, of $9.3 million, $7.7 million, and $6.9 million for the years ended December 31, 2011,
2010 and 2009, respectively.
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following presents the estimated amortization expense of other intangible assets over the next five year
period:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan
Servicing
Rights
Core
Deposits
(in thousands)
$2,455
1,858
1,262
782
342
$2,695
2,131
1,593
1,113
825
Other
$656
541
466
434
233
DEPOSITS (Note 10)
Included in time deposits at December 31, 2011 and 2010 are certificates of deposit over $100 thousand of
$1.1 billion and $1.2 billion, respectively. Interest expense on time deposits of $100 thousand or more totaled
approximately $8.5 million, $8.8 million, and $15.3 million in 2011, 2010 and 2009, respectively.
The scheduled maturities of time deposits as of December 31, 2011 are as follows:
Year
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$1,489,692
250,636
258,768
150,553
165,122
186,613
Total time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,501,384
Deposits from certain directors, executive officers and their affiliates totaled $54.5 million and $54.0
million at December 31, 2011 and 2010, respectively.
BORROWED FUNDS (Note 11)
Short-term borrowings at December 31, 2011 and 2010 consisted of the following:
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury tax and loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$212,849
—
$183,295
9,023
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$212,849
$192,318
2011
2010
(in thousands)
The weighted average interest rate for short-term borrowings was 0.25 percent and 0.45 percent at
December 31, 2011 and 2010, respectively.
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-term borrowings at December 31, 2011 and 2010 consisted of the following:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,036,690
587,500
100,000
1,909
$2,176,665
655,000
100,000
2,193
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,726,099
$2,933,858
2011
2010
(in thousands)
The long-term FHLB advances had a weighted average interest rate of 3.91 percent and 4.15 percent at
December 31, 2011 and 2010, respectively. These FHLB advances are secured by pledges of certain eligible
collateral, including but not limited to U.S. government and agency mortgage-backed securities and a blanket
assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real
estate loans. Interest expense recorded on FHLB advances totaled $86.6 million, $91.5 million, and $93.7 million
for the years ended December 31, 2011, 2010 and 2009, respectively.
The long-term FHLB advances at December 31, 2011 are scheduled for repayment as follows:
Year
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
28,319
$
26,102
102
175,102
182,101
1,624,964
Total long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . .
$2,036,690
The majority of the long-term advances are callable by FHLB for redemption prior to their scheduled
maturity date. Advances with scheduled maturities beyond 2016 reported in the table above include $1.1 billion
in advances which are callable during 2012 and have interest rates ranging from 2.27 percent to 4.76 percent.
During the fourth quarter of 2011, Valley modified the terms of $435 million in FHLB advances within its
long-term borrowings. The modifications resulted in a reduction of the interest rates on these funds, an extension
of their maturity dates to 10 years from the date of modification, and a conversion of the advances to non-callable
for periods ranging from 3 to 4 years. Valley similarly modified the terms of an additional $150 million in FHLB
advances during January 2012. After the modifications, the weighted average interest rate on these borrowings
declined by 0.86 percent to 3.99 percent. There were no gains, losses, penalties or fees incurred in the
modification transactions.
The long-term borrowings for securities sold under
repurchase agreements to FHLB and other
counterparties totaled $587.5 million and $655 million at December 31, 2011 and 2010, respectively. The
weighted average interest rate of these long-term borrowings was 4.18 percent and 4.27 percent at December 31,
2011 and 2010, respectively. Interest expense on long-term securities sold under repurchase agreements
amounted to $25.0 million, $28.3 million, and $28.9 million during the years ended December 31, 2011, 2010
and 2009, respectively.
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The long-term borrowings for securities sold under agreements to repurchase at December 31, 2011 are
scheduled for repayment as follows:
Year
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$125,000
142,500
320,000
Total long-term borrowings for securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$587,500
In 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, repurchase agreements, lines of credit, FHLB
advances and for other purposes required by law approximated $1.5 billion at December 31, 2011 and 2010.
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 Bancorp (“Greater Community”), prior to Valley’s acquisition of Greater
Community on July 1, 2008 and the junior subordinated notes issued by Greater Community to GCB Capital
Trust III were assumed by Valley upon completion of the acquisition. 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
beginning in 2007, with changes in fair value recognized as charges or credits to current earnings. Net trading
gains and losses included non-cash credits of $1.3 million for the year ended December 31, 2011 and non-cash
charges of $5.8 million and a $15.8 million for the years ended December 31, 2010 and 2009, respectively, for
the change in the fair value of the junior subordinated debentures issued to VNB Capital Trust I.
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table below summarizes the outstanding junior subordinated debentures and the related trust preferred
securities issued by each trust as of December 31, 2011:
December 31, 2011
VNB Capital
Trust I
GCB Capital
Trust III
($ in thousands)
Junior Subordinated Debentures:
Carrying value (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual interest rate (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 15, 2031
November 7, 2006
Initial call date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,478
157,024
$
$
7.75%
$
$
25,120
24,743
6.96%
July 30, 2037
July 30, 2017
Trust Preferred Securities:
Face value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual distribution rate (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution dates (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
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
$377 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.
(3) All cash distributions are cumulative.
The junior subordinated debentures issued to VNB Capital Trust I and GCB Capital Trust III had total
carrying values of $161.7 million and $25.2 million, respectively, and total contractual principal balances of
$157.0 million and $24.7 million, respectively, at December 31, 2010. 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, 2010.
The trusts’ ability to pay amounts due on the trust preferred securities is solely dependent upon Valley
making payments on the related junior subordinated debentures. Valley’s obligation under
the junior
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. In January
2012, Valley redeemed $10.3 million of the principal face amount of its outstanding junior subordinated
debentures issued to VNB Capital Trust I and $10.0 million of the face value of the related trust preferred
securities included in the table above. No debentures or securities were called for redemption during the years
ended December 31, 2010 and 2009.
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, 2011 and 2010. Under the
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which was signed into law on July 21,
2010, Valley’s outstanding trust preferred securities will continue to qualify as Tier 1 capital but Valley will be
unable to issue replacement or additional trust preferred securities that would qualify as Tier 1 capital.
BENEFIT PLANS (Note 13)
Pension Plan
The Bank has a non-contributory defined benefit plan (“qualified plan”) covering most of its employees.
Effective July 1, 2011, the Bank closed the qualified plan to new employees hired on or after such date. The Plan
will continue to operate and accrue normal benefits for existing participants. In conjunction with the eligibility
change for the qualified plan, the Bank amended its 401(k) plan to increase the Bank’s matching percentage of
employee contributions for non-pension participants, within certain statutory limits.
The qualified plan 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.
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 consolidated financial statements for the
qualified and non-qualified plans at December 31, 2011 and 2010:
Change in projected benefit obligation:
Projected benefit obligation at beginning of year . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
(in thousands)
$108,146
5,951
6,147
338
16,678
(3,464)
$ 97,532
5,544
5,709
13
2,243
(2,895)
Projected benefit obligation at end of year . . . . . . . . . . . . . . . .
$133,796
$108,146
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 83,937
2,168
13,105
(3,464)
$ 74,005
7,731
5,096
(2,895)
Fair value of plan assets at end of year* . . . . . . . . . . . . . . . . . . . . . .
$ 95,746
$ 83,937
Funded status of the plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (38,050)
$ (38,050)
$120,564
$ (24,209)
$ (24,209)
$ 96,360
*
Includes accrued interest receivable of $309 thousand and $299 thousand as of December 31, 2011 and
2010, respectively.
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not
been recognized as a component of the net periodic pension expense for Valley’s qualified and non-qualified
plans are presented in the following table. Valley expects to recognize approximately $2.3 million of the net
actuarial loss and $707 thousand of prior service cost reported in the following table as of December 31, 2011 as
a component of net periodic pension expense during 2012.
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit
$ 45,487
1,982
(19,903)
$ 25,805
2,351
(11,812)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27,566
$ 16,344
2011
2010
(in thousands)
The Bank’s non-qualified plan had a projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets as follows:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,731
12,337
—
$9,851
9,583
—
2011
2010
(in thousands)
In determining discount rate assumptions, management looks to current rates on fixed-income corporate
debt securities that receive a rating of Aa3 or higher from Moody’s with durations equal to the expected benefit
payments streams required of each plan. 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, 2011 and 2010 were as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future compensation increase rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.87% 5.75%
2.75
3.25
2011
2010
The net periodic pension expense included the following components for the years ended December 31,
2011, 2010, and 2009:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
$ 5,951
6,147
(6,698)
707
1,525
(in thousands)
$ 5,544
5,709
(6,214)
643
1,098
$ 5,216
5,059
(6,040)
640
858
Total net periodic pension expense . . . . . . . . . . . . . . .
$ 7,632
$ 6,780
$ 5,733
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other changes in plan assets and benefit obligations recognized in other comprehensive income or loss for the
years ended December 31, 2011 and 2010 were as follows:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
(in thousands)
$21,208
338
(707)
(1,525)
$
726
13
(643)
(1,098)
Total recognized in other comprehensive income or loss . . . . . . . . . . . .
$19,314
$(1,002)
Total recognized in net periodic pension expense and other comprehensive
income or loss (before tax) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,946
$ 5,778
The benefit payments, which reflect expected future service, as appropriate, expected to be paid in future years are
presented in the following table:
Year
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 to 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(in thousands)
$ 5,208
5,455
6,088
6,420
6,742
39,836
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, 2011, 2010, and 2009 were as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.75% 6.00% 5.75%
8.00
8.00
3.50
3.25
8.00
3.50
2011
2010
2009
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 expected return was reduced to 7.5 percent on January 1, 2012 due to the prolonged economic recovery
and expectations regarding the level of future market rates.
Valley’s qualified plan weighted-average asset allocations at December 31, 2011 and 2010, by asset category were
as follows:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust preferred securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
49% 49%
17
12
11
7
2
2
17
14
11
3
4
2
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100%
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 earn returns 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 3 percent cumulative annual real return, after adjustment by the
CPI over rolling five-year periods with a relative objective of earning returns 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 a conservative mix of various types of domestic and
foreign common equity securities, U.S. Treasury securities, high quality corporate bonds, mutual funds primarily
indexed to the performance of Fortune 500 U.S. companies, cash and U.S. Treasury based money market funds,
U.S. government agency securities, and trust preferred securities (mainly issued by VNB Capital Trust I – see
Note 12).
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 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:
December 31,
2011
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
(in thousands)
Investments:
Equity securities . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . .
Cash and money market funds . . . . . . . . . .
U.S. government agency securities . . . . . . .
Trust preferred securities . . . . . . . . . . . . . .
$46,446
16,418
11,743
10,360
6,354
2,421
1,695
Total investments . . . . . . . . . . . . . . . . . . . . . . . .
$95,437
$46,446
16,418
—
10,360
6,354
—
1,695
$81,273
$ —
—
11,743
—
—
2,421
—
$14,164
$—
—
—
—
—
—
—
$—
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements at Reporting Date Using:
December 31,
2010
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
(in thousands)
Investments:
Equity securities . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . .
Cash and money market funds . . . . . . . . .
U.S. government agency securities . . . . . .
Trust preferred securities . . . . . . . . . . . . .
$41,326
14,488
11,340
9,491
2,153
2,958
1,882
Total investments . . . . . . . . . . . . . . . . . . . . . . .
$83,638
$41,326
14,488
—
9,491
2,153
—
1,882
$69,340
$ —
—
11,340
—
—
2,958
—
$14,298
$—
—
—
—
—
—
—
$—
Equity securities, U.S. Treasury securities, cash and money market funds, and trust preferred securities are
valued at fair value in the table above utilizing exchange quoted prices in active markets for identical instruments
(Level 1 inputs). Mutual funds are measured at their respective net asset values, which represents fair values of
the securities held in the funds based on exchange quoted prices available in active markets (Level 1 inputs).
Corporate bonds and U.S. government agency securities are reported at fair value utilizing Level 2 inputs.
The prices for these investments 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 bond’s terms and conditions, among other
things.
The qualified plan held 62,752 shares of VNB Capital Trust I preferred securities at December 31, 2011 and
2010. These shares had fair values of approximately $1.6 million at December 31, 2011 and 2010. Dividends
received on Valley trust preferred shares were $122 thousand for each of the years ended December 31, 2011 and
2010.
During January 2012, Valley contributed $25.0 million to the qualified plan based upon actuarial estimates.
Valley does not expect to make any additional contributions to the qualified plan for the remainder of 2012.
Director Plans
Valley maintains a non-qualified, non-funded directors’ retirement plan. The projected benefit obligation
and discount rate used to compute the obligation were $1.9 million and 4.87 percent, respectively, at
December 31, 2011, and $1.8 million and 5.75 percent, respectively, at December 31, 2010. As of December 31,
2011 and 2010, the entire obligation was included in other liabilities and $468 thousand (net of a $252 thousand
tax benefit) and $419 thousand (net of a $226 thousand tax benefit), respectively, were recorded in accumulated
other comprehensive loss. Net periodic pension expense of $232 thousand, $228 thousand and $250 thousand
was recognized for the directors’ retirement plan in the years ended December 31, 2011, 2010 and 2009,
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
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
merge these plans into its existing non-qualified plans. Collectively, at December 31, 2011 and 2010, the
remaining obligations under these plans were $6.6 million and $7.5 million, respectively, of which $4.0 million
and $4.7 million, respectively, were funded by Valley. As of December 31, 2011 and 2010, the entire obligations
were included in other liabilities and $1.5 million (net of a $1.1 million tax benefit) and $1.6 million (net of a
$1.2 million tax benefit), respectively, were recorded in accumulated other comprehensive loss. The $1.5 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 $4.0 million, $6.6 million and $2.4
million during 2011, 2010 and 2009, respectively.
Savings and Investment 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
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 $2.0 million, $1.9
million and $1.4 million in expense for contributions to the plan for the years ended December 31, 2011, 2010,
and 2009, 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 7.1 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 $3.3 million, $4.8 million and $5.0 million for the years ended December 31, 2011, 2010 and 2009,
respectively. These expenses included $1.3 million and $599 thousand in 2010 and 2009, respectively, which was
immediately recognized and related to 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, 2011, the unrecognized
amortization expense for all stock-based compensation totaled approximately $2.0 million and will be recognized
over an average remaining vesting period of approximately 2 years.
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 a remaining
term approximating 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 and 2009 (there were no stock options granted
in 2011):
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.29 - 2.92% 1.1 - 4.0%
4.5%
24.0%
6.7
5.5%
35.0%
4.4
2010
2009
A summary of stock options as of December 31, 2011, 2010 and 2009 and changes during the years then
ended is presented below:
2011
2010
2009
Stock Options
Weighted
Average
Exercise
Price
Shares
Outstanding at beginning of year . . . . . . . . . . . . . 3,343,974
—
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . .
(486,445)
$ 18
—
—
16
Outstanding at end of year . . . . . . . . . . . . . . . . . . 2,857,529
Exercisable at year-end . . . . . . . . . . . . . . . . . . . . 2,607,442
18
19
Weighted-average fair value of options granted
Weighted
Average
Exercise
Price
$18
12
11
14
18
18
Shares
3,486,912
135,183
(24,829)
(253,292)
3,343,974
2,859,749
Weighted
Average
Exercise
Price
$17
11
11
15
18
18
Shares
3,697,018
8,352
(5,513)
(212,945)
3,486,912
2,838,014
during the year . . . . . . . . . . . . . . . . . . . . . . . . .
N/A
$
2.13
$
2.38
The total intrinsic values of options exercised during the years ended December 31, 2010 and 2009 were
immaterial. As of December 31, 2011, there was $169 thousand of total unrecognized compensation cost related
to non-vested stock options to be amortized over an average remaining vesting period of approximately one year.
Cash received from stock options exercised during the years ended December 31, 2010 and 2009 was $290
thousand and $61 thousand, respectively. Common shares were reissued from Treasury Stock for stock options
exercised during 2010 and 2009.
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about stock options outstanding at December 31, 2011:
Range of
Exercise
Prices
$10 - 15
15 - 16
16 - 18
18 - 19
19 - 21
Options Outstanding
Options Exercisable
Number
of Options
Outstanding
234,651
371,110
409,277
500,365
1,342,126
2,857,529
Weighted
Average
Remaining
Contractual
Life in Years
Weighted
Average
Exercise
Price
8.1
6.0
0.9
3.9
3.3
3.8
$13
16
17
18
20
18
Number
of Options
Exercisable
94,934
271,367
408,010
500,365
1,332,766
2,607,442
Weighted
Average
Exercise
Price
$14
16
17
18
20
19
The aggregate intrinsic value of options outstanding and exercisable was immaterial at December 31, 2011.
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
The following table sets forth the changes in restricted stock awards outstanding for the years ended
December 31, 2011, 2010 and 2009:
Restricted Stock Awards Outstanding
2011
2010
2009
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
512,050
14,158
(221,213)
(3,578)
528,915
206,687
(219,768)
(3,784)
569,727
174,641
(203,467)
(11,986)
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
301,417
512,050
528,915
The amount of compensation costs related to restricted stock awards included in salary expense amounted to
$2.9 million for the year ended December 31, 2011, and $3.9 million for each of the years ended December 31,
2010 and 2009. As of December 31, 2011, there was $1.6 million of total unrecognized compensation cost
related to non-vested restricted shares to be amortized over the weighted average remaining vesting period of
approximately 1.6 years.
The Director Restricted Stock Plan provides the non-employee members of the Board of Directors with the
opportunity to forego some of or their entire annual cash retainer and meeting fees in exchange for shares of
Valley restricted stock.
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the changes in director’s restricted stock awards outstanding for the years
ended December 31, 2011, 2010 and 2009:
Restricted Stock Awards Outstanding
2011
2010
2009
Outstanding at beginning of year
. . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99,662
23,435
(21,225)
(402)
113,754
17,516
(31,608)
—
99,106
22,578
(7,593)
(337)
Outstanding at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
101,470
99,662
113,754
INCOME TAXES (Note 14)
Income tax expense for the years ended December 31, 2011, 2010, and 2009 consisted of the following:
2011
2010
2009
(in thousands)
Current expense:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52,207
26,610
$24,195
11,400
$ 49,790
12,592
Deferred expense (benefit):
Federal and State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,285)
20,176
(10,898)
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,532
$55,771
$ 51,484
78,817
35,595
62,382
The tax effects of temporary differences that gave rise to the significant portions of the deferred tax assets
and liabilities as of December 31, 2011 and 2010 are as follows:
2011
2010
(in thousands)
Deferred tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities, including other-than-temporary
impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State net operating loss carryforwards . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 54,880
1,666
2,771
9,102
$ 51,118
5,009
8,080
6,535
35,569
63,806
21,669
3,875
59,267
18,413
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
189,463
152,297
Deferred tax liabilities:
Purchase accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . .
8,727
16,778
25,505
20,636
26,406
47,042
Net deferred tax asset (included in other assets) . . . . . . . . . . . . . . . .
$163,958
$105,255
Valley’s state net operating loss carryforwards totaled approximately $1.2 billion at December 31, 2011 and
expire during the period from 2012 through 2031.
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2011, 2010, and 2009 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
$ 69,015
(in thousands)
$65,429
$58,641
(3,736)
(2,583)
12,727
(12,760)
869
(3,451)
(2,158)
629
(5,071)
393
(3,257)
(1,995)
(4)
(2,632)
731
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 63,532
$55,771
$51,484
A reconciliation of Valley’s gross unrecognized tax benefits for 2011, 2010, and 2009 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 . . . . . . . .
$21,142
—
13,366
(1,508)
(in thousands)
$21,965
—
732
(1,555)
$21,261
484
762
(542)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,000
$21,142
$21,965
2011
2010
2009
Valley recorded an incremental state tax provision (expense) of $8.5 million in 2011 to increase its liability
for uncertain tax positions due to a change in state tax law. The total amount of net unrecognized tax benefits at
December 31, 2011 that, if recognized, would affect the tax provision and the effective income tax rate was $23.6
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 $4.9 million and $1.6 million of interest associated with Valley’s
uncertain tax positions at December 31, 2011 and 2010, 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
2007. 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.
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 2058. 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
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Rents
$ 18,318
18,857
18,708
18,566
18,271
258,052
Sublease
Rents
(in thousands)
$ 1,350
1,327
1,160
1,085
994
4,682
Net Rents
$ 16,968
17,530
17,548
17,481
17,277
253,370
Total lease commitments . . . . . . . . . . .
$350,772
$10,598
$340,174
Net occupancy expense for years ended December 31, 2011, 2010, and 2009 included net rental expense of
approximately $19.2 million, $19.1 million, and $17.6 million, respectively, net of rental income of $1.8 million,
$2.1 million and $2.3 million, respectively, for leased bank facilities.
Financial Instruments With Off-balance Sheet Risk
In the ordinary course of business in 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 policies in making commitments, as it does for on-balance sheet lending facilities.
The following table provides a summary of
financial
instruments with off-balance sheet
risk at
December 31, 2011 and 2010:
2011
2010
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,778,837
570,247
237,921
237,279
275,116
64,144
11,076
85,000
$1,771,586
566,301
189,801
221,960
264,529
71,188
11,882
127,950
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Standby letters of credit represent the guarantee by the Bank of the obligations or performance of the bank
customer in the event of the default of payment of nonperformance to a third party beneficiary.
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 and liquidity risks, 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 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.
At December 31, 2011, Valley had the following cash flow hedge derivatives:
•
Four forward starting interest rate swaps with a total notional amount of $300 million to hedge the
changes in cash flows associated with certain prime-rate-indexed deposits, consisting of consumer and
commercial money market deposit accounts. Starting in October 2011 and expiring in October 2016,
two of the four swaps totaling $200 million require Valley to pay fixed-rate amounts at approximately
4.73 percent, in exchange for the receipt of variable-rate payments at the prime rate. The other two
swaps totaling $100 million will require the payment by Valley of fixed-rate amounts at approximately
5.11 percent in exchange for the receipt of variable-rate payments at the prime rate starting in July
2012 and expiring in July 2017.
• Two interest rate caps with a total notional amount of $100 million, strike rates of 2.50 percent and
2.75 percent, and a maturity date of May 1, 2013 used to hedge the variability in cash flows associated
with customer repurchase agreements and money market deposit accounts that have variable interest
rates based on the federal funds rate.
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
• Two interest rate caps with a total notional amount of $100 million, strike rates of 6.00 percent and
6.25 percent, and a maturity date of July 15, 2015 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 Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of
certain of its fixed rate assets or liabilities 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.
At December 31, 2011, Valley had the following fair value hedge derivatives:
• One interest rate swap with a notional amount of approximately $8.9 million used to hedge the change
in the fair value of a commercial loan.
• One interest rate swap with a notional amount of $51 million, maturing in March 2014, used to hedge
the change in the fair value of certain fixed-rate brokered certificates of deposit entered into during
2011.
For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well
as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. Valley includes
the gain or loss on the hedged items in the same income statement line item as the loss or gain on the related
derivatives.
Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to
interest rate movements or to provide service to customers but do not meet the requirements for hedge
accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.
Under a program implemented during the first quarter of 2011, Valley executes interest rate swaps with
commercial banking customers to facilitate their respective risk management strategies. These interest rate swaps
with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that
Valley minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated
with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the
customer swaps and the offsetting swaps are recognized directly in earnings. As of December 31, 2011, Valley
had four interest rate swaps with an aggregate notional amount of $66.1 million related to this program. During
the years ended December 31, 2010 and 2009, Valley had no derivatives that were not designated in hedging
relationships.
153
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 Line
Item
Asset Derivatives:
Derivatives designated as hedging instruments:
Cash flow hedge interest rate caps and swaps . . . . . . . . . . . . . . .
Fair value hedge interest rate swaps . . . . . . . . . . . . . . . . . . . . . . .
Other Assets
Other Assets
Total derivatives designated as hedging instruments . . . . . . . . . . . . . .
Derivatives not designated as hedging instruments:
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets
Total derivatives not designated as hedging instruments . . . . . . . . . . .
Liability Derivatives:
Derivatives designated as hedging instruments:
Cash flow hedge interest rate caps and swaps . . . . . . . . . . . . . . . Other Liabilities
Fair value hedge interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities
Total derivatives designated as hedging instruments . . . . . . . . . . . . . .
Derivatives not designated as hedging instruments:
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities
Total derivatives not designated as hedging instruments . . . . . . . . . . .
Fair Value at
December 31,
2011
2010
(in thousands)
$
294
852
$ 1,146
$8,414
—
$8,414
$ 4,065
$ 4,065
$ —
$ —
$15,649
2,140
$17,789
$ —
1,379
$1,379
$ 4,065
$ 4,065
$ —
$ —
Gains (losses) included in the consolidated statements of income and in other comprehensive (loss) income,
on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows:
Interest rate caps on short-term borrowings and deposit accounts:
Amount of loss reclassified from accumulated other
comprehensive income or loss to interest on short-term
borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of (loss) gain recognized in other comprehensive (loss)
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
(in thousands)
$ (3,067)
$(1,967)
$ (460)
(24,393)
1,494
3,475
Valley recognized net losses of $23 thousand and $205 thousand in other expense for hedge ineffectiveness
on the cash flow hedge interest rate caps for the years ended December 31, 2011 and 2010, respectively. The
accumulated net after-tax losses related to effective cash flow hedges included in accumulated other
comprehensive loss was $13.1 million and $708 thousand at December 31, 2011 and 2010, 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 2012, Valley estimates that $6.6 million will be reclassified as an increase to interest expense.
154
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 were as follows:
Derivative - interest rate swaps:
Interest income—interest and fees on loans . . . . . . . . . . . . . . . . . . . . .
Interest expense—interest on time deposits . . . . . . . . . . . . . . . . . . . . .
$(761)
852
$(361)
—
$ 991
—
Hedged item—loans and deposits:
Interest income—interest and fees on loans . . . . . . . . . . . . . . . . . . . . .
Interest expense—interest on time deposits . . . . . . . . . . . . . . . . . . . . .
$ 761
(884)
$ 361
—
$(991)
—
2011
2010
2009
(in thousands)
Valley recognized a net loss of $32 thousand in non-interest expense for the year ended December 31, 2011
related to hedge ineffectiveness on the fair value hedge interest rate swaps. Valley also recognized a net
reduction to interest expense of $472 thousand for the year ended December 31, 2011 related to Valley’s fair
value hedges on brokered time deposits, which includes net settlements on the derivatives.
Gains included in the consolidated statements of income related to derivative instruments not designated as
hedging instruments for the year ended December 31, 2010 were as follows:
Non-designated hedge interest rate derivatives
Trading gains, net
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . .
$1,984
369
2010
(in thousands)
There were no gains or losses included in the consolidated statements of income related to derivative
instruments not designated as hedging instruments for the years ended December 31, 2011 and 2009.
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 providing that 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 several 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, from which it receives a
credit rating. If Valley’s credit rating is reduced below investment grade or such rating is withdrawn or
suspended, then the counterparty could terminate the derivative positions, and Valley would be required to settle
its obligations under the agreements. As of December 31, 2011, Valley was in compliance with the provisions of
its derivative counterparty agreements.
As of December 31, 2011, 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 $21.0 million.
Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain
counterparties. No collateral has been assigned or posted by Valley’s counterparties under the agreements at
December 31, 2011. At December 31, 2011, Valley had $18.3 million in collateral posted with its counterparties.
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 financial condition, results of operations, and liquidity of Valley should not be
materially affected by the outcome of such legal proceedings and claims.
REGULATORY AND CAPITAL REQUIREMENTS (Note 16)
Valley’s primary source of cash is dividends from the Bank. Valley National Bank, a national banking
association, is subject to certain restrictions on the amount of dividends that it may declare without prior
regulatory approval. In addition, the dividends declared cannot be in excess of the amount, which would cause
the subsidiary bank to fall below the minimum required for capital adequacy purposes.
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
by regulators that, if undertaken, could have a direct significant impact on Valley’s consolidated financial
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
to
calculated under regulatory accounting practices. Capital amounts and classification are also subject
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, 2011, Valley exceeded all
capital adequacy requirements to which it was subject.
At December 31, 2011, 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 Tier 1 capital position included $176.3 million of its outstanding trust preferred securities issued by
capital trusts as of December 31, 2011 and 2010. Valley does not consolidate its capital trusts based on U.S.
GAAP. The junior subordinated debentures issued to the capital trusts were included in Valley’s liabilities. See
Note 12 for additional information on the debentures and the trust preferred securities.
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Valley’s and Valley National Bank’s actual capital positions and ratios as of December 31, 2011 and 2010
are presented in the following table:
Actual
Minimum Capital
Requirements
To Be Well
Capitalized Under
Prompt Corrective
Action Provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
($ in thousands)
As of December 31, 2011
Total Risk-based Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . .
$1,312,945
1,255,714
12.8% $823,705
819,274
12.3
8.0% $
8.0
N/A N/A%
1,024,092
10.0
Tier 1 Risk-based Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . .
1,124,833
1,067,602
10.9
10.4
411,853
409,637
Tier 1 Leverage Capital
Valley . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley National Bank . . . . . . . . . . . . . . .
1,124,833
1,067,602
8.1
7.7
557,210
555,785
4.0
4.0
4.0
4.0
N/A N/A
6.0
614,455
N/A N/A
5.0
694,731
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
COMMON AND PREFERRED STOCK (Note 17)
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 2011, 2010 and 2009, 657 thousand, 649 thousand,
and 409 thousand of common shares, respectively, were reissued from treasury stock or issued from authorized
common shares under the DRIP for net proceeds totaling $8.3 million, $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 6.3 million shares of newly issued common stock and net
proceeds of $63.7 million through an additional registered direct offering of 5.5 million shares of newly issued
common stock to several institutional investors. Valley did not have any common equity offerings during the
years ended December 31, 2011 and 2010.
Common Stock Warrants. In July 2008, Valley issued approximately 918 thousand warrants as part of the
is entitled to purchase
purchase price for the acquisition of Greater Community Bancorp. Each warrant
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
approximately 1.1576 Valley common shares at $16.42 per share and is exercisable through the expiration date
of June 30, 2015. The Valley warrants are considered equity instruments and are publicly traded and listed on the
NASDAQ Capital Market under the ticker symbol “VLYWW”. All of the warrants remained outstanding at
December 31, 2011.
In connection with the issuance of senior preferred shares in 2008, Valley issued to the U.S. Treasury a ten
year warrant to purchase up to approximately 2.5 million Valley common shares. During 2010, the U.S. Treasury
sold the warrants through a public auction, in which Valley did not receive any of the proceeds. The warrants are
currently traded on the New York Stock Exchange under the ticker symbol “VLY WS”. Each warrant entitles the
holder to purchase approximately 1.05 Valley common shares at $16.92 per share and is exercisable through the
expiration date of November 14, 2018.
Repurchase Plan
In 2007, Valley’s Board of Directors approved the repurchase of up to 4.5 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
the repurchase plan, Valley made no purchases of its outstanding shares during the years ended December 31,
2011, 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 years ended December 31, 2011 and 2010,
Valley purchased approximately 49 thousand and 31 thousand shares, respectively, of its outstanding common
stock at an average price of $12.13 and $12.60, respectively, for such purpose. Valley made no purchases of its
outstanding shares from its employees in 2009.
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
aggregate purchase price of $300 million (excluding accrued and unpaid dividends paid at
the date of
redemption). As a result, Valley is no longer a participant in the TARP program.
Valley’s senior preferred shares, while outstanding, and the related warrants 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.
158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
OTHER COMPREHENSIVE (LOSS) INCOME (Note 18)
The following table presents the tax effects allocated to each component of other comprehensive (loss) income
for the years ended December 31, 2011, 2010, and 2009. Components of other comprehensive (loss) income include
changes in net unrealized gains (losses) on securities available for sale (including the non-credit portion of other-
than-temporary impairment charges relating to certain securities during the period); unrealized gains (losses) on
derivatives used in cash flow hedging relationships; and the unfunded portion of various employee, officer and
director pension plans.
2011
Tax
Effect
Before
Tax
After
Tax
Before
Tax
2010
Tax
Effect
After
Tax
Before
Tax
2009
Tax
Effect
After
Tax
(in thousands)
Unrealized gains and losses on AFS securities
Net gains arising during the period . . . . . . . . . . $ 2,438 $ (925)$ 1,513 $ 20,376 $(7,739)$12,637 $70,869 $(23,518)$47,351
Less reclassification adjustment for gains
included in net income . . . . . . . . . . . . . . . . .
(32,068) 12,394 (19,674) (11,598) 4,268
(7,330)
(8,005)
3,002
(5,003)
Net change . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,630) 11,469 (18,161)
8,778 (3,471)
5,307 62,864 (20,516) 42,348
Non-credit impairment losses on securities
available for sale and held to maturity
Net change in non-credit impairment losses on
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less reclassification adjustment for credit
(42,531) 15,875 (26,656)
5,301 (1,973)
3,328
(4,111)
1,337
(2,774)
impairment losses included in net income . .
18,570
(6,937) 11,633
4,381 (1,640)
2,741
1,530
Net change . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,961)
8,938 (15,023)
9,682 (3,613)
6,069
(2,581)
2,237
3,574
3,767
993
Unrealized gains and losses on derivatives (cash
flow hedges)
Net (losses) gains arising during the period . . .
Less reclassification adjustment for losses
included in net income . . . . . . . . . . . . . . . . .
Net change . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,326)
8,949 (12,377)
3,460 (1,452)
2,008
Pension benefit adjustment . . . . . . . . . . . . . . . . . .
(19,219)
8,058 (11,161)
1,225
(512)
713
3,067
(1,287)
1,780
1,967
(825)
1,142
460
3,935
7,052
(193)
267
(1,651)
2,284
(2,957)
4,095
(24,393) 10,236 (14,157)
1,493
(627)
866
3,475
(1,458)
2,017
Total other comprehensive (loss) income . . . . . $(94,136)$37,414 $(56,722)$ 23,145 $(9,048)$14,097 $71,270 $(21,550)$49,720
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the after-tax changes in the balances of each component of accumulated other
comprehensive loss for the years ended December 31, 2011, 2010, and 2009:
Components of Accumulated Other Comprehensive Loss Total
Unrealized Gains
and Losses on
AFS Securities
Non-credit
Impairment
Losses on
Securities
Unrealized Gains
and Losses on
Derivatives
Pension
Benefit
Adjustment
Accumulated
Other
Comprehensive
Loss
$(32,725)
$ —
(in thousands)
$ (5,000)
$(23,206)
$(60,931)
—
(32,725)
42,348
9,623
5,307
14,930
(18,161)
(8,605)
(8,605)
993
(7,612)
6,069
(1,543)
(15,023)
—
(5,000)
2,284
(2,716)
2,008
(708)
(12,377)
—
(23,206)
4,095
(19,111)
713
(18,398)
(11,161)
(8,605)
(69,536)
49,720
(19,816)
14,097
(5,719)
(56,722)
Balance—December 31, 2008 . . . . . .
Cumulative effect of adoption of
a new accounting principle
(ASC Topic 320) . . . . . . . . . .
Balance—January 1, 2009 . . . . . . . . .
Net change . . . . . . . . . . . . . . . . .
Balance—December 31, 2009 . . . . . .
Net change . . . . . . . . . . . . . . . . .
Balance—December 31, 2010 . . . . . .
Net change . . . . . . . . . . . . . . . . .
Balance—December 31, 2011 . . . . . .
$ (3,231)
$(16,566)
$(13,085)
$(29,559)
$(62,441)
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Note 19)
March 31
June 30
Sept 30
Dec 31
Quarters Ended 2011
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . .
Non-interest income:
$
167,819
50,927
116,892
24,162
$
(in thousands, except for share data)
171,639
$
49,704
121,935
7,783
167,794
50,124
117,670
6,026
$
166,572
48,258
118,314
15,364
Gains on securities transactions, net . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . . .
Average common shares outstanding:
2,679
16,492
863
12,034
(825)
3,382
39,551
83,829
53,688
17,103
36,585
—
(1,048)
18,091
83,080
62,099
25,205
36,894
—
776
18,564
85,302
49,053
13,696
35,357
$
$
0.22
0.22
0.17
$
0.22
0.22
0.17
$
0.21
0.21
0.17
(19,143)
(839)
21,720
84,377
32,345
7,528
24,817
0.15
0.15
0.17
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169,671,128
169,678,846
169,843,354
169,852,912
170,007,399
170,007,983
170,185,439
170,185,880
160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . . .
Average common shares outstanding:
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
$
$
0.16
0.16
0.17
$
0.20
0.20
0.17
$
0.19
0.19
0.17
—
(2,078)
30,957
80,408
53,480
15,322
38,158
0.23
0.23
0.17
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168,831,733
168,834,400
169,009,302
169,013,634
169,177,275
169,178,469
169,426,058
169,428,992
PARENT COMPANY INFORMATION (Note 20)
Condensed Statements of Financial Condition
December 31,
2011
2010
(in thousands)
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
42,593
135
5,938
1,384,925
36,990
13,335
$
32,415
48,134
6,207
1,413,158
—
13,900
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,483,916
$1,513,814
Liabilities and Shareholders’ Equity
Dividends payable to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures issued to capital trusts (includes fair value of
$160,478 at December 31, 2011 and $161,734 at December 31, 2010 for VNB
Capital Trust I)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
29,355
$
29,063
185,598
2,715
1,266,248
186,922
2,624
1,295,205
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,483,916
$1,513,814
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Income
Years Ended December 31,
2011
2010
2009
(in thousands)
Income
Dividends from subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on securities transactions, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . . . . . .
Other interest and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$115,000
180
—
1,256
—
223
$ 65,000
332
106
(5,841)
—
830
$120,000
2,069
—
(15,828)
(434)
437
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116,659
16,481
60,427
16,388
106,244
16,267
Income before income tax benefit and equity in undistributed earnings of
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit
100,178
(5,202)
Income before equity in undistributed earnings of subsidiary . . . . . . . . . . . . . .
Equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105,380
28,273
133,653
—
44,039
(7,365)
51,404
79,766
131,170
—
89,977
(10,541)
100,518
15,543
116,061
19,524
Net Income Available to Common Stockholders . . . . . . . . . . . . . . . . . . . . . .
$133,653
$131,170
$ 96,537
162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Cash Flows
Years Ended December 31,
2011
2010
2009
(in thousands)
Cash flows from operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133,653 $ 131,170 $ 116,061
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of premiums and accretion of discounts on securities . . .
Losses on securities transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impairment losses on securities recognized in earnings . . . . . . . . . . . .
Net change in:
(28,273)
30
3,156
(56)
—
—
(79,766)
30
4,830
(51)
(106)
—
(15,543)
30
5,049
(54)
—
434
Fair value of borrowings carried at fair value . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
(1,256)
535
132
5,841
(538)
(3,363)
15,828
(3,052)
(954)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . .
107,921
58,047
117,799
Cash flows from investing activities:
Loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale:
(36,990)
—
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities, calls and principal repayments . . . . . . . . . . . . . . . . . . . . . .
—
—
Net cash (used in) provided by investing activities . . . . . . . . . . .
(36,990)
94
1,250
1,344
—
—
—
—
Cash flows from financing activities:
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to preferred shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(116,779)
8,027
— (300,000)
(12,980)
—
(109,005)
140,008
(115,190)
8,391
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
(108,752)
(106,799)
(281,977)
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
(37,821)
80,549
(47,408)
127,957
(164,178)
292,135
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,728 $ 80,549 $ 127,957
163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
BUSINESS SEGMENTS (Note 21)
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. Our reportable segments have been determined based upon Valley’s internal structure of operations
and lines of business. 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, which involves the allocation of 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 result in income and expense measurements that differ from amounts
under U.S. GAAP.
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 new loans as a result of the availability of credit within the automobile
marketplace and consumer demand for purchasing new or used automobiles. 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 business segment that is most sensitive to movements
in market interest rates.
The investment management segment generates a large portion of our income through investments in
various types of securities. These securities are 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), as part of our asset/liability management strategies. The fixed rate
investments are one of Valley’s assets that are 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.
The amounts disclosed as “corporate and other adjustments” represent income and expense items not
directly attributable to a specific segment, including net 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 certain subordinated notes, as well as income and
expense from derivative financial instruments.
164
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, 2011, 2010 and 2009:
Year Ended December 31, 2011
Commercial
Lending
Consumer
Lending
Investment
Management
Corporate
and Other
Adjustments
Total
Average interest earning assets . . . . . . . . . .
$3,394,161
$6,214,319
($ in thousands)
$3,205,756
$
— $12,814,236
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 . . . . . . . . . . . . . . .
171,939
47,832
124,107
6,806
117,301
45,830
56,884
55,059
375,873
87,574
288,299
46,529
241,770
16,965
48,829
99,851
132,530
45,176
87,354
—
(6,518)
18,431
(24,949)
—
87,354
7,381
1,016
51,644
(24,949)
42,121
229,859
(206,554)
673,824
199,013
474,811
53,335
421,476
112,297
336,588
—
Income (loss) before income taxes . . . . . . .
$
51,188
$ 110,055
$
42,075
$ (6,133) $
197,185
Return on average interest earning assets
(pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . .
1.51%
1.77%
1.31%
N/A
1.54%
Year Ended December 31, 2010
Consumer
Lending
Commercial
Lending
Investment
Management
Corporate
and Other
Adjustments
Total
Average interest earning assets . . . . . . . . . .
$3,321,124
$6,153,870
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Net interest income (loss)
Provision for credit losses . . . . . . . . . . . . . .
Net interest income (loss) after provision
for credit losses . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . .
Internal expense transfer . . . . . . . . . . . . . . .
180,432
51,240
129,192
14,598
114,594
52,545
49,758
53,050
355,565
94,944
260,621
34,858
225,763
7,927
42,131
97,704
($ in thousands)
$3,204,762
$
— $12,679,756
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%
165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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%
166
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, 2011 and 2010, and the related consolidated
statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2011. 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, 2011 and 2010, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2011, in conformity with U.S. generally accepted accounting principles.
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, 2011, 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, 2012 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Short Hills, New Jersey
February 28, 2012
167
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, 2011 (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, 2011 that have materially affected, or are reasonably likely to materially affect, Valley’s internal
control over financial reporting.
168
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, 2011 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, 2011 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, 2011
consolidated financial statements included in this Annual Report on Form 10-K, has issued an audit report
expressing an opinion on the effectiveness of Valley’s internal control over financial reporting as of
December 31, 2011. The report is included in this item under the heading “Report of Independent Registered
Public Accounting Firm.”
169
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, 2011, 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, 2011, 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, 2011 and 2010, and the related consolidated statements of income, comprehensive income,
changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2011, and our report dated February 28, 2012 expressed an unqualified opinion on those
consolidated financial statements.
Short Hills, New Jersey
February 28, 2012
170
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
2012 Proxy Statement is incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the caption “Executive Compensation” in the 2012 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 2012 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 2012 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 2012
Proxy Statement is incorporated herein by reference.
171
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 Comprehensive 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.
C. Agreement and Plan of Merger, dated April 28, 2011, between Valley National Bancorp and State
Bancorp, Inc., incorporated herein by reference to the Registrant’s Form 8-K Current Report filed
on May 4, 2011.
(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 20, 2011.
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.
172
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.
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.
I. Warrant to purchase Common Stock of Valley National Bancorp, incorporated herein by reference
to Exhibit 4.1 of the Company’s Form 8-K filed on December 28, 2011.
(10) Material Contracts:
A. Amended and Restated Change in Control Agreements among Valley National Bank, Valley and
Gerald H. Lipkin, Peter Crocitto, and Alan D. Eskow, dated June 22, 2011, incorporated herein by
reference to the Registrant’s Form 10-Q Quarterly Report filed on August 9, 2011.+
B. Form of Amended and Restated Change in Control Agreements among Valley National Bank,
Valley and each of Albert L. Engel and Robert M. Meyer, dated June 22, 2011, is incorporated
herein by reference to the Registrant’s Form 10-Q Quarterly Report filed on August 9, 2011.+
C. Form of Amended and Restated Change in Control Agreements among Valley National Bank,
Valley and each of Robert E. Farrell, Bernadette Mueller, and Robert J. Mulligan, dated June 22,
2011, is incorporated herein by reference to the Registrant’s Form 10-Q Quarterly Report filed on
August 9, 2011.+
D. Form of Amended and Restated Change in Control Agreements among Valley National Bank,
Valley and each of Elizabeth E. De Laney, Kermit R. Dyke, Eric W. Gould, Russell C. Murawski,
John H. Noonan, and Ira D. Robbins, dated June 22, 2011, is incorporated herein by reference to
the Registrant’s Form 10-Q Quarterly Report filed on August 9, 2011.+
E.
F.
Form of Amended and Restated Change in Control Agreements among Valley National Bank,
Valley and each of Stephen P. Davey, and Robert A. Ewing, dated June 22, 2011, is incorporated
herein by reference to the Registrant’s Form 10-Q Quarterly Report filed on August 9, 2011.+
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.+
G. 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
is incorporated herein by reference to the Registrant’s Form 10-K Annual Report for the year
ended December 31, 2010.+
H. 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.+
I.
The Valley National Bancorp, Benefit Equalization Plan, as Amended and Restated, dated July 1,
2011, is incorporated herein by reference to the Registrant’s Form 10-Q Quarterly Report filed on
August 9, 2011.+
173
J.
Form of Participant Agreement for the Benefit Equalization Plan.*+
K. Directors Deferred Compensation Plan, dated June 1, 2004, as amended, is incorporated herein by
reference to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2009.+
L. The Valley National Bancorp 2004 Director Restricted Stock Plan, as amended, is 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 is incorporated by reference to the Registrant’s Form 10-Q
Quarterly Report filed on May 11, 2009.+
N. Fiscal and Paying Agency Agreement between Valley National Bank and Wilmington Trust
Company, as fiscal and paying agent, dated July 13, 2005, is incorporated herein by reference to
the Registrant’s Form 10-K Annual Report for the year ended December 31, 2010.
O. Amended and Restated Declaration of Trust of VNB Capital Trust I, dated as of November 7,
2001.*
P.
Indenture among VNB Capital Trust I, The Bank of New York as Debenture Trustee, and Valley,
dated November 7, 2001.*
Q. Preferred Securities Guarantee Agreement among VNB Capital Trust I, The Bank of New York,
as Guarantee Trustee, and Valley, dated November 7, 2001.*
R. 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.+
S. 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.+
T.
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.+
U. 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.+
V. 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.+
W. 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.+
X. 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.*
174
(21) List of Subsidiaries:
Name
(a) Subsidiaries of Valley:
Valley National Bank
VNB Capital Trust I
GCB Capital Trust III
State Capital Trust I
State Capital Trust II
(b) Subsidiaries of Valley National Bank:
Hallmark Capital Management, Inc.
Highland Capital Corp.
Masters Coverage Corp.
New Century Asset Management, Inc.
Valley Commercial Capital, LLC
Valley National Title Services, Inc.
Valley Securities Holdings, LLC
VNB Loan Services, Inc.
VNB New York Corp.
(c) Subsidiaries of Masters Coverage Corp.:
RISC One, Inc.
Life Line Planning, Inc.
(d) Subsidiaries of Valley Securities Holdings, LLC:
Shrewsbury Capital Corporation
Valley Investments, Inc.
VNB Realty, Inc.
(e) Subsidiary of Shrewsbury Capital Corporation:
GCB Realty, LLC
(f) Subsidiary of VNB Realty, Inc.:
VNB Capital Corp.
(23.1) Consent of KPMG LLP.*
Jurisdiction of
Incorporation
United States
Delaware
Delaware
New York
New York
New Jersey
New Jersey
New York
New Jersey
New Jersey
New Jersey
New Jersey
New York
New York
New York
New York
New Jersey
New Jersey
New Jersey
New Jersey
New York
(24) Power of Attorney of Certain Directors and Officers of Valley.*
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%
175
(31.1) Certification of Gerald H. Lipkin, Chairman of the Board, President and Chief Executive Officer of
the Company, pursuant to Securities Exchange Rule 13a-14(a).*
(31.2) Certification of Alan D. Eskow, Senior 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.
176
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, 2012
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
Chairman of the Board, President and
February 28, 2012
Gerald H. Lipkin
/S/ ALAN D. ESKOW
Alan D. Eskow
Chief Executive Officer and
Director
Director, Senior Executive Vice
February 28, 2012
President, Chief Financial Officer
(Principal Financial Officer), and
Corporate Secretary
/S/ MITCHELL L. CRANDELL
Mitchell L. Crandell
First Senior Vice President and Chief
Accounting Officer (Principal
Accounting Officer)
February 28, 2012
ANDREW B. ABRAMSON*
Andrew B. Abramson
PAMELA R. BRONANDER*
Pamela R. Bronander
PETER CROCITTO*
Peter Crocitto
ERIC P. EDELSTEIN*
Eric P. Edelstein
MARY J. STEELE GUILFOILE*
Mary J. Steele Guilfoile
Director
Director
Director, Senior Executive Vice
President and Chief Operating
Officer
Director
Director
177
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
Signature
Title
Date
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
February 28, 2012
GRAHAM O. JONES*
Graham O. Jones
WALTER H. JONES, III*
Walter H. Jones, III
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
JEFFREY S. WILKS*
Jeffrey S. Wilks
*
/s/ ALAN D. ESKOW
Alan D. Eskow, attorney-in fact.
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
178
Printed on Recycled Paper
for a quality environment.
Residential Mortgage and Employee Training Facility
Since 1927, Valley National Bank has been providing quality banking and fi nancial services to
retail, commercial and trust customers. We are committed to providing personalized, friendly
service when responding to our customers’ needs.
With approximately $16 billion in assets, Valley currently operates 211 branch offi ces in 147
communities throughout 16 counties in northern and central New Jersey, Manhattan, Brooklyn,
Queens and Long Island.
1455 Valley Road
Wayne, NJ 07470
973-305-3380
www.valleynationalbank.com
© 2012 Valley National Bank. Member FDIC. Equal Opportunity Lender.